Principles of Marketing

Principles of Marketing
1 Principles of Marketing Marketing: Managing Profitable Customer Relationships

Learning Objectives After studying this chapter, you should be able to: Define marketing and outline the steps in the marketing process Explain the importance of understanding customers and the marketplace, and identify the five core marketplace concepts Identify the key elements of a customer-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy Discuss customer relationship management, and identify strategies for creating value for customers and capturing value from customers in return Describe the major trends and forces that are changing the marketing landscape in this age of relationships 1-2

Chapter Concepts What Is Marketing?
Understanding the Marketplace and Customer Needs Designing a Customer-Driven Marketing Strategy Preparing an Integrated Marketing Plan and Program Building Customer Relationships Capturing Value from Customers The New Marketing Landscape So, What Is Marketing? Pulling It All Together 1-3

What Is Marketing? Marketing Defined
Marketing is the process by which companies create value for customers and build strong customer relationships to capture value from customers in return 1-4

What Is Marketing? The Marketing Process
Understand the marketplace and customer wants and needs Design a customer-driven marketing strategy Construct a marketing plan that delivers superior value Build profitable relationships and create customer satisfaction Capture value from customers to create profit and customer equity 1-5

Understanding the Marketplace and Customer Needs
Customer Needs, Wants, and Demands Needs are states of deprivation Physical—food, clothing, warmth, safety Social—belonging and affection Individual—knowledge and self-expression 1-6

Customer Needs, Wants, and Demands Wants are the form that needs take as they are shaped by culture and individual personality Demands are wants backed by buying power 1-7

Market Offerings—Products, Services, and Experiences Market offerings are some combination of products, services, information, or experiences offered to a market to satisfy a need or want 1-8

Market Offerings—Products, Services, and Experiences Marketing myopia is focusing only on existing wants and losing sight of underlying consumer needs Exchange is the act of obtaining a desired object from someone by offering something in return 1-9

Customer Value and Satisfaction Expectations Customers Value and satisfaction Marketers Set the right level of expectations Not too high or too low 1-10

Exchanges and Relationships Exchange is the act of obtaining a desired object from someone by offering something in return Relationships consist of actions to build and maintain desirable relationships 1-11

Markets are the set of actual and potential buyers of a product Marketing system consists of all of the actors (suppliers, company, competitors, intermediaries, and end users) in the system who are affected by major environmental forces Demographic Economic Physical Technological Political–legal Socio-cultural 1-12

Designing a Customer-Driven Marketing Strategy
Marketing Management Marketing management is the art and science of choosing target markets and building profitable relationships with them What customers will we serve? How can we best serve these customers? 1-13

Selecting Customers to Serve Market segmentation: Dividing the markets into segments of customers Target marketing: Which segments to go after 1-14

Selecting Customers to Serve De-marketing: Marketing to reduce demand temporarily or permanently; the aim is not to destroy demand but to reduce or shift it. 1-15

Selecting Customers to Serve Marketing management is: Customer management Demand management 1-16

Choosing a Value Proposition The value proposition is the set of benefits or values a company promises to deliver to customers to satisfy their needs 1-17

Marketing Management Orientations Production concept Product concept Selling concept Marketing concept Societal concept 1-18

Marketing Management Orientations Production concept is the idea that consumers will favor products that are available or highly affordable 1-19

Marketing Management Orientations Product concept is the idea that consumers will favor products that offer the most quality, performance, and features for which the organization should therefore devote its energy to making continuous improvements 1-20

Marketing Management Orientations Selling concept is the idea that consumers will not buy enough of the firm’s products unless it undertakes a large scale selling and promotion effort 1-21

Marketing Management Orientations Marketing concept is the idea that achieving organizational goals depends on knowing the needs and wants of the target markets and delivering the desired satisfactions better than competitors do 1-22

Marketing Management Orientations Societal marketing concept is the idea that a company should make good marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-term interests, and society’s long-run interests 1-23

Preparing an Integrated Marketing Plan and Program
Marketing Mix The marketing mix is the set of tools (four Ps) the firm uses to implement its marketing strategy Product Price Promotion Place 1-24

Preparing an Integrated Marketing Plan and Program
Integrated Marketing Program Integrated marketing program is a comprehensive plan that communicates and delivers the intended value to chosen customers 1-25

Building Customer Relationships
Customer Relationship Management (CRM) Customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior value and satisfaction 1-26

Customer Relationship Management (CRM) Customer perceived value is the difference between total customer value and total customer cost Customer satisfaction is the extent to which a product’s perceived performance matches a buyer’s expectations 1-27

Customer Relationship Management (CRM) Customer Relationship Levels and Tools Basic relationship Full relationships Frequency marketing programs Club marketing programs 1-28

The Changing Nature of Customer Relationships Relating with more carefully selected customers uses selective relationship management to target fewer, more profitable customers Relating for the long term uses customer relationship management to retain current customers and build profitable, long-term relationships Relating directly uses direct marketing tools (telephone, mail order, kiosks, Internet) to make direct connections with customers 1-29

Partner Relationship Management Partner relationship management refers to working closely with partners in other company departments and outside the company to jointly bring greater value to customers 1-30

Partner Relationship Management Partners inside the company is every function area interacting with customers Electronically Cross-functional teams Partners outside the company is how marketers connect with their suppliers, channel partners, and competitors by developing partnerships 1-31

Partner Relationship Management Supply chain is a channel that stretches from raw materials to components to final products to final buyers Supply management Strategic partners Strategic alliances 1-32

Capturing Value from Customers
Creating Customer Loyalty and Retention Customer lifetime value is the value of the entire stream of purchases that the customer would make over a lifetime of patronage 1-33

Growing Share of Customer Share of customer is the portion of the customer’s purchasing that a company gets in its product categories 1-34

Building Customer Equity Customer equity is the total combined customer lifetime values of all of the company’s customers 1-35

Building Customer Equity Building the right relationships with the right customers involves treating customers as assets that need to be managed and maximized Different types of customers require different relationship management strategies Build the right relationship with the right customers 1-36

The New Marketing Landscape
Major Developments Digital age Globalization Ethics and social responsibility Not-for-profit marketing 1-37

The New Digital Age Recent technology has had a major impact on the ways marketers connect with and bring value to their customers Market research Learning about and tracking customers Create new customized products Distribution Communication Video conferencing Online data services 1-38

The New Digital Age Internet—creates marketplaces and marketspaces Information Entertainment Communication 1-39

Rapid Globalization The world is smaller Think globally, act locally 1-40

The Call for More Ethics and Social Responsibility Marketers are being called upon to take greater responsibility for the social and environmental impact of their actions in a global economy 1-41

The Call for More Ethics and Social Responsibility Social marketing campaigns encourage energy conservation and concern for the environment or discourage smoking, excessive drinking, and drug use 1-42

The Growth for Not-for-Profit Marketing Colleges Hospitals Museums Zoos Orchestras Religious groups 1-43

PowerPoint created by:
Ronald Heimler Dowling College, MBA Georgetown University, BS Business Administration Adjunct Professor, LIM College, NY Adjunct Professor, Long Island University, NY Lecturer, California Polytechnic State University, Pomona, CA President, Walter Heimler, Inc.

2 Principles of Marketing Company and Marketing Strategy: Partnering to Build Customer Relationships

Learning Objectives After studying this chapter, you should be able to: Explain companywide strategic planning in its four steps Discuss how to design business portfolios and develop growth strategies Explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value Describe the elements of a customer-driven marketing strategy and mix, and the forces that influence it List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring return on marketing investment 2-2

Chapter Outline Companywide Strategic Planning: Defining Marketing’s Role Planning Marketing: Partnering to Build Customer Relationships Marketing Strategy and the Marketing Mix Managing the Marketing Effort Measuring and Managing Return on Marketing Investment 2-3

Companywide Strategic Planning: Defining Marketing’s Role
Strategic planning is the process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities 2-4

Defining a Market-Oriented Mission Mission statement: The organization’s purpose, what it wants to accomplish in the larger environment Market-oriented mission statement: Defines the business in terms of satisfying basic customer needs 2-5

Setting Company Objectives and Goals Business objectives Marketing objectives 2-6

Designing the Business Portfolio The business portfolio is the collection of businesses and products that make up the company 2-7

Analyzing the Current Business Portfolio Analyzing the current business portfolio is the process by which management evaluates the products and businesses making up the company 2-8

Steps in Analyzing the Current Business Portfolio Identify key businesses making up the company Assess the attractiveness of its various SBUs Decide how much support each SBU deserves 2-9

Steps in Analyzing the Current Business Portfolio Identify key businesses making up the company Strategic business unit (SBU) is a unit of the company that has a separate mission and objectives that can be planned separately from other company businesses Company division Product line within a division Single product or brand 2-10

Steps in Analyzing the Current Business Portfolio Assess the attractiveness of various SBUs and decide how much support each deserves 2-11

Analyzing the Current Business Portfolio The Boston Group Approach Growth share matrix is a portfolio planning method that evaluates a company’s strategic business units in terms of their market growth rate and relative share Strategic business units are classified as: Stars Cash Cows Question marks Dogs 2-12

Analyzing the Current Business Portfolio The Boston Group Approach Stars are high-growth, high-share businesses or products requiring heavy investment to finance rapid growth. They will eventually turn into cash cows. Cash cows are low-growth, high-share businesses or products that are established and successful SBUs requiring less investment to maintain market share 2-13

Analyzing the Current Business Portfolio The Boston Group Approach Question marks are low-share business units in high-growth markets requiring a lot of cash to hold their share Dogs are low-growth, low-share businesses and products that may generate enough cash to maintain themselves but do not promise to be large sources of cash 2-14

Analyzing the Current Business Portfolio Problems with Matrix Approaches Difficulty in defining SBUs and measuring market share and growth Time consuming Expensive Focus on current businesses, not future planning 2-15

Developing Strategies for Growth and Downsizing Product/market expansion grid is a tool for identifying company growth opportunities through market penetration, market development, product development, or diversification 2-16

Developing Strategies for Growth and Downsizing Product/market expansion grid strategies Market penetration Market development Product development Diversification 2-17

Developing Strategies for Growth and Downsizing Market penetration is a growth strategy increasing sales to current market segments without changing the product Market development is a growth strategy that identifies and develops new market segments for current products 2-18

Companywide Strategic Planning Defining Marketing’s Role
Developing Strategies for Growth and Downsizing Product development is a growth strategy that offers new or modified products to existing market segments Diversification is a growth strategy through starting up or acquiring businesses outside the company’s current products and markets 2-19

Companywide Strategic Planning Defining Marketing’s Role
Developing Strategies for Growth and Downsizing Downsizing is the reduction of the business portfolio by eliminating products or business units that are not profitable or that no longer fit the company’s overall strategy 2-20

Planning Marketing: Partnering to Build Customer Relationships
Partner Relationship Management Partner relationship management is the process of working closely with partners in other company departments to form an effective value chain that serves the customer, as well as partnering effectively with other companies in the marketing system to form a competitively superior value-delivery network 2-21

Partnering with Other Company Departments Value chain is a series of departments that carry out value-creating activities to design, produce, market, deliver, and support a firm’s products 2-22

Partnering with Others in the Marketing System Value delivery network is made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve performance of the entire system 2-23

Marketing Strategy and the Marketing Mix
Marketing strategy is the marketing logic by which the business unit hopes to achieve its marketing objectives 2-24

Customer-Driven Marketing Strategy Market segmentation is the division of a market into distinct groups of buyers who have distinct needs, characteristics, or behavior and who might require separate products or marketing mixes 2-25

Customer-Driven Marketing Strategy Market segment is a group of consumers who respond in a similar way to a given set of marketing efforts Target marketing is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter 2-26

Customer-Driven Marketing Strategy Market positioning is the arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of the target consumer 2-27

Developing an Integrated Marketing Mix Marketing mix is the set of controllable tactical marketing tools—product, price, place, and promotion—that the firm blends to produce the response it wants in the target market 2-28

Developing an Integrated Marketing Mix The four Ps Product Price Place Promotion 2-29

Developing an Integrated Marketing Mix The four Ps Product is the goods and services in combination that the company offers to the target market Price is the amount of money customers have to pay to obtain the product 2-30

Developing an Integrated Marketing Mix The four Ps Place is the company activities that make the product available to target customers Promotion is the activities that communicate the merits of the product and persuade target customers to buy it 2-31

Developing an Integrated Marketing Mix The 4 Ps versus The 4 Cs Product Customer solution Price Customer cost Place Convenience Promotion Communication 2-32

Managing the Marketing Effort
Managing the marketing effort requires: Analysis Planning Implementing Controlling 2-33

Marketing Analysis Analysis is the complete analysis of the company’s situation in a SWOT analysis that evaluates the company’s: Strengths Weaknesses Opportunities Threats 2-34

Marketing Analysis Strengths include internal capabilities, resources, and positive situational factors that may help to serve company customers and achieve company objectives Weaknesses include internal limitations and negative situational factors that may interfere with company performance 2-35

Marketing Analysis Opportunities are favorable factors or trends in the external environment that the company may be able to exploit to its advantage Threats are unfavorable factors or trends that may present challenges to performance 2-36

Market Planning Planning is the development of strategic and marketing plans to achieve company objectives Marketing strategy consists of the specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels 2-37

Market Planning Sections of a marketing plan include: Executive summary Current marketing situation Threats and opportunities Objective and issues Action programs Budgets Controls 2-38

Marketing Implementation Implementing is the process that turns marketing plans into marketing actions to accomplish strategic marketing objectives Successful implementation depends on how well the company blends its people, organizational structure, decision and reward system, and company culture into a cohesive action plan that supports its strategies 2-39

Marketing Department Organization Functional Geographic Product Market or customer management 2-40

Marketing Department Organization Functional organization: This is the most common form of marketing organization with different marketing functions headed by a functional specialist Sales manager Market research manager Customer service manager New product manager 2-41

Marketing Department Organization Geographic organizations: Useful for companies that sell across the country or internationally. Managers are responsible for developing strategies and plans for a specific region. Product Management: Useful for companies with different products or brands. Managers are responsible for developing strategies and plans for a specific product or band. 2-42

Marketing Department Organization Market or customer management organization: Useful for companies with one product line sold to many different markets and customers. Managers are responsible for developing strategies and plans for their specific markets or customers. 2-43

Marketing Department Organization Customer management involves a customer focus and not a product focus for managing customer profitability and customer equity 2-44

Marketing Control Controlling is measuring and evaluating results and taking corrective action as needed Operating control Strategic control 2-45

Marketing Control Operating control involves checking ongoing performance against annual plan and taking corrective action as needed Strategic control involves looking at whether the company’s basic strategies are well matched to its opportunities 2-46

Marketing Control Marketing audit is a comprehensive, systematic, independent, and periodic examination of a company’s environment, objectives, strategies, and activities to determine problem areas and opportunities 2-47

Measuring and Managing Return on Marketing Investment
Return on Marketing Investment (ROI) Return on marketing investment (ROI) is the net return from a marketing investment divided by the costs of the marketing investment. Marketing ROI provides a measurement of the profits generated by investments in marketing activities. 2-48

Measuring and Managing Return on Marketing Investment
Customer-Centered Measures Customer acquisition Customer retention Customer lifetime value 2-49

3 Principles of Marketing The Marketing Environment

Learning Objectives After studying this chapter, you should be able to: Describe the environmental forces that affect the company’s ability to serve its customers Explain how changes in the demographic and economic environments affect marketing decisions Identify the major trends in the firm’s natural and technological environments Explain the key changes in the political and cultural environments Discuss how companies can react to the marketing environment 3-2

Chapter Outline The Company’s Microenvironment
The Company’s Macroenvironemnt Responding to the Marketing Environment 3-3

The Marketing Environment
The marketing environment includes the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with customers 3-4

The Marketing Environment
Microenvironment consists of the actors close to the company that affect its ability to serve its customers, the company, suppliers, marketing intermediaries, customer markets, competitors, and publics 3-5

The Company’s Microenvironment
Marketing Environment Macroenvironment consists of the larger societal forces that affect the microenvironment Demographic Economic Natural Technological Political Cultural 3-6

Suppliers Marketing intermediaries Customers Competitors Publics 3-7

Internal environment includes: Top management Finance R&D Purchasing Operations Accounting 3-8

Suppliers Provide the resources to produce goods and services Treated as partners to provide customer value 3-9

Marketing Intermediaries Help the company to promote, sell, and distribute its products to final buyers Include: Resellers Physical distribution firms Marketing services agencies Financial intermediaries 3-10

Marketing Intermediaries Resellers are the distribution channel firms that help the company find customers or make sales to them Include: Wholesalers Retailers 3-11

Marketing Intermediaries Physical distribution firms are the distribution channel firms that help the company to stock and move goods from their points of origin to their final destination 3-12

Marketing Intermediaries Marketing service agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets 3-13

Marketing Intermediaries Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods 3-14

Customers Customer markets consist of individuals and households that buy goods and services for personal consumption Business markets buy goods and services for further processing or for use in their production process 3-15

Customers Reseller markets buy goods and services to resell at a profit Government markets buy goods and services to produce public services or transfer goods and services to others who need them International markets consist of buyers in other countries including consumers, producers, resellers, and governments 3-16

Competitors Firms must gain strategic advantage by positioning their offerings against competitors’ offerings 3-17

Publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives Financial publics Media publics Government publics Citizen-action publics Local publics General public Internal publics 3-18

Publics Financial publics influence the company’s ability to obtain funds—banks, investment houses, and stockholders Media publics carry news, features, and editorial opinion—newspapers, magazines, and radio and television stations Government publics influence product safety and truth in advertising 3-19

Publics Citizen-action publics include consumer organizations, environment groups, and minority groups Local publics include neighborhood residents and community organizations General publics influence the company’s public image Internal publics include workers, managers, volunteers, and directors 3-20

The Company’s Macroenvironment
Demographic environment Economic environment Natural environment Technological environment Political environment Cultural environment 3-21

Demographic Environment Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics Demographic environment is important because it involves people, and people make up markets Demographic trends include age, family structure, geographic population shifts, educational characteristics, and population diversity 3-22

Demographic Environment Changing Age Structure of the Population Generational marketing is important in segmenting people by lifestyle of life state instead of age 3-23

Demographic Environment Changing Age Structure of the Population Baby boomers include people born between 1946 and 1964 Most affluent Americans 3-24

Demographic Environment Changing Age Structure of the Population Generation X includes people born between 1965 and 1976 High divorce rates Concerned about the environment Respond to socially responsible companies Less materialistic Quality of life Consumer organizations, environment groups, and minority groups 3-25

Demographic Environment Changing Age Structure of the Population Generation Y includes people born between 1977 and 2000 Internet generation 3-26

Demographic Environment The Changing American Family More people are: Divorcing or separating Choosing not to marry Choosing to marrying later Marrying without intending to have children Higher divorce rates Increased number of working women Stay-at-home dads 3-27

Demographic Environment Geographic Shifts in Population Trends include: Migratory movements between and within countries Moving from rural to metropolitan areas Changes in where people work Telecommuting Home office Divorcing or separating 3-28

Demographic Environment Changes in the Workforce Trends include: More educated More white collar More professional 3-29

Demographic Environment Increasing Diversity Markets are becoming more diverse International National Trends Include: Ethnicity Gay and lesbian Disabled 3-30

Economic Environment Economic environment consists of factors that affect consumer purchasing power and spending patterns Subsistence economies consume most of their own agriculture and industrial output Industrial economies are richer markets 3-31

Economic Environment Changes in Income Value marketing involves ways to offer financially cautious buyers greater value—the right combination of quality and service at a fair price 3-32

Economic Environment Changes in Income Income distribution Upper-class consumers Middle-class consumers Working-class consumers Underclass consumers 3-33

Economic Environment Changes in Consumer Spending Patterns Ernst Engel—Engel’s Law As income rises: The percentage spent on food declines The percentage spent on housing remains constant The percentage spent on savings increases 3-34

Natural Environment Natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities Trends Shortages of raw materials Increased pollution Increased government intervention Environmentally sustainable strategies Green marketing 3-35

Technological Environment Most dramatic force in changing the marketplace with many positive and negative effects Rapid change Provides new markets and new opportunities Internet Medicine Miniaturization Weapons Credit cards Communication 3-37

Political Environment Political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society 3-38

Political Environment Legislation regulating business Public policy to guide commerce—sets of laws and regulations that limit business for the good of society at large Increasing legislation Protect companies Protect consumers Protect the interests of society 3-39

Political Environment Changing Government Agency Enforcement Federal Trade Commission Food and Drug Administration Federal Communications Commission Federal Energy Regulatory Commission Federal Aviation Administration Consumer Product Safety Commission Environmental Protection Agency 3-40

Political Environment Increased Emphasis on Ethics and Socially Responsible Actions Socially responsible behavior occurs when firms actively seek out ways to protect the long-term interests of their consumers and the environment Cause-related marketing 3-41

Cultural Environment Cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, and behaviors 3-42

Cultural Environment Persistence of Cultural Values Core beliefs and values have a high degree of persistence, are passed on from parents to children, and are reinforced by schools, churches, businesses, and government Secondary beliefs and values are more open to change 3-43

Cultural Environment Shifts in Secondary Cultural Values Major cultural values of a society are expressed in people’s view of: Themselves Others Organization Society Nature and the universe 3-44

Cultural Environment Shifts in Secondary Cultural Values People’s view of themselves Yankelovich Monitor’s consumer segments: Do-It-Yourselfers—recent movers Adventurers People’s view of others 3-45

Cultural Environment Shifts in Secondary Cultural Values People’s view of organizations People’s view of society Patriots defend it Reformers want to change it Malcontents want to leave it 3-46

Cultural Environment Shifts in Secondary Cultural Values People’s view of nature Some feel ruled by it Some feel in harmony with it Some seek to master it People’s view of the universe Renewed interest in spirituality 3-47

Responding to the Marketing Environment
Views on Responding Uncontrollable Reacting and adapting to forces in the environment Proactive Taking aggressive actions to affect forces in the environment Reactive Watching and reacting to forces in the environment 3-48

4 Principles of Marketing Managing Marketing Information

Learning Objectives After studying this chapter, you should be able to: Explain the importance of information to the company and its understanding of the marketplace Define the marketing information system and discuss its parts Outline the steps in the marketing research process Explain how companies analyze and distribute marketing information Discuss the special issues some marketing researchers face, including public policy and ethics 4-2

Chapter Outline Assessing Marketing Information Needs
Developing Marketing Information Marketing Research Analyzing Marketing Information Distributing and Using Marketing Information Other Marketing Information Considerations 4-3

Assessing Marketing Information Needs
Marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers Assess the information needs Develop needed information Analyze information Distribute information 4-4

MIS provides information to the company’s marketing and other managers and external partners such as suppliers, resellers, and marketing service agencies 4-5

Characteristics of a good MIS balances the information users would like to have against what they need and what is feasible to offer 4-6

Developing Marketing Information
Marketers can obtain information from: Internal data Marketing intelligence Marketing research 4-7

Internal Data Internal databases are electronic collections of consumer and market information obtained from data sources within the company network, including accounting, marketing, customer service, and sales departments 4-8

Advantages and Disadvantage of Internal Databases Advantages: Can be accessed more quickly Less expensive Disadvantages: Incomplete information Wrong form for decision making Timeliness of information Amount of information Need for sophisticated equipment and techniques 4-9

Marketing Intelligence Marketing intelligence is the systematic collection and analysis of publicly available information about competitors and developments in the marketplace The goal of marketing intelligence is to improve strategic decision making, assess and track competitors’ actions, and provide early warning of opportunities and threats 4-10

Marketing Research Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization 4-11

Marketing Research Steps in the marketing research process
Defining the problem and research objectives Developing the research plan Implementing the plan Interpreting and reporting the findings 4-12

Defining the Problem and Research Objectives
Marketing Research Defining the Problem and Research Objectives Types of objectives Exploratory research Descriptive research Causal research 4-13

Defining the Problem and Research Objectives
Marketing Research Defining the Problem and Research Objectives Exploratory research is the gathering of preliminary information that will help to define the problem and suggest hypotheses Descriptive research is to describe things such as market potential for a product or the demographics and attitudes of consumers who buy the product Causal research is to test hypotheses about cause-and-effect relationships 4-14

Developing the Research Plan
Marketing Research Developing the Research Plan Research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will use to gather data 4-15

Marketing Research Developing the Research Plan Research plan is a written proposal that includes: Management problem Research objectives Information needed How the results will help management decisions Budget 4-16

Marketing Research Developing the Research Plan Secondary data consists of information that already exists somewhere, having been collected for another purpose Primary data consists of information gathered for the special research plan 4-17

Marketing Research Marketing Research Advantages: Speed Cost
Provides data that a company cannot collect on its own Disadvantages: Availability Relevance Accuracy Impartial 4-18

Primary Data Collection
Marketing Research Primary Data Collection Research approaches Contact methods Sampling plan Research instruments 4-19

Marketing Research Research Approaches
Observational research involves gathering primary data by observing relevant people, actions, and situations Ethnographic research involves sending trained observers to watch and interact with consumers in their natural environment 4-20

Survey research is the most widely used method and is best for descriptive information—knowledge, attitudes, preferences, and buying behavior Flexible People can be unable or unwilling to answer Gives misleading or pleasing answers Privacy concerns 4-21

Experimental research is best for gathering causal information—cause-and-effect relationships 4-22

Marketing Research Contact Methods Mail questionnaires
Collect large amounts of information Low cost Less bias with no interviewer present Lack of flexibility Low response rate Lack of control of sample 4-23

Marketing Research Contact Methods Telephone interviewing
Collects information quickly More flexible than mail questionnaires Interviewers can explain difficult questions Higher response rates than mail questionnaires Interviewers communicate directly with respondents Higher cost than mail questionnaires Potential interviewer bias 4-24

Marketing Research Contact Methods
Mail, telephone, and personal interviewing Personal interviewing Individual interviewing Group interviewing 4-25

Marketing Research Contact Methods Personal interviewing
Individual interviewing Involves talking with people at home or the office, on the street, or in shopping malls Flexible More expensive than telephone interviews Group interviewing or focus group interviewing Involves inviting six to 10 people to talk with a trained moderator 4-26

Marketing Research Contact Methods Online marketing research
Internet surveys Online panels Online experiments Online focus groups 4-27

Marketing Research Contact Methods Online marketing research Low cost
Speed to administer Fast results Good for hard-to-reach groups Hard to control who’s in the sample Lack of interaction Privacy concerns 4-28

Marketing Research Sampling Plan
Sample is a segment of the population selected for marketing research to represent the population as a whole Who is to be surveyed? How many people should be surveyed? How should the people be chosen? 4-29

Marketing Research Sampling Plan
Probability samples: Each population member has a known chance of being included in the sample Non-probability samples: Used when probability sampling costs too much or takes too much time 4-30

Marketing Research Research Instruments Questionnaires
Mechanical devices 4-31

Marketing Research Research Instruments Questionnaires Most common
Administered in person, by phone, or online Flexible 4-32

Marketing Research Research Instruments
Closed-end questions include all possible answers, and subjects make choices among them Provide answers that are easier to interpret and tabulate Open-end questions allow respondents to answer in their own words Useful in exploratory research 4-33

Implementing the Research Plan
Marketing Research Implementing the Research Plan Collecting the information Processing the information Analyzing the information 4-34

Analyzing Marketing Information
Customer Relationship Management (CRM) CRM consists of sophisticated software and analytical tools that integrate customer information from all sources, analyze it in depth, and apply the results to build stronger customer relationships 4-35

Customer Relationship Management (CRM) Data warehouses are comprehensive companywide electronic databases of finely tuned detailed customer information Uses To understand customers better To provide higher levels of customer service To develop deeper customer relationships To identify high-value customers 4-36

Customer Relationship Management Touch points: Every contact between the customer and company Customer purchases Sales force contacts Service and support calls Web site visits Satisfaction surveys Credit and payment interactions Research studies 4-37

Distributing and Using Marketing Information
Information distribution involves entering information into databases and making it available in a time- useable manner Intranet provides information to employees and other stakeholders Extranet provides information to key customers and suppliers 4-38

Other Marketing Information Considerations
Marketing Research in Small Businesses and Nonprofit Organizations Need information about their industry, competitors, potential customers, and reactions to new offers Must track changes in customer needs and wants, reactions to new products, and changes in the competitive environment 4-39

Marketing Research in Small Businesses and Nonprofit Organizations Sources of marketing information: Observing their environment Monitoring competitor advertising Evaluating customer mix Visiting competitors Conducting informal surveys Conducting simple experiments 4-40

Marketing Research in Small Businesses and Nonprofit Organizations Sources of marketing information: Secondary data Trade associations Chambers of Commerce Government agencies Media 4-41

International Marketing Research Additional and different challenges Level of economic development Culture Customs Buying patterns Difficulty in collecting secondary data Hard-to-reach respondents 4-42

Public Policy and Ethics in Marketing Research Intrusions on consumer privacy Consumer resentment Misuse of research findings 4-43

5 Principles of Marketing Consumer Markets and Consumer Buyer Behavior

Learning Objectives After studying this chapter, you should be able to: Define the consumer market and construct a simple model of consumer buyer behavior Name the four major factors that influence consumer buyer behavior List and understand the major types of buying decision behavior and the stages in the buyer decision process Describe the adoption and diffusion process for new products 5--2

Chapter Outline Model of Consumer Behavior
Characteristics Affecting Consumer Behavior Types of Buying Decision Behavior The Buyer Decision Process The Buyer Decision Process for New Products Consumer Behavior Across International Borders 5-3

Model of Consumer Behavior
Consumer buyer behavior refers to the buying behavior of final consumers—individuals and households who buy goods and services for personal consumption Consumer market refers to all of the personal consumption of final consumers 5-4

Model of Consumer Behavior
Marketing stimuli consists of the 4 Ps Product Price Place Promotion Other stimuli include: Economic forces Technological forces Political forces Cultural forces 5-5

Characteristics Affecting Consumer Behavior
Cultural Factors Buyer’s culture Buyer’s subculture Buyer’s social class Social Factors Reference groups Family Roles and status 5-6

Personal Factors Age and life-cycle stage Occupation Economic situation Lifestyle Personality and self-concept Psychological Factors Motivation Perception Learning Beliefs and attitudes 5-7

Culture is the learned values, perceptions, wants, and behavior from family and other important institutions 5-8

Subculture are groups of people within a culture with shared value systems based on common life experiences and situations Hispanic African American Asian Mature consumers 5-9

Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors Social class is measured by a combination of occupation, income, education, wealth, and other variables 5-10

The major American social classes Upper class Middle class Working class Lower class 5-11

Social Factors Groups Membership groups have a direct influence and to which a person belongs Aspirational groups are groups to which an individual wishes to belong Reference groups are groups that form a comparison or reference in forming attitudes or behavior 5-12

Social Factors Groups Opinion leaders are people within a reference group with special skills, knowledge, personality, or other characteristics that can exert social influence on others Buzz marketing enlists opinion leaders to spread the word Social networking is a new form of buzz marketing MySpace.com Facebook.com 5-13

Social Factors Family is the most important consumer-buying organization in society Social roles and status are the groups, family, clubs, and organizations to which a person belongs that can define role and social status 5-14

Personal Factors Personal characteristics Age and life-cycle stage Occupation Economic situation Lifestyle Personality and self-concept 5-15

Personal Factors Age and life-cycle stage RBC Royal Band stages: Youth—younger than 18 Getting started—18-35 Builders—35-50 Accumulators—50-60 Preservers—over 60 5-16

Personal Factors Occupation affects the goods and services bought by consumers Economic situation includes trends in: Personal income Savings Interest rates 5-17

Personal Factors Lifestyle is a person’s pattern of living as expressed in his or her psychographics Measures a consumer’s AIOs (activities, interests, and opinions) to capture information about a person’s pattern of acting and interacting in the environment 5-18

Personal Factors SRI Consulting’s Values and Lifestyle (VALS) typology Classifies people according to how they spend money and time Primary motivations Resources 5-19

Personal Factors Primary motivations Ideals Achievement Self-expression 5-20

Personal Factors Resources High resources Innovators exhibit all primary motivations Low resources Survivors do not exhibit strong primary motivation 5-21

Personal Factors Personality and Self-Concept Personality refers to the unique psychological characteristics that lead to consistent and lasting responses to the consumer’s environment 5-22

Personal Factors Personality and Self-Concept Brand personality refers to the specific mix of human traits that may be attributed to a particular brand Sincerity Excitement Competence Sophistication Ruggedness 5-23

Personal Factors Personality and Self-Concept Self-concept refers to people’s possessions that contribute to and reflect their identities 5-24

Psychological Factors Motivation Perception Learning Beliefs and attitudes 5-25

Psychological Factors Motivation A motive is a need that is sufficiently pressing to direct the person to seek satisfaction Motivation research refers to qualitative research designed to probe consumers’ hidden, subconscious motivations 5-26

Psychological Factors Abraham Maslow’s Hierarchy of Needs People are driven by particular needs at particular times Human needs are arranged in a hierarchy from most pressing to least pressing Psychological Safety Social Esteem Self-actualization 5-27

Psychological Factors Perception is the process by which people select, organize, and interpret information to form a meaningful picture of the world from three perceptual processes Selective attention Selective distortion Selective retention 5-28

Psychological Factors Selective attention is the tendency for people to screen out most of the information to which they are exposed Selective distortion is the tendency for people to interpret information in a way that will support what they already believe Selective retention is the tendency to remember good points made about a brand they favor and to forget good points about competing brands 5-29

Psychological Factors Learning is the changes in an individual’s behavior arising from experience and occurs through interplay of: Drives Stimuli Cues Responses Reinforcement 5-30

Psychological Factors Beliefs and Attitudes Belief is a descriptive thought that a person has about something based on: Knowledge Opinion Faith 5-31

Psychological Factors Beliefs and Attitudes Attitudes describe a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea 5-32

Types of Buying Decision Behavior
Complex buying behavior Dissonance-reducing buying behavior Habitual buying behavior Variety-seeking buying behavior 5-33

Complex Buying Behavior When consumers are highly motivated in a purchase and perceive significant differences among brands Purchasers are highly motivated when: Product is expensive Product is risky Product is purchased infrequently Product is highly self-expressive 5-34

Dissonance-reducing buying behavior occurs when consumers are highly involved with an expensive, infrequent, or risky purchase, but see little difference among brands Post-purchase dissonance occurs when the consumer notices certain disadvantages of the product purchased or hears favorable things about a product not purchased 5-35

Habitual buying behavior occurs when consumers have low involvement and there is little significant brand difference Variety-seeking buying behavior occurs when consumers have low involvement and there are significant brand differences 5-36

The Buyer Decision Process
Five stages in the buyer decision process Need recognition Information search Evaluation of alternatives Purchase decision Post-purchase behavior 5-37

Need Recognition Need recognition occurs when the buyer recognizes a problem or need triggered by: Internal stimuli External stimuli 5-38

Information Search Information search is the amount of information needed in the buying process and depends on the strength of the drive, the amount of information you start with, the ease of obtaining the information, the value placed on the additional information, and the satisfaction from searching 5-39

Information Search Sources of information: Personal sources—family and friends Commercial sources—advertising, Internet Public sources—mass media, consumer organizations Experiential sources—handling, examining, using the product 5-40

Evaluation of Alternatives Evaluation of alternatives is how the consumer processes information to arrive at brand choices 5-41

Purchase Decision The purchase decision is the act by the consumer to buy the most preferred brand The purchase decision can be affected by: Attitudes of others Unexpected situational factors 5-42

Post-Purchase Decision The post-purchase decision is the satisfaction or dissatisfaction the consumer feels about the purchase Relationship between: Consumer’s expectations Product’s perceived performance 5-43

Post-Purchase Decision The larger the gap between expectation and performance, the greater the consumer’s dissatisfaction Cognitive dissonance is the discomfort caused by a post-purchase conflict 5-44

Post-Purchase Decision Customer satisfaction is a key to building profitable relationships with consumers—to keeping and growing consumers and reaping their customer lifetime value 5-45

The Buyer Decision Process for New Products
New product is a good, service, or idea that is perceived by some potential customers as new Adoption process is the mental process an individual goes through from first learning about an innovation to final regular use 5-46

Stages in the Adoption Process Awareness Interest Evaluation Trial Adoption 5-47

Stages in the Adoption Process Awareness is when the consumer becomes aware of the new product but lacks information Interest is when the consumer seeks information about the new product 5-48

Stages in the Adoption Process Evaluation is when the consumer considers whether trying the new product makes sense Trial is when the consumer tries the new product to improve his or her estimate of value 5-49

Stages in the Adoption Process Adoption is when the consumer decides to make full and regular use of the product 5-50

Individual Differences in Innovation Early adopters are opinion leaders and adopt new ideas early but cautiously Early majority are deliberate and adopt new ideas before the average person Late majority are skeptical and adopt new ideas only after the majority of people have tried it Laggards are suspicious of changes and adopt new ideas only when they become tradition 5-51

Influence of Product Characteristics on Rate of Adoption Relative advantage is the degree to which an innovation appears to be superior to existing products Compatibility is the degree to which an innovation fits the values and experiences of potential consumers 5-52

Influence of Product Characteristics on Rate of Adoption Complexity is the degree to which the innovation is difficult to understand or use Divisibility is the degree to which the innovation may be tried on a limited basis 5-53

Consumer Behavior Across International Borders
Differences can include: Values Attitudes Behaviors The question for marketers is whether to adapt or standardize the marketing 5-54

6 Principles of Marketing Business Markets and Business Buyer Behavior

Learning Objectives After studying this chapter, you should be able to: Define the business market and explain how business markets differ from consumer markets Identify the major factors that influence business buyer behavior List and define the steps in the business buying-decision process Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions 6-2

Business Buyer Behavior Institutional and Government Markets
Chapter Outline Business Markets Business Buyer Behavior Institutional and Government Markets 6-3

Business Markets Business buying process is the process where business buyers determine which products and services are needed to purchase and then find, evaluate, and choose among alternative brands 6-4

Differ from consumer markets in: Market structure and demand
Business Markets Differ from consumer markets in: Market structure and demand Nature of the buying unit Types of decisions and the decision- making process 6-5

Market Structure and Demand
Business Markets Market Structure and Demand Fewer and larger buyers Geographic concentration Derived demand Inelastic demand Fluctuating demand Buyer and seller dependency 6-6

Market Structure and Demand
Business Markets Market Structure and Demand Supplier development is the systematic development of networks of supplier-partners to ensure an appropriate and dependable supply of products and materials that they will use in making their own products or resell 6-7

Business Buyer Behavior
Marketing Stimuli Similar to consumer buying, business buying consists of the four Ps Product Price Place Promotion 6-8

Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in production of other products and services that are sold, rented, or supplied to others. Also included are retailing and wholesaling firms that acquire goods to resell or rent to others for profit. 6-9

Marketing Stimuli Additional stimuli include major economic forces Political Economic Technological Cultural Competitive 6-10

Buyer Responses to Marketing Stimuli Product or service choice Supplier choice Order quantities Delivery Service Payment terms 6-11

Buyer Responses to Marketing Stimuli Marketers must understand what happens within the organization and turn stimuli into purchase responses 6-12

Major Types of Buying Situations Straight rebuy Modified rebuy New task 6-13

Major Types of Buying Situations Straight rebuy is a routine purchase decision such as a reorder without any modification Modified rebuy is a purchase decision that requires some research where the buyer wants to modify the product specification, price, terms, or suppliers New task is a purchase decision that requires thorough research such as a new product 6-14

Major Types of Buying Situations Systems selling involves the purchase of a packaged solution from a single seller Two-step process of selling: Interlocking products System of production, inventory control, distribution, and other services to meet the buyer’s need for a smooth-running operation 6-15

Participants in the Business Buying Process Buying center is all of the individuals and units that participate in the business decision-making process Users Influencers Buyers Deciders Gatekeepers 6-16

Participants in the Business Buying Process Users are those that will use the product or service Influencers help define specifications and provide information for evaluating alternatives Buyers have formal authority to select the supplier and arrange terms of purchase Deciders have formal or informal power to select and approve final suppliers Gatekeepers control the flow of information 6-17

Participants in the Business Buying Process Buying center provides a major challenge Who participates in the process Their relative authority What evaluation criteria each participant uses Informal participants 6-18

Major Influences on Business Buyers Economic factors Personal factors Environmental factors Organizational factors Interpersonal factors 6-19

Major Influences on Business Buyers Economic factors: Price Service Personal factors: Emotion 6-20

Major Influences on Business Buyers Environmental Factors Demand for product Economic outlook Cost of money Resource availability Technology Culture Politics Competition 6-21

Major Influences on Business Buyers Organizational factors Objectives Policies Procedures Structure Systems 6-22

Major Influences on Business Buyers Interpersonal factors Motives Perceptions Preferences Age Income Education Attitude toward risk 6-23

The Buying Process Problem recognition General need description Product specification Value analysis Supplier search Proposal solicitation Supplier selection Order-routine specifications Performance review 6-24

Problem recognition occurs when someone in the company recognizes a problem or need Internal stimuli Need for new product or production equipment External stimuli Idea from a trade show or advertising 6-25

The Buying Process General need description describes the characteristics and quantity of the needed item Product specification describes the technical criteria Value analysis is an approach to cost reduction where components are studied to determined if they can be redesigned, standardized, or made with less costly methods of production 6-26

The Buying Process Supplier search involves compiling a list of qualified suppliers Proposal solicitation is the process of requesting proposals from qualified suppliers 6-27

The Buying Process Supplier selection is the process when the buying center creates a list of desired supplier attributes and negotiates with preferred suppliers for favorable terms and conditions Order-routine specifications is the final order with the chosen supplier and lists all of the specifications and terms of the purchase 6-28

The Buying Process Performance review involves a critique of supplier performance to the purchase terms 6-29

E-Procurement and Buying on the Internet Online purchasing Company buying sites Extranets 6-30

E-Procurement and Buying on the Internet Advantages Access to new suppliers Lowers costs Speed in order processing and delivery Share information Sales Service and support 6-31

E-Procurement and Buying on the Internet Disadvantages Can erode relationships as buyers search for new suppliers Security 6-32

Institutional and Government Markets
Institutional markets consist of hospitals, nursing homes, and prisons that provide goods and services to people in their care Characteristics Low budgets “Captive” audience 6-33

Institutional and Government Markets
Government markets tend to favor domestic suppliers and require suppliers to submit bids and normally award to the lowest bidder Carefully monitored Affected by similar environmental factors Good credit Non-economic factors Minority suppliers Depressed suppliers Small businesses 6-34

7 Principles of Marketing Customer-Driven Marketing Strategy: Creating Value for Target Customers

Learning Objectives After studying this chapter, you should be able to: Define the three steps of target marketing: market segmentation, target marketing, and market positioning List and discuss the major bases for segmenting consumer and business markets Explain how companies identify attractive consumer and business markets Discuss how companies position their products for maximum competitive advantage in the marketplace 7-2

Chapter Concepts: Market Segmentation Marketing Target
Differentiation and Positioning Positioning for Competitive Advantage 7-3

Market Segmentation Discuss the need to understand competitors as well as customers through competitor analysis Explain the fundamentals of competitive marketing strategies based on creating value for customers Demonstrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization 5-4

Market Segmentation Market segmentation is the process that companies use to divide large heterogeneous markets into small markets that can be reached more efficiently and effectively with products and services that match their unique needs 7-5

Segmenting consumer markets Segmenting business markets
Market Segmentation Segmenting consumer markets Segmenting business markets Segmenting international markets Requirements for effective segmentation 7-6

Segmenting Consumer Markets
Market Segmentation Segmenting Consumer Markets Geographic Demographic Psychographic Behavioral 7-7

Market Segmentation Segmenting Consumer Markets Geographic segmentation divides the market into different geographical units such as nations, regions, states, counties, or cities 7-8

Market Segmentation Segmenting Consumer Markets Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality 7-9

Market Segmentation Segmenting Consumer Markets Demographic segmentation is the most popular segmentation method because consumer needs, wants, and usage often vary closely with demographic variables and are easier to measure than other types of variables 7-10

Market Segmentation Segmenting Consumer Markets Age and life-cycle stage segmentation is the process of offering different products or using different marketing approaches for different age and life-cycle groups Gender segmentation divides the market based on sex (male or female) 7-11

Market Segmentation Segmenting Consumer Markets
Income segmentation divides the market into affluent or low-income consumers 7-12

Market Segmentation Segmenting Consumer Markets
Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality traits 7-13

Market Segmentation Segmenting Consumer Markets Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product Occasion Benefits sought User status Usage rate Loyalty status 7-14

Market Segmentation Segmenting Consumer Markets Occasion segmentation divides buyers into groups according to occasions when they get the idea to buy, actually make purchases, or respond to a product Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit 7-15

Market Segmentation Segmenting Consumer Markets User status divides buyers into ex-users, potential users, first-time users, and regular users of a product Usage rate divides buyers into light, medium, and heavy product users Loyalty status divides buyers into groups according to their degree of loyalty 7-16

Market Segmentation Segmenting Consumer Markets Loyalty status divides buyers into groups according to their degree of loyalty 7-17

Using Multiple Segmentation Bases
Market Segmentation Using Multiple Segmentation Bases Multiple segmentation is used to identify smaller, better-defined target groups Geodemographic segmentation is an example of multivariable segmentation that divides groups into consumer lifestyle patterns 7-18

Using Multiple Segmentation Bases
Market Segmentation Using Multiple Segmentation Bases PRIZM NE classifies every American household into 66 unique segments organized into 14 different social groups. These groups segment people and locations into marketable groups of like-minded consumers that exhibit unique characteristics and buying behavior based on a host of demographic factors. 7-19

Using Multiple Segmentation Bases Prizm classifications include
Market Segmentation Using Multiple Segmentation Bases Prizm classifications include Age Educational level Income Occupation Family composition Ethnicity Housing Behavioral and lifestyle factors Purchases Free-time activities Media preferences 7-20

Segmenting Business Markets
Market Segmentation Segmenting Business Markets In addition to the same segmentation variables as consumers, business can also be segmented by: Customer-operating characteristics Purchasing approaches Situational factors Personal characteristics 7-21

Market Segmentation Segmenting Business Markets Segmenting international markets Geographic location Economic factors Political and legal factors Cultural factors 7-22

Market Segmentation Segmenting Business Markets Intermarket segmentation divides consumers into groups with similar needs and buying behaviors even though they are located in different countries 7-23

Requirements for Effective Segmentation
Market Segmentation Requirements for Effective Segmentation To be useful, a market segment must be: Measurable Accessible Substantial Differentiable Actionable 7-24

Market Segmentation Requirements for Effective Segmentation Measurable examples include the size, purchasing power, and profiles of the segments Accessible refers to the fact that the market can be effectively reached and served 7-25

Market Segmentation Requirements for Effective Segmentation Substantial refers to the fact that the markets are large and profitable enough to serve Differentiable refers to the fact that the markets are conceptually distinguishable and respond differently to marketing mix elements and programs 7-26

Market Segmentation Requirements for Effective Segmentation Actionable refers to the fact that effective programs can be designed for attracting and serving the segments 7-27

Evaluating Market Segments
Market Targeting Evaluating Market Segments Segment size and growth Segment structural attractiveness Company objectives and resources 7-28

Market Targeting Evaluating Market Segments Segment size and growth Smaller versus larger segments Growth potential 7-29

Market Targeting Evaluating Market Segments Segment structural attractiveness Competition Substitute products Power of buyers Power of suppliers 7-30

Market Targeting Evaluating Market Segments Company objectives and resources Competitive advantage Availability of resources Consistent with company objectives 7-31

Selecting Target Market Segments
Market Targeting Selecting Target Market Segments Undifferentiated marketing Differentiated marketing Concentrated marketing Micromarketing 7-32

Target Marketing Strategies
Market Targeting Target Marketing Strategies Undifferentiated marketing targets the whole market with one offer Mass marketing Focuses on common needs rather than what’s different 7-33

Market Targeting Selecting Target Market Segments Differentiated marketing targets several different market segments and designs separate offers for each Goal is to achieve higher sales and stronger position More expensive than undifferentiated marketing 7-34

Market Targeting Selecting Target Market Segments Concentrated marketing targets a small share of a large market Limited company resources Knowledge of the market More effective and efficient 7-35

Market Targeting Selecting Target Market Segments Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations Local marketing Individual marketing 7-36

Market Targeting Selecting Target Market Segments Local marketing involves tailoring brands and promotion to the needs and wants of local customer groups Cities Neighborhoods Stores 7-37

Market Targeting Selecting Target Market Segments Local Marketing Benefits: Increased marketing effectiveness in competitive markets More customer-specific offerings 7-38

Market Targeting Selecting Target Market Segments Local marketing Challenges: Increased manufacturing and marketing costs Less economy of scale Logistics Dilution of company image 7-39

Marketing Targeting Selecting Target Market Segments Individual marketing involves tailoring products and marketing programs to the needs and preferences of individual customers Also known as: One-to-one marketing Mass customization Markets-of-one marketing 7-40

Market Targeting Selecting Target Market Segments Mass customization is the process through which firms interact one-to-one with masses of customers to design products and services tailor-made to meet individual needs. Has made relationships with customers important in the new economy. Provides a way to distinguish the company against competitors 7-41

Choosing a Targeting Strategy
Market Targeting Choosing a Targeting Strategy Depends on: Company resources Product variability Product life-cycle stage Market variability Competitor’s marketing strategies 7-42

Socially Responsible Target Marketing
Market Targeting Socially Responsible Target Marketing Benefits customers with specific needs Concern for vulnerable segments Children Alcohol Cigarettes 7-43

Differentiation and Positioning
Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products Perceptions Impressions Feelings 7-44

Positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions Price and orientation 7-45

Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to build a position Choosing the right competitive advantages Selecting an overall positioning strategy 7-46

Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to build a position by providing superior value from: Product differentiation Service differentiation Channels People Image 7-47

Identifying Possible Value Differences and Competitive Advantage Competitive Advantage is the advantage over competitors gained by offering greater value either through lower prices or by providing more benefits that justify higher prices 7-48

Choosing the Right Competitive Advantages A difference is worth establishing to the extent that it satisfies the following criteria: Important Distinctive Superior Communicable Preemptive Affordable 7-49

Selecting an Overall Strategy Value proposition is the full mix of benefits upon which a brand is positioned More for more More for the same Same for less Less for much less More for less 7-50

Positioning for Competitive Advantage
Developing a Positioning Statement Positioning statement states the product’s membership in a category and then shows its point-of-difference from other members of the category. 7-51

8 Principles of Marketing Product, Services, and Branding Strategy

Learning Objectives After studying this chapter, you should be able to: Define product and the major classifications of products and services Describe the decisions companies make regarding their individual products and services, product lines, and product mixes Discuss branding strategy—the decisions companies make in building and managing their brands Identify the four characteristics that affect the marketing of a service and the additional marketing considerations that services require 8-2

Chapter Outline What Is a Product? Product and Service Decisions
Branding Strategy: Building Strong Brands Services Marketing 8-3

Products, Services, and Experiences
What Is a Product? Products, Services, and Experiences Product is anything that can be offered in a market for attention, acquisition, use, or consumption that might satisfy a need or want Soap Toothpaste 8-4

What Is a Product? Products, Services, and Experiences Service is a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in ownership Doctor’s exam Legal advice 8-5

What Is a Product? Products, Services, and Experiences Experiences represent what buying the product or service will do for the customer Disney American Girl Toys “R” Us 8-6

Levels of Product and Services
What Is a Product? Levels of Product and Services Core benefits Actual product Augmented product 8-7

Levels of Product and Services
What Is a Product? Levels of Product and Services Core benefits represent what the buyer is really buying Actual product represents the design, brand name, and packaging that delivers the core benefit to the customer Augmented product represents additional services or benefits of the actual product 8-8

Product and Service Classifications
What Is a Product? Product and Service Classifications Consumer products Industrial products 8-9

What Is a Product? Product and Service Classifications Consumer products are products and services for personal consumption Classified by how consumers buy them Convenience product Shopping products Specialty products Unsought products 8-10

What Is a Product? Product and Service Classifications Convenience products are consumer products and services that the customer usually buys frequently, immediately, and with a minimum comparison and buying effort Newspapers Candy Fast food 8-11

What Is a Product? Product and Service Classifications Shopping products are consumer products and services that the customer compares carefully on suitability, quality, price, and style Furniture Cars Appliances 8-12

What Is a Product? Product and Service Classifications Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort Medical services Designer clothes High-end electronics 8-13

What Is a Product? Product and Service Classifications Unsought products are consumer products that the consumer does not know about or knows about but does not normally think of buying Life insurance Funeral services Blood donations 8-14

What Is a Product? Product and Service Classifications Industrial products are products purchased for further processing or for use in conducting a business Classified by the purpose for which the product is purchased Materials and parts Capital Raw materials 8-15

What Is a Product? Product and Service Classifications Materials and parts include raw materials and manufactured materials and parts usually sold directly to industrial users Wheat Lumber Iron Cement 8-16

What Is a Product? Product and Service Classifications Capital items are industrial products that aid in the buyer’s production or operations Buildings Elevators Computers 8-17

Organizations, Persons, Places, and Ideas
What Is a Product? Organizations, Persons, Places, and Ideas Organization marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward an organization 8-18

What Is a Product? Organizations, Persons, Places, and Ideas Person marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular people Donald Trump 8-19

What Is a Product? Organizations, Persons, Places, and Ideas Place marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular places Tourism 8-20

What Is a Product? Organizations, Persons, Places, and Ideas Social marketing is the use of commercial marketing concepts and tools in programs designed to influence individuals’ behavior to improve their well-being and that of society Public health campaign Tourism 8-21

Product and Service Decisions
Individual Product and Service Decisions Product attributes Branding Packaging Labeling Product support services 8-22

Individual Product and Service Decisions Product attributes are the benefits of the product or service Quality Features Style and design 8-23

Individual Product and Service Decisions Quality in terms of the product or service is the lack of defects Quality in terms of the customer is the value and satisfaction provided by the product or service 8-24

Individual Product and Service Decisions Product quality includes level and consistency Quality level is the level of quality that supports the product’s positioning Performance quality is the ability of a product to perform its functions 8-25

Individual Product and Service Decisions Quality consistency is the freedom from defects and the delivering of a targeted level of performance 8-26

Individual Product and Service Decisions Product features are a competitive tool for differentiating a product from competitors’ products Product features are assessed based on the value to the customer versus the cost to the company 8-27

Individual Product and Service Decisions Product style and design add value to customer value Style describes the appearance of the product Design contributes to a product’s usefulness as well as to its looks 8-28

Individual Product and Service Decisions Brand is the name, term, sign, or design, or a combination of these, that identifies the maker or seller of a product or service 8-29

Individual Product and Service Decisions Consumer benefits Quality Consistency Seller benefits Segmentation Communicate product features 8-30

Individual Product and Service Decisions Packaging involves designing and producing the container or wrapper for a product Label identifies the product or brand, describes attributes, and provides promotion 8-31

Individual Product and Service Decisions Product support services augment actual products Companies must continually: Assess the value of current services to obtain ideas for new ones Assess the costs of providing these services Develop a package of services to satisfy customers and provide profit to the company 8-32

Product Line Decisions Product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges 8-33

Product Line Decisions Product line length is the number of items in the product line Line stretching Line filling 8-34

Product Line Decisions Product line stretching is when a company lengthens its product line beyond its current range Downward Upward Combination of both 8-35

Product Line Decisions Downward product line stretching is used by companies at the upper end of the market to plug a market hole or respond to a competitor’s attack Upward product line stretching is by companies at the lower end of the market to add prestige to their current products 8-36

Product Line Decisions Combination line stretching is used by companies in the middle range of the market to achieve both goals of upward and downward line stretching 8-37

Product Line Decisions Product line filling occurs when companies add more items within the present range of the line More profits Satisfying dealers Excess capacity Plugging holes to fend off competitors 8-38

Product Mix Decisions Product mix consists of all the products and items that a particular seller offers for sale Width Length Depth Consistency 8-39

Product Mix Decisions Product mix width is the number of different product lines the company carries Product mix length is the total number of items the company carries within its product lines 8-40

Product Line Decisions Product line depth is the number of versions offered of each product in the line Consistency is how closely the various product lines are in end use, production requirements, or distribution channels 8-41

Branding Strategy: Building Strong Brands
Brand represents the consumer’s perceptions and feelings about a product and its performance. It is the company’s promise to deliver a specific set of features, benefits, services, and experiences consistently to the buyers 8-42

Brand equity is the positive differential effect that knowing the brand name has on customer response to the product or service 8-43

Brand equity provides competitive advantage Consumer awareness and loyalty Benefits Beliefs and value 8-44

Customer equity is the value of the customer relationships that the brand creates Brand valuation is the process of estimating the total financial value of the brand 8-45

Brand strategy decisions include: Brand positioning Brand name selection Brand sponsorship Brand development 8-46

Brand Positioning Brand strategy decisions include: Product attributes Product benefits Product beliefs and values 8-47

Brand Name Selection Desirable qualities Suggests benefits and qualities Easy to pronounce, recognize, and remember Distinctive Extendable Translatable for the global economy 8-48

Brand Sponsorship Manufacturer’s brand Private brand Licensed brand Co-brand 8-49

Brand Sponsorship Private brands provide retailers with advantages Product mix control Slotting fees for manufacturers’ brands Higher margins Exclusivity 8-50

Brand Development Line extensions Brand extensions Multibrands New brands 8-51

Brand Development Line extensions occur when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category Brand extensions extend a brand name to a new or modified product in a new category 8-52

Brand Development Multibrands are additional brands in the same category New brands are used when existing brands are inappropriate for new products in new product categories or markets 8-53

Managing Brands Requires: Continuous brand communication Customer-centered training Brand audits 8-54

Types of Service Industries
Services Marketing Types of Service Industries Government Private not-for-profit organizations Business services 8-55

Nature and Characteristics of a Service
Services Marketing Nature and Characteristics of a Service Intangibility Inseparability Variability Perishability 8-56

Services Marketing Nature and Characteristics of a Service Intangibility refers to the fact that services cannot be seen, tasted, felt, heard, or smelled before they are purchased Inseparability refers to the fact that services cannot be separated from their providers 8-57

Services Marketing Nature and Characteristics of a Service Variability refers to the fact that service quality depends on who provides it as well as when, where, and how it is provided Perishability refers to the fact that services cannot be stored for later sale or use 8-58

Marketing Strategies for Service Firms
Services Marketing Marketing Strategies for Service Firms In addition to traditional marketing strategies, service firms often require additional strategies Service-profit chain Internal marketing Interactive marketing 8-59

Services Marketing Marketing Strategies for Service Firms Service-profit chain links service firm profits with employee and customer satisfaction Internal service quality Satisfied and productive service employees Greater service value Satisfied and loyal customers Healthy service profits and growth 8-60

Services Marketing Marketing Strategies for Service Firms Internal marketing means that the service firm must orient and motivate its customer contact employees and supporting service people to work as a team to provide customer satisfaction Internal marketing must precede external marketing 8-61

Services Marketing Marketing Strategies for Service Firms Interactive marketing means that service quality depends heavily on the quality of the buyer-seller interaction during the service encounter Service differentiation Service quality Service productivity 8-62

Services Marketing Marketing Strategies for Service Firms Managing service differentiation creates a competitive advantage from the offer, delivery, and image of the service Offer can include distinctive features Delivery can include more able and reliable customer contact people, environment, or process Image can include symbols and branding 8-63

Services Marketing Marketing Strategies for Service Firms Managing service quality provides a competitive advantage by delivering consistently higher quality than its competitors Service quality always varies depending on interactions between employees and customers 8-64

Services Marketing Marketing Strategies for Service Firms Service recovery can turn disappointed customers into loyal customers Empower employees Responsibility Authority Incentive 8-65

Services Marketing Marketing Strategies for Service Firms Managing service productivity refers to the cost side of marketing strategies for service firms Employee recruiting, hiring, and training strategies Service quantity and quality strategies 8-66

9 Principles of Marketing New-Product Development and Product Life-Cycle Strategies

Learning Objectives After studying this chapter, you should be able to: Explain how companies find and develop new-product ideas List and define the steps in the new-product development process and the major considerations in managing this process Describe the stages of the product life cycle Describe how marketing strategies change during the product’s life cycle Discuss two additional product and services issues: socially responsible product decisions and international product and services marketing 9-2

Chapter Outline New-Product Development Strategy
New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations 9-3

New-Product Development Strategy
A firm can obtain new products through: Acquisition New-product development 9-4

Acquisition refers to the buying of a whole company, a patent, or a license to produce someone else’s product New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development 9-5

Reasons for new product failure Overestimation of market size Poor design Incorrect positioning Wrong timing Priced too high Ineffective promotion Management influence High development costs Competition 9-6

New-Product Development Process
Idea generation Idea screening Concept development and testing Marketing strategy development Business analysis Product development Test marketing Commercialization 9-7

Idea Generation New idea generation is the systematic search for new product ideas Sources of new-product ideas Internal External 9-8

Idea Generation Internal sources refer to the company’s own formal research and development, management and staff, and intrapreneurial programs External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms 9-9

Idea Screening Idea screening refers to reviewing new-product ideas in order to drop poor ones as soon as possible 9-10

Concept Development and Testing Product idea is an idea for a possible product that the company can see itself offering to the market Product concept is a detailed version of the idea stated in meaningful consumer terms Product image is the way consumers perceive an actual or potential product 9-11

Concept Development and Testing Concept testing refers to new-product concepts with groups of target consumers 9-12

Marketing Strategy Development Marketing strategy development refers to the initial marketing strategy for introducing the product to the market 9-13

Marketing Strategy Development Marketing strategy statement Part 1: Description of the target market Product positioning, sales, market share, and profit goals Part 2: Price, distribution, and budget Part 3: Long-term sales, profit goals, and marketing mix strategy 9-14

Marketing Strategy Development Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the company’s objectives 9-15

Marketing Strategy Development Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments Requires an increase in investment 9-16

Marketing Strategy Development Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings Test marketing provides the marketer with experience in testing the product and entire marketing program before full introduction 9-17

Marketing Strategy Development When firms test market New product with large investment Uncertainty about product or marketing program When firms may not test market Simple line extension Copy of competitor product Low costs Management confidence 9-18

Marketing Strategy Development Approaches to test marketing Standard test markets Controlled test markets Simulated test markets 9-19

Marketing Strategy Development Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and fine-tune the marketing program. 9-20

Marketing Strategy Development Challenges of standard test markets Cost Time Competitors can monitor the test Competitor interference Competitors gain access to the new product before introduction 9-21

Marketing Strategy Development Controlled test markets are panels of stores that have agreed to carry new products for a fee Less expensive than standard test markets Faster than standard test markets Competitors gain access to the new product 9-22

Marketing Strategy Development Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers. 9-23

Marketing Strategy Development Advantages of simulated test markets Less expensive than other test methods Faster Restricts access by competitors Disadvantages Not considered as reliable and accurate due to the controlled setting 9-24

Marketing Strategy Development Commercialization is the introduction of the new product When to launch Where to launch Planned market rollout 9-25

Managing New-Product Development
Successful new product development should be: Customer-centered Team-centered Systematic 9-26

New-Product Development Strategies Customer-centered new-product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences Begins and ends with solving customer problems 9-27

New-Product Development Strategies Sequential new-product development is a development approach where company departments work closely together individually to complete each stage of the process before passing along to the next department or stage Increased control in risky or complex projects Slow 9-28

New-Product Development Strategies Team-based new-product development is a development approach where company departments work closely together in cross-functional teams, overlapping in the product-development process to save time and increase effectiveness 9-29

New-Product Development Strategies Team-based versus sequential new-product development Team-based can increase tension and confusion Team-based is faster and more flexible 9-30

New-Product Development Strategies Systematic new-product development is an innovative development approach that collects, reviews, evaluates, and manages new-product ideas Creates an innovation-oriented culture Yields a large number of new-product ideas 9-31

Product Life-Cycle Strategies
Product life cycle (PLC) is the course that a product’s sales and profits take over its lifetime Product development Introduction Growth Maturity Decline 9-32

Product life cycle (PLC) describes: Product class Product form Brand 9-33

Product classes have the longest life cycles, with sales of many product classes in the mature stage for a long time Product forms have the standard PLC— shape, introduction, rapid growth, maturity, and decline Brands have changing PLCs due to competitive threats 9-34

Style is a basic and distinctive mode of expression Fashion is a currently accepted popular style in a given field 9-35

Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity 9-36

Introduction stage is when the new product is first launched Takes time Slow sales growth Little or no profit High distribution and promotion expense 9-37

Growth stage is when the new product satisfies the market Sales increase New competitors enter the market Price stability or decline to increase volume Consumer education Profits increase Promotion and manufacturing costs gain economies of scale Product quality increases New features New market segments and distribution channels are entered 9-38

Maturity stage is a long-lasting stage of a product that has gained consumer acceptance Slowdown in sales Many suppliers Substitute products Overcapacity leads to competition Increased promotion and R&D to support sales and profits 9-39

Modifying Strategies Market modifying Product modifying Marketing mix modifying 9-40

Modifying Strategies Market modifying strategy is when a company tries to increase consumption of the current product New users Increase usage of existing users New market segments 9-41

Modifying Strategies Marketing mix modifying strategy is when a company changes one or more of the marketing mix elements Price Promotion Distribution channels 9-42

Decline stage is when sales decline or level off for an extended time, creating a weak product Maintain the product Harvest the product Drop the product 9-43

Additional Product and Service Considerations
Product Decisions and Social Responsibility Public policy and regulations regarding developing and dropping products, patents, quality, and safety 9-44

Additional Product and Service Considerations
International Product and Service Marketing Challenges Determining what products and services to introduce in which countries Standardization versus customization Packaging and labeling Customs, values, laws 9-45

The End

10 Principles of Marketing Pricing Products: Understanding and Capturing Customer Value

Learning Objectives After studying this chapter, you should be able to: Answer the question “What is price?” and discuss the importance of pricing in today’s fast-changing environment Discuss the importance of understanding customer value perceptions when setting prices Discuss the importance of company and product costs in setting prices Identify and define the other important internal and external factors affecting a firm’s pricing decisions 10-2

Chapter Outline What Is Price? Factors to Consider When Setting Prices
10-3

What Is Price? 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. Price is the only element in the marketing mix that produces revenue; all other elements represent costs 10-4

Factors to Consider When Setting Prices
Customer Perception of Value Effective customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value 10-5

Customer Perception of Value Value-based pricing uses the buyers’ perceptions of value, not the seller’s cost, as the key to pricing. Price is considered before the marketing program is set. Value-based pricing is customer driven Cost-based pricing is product driven 10-6

Customer Perception of Value Value-based pricing Good-value pricing Value-added pricing 10-7

Customer Perception of Value Good-value pricing offers the right combination of quality and good service to fair price Existing brands are being redesigned to offer more quality for a given price or the same quality for less price 10-8

Customer Perception of Value Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts High-low pricing involves charging higher prices on an everyday basis but running frequent promotion to lower prices temporarily on selected items 10-9

Customer Perception of Value Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share 10-10

Company and Product Costs Cost-based 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 10-11

Company and Product Costs Types of costs Fixed costs Variable costs Total costs 10-12

Company and Product Costs Fixed costs are the costs that do not vary with production or sales level Rent Heat Interest Executive salaries 10-13

Company and Product Costs Variable costs are the costs that vary with the level of production Packaging Raw materials 10-14

Company and Product Costs Total costs are the sum of the fixed and variable costs for any given level of production 10-15

Company and Product Costs Average cost is the cost associated with a given level of output 10-16

Company and Product Costs Experience or learning curve is when the average cost falls as production increases because fixed costs are spread over more units 10-17

Company and Product Costs Cost-based pricing adds a standard markup to the cost of the product markup price= unit cost (1-desired rate of return) 10-18

Break-Even Analysis and Target Profit Pricing Break-even 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’s seeking 10-19

Break-Even Analysis and Target Profit Pricing break-even= fixed cost volume (price-variable cost) 10-20

Other Internal and External Considerations Affecting Price Decisions Customer perceptions of value set the upper limit for prices, and costs set the lower limit Companies must consider internal and external factors when setting prices 10-21

Other Internal and External Considerations Affecting Price Decisions Internal factors Marketing strategies Objectives Marketing mix External factors Market demand Competitor’s strategies and prices 10-22

Other Internal and External Considerations Affecting Price Decisions Pricing objectives include: Survival Profit maximization Market share leadership Customer retention and relationship building Attracting new customers Opposing competitive threats Increasing product excitement 10-23

Other Internal and External Considerations Affecting Price Decisions Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met 10-24

Other Internal and External Considerations Affecting Price Decisions Non-price strategies differentiate the marketing offer to make it worth a higher price 10-25

Other Internal and External Considerations Affecting Price Decisions Organizational considerations include: Who should set the price Who can influence the prices 10-26

Other Internal and External Considerations Affecting Price Decisions The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products 10-27

Other Internal and External Considerations Affecting Price Decisions Types of markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly 10-28

Other Internal and External Considerations Affecting Price Decisions Pure competition is a market with few many buyers and sellers trading uniform commodities where no single buyer or seller has much effect on market price Monopolistic competition is a market with many buyers and sellers who trade over a range of prices rather than a single market price with differentiated offers. 10-29

Other Internal and External Considerations Affecting Price Decisions Oligopolistic competition is a market with few sellers because it is difficult for sellers to enter who are highly sensitive to each other’s pricing and marketing strategies Pure monopoly is a market with only one seller. In a regulated monopoly, the government permits a price that will yield a fair return. In a non-regulated monopoly, companies are free to set a market price. 10-30

Other Internal and External Considerations Affecting Price Decisions The demand curve shows the number of units the market will buy in a given period at different prices 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 10-31

Other Internal and External Considerations Affecting Price Decisions Price elasticity of demand illustrates the response of demand to a change in price Inelastic demand occurs when demand hardly changes when there is a small change in price Elastic demand occurs when demand changes greatly for a small change in price price elasticity of demand= % change in quantity demand % change in price 10-32

Other Internal and External Considerations Affecting Price Decisions Factors affecting price elasticity of demand Unique product Quality Prestige Substitute products Cost relative to income 10-33

Other Internal and External Considerations Affecting Price Decisions Competition strategies and prices Factors to consider Comparison of offering in terms of customer value Strength of competitors Competition pricing strategies Customer price sensitivity 10-34

Other Internal and External Considerations Affecting Price Decisions Other external factors Economic conditions Resellers’ response to price Government Social concerns 10-35

The End

11 Principles of Marketing Pricing Products: Pricing Strategies

Learning Objectives After studying this chapter, you should be able to: Describe the major strategies for pricing initiative and new products Explain how companies find a set of prices that maximize the profits from the total product mix Discuss how companies adjust their prices to take into account different types of customers and situations Discuss the key issues related to initiating and responding to price changes 11-2

Chapter Outline New-Product Pricing Strategies
Product Mix Pricing Strategies Price Adjustment Strategies Price Changes Public Policy and Pricing 11-3

New-Product Pricing Strategies
Market skimming pricing Market penetration pricing 11-4

Market skimming 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 11-5

Market penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market 11-6

Product Mix Pricing Strategies
Product line pricing Optional product pricing Captive product pricing By-product pricing Product bundle pricing 11-7

Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices Optional product pricing takes into account optional or accessory products along with the main product 11-8

Captive product pricing involves products that must be used along with the main product Two-part pricing is where the price is broken into: Fixed fee Variable usage fee 11-9

Price Adjustment Strategies
Pricing Strategies By-product 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. 11-10

Pricing Strategies Product bundle pricing combines several products at a reduced price 11-11

Pricing Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographical pricing Dynamic pricing International pricing 11-12

Pricing Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product Discounts Allowances 11-13

Pricing Strategies Discounts Cash discount for paying promptly Quantity discount for buying in large volume Functional (trade) discount for selling, storing, distribution, and record keeping 11-14

Pricing Strategies Allowances Trade in allowance for turning in an old item when buying a new one Promotional allowance to reward dealers for participating in advertising or sales support programs 11-15

Pricing Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost Customer segment pricing Product form segment pricing Location pricing 11-16

Pricing Strategies To be effective: Market must be segmentable Segments must show different degrees of demand Watching the market cannot exceed the extra revenue obtained from the price difference Must be legal 11-17

Pricing Strategies Customer segment pricing is when different customers pay different prices for the same product or service Product form segment pricing is when different versions of the product are priced differently but not according to differences in cost Location pricing is when the product is sold in different geographic areas and priced differently in those areas, even thought the cost is the same 11-18

Pricing Strategies Robert Cross Revenue management charges the right customer the right price at the right time Yield management balances price and demand 11-19

Pricing Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product Noting current prices Remembering past prices Assessing the buying situations 11-20

Pricing Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand Loss leaders Special event pricing Cash rebates Low interest financing Longer warrantees Free maintenance 11-21

Pricing Strategies 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 Low interest financing, longer warrantees, and free maintenance lower the consumer’s “total price” 11-22

Pricing Strategies Risks of promotional pricing Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price Creates price wars 11-23

Pricing Strategies Geographical pricing is used for customers in different parts of the country or the world FOB pricing Uniformed delivery pricing Zone pricing Basing point pricing Freight absorption pricing 11-24

Pricing Strategies FOB (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer Uniformed delivery pricing means the company charges the same price plus freight to all customers, regardless of location 11-25

Pricing Strategies Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price Basing point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location regardless of the city from which the goods are actually shipped 11-26

Pricing Strategies Freight absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets 11-27

Pricing Strategies Dynamic pricing International pricing 11-28

Pricing Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations 11-29

Pricing Strategies International pricing is when prices are set in a specific country based on country-specific factors Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective 11-30

Initiating Pricing Changes
Price Changes Initiating Pricing Changes Price cuts Price increases 11-31

Initiating Pricing Changes
Price Changes Initiating Pricing Changes Price cuts is a reduction in price Excess capacity Increase market share Price increases is an increase in selling price Cost inflation Increased demand and lack of supply 11-32

Buyer Reactions to Pricing Changes
Price Changes Buyer Reactions to Pricing Changes Price cuts New models will be available Models are not selling well Quality issues Price increases Product is “hot” Company greed 11-33

Responding to Price Changes
Questions Why did the competitor change the price? Is the price cut permanent or temporary? What is the effect on market share and profits? Will competitors respond? 11-34

Responding to Price Changes
Solutions Reduce price to match competition Maintain price but raise the perceived value through communications Improve quality and increase price Launch a lower-price “fighting brand” 11-35

Public Policy and Pricing
Pricing Within Channel Levels Price fixing: Sellers must set prices without talking to competitors Predatory pricing: Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business 11-36

Pricing Across Channel Levels Robinson Patman Act prevents unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade Price discrimination is allowed: If the seller can prove that costs differ when selling to different retailers If the seller manufactures different qualities of the same product for different retailers 11-37

Pricing Across Channel Levels Retail (resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its products Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers 11-39

Pricing Across Channel Levels Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers Scanner fraud failure of the seller to enter current or sale prices into the computer system Price confusion results when firms employ pricing methods that make it difficult for consumers to understand what price they are really paying 11-39

The End

12 Principles of Marketing Marketing Channels and Supply Chain Management

Learning Objectives After studying this chapter, you should be able to: Explain how companies use marketing channels and discuss the functions these channels perform Discuss how channel members interact and how they organize to perform the work of the channel Identify the major channel alternatives open to a company Explain how companies select, motivate, and evaluate channel members Discuss the nature and importance of marketing logistics and integrated supply chain management 12-2

Chapter Outline Supply Chains and the Value Delivery Network
The Nature and Importance of Marketing Channels Channel Behavior and Organization Channel Design Decisions Channel Management Decisions Public Policy and Distribution Decisions Marketing Logistics and Supply Chain Management 12-3

Supply Chains and the Value Delivery Network
Supply Chain Partners Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service Downstream partners include the marketing channels or distribution channels that look toward the customer 12-4

Supply Chain Views Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and factory capacity Demand chain “sense and respond” view suggests that planning starts with the needs of the target customer and the firm responds to these needs by organizing a chain of resources and activities with the goal of creating customer value 12-5

The value delivery network is the firm’s suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system 12-6

Marketing Channel Questions What is the nature of marketing channels and why are they important? How do channel firms interact and organize to do the work of the channel? What role do physical distribution and supply chain management play in attracting customers? 12-7

The Nature and Importance of Marketing Channels
Marketing Channel Defined Marketing channel is a set of independent organizations that help make a product or service available for use or consumption by the consumer or business users 12-8

How Channel Members Add Value Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them 12-9

How Channel Members Add Value Producers use intermediaries because they create greater efficiency in making goods available to target markets. 12-10

How Channel Members Add Value Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations 12-11

How Channel Members Add Value From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers 12-12

How Channel Members Add Value Information refers to the gathering and distributing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange Promotion refers to the development and spreading persuasive communications about an offer Contacts refers to finding and communicating with prospective buyers 12-13

How Channel Members Add Value Matching refers to shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging Negotiation refers to reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred 12-14

How Channel Members Add Value Physical distribution refers to transporting and storing goods Financing refers to acquiring and using funds to cover the costs or carrying out the channel work Risk taking refers to assuming the risks of carrying out the channel work 12-15

Number of Channel Members Channel level refers to each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer Direct marketing channel has no intermediary levels; the company sells directly to consumers Indirect marketing channels contain one or more intermediaries 12-16

Number of Channel Members Connected by types of flows: Physical flow of products Flow of ownership Payment flow Information flow Promotion flow 12-17

Channel Behavior and Organization
Marketing channel consists of firms that have partnered for their common good with each member playing a specialized role 12-18

Channel conflict refers to disagreement over goals, roles, and rewards by channel members Horizontal conflict Vertical conflict 12-19

Horizontal conflict is conflict among members at the same channel level Vertical conflict is conflict between different levels of the same channel 12-20

Conventional Distribution Systems Conventional distribution systems consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits and there is little control over the other members and no formal means for assigning roles and resolving conflict. 12-21

Vertical Marketing Systems Vertical marketing systems (VMS) 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 12-22

Vertical Marketing Systems Corporate vertical marketing system integrates successive stages of production and distribution under single ownership 12-23

Vertical Marketing Systems Contractual vertical marketing system 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. 12-24

Vertical Marketing Systems Franchise organization links several stages in the production distribution process Manufacturer-sponsored retailer franchise system Manufacturer-sponsored wholesaler franchise system Service firm-sponsored retailer franchise system 12-25

Vertical Marketing Systems Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power. 12-26

Horizontal Marketing Systems Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. 12-27

Multichannel Distribution Systems Hybrid Marketing Channels Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments 12-28

Multichannel Distribution Systems Hybrid Marketing Channels Advantages Increased sales and market coverage New opportunities to tailor products and services to specific needs of diverse customer segments Challenges Hard to control Create channel conflict 12-29

Changing Channel 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 12-30

Channel Design Decisions
Analyzing Consumer Needs Designing a channel system requires: Analyzing consumer needs Setting channel objectives Identifying major channel alternatives Evaluation 12-31

Analyzing Consumer Needs Designing a marketing channel starts with finding out what target customers want from the channel 12-32

Setting Channel Objectives In terms of: Targeted levels of customer service What segments to serve Best channels to sue Minimizing the cost of meeting customer service requirements 12-33

Setting Channel Objectives Objectives are influenced by: Nature of the company Marketing intermediaries Competitors Environment 12-34

Identifying Major Alternatives In terms of: Types of intermediaries Number of intermediaries Responsibilities of each channel member 12-35

Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Examples include: Company sales force Manufacturer’s agency Industrial distributors 12-36

Identifying Major Alternatives Company sales force strategies Expand direct sales force Assign outside salespeople to territories Develop a separate sales force Telesales 12-37

Identifying Major Alternatives Manufacturer’s agencies are independent firms whose sales forces handle related products from many companies in different regions or industries 12-38

Identifying Major Alternatives Industrial distributors Find distributors in different regions or industries Exclusive distribution Margin opportunities Training Support 12-39

Identifying Major Alternatives Number of marketing intermediaries to use at each level Strategies: Intensive distribution Exclusive distribution Selective distribution 12-40

Identifying Major Alternatives Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible 12-41

Identifying Major Alternatives Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories Luxury automobiles High-end apparel 12-42

Identifying Major Alternatives Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products Televisions Appliances 12-43

Responsibilities of Channel Members Producers and intermediaries need to agree on: Price policies Conditions of sale Territorial rights Services provided by each party 12-44

Evaluating the Major Alternatives Each alternative should be evaluated against: Economic criteria Control Adaptive criteria 12-45

Evaluating the Major Alternatives Economic criteria compares the likely sales costs and profitability of different channel members Control refers to channel members’ control over the marketing of the product Adaptive criteria refers to the ability to remain flexible to adapt to environmental changes 12-46

Designing International Distribution Channels Channel systems can vary from country to country Must be able to adapt channel strategies to the existing structures within each country 12-47

Channel Management Decisions
Channel management involves: Selecting channel members Managing channel members Motivating channel members Evaluating channel members 12-48

Selecting Channel Members Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members Years in business Lines carried Profit record 12-49

Selecting Channel Members Selecting intermediaries that are sales agents involves evaluating: Number and character of other lines carried Size and quality of sales force 12-50

Selecting Channel Members Selecting intermediaries that are retail stores that want exclusive or selective distribution involves evaluating: Store’s customers Locations Growth potential 12-51

Managing and Motivating Channel Members Partner relationship management (PRM) and supply chain management (SCM) software are used to forge long-term partnerships with channel members and to recruit, train, organize, manage, motivate, and evaluate channel members 12-52

Public Policy and Distribution Decisions
Exclusive distribution is when the seller allows only certain outlets to carry its products Exclusive dealing is when the seller requires that the sellers not handle competitor’s products 12-53

Benefits of exclusive distribution include: Seller obtains more loyal and dependable dealers Dealers obtain a steady and stronger seller support 12-54

Exclusive territorial agreement refers to an agreement where the producer may agree not to sell to other dealers in a given area or the buyer may agree to sell only in its own territory Tying agreements, while not necessarily illegal as long as they do not substantially lessen competition, are agreements where there is a strong brand that producers sometimes sell to dealers only if the dealers will take some or all of the rest of the line 12-55

Marketing Logistics and Supply Chain Management
Nature and importance of logistics management in the supply chain Goals of the logistics system Major logistics functions Need for integrated supply chain management 12-56

Nature and Importance of Marketing Logistics 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 12-57

Nature and Importance of Marketing Logistics Marketing logistics involves: 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 12-58

Nature and Importance of Marketing Logistics Supply chain management is the process of managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers 12-59

Nature and Importance of Marketing Logistics Importance of logistics Competitive advantage by giving customers better service at lower prices Cost savings to the company and its customers Product variety requires improved logistics Information technology has created opportunities for distribution efficiency 12-60

Goals of the Logistics System To provide a targeted level of customer service at the least cost with the objective to maximize profit, not sales 12-61

Major Logistics Functions Warehousing Inventory management Transportation Logistics information management 12-62

Major Logistics Functions Warehousing is the storage function that overcomes differences in need quantities and timing, ensuring that the products are available when customers are ready to buy them Storage warehouses Distribution centers 12-63

Major Logistics Functions Storage warehouses are designed to store goods, not move them Distribution centers are designed to move goods, not store them 12-64

Major Logistics Functions Inventory management balances carrying too little and too much inventory Just-in-time logistics systems RFID 12-65

Major Logistics Functions Just-in-time logistics systems allow producers and retailers to carry small amounts of inventories of parts or merchandise RFID (radio frequency identification devices) are small transmitter chips embedded in or placed on products or packages to provide greater inventory control 12-66

Major Logistics Functions Transportation affects the pricing of products, delivery performance, and condition of the goods when they arrive Truck Rail Water Pipeline Air Internet 12-67

Major Logistics Functions Intermodal transportation combines two or more modes of transportation Piggyback uses rail and truck Fishyback uses water and truck Airtruck uses air and truck 12-68

Logistics Information Management Logistics information management is the management of the flow of information, including customer orders, billing, inventory levels, and customer data EDI (electronic data interchange) VMI (vendor-managed inventory) 12-69

Integrated Logistics Management Integrated logistics management is the recognition that providing customer service and trimming distribution costs require teamwork internally and externally Cross-functional teamwork inside the company Building partner relationships 12-70

Integrated Logistics Management Cross-functional teamwork inside the company refers to the inter-relationship of different departments within the company to achieve the goals of integrated supply chain management 12-71

Integrated Logistics Management Building partner relationships refers to the understanding that one company’s distribution is another company’s supply system 12-72

Integrated Logistics Management Third-party logistics is the outsourcing of logistics functions to third-party logistics providers (3PLs) 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 12-73

The End

13 Principles of Marketing Retailing and Wholesaling

Learning Objectives After studying this chapter, you should be able to: Explain the roles of retailers and wholesalers in the distribution channel Describe the major types of retailers and give examples of each Identify the major types of wholesalers and give examples of each Explain the marketing decisions facing retailers and wholesalers 13-2

Chapter Outline Retailing Wholesaling 13-3

Retailers are businesses whose sales come primarily from retailing
Retailing includes all the activities in selling products or services directly to final consumers for their personal, non-business use Retailers are businesses whose sales come primarily from retailing 13-4

Retailing Non-store retailing includes selling to final consumers through: Direct mail Catalogs Telephone Internet TV shopping Home and office parties Door-to-door sales Vending machines 13-5

Classified in terms of: Amount of service Product lines Relative price
Retailing Types of Retailers Classified in terms of: Amount of service Product lines Relative price 13-6

Retailing Types of Retailers Amount of service Self service
Limited service Full service 13-7

Retailing Types of Retailers
Amount of Service Self-service retailers serve customers who are willing to perform their own locate-compare-select process to save money Wal-Mart Supermarkets 13-8

Amount of Service Limited service retailers provide more sales assistance because they carry more shopping goods about which customers need more information Sears JC Penney 13-9

Amount of Service Full-service retailers assist customers in every phase of the shopping process, resulting in higher costs that are passed on to the customer as higher prices Department stores Specialty stores 13-10

Department stores carry a wide variety of product lines
Retailing Types of Retailers Amount of Service Specialty stores carry narrow product lines with deep assortments within the product lines Department stores carry a wide variety of product lines Convenience stores carry a limited line of high-turnover convenience goods 13-11

Supercenters have very large combination food and discount stores
Retailing Types of Retailers Amount of Service Superstores offer a large assortment of routinely purchased food products, no food items, and services Supercenters have very large combination food and discount stores 13-12

Service retailers’ product lines are actually service
Retailing Types of Retailers Amount of Service Category killers are large stores that carry a very deep assortment of a particular line with a knowledgeable staff Service retailers’ product lines are actually service 13-13

Office price retailers Factory outlets Warehouse clubs
Retailing Types of Retailers Relative Prices Discount stores Office price retailers Factory outlets Warehouse clubs 13-14

Retailing Types of Retailers Relative Prices
Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volume Off-price retailers buy at less than regular wholesale prices and charge customers less than retail Independent off-price retailers either are owned and run by entrepreneurs or are divisions of larger retail corporations 13-15

Factory outlets are producer-operated stores
Retailing Types of Retailers Relative Prices Factory outlets are producer-operated stores Warehouse clubs are large warehouse-like facilities with few frills and offer ultra-low prices 13-16

Organizational Approach
Retailing Types of Retailers Organizational Approach Corporate chain stores Voluntary chain stores Retailer cooperatives Franchise organizations Merchandising conglomerates 13-17

Retailing Types of Retailers Organizational Approach Corporate chains are two or more outlets that are commonly owned and controlled Size allows them to buy in large quantities at lower prices and gain promotional economies Sears CVS 13-18

Retailing Types of Retailers Organizational Approach Voluntary chains are wholesale-sponsored groups of independent retailers that engage in group buying and common merchandising IGA Western Auto 13-19

Retailing Types of Retailers Organizational Approach Retailer cooperative is a group of independent retailers that band together to set up a joint-owned, central wholesale operation and conduct joint merchandising and promotion effort Ace Hardware Associated Grocers 13-20

Retailing Types of Retailers Organizational Approach Franchise organizations are based on some unique product or service; on a method of doing business; or on the trade name, good will, or patent that the franchisor has developed Subway Holiday Inn 13-21

Retailing Types of Retailers Organizational Approach Merchandising conglomerates are corporations that combine several retailing forms under central ownership Limited Brands 13-22

Retailer Marketing Decisions
Retailing Retailer Marketing Decisions Target market and positioning Product assortment and services Price Promotion Place 13-23

Retailing Retailer Marketing Decisions Target market and positioning involves the definition and profile of the market so the other retail marketing decisions can be made 13-24

Retailing Retailer Marketing Decisions Product assortment and service decisions include: Product assortment Services mix Store atmosphere 13-25

Retailing Retailer Marketing Decisions 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 13-26

Retailing Retailer Marketing Decisions Services mix should also serve to differentiate the retailer from the competition Customer support Store atmosphere is the physical layout that makes moving around the store hard or easy Experiential retailing Test driving 13-27

Retailing Retailer Marketing Decisions Price Decision Price policy must fit the target market and positioning, product and service assortment, and competition High markup on lower volume Low markup on higher volume 13-28

Retailing Retailer Marketing Decisions Price Decision High-low pricing involves 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 low price image, or attract customers who will buy other goods at full price 13-29

Retailing Retailer Marketing Decisions Price Decision Everyday low prices (EDLP) involves charging a constant, everyday low price with few sales or discounts 13-30

Retailing Retailer Marketing Decisions Promotion Decision Advertising Personal selling Sales promotion Public relations Direct marketing 13-31

Retailing Retailer Marketing Decisions Place Decision Location Accessibility Consistent with positioning 13-32

Retailing Retailer Marketing Decisions Place Decision Central business districts are located in cities and include department and specialty stores, banks, and movie theaters Shopping center is a group of retail businesses planned, developed, owned, and managed as a unit. Regional shopping centers Community shopping centers Neighborhood shopping centers Power centers Lifestyle centers 13-33

The Future of Retailing
Retailers have to choose target segments carefully, position themselves strongly, and consider the following developments as they plan and execute their competitive strategies: Non-store retailing Retail convergence Megaretailers Retail technology Global expansion Retail stores as communities 13-34

The Future of Retailing New Retailing Forms and Shortening Life Cycles
Wheel-of-retailing concept states that many new types of retailing forms begin as low-margin, low-price, low-status operations and challenge established retailers. As they succeed, they upgrade their facilities and offer more services, increasing their costs and forcing them to increase prices, eventually becoming the retailers they replaced. 13-35

Growth of non-store retailing includes: Mail order Television Phone Online 13-36

Retail convergence involves the merging of consumers, producers, prices, and retailers, creating greater competition for retailers and greater difficulty differentiating offerings 13-37

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 Superior information systems Buying power Large selection 13-38

Retail technology includes video-casts, inventory control, electronic ordering, transfer of information, scanning, online transaction processing, improved merchandise handling systems, and the ability to connect with customers 13-39

Wholesaling Wholesaling
Wholesalers add value by performing channel functions Selling and promoting Buying assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and advice 13-40

Selling and promoting involves the wholesaler’s sales force helping the manufacturer reach many smaller customers at lower cost Buying and assortment building involves the selection of items and building of assortments needed by their customers, saving the customers work 13-41

Bulk breaking involves the wholesaler buying in larger quantity and breaking into smaller lots for its customers Warehousing involves the wholesaler holding inventory, reducing its customers’ inventory cost and risk 13-42

Transportation involves the wholesaler providing quick delivery due to its proximity to the buyer Financing involves the wholesaler providing credit and financing suppliers by ordering earlier and paying on time 13-43

Risk bearing involves the wholesaler absorbing risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence Market information involves the wholesaler providing information to suppliers and customers about competitors, new products, and price developments 13-44

Management services and advice involves wholesalers helping retailers train their sales clerks, improve store layouts, and set up accounting and inventory control systems 13-45

Manufacturers’ sales branches and offices
Wholesaling Types of Wholesalers Merchant wholesalers Agents and brokers Manufacturers’ sales branches and offices 13-46

Merchant wholesalers is the largest group of wholesalers and include:
Wholesaling Types of Wholesalers Merchant wholesalers is the largest group of wholesalers and include: Full-service wholesalers who provide a full set of services Limited-service wholesalers who provide few services and specialized functions 13-47

Brokers bring buyers and sellers together and assist in negotiations
Wholesaling Types of Wholesalers Brokers and agents do not take title, perform a few functions, and specialize by product line or customer type Brokers bring buyers and sellers together and assist in negotiations Agents represent buyers or sellers 13-48

Wholesaling Types of Wholesalers
Manufacturers’ sales branches and offices is a form of wholesaling by sellers or buyers themselves rather than through independent wholesalers 13-49

Wholesaler Marketing Decisions
Wholesaling Wholesaler Marketing Decisions Target market and positioning decisions Marketing mix decisions 13-50

Wholesaling Wholesaler Marketing Decisions Target market and positioning decisions Size of customer Type of customer Need for service 13-51

Wholesaling Wholesaler Marketing Decisions Marketing mix decisions Product Price Promotion Place 13-52

Wholesaling Trends in Wholesaling Challenges
Resistance to price increases Lack of suppliers Changing customer needs Adding value by increasing efficiency and effectiveness 13-53

The End

14 Principles of Marketing Communicating Customer Value: Integrated Marketing Communications Strategy

Learning Objectives After studying this chapter, you should be able to: Discuss the process and advantages of integrated marketing communications in communicating customer value Define the five promotion tools and discuss the factors that must be considered in shaping the overall promotion mix Outline the steps in developing effective marketing communications Explain the methods for setting the promotion budget and factors that affect the design of the promotion mix 14-2

Chapter Outline The Promotion Mix Integrated Marketing Communications
A View of the Communications Process Steps in Developing Effective Communication Setting the Total Promotion Budget and Mix Socially Responsible Marketing Communication 14-3

The Promotion Mix The promotion mix is the specific blend of advertising, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships 14--4

The Promotion Mix Major Promotion Tools Advertising Sales promotion
Public relations Personal selling Direct marketing 14-5

The Promotion Mix Major Promotion Tools
Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor Broadcast Print Internet Outdoor 14-6

Sales promotion is the short-term incentives to encourage the purchase or sale of a product or service Discounts Coupons Displays Demonstrations 14-7

Public relations involves 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 Press releases Sponsorships Special events Web pages 14-8

Personal selling is the personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships Sales presentations Trade shows Incentive programs 14-9

Direct marketing involves making direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships—by using direct mail, telephone, direct-response television, , and the Internet to communicate directly with specific consumers Catalog Telemarketing Kiosks 14-10

Integrated Marketing Communications
The New Marketing Landscape Major factors affecting change toward segmented marketing Shift away from mass marketing Improvements in information technology 14-11

The Shifting Marketing Communications Model Less broadcasting and more narrowcasting Advertisers are shifting budgets away from network television to more targeted cost-effective, interactive, and engaging media 14-12

The Need for Integrated Marketing Communications Integrated marketing communication is the integration by the company of its communication channels to deliver a clear, consistent, and compelling message about the organization and its brands 14-13

The Need for Integrated Marketing Communications Integrated marketing communication calls for recognizing all contact points (brand contact) where the customer may encounter the company and its brands 14-14

A View of the Communications Process
Integrated marketing communication involves identifying the target audience and shaping a well-coordinated promotional program to obtain the desired audience response Marketers are moving toward viewing communications as managing the customer relationship over time 14-15

Sender Encoding Message Media Decoding Receiver Response Feedback Noise 14-16

Sender is the party sending the message to another party Encoding is the process of putting thought into symbolic form Message is the set of symbols the sender transmits 14-17

Media is the communications channels through which the message moves from sender to receiver Decoding is the process by which the receiver assigns meaning to the symbols Receiver is the party receiving the message sent by another party 14-18

Response is the reaction of the receiver after being exposed to the message Feedback is the part of the receiver’s response communicated back to the sender Noise is the unplanned static or distortion during the communication process, which results in the receiver’s getting a different message than the one the sender sent 14-19

For a message to be effective, the sender’s encoding must mesh with the receiver’s decoding process Best messages consist of words and other symbols that are familiar to the receiver 14-20

Marketers may not share their consumer’s field of experience but must understand the consumer’s field of experience 14-21

Steps in Developing Effective Communication
Identify the target audience Determine the communication objectives Design the message Choose the media Select the message source Collect feedback 14-22

Identifying the Target Audience Marketing communications begins with a clear target audience to answer these questions: What will be said How it will be said When it will be said Where it will be said Who will say it 14-23

Determining the Communications Objectives Marketers seek a purchase response that results from a consumer decision-making process that includes the stages of buyer readiness Awareness Knowledge Liking Preference Conviction Purchase 14-24

Designing a Message AIDA Model Get Attention Hold Interest Arouse Desire Obtain Action 14-25

Designing a Message Designing includes the message content and structure Message content—what to say Message structure and content— how to say it 14-26

Designing a Message Message content is an appeal or theme that will produce the desired response Rational appeal Emotional appeal Moral appeal 14-27

Designing a Message Rational appeal relates to the audience’s self-interest Emotional appeal is an attempt to stir up positive or negative emotions to motivate a purchase Moral appeal is directed at the audience’s sense of right and proper 14-28

Choosing Media Personal communication Non-personal communication 14-29

Choosing Media Personal communication involves two or more people communicating directing with each other Face-to-face Phone Mail Internet chat 14-30

Choosing Media Personal communication is effective because it allows personal addressing and feedback Control of personal communication Company Independent experts Word of mouth 14-31

Choosing Media Personal Communication Company Salespeople Independent experts Consumer advocates Buying guides Word of mouth Friends Neighbors Family 14-32

Choosing Media Personal Communication Opinion leaders are people within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others. 14-33

Choosing Media Personal Communication Buzz marketing involves cultivating opinion leaders and getting them to spread information about a product or service to others in their communities 14-34

Non-Personal Communication Channels Non-personal communication is media that carry messages without personal contact or feedback— including major media, atmospheres, and events—that affect the buyer directly 14-35

Non-Personal Communication Channels Major media include print, broadcast, display, and online media Atmospheres are designed environments that create or reinforce the buyer’s leanings toward buying a product 14-36

Non-Personal Communication Channels Events are staged occurrences that communicate messages to target audiences Press conferences Grand openings Exhibits Public tours 14-37

Selecting the Message The message’s impact on the target audience is affected by how the audience views the communicator Celebrities Athletes Entertainers Professionals Health care providers 14-38

Collecting Feedback Involves the communicator understanding the effect on the target audience by measuring behavior resulting from the behavior 14-39

Setting the Total Promotion Budget and Mix
Affordable budget method Percentage-of-sales method Competitive-parity method Objective-and-task method 14-40

Affordable budget method sets the budget at an affordable level Ignores the effects of promotion on sales 14-41

Percentage-of-sales method sets the budget at a certain percentage of current or forecasted sales or unit sales price Easy to use and helps management think about the relationship between promotion, selling price, and profit per unit Wrongly views sales as the cause than the result of promotion 14-42

Competitive-parity method sets the budget to match competitor outlays Represents industry standards Avoids promotion wars 14-43

Objective-and-task method sets the budget based on what the firm wants to accomplish with promotion and includes: Defining promotion objectives Determining tasks to achieve the objectives Estimating costs 14-44

Objective-and-task method forces management to spell out its assumption about the relationship between outlays and results but is difficult to use 14-45

Shaping the Overall Promotion Mix The Nature of Each Promotion Tool Advertising Personal selling Sales promotion Public relations Direct marketing 14-46

Shaping the Overall Promotion Mix The Nature of Each Promotion Tool Advertising reaches masses of geographically dispersed buyers at a low cost per exposure and enables the seller to repeat a message many times Advertising is impersonal, cannot be directly persuasive as personal selling, and can be expensive 14-47

Shaping the Overall Promotion Mix The Nature of Each Promotion Tool Personal selling is the most effective method at certain stages of the buying process, particularly in building buyers’ preferences, convictions, and actions and developing customer relationships 14-48

Shaping the Overall Promotion Mix The Nature of Each Promotion Tool Sales promotion includes coupons, contests, cents-off deals, and premiums that attract consumer attention and offer strong incentives to purchase. It can be used to dramatize product offers and to boost sagging sales. 14-49

Shaping the Overall Promotion Mix The Nature of Each Promotion Tool Public relations is a very believable form of promotion that includes new stories, features, sponsorships, and events Direct marketing is a non-public, immediate, customized, and interactive promotional tool that includes direct mail, catalogs, telemarketing, and online marketing 14-50

Promotion Mix Strategies Push strategy involves pushing the product to the consumers by inducing channel members to carry the product and promote it to final consumers Used by B2B companies 14-51

Promotion Mix Strategies Pull strategy is when the producer directs its marketing activities toward the final consumers to induce them to buy the product and create demand from channel members Used by B2C companies 14-52

Integrating the Promotion Mix Checklist Analyze trends—internal and external Audit the pockets of communication spending throughout the organization Identify all customer touch points for the company and its brands Team up in communications planning Create compatible themes, tones, and quality across all communications media Create performance measures that are shared by all communications elements Appoint a director responsible for the company’s persuasive communications efforts 14-53

Socially Responsible Marketing Communication
Communicate openly and honestly with consumers and resellers Avoid deceptive or false advertising Avoid bait and switch advertising Conform to all federal, state, and local regulations Follow rules of “fair competition” Do not offer bribes Do not attempt to obtain competitors’ trade secrets Do not disparage competitors or their products 14-54

The End

15 Principles of Marketing Advertising and Public Relations

Learning Objectives After studying this chapter, you should be able to: Define the roles of advertising in the promotion mix Describe the major decisions involved in developing an advertising program Define the role of public relationships in the promotion mix Explain how companies use public relations to communicate with and influence important publics 15-2

Chapter Outline Advertising Public Relations 15-3

Developing Advertising Programs
Setting advertising objectives Setting the advertising budget Developing advertising strategy Evaluating advertising campaigns 15-4

Developing Advertising Programs Setting Advertising Objectives
An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific time Objectives are classified by primary purpose Inform Persuade Remind 15-5

Informative advertising is used when introducing a new product category; the objective is to build primary demand Comparative advertising directly or indirectly compares the brand with one or more other brands 15-6

Persuasive advertising is important with increased competition to build selective demand 15-7

Reminder advertising is important with mature products to help maintain customer relationships and keep customers thinking about the product 15-8

Developing Advertising Programs Setting the Advertising Budget
Factors to consider when setting the budget Product life-cycle stage Market share 15-9

Product life-cycle stage New products require larger budgets Mature brands require lower budgets 15-10

Market share Building or taking market share requires larger budgets Markets with heavy competition or high advertising clutter require larger budgets Undifferentiated brands require larger budgets 15-11

Developing Advertising Programs Developing the Advertising Strategy
Advertising strategy is the strategy by which the company accomplishes its advertising objectives. It consists of two major elements: creating the advertising message and selecting the advertising media. 15-12

Developing Advertising Programs Creating the Advertising Message
Advertisements need to break through the clutter: Gain attention Communicate well 15-13

Advertisements need to be better planned, more imaginative, more entertaining, and more rewarding to consumers Madison & Vine—the intersection of Madison Avenue and Hollywood—represents the merging of advertising and entertainment 15-14

Steps in creating effective advertising messages Message strategy Creative concept Message execution 15-15

Message strategy is the general message that will be communicated to consumers Identifies consumer benefits 15-16

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 the appeals include: Meaningful Believable Distinctive 15-17

Message execution captures the target market’s attention and interest and can include the following execution styles: Slice of life Lifestyle Fantasy Mood or image Musical Personality symbol Technical expertise Scientific evidence Testimonial evidence or endorsement 15-18

Message execution also includes: Tone Positive or negative Attention-getting words Format Illustration Headline Copy 15-19

Developing Advertising Programs Selecting Advertising Media
Major steps include: Deciding on reach-frequency-impact Selecting media vehicles Deciding on media timing 15-20

Reach is a measure of the percentage of people in the target market who are exposed to the ad campaign during a given period of time Frequency is a measure of how many times the average person in the target market is exposed to the message Impact is the qualitative value of a message exposure through a given medium 15-21

Selecting media vehicles involves decisions that present the media effectively and efficiently to the target customer and must consider the message’s: Impact Effectiveness Cost 15-22

Narrowcasting versus shotgun approaches Narrowcasting focuses the message on selected market segments Lower cost Targets more effectively Engages customers better 15-23

When selecting specific media vehicles, the planner must consider cost of the media as compared to its effectiveness by evaluating: Audience quality Audience engagement Editorial quality 15-24

When deciding on media timing, the planner must consider: Seasonality Pattern of the advertising Continuity—scheduling within a given period Pulsing—scheduling unevenly within a given period 15-25

Evaluating Advertising Effectiveness and Return on Advertising Investment Types of evaluation include measuring: Communication effects Sales and profit effects 15-26

Evaluating Advertising Effectiveness and Return on Advertising Investment Communication effects indicate whether the ad and media are communicating the ad message well and can be tested before or after the ad runs Sales and profit effects compare past sales and profits with past expenditures or through experiments 15-27

Developing Advertising Programs Other Advertising Considerations
How will the company organize its advertising function? Who will perform which advertising tasks? How will the company adapt its advertising strategies and programs to international markets? 15-28

Developing Advertising Programs Other Advertising Considerations
Organizing for advertising can include: A salesperson in smaller companies Advertising departments and outside agencies in larger companies 15-29

The End

16 Principles of Marketing Personal Selling and Sales Promotion

Learning Objectives After studying this chapter, you should be able to: Discuss the role of a company’s salespeople in creating value for customers and building customer relationships Identify and explain the six major force management steps Discuss the personal selling process, distinguishing between transaction-oriented marketing and relationship marketing Explain how sales promotion campaigns are developed and implemented 16-2

Chapter Outline Personal Selling The Personal Selling Process
Sales Promotion 16-3

The Nature of Personal Selling
Examples of people who do the selling include: Salespeople Sales representatives District managers Account executives Sales engineers Agents Account development reps 16-4

The Nature of Personal Selling
Salespeople can include an order taker such as someone standing behind the counter or an order getter whose position demands more creative selling and relationship building 16-5

The Role of the Sales Force
Personal Selling The Role of the Sales Force Personal selling is the interpersonal part of the promotion mix and can include: Face-to-face communication Telephone communication Video or Web conferencing 16-6

Personal Selling The Role of the Sales Force Salespeople can be more effective than advertising Learn about customer problems and adjust the marketing offer and presentation accordingly to meet the special needs of each customer 16-7

Personal Selling The Role of the Sales Force Salespeople are an effective link between the company and its customers to produce customer value and company profit by: Representing the company to customers Representing customers to the company 16-8

Managing the Sales Force
Personal Selling Managing the Sales Force Sales force management is the analysis, planning, implementation, and control of sales force activities and includes: Designing the sales force strategy and structure Recruiting Selecting Training Compensating Supervising Evaluating 16-9

Personal Selling Managing the Sales Force Sales Force Structure Territorial sales force structure Product sales force structure Customer sales force structure Complex sales force structure 16-10

Personal Selling Managing the Sales Force Sales Force Structure Territorial sales force structure refers to a structure where each salesperson is assigned an exclusive geographic area and sells the company’s full line of products and services to all customers in that territory Defines salesperson’s job Fixes accountability Lowers sales expenses Improves relationship building and selling effectiveness 16-11

Personal Selling Managing the Sales Force Sales Force Structure Product sales force structure refers to a structure where each salesperson sells along product lines Improves product knowledge Can lead to territorial conflicts 16-12

Personal Selling Managing the Sales Force Sales Force Structure Customer sales force structure refers to a structure where each salesperson sells along customer or industry lines Improves customer relationships 16-13

Personal Selling Managing the Sales Force Sales Force Structure Complex sales force structure refers to a structure where a wide variety of products is sold to many types of customers over a broad geographic area and combines several types of sales force structures 16-14

Personal Selling Managing the Sales Force Sales Force Size Salespeople are one of the company’s most productive and expensive assets Increases in sales force size can increase sales and costs 16-15

Personal Selling Managing the Sales Force Sales Force Size Workload approach to sales force size refers to grouping accounts into different classes according to size account status or other factors related to the amount of effort required to maintain them to determine the number of salespeople needed to call on each class of accounts the desired number of times 16-16

Personal Selling Managing the Sales Force Other Sales Force Strategy and Structure Issues Outside and inside sales forces Team selling 16-17

Personal Selling Managing the Sales Force Other Sales Force Strategy and Structure Issues Outside salespeople call on customers in the field Inside salespeople conduct business from their offices 16-18

Personal Selling Managing the Sales Force Other Sales Force Strategy and Structure Issues Inside salespeople provide support for the outside salespeople Technical sales support people Sales assistants 16-19

Personal Selling Managing the Sales Force
Other Sales Force Strategy and Structure Issues Team selling is used to service large complex accounts and can include experts from: Sales Marketing Technical R&D Engineering Operations Finance 16-20

Personal Selling Managing the Sales Force Other Sales Force Strategy and Structure Issues Some challenges of team selling Customers used to working with one salesperson may become confused or overwhelmed Salespeople used to working alone can have difficulties working with and trusting teams Evaluating individual contributions can lead to compensation issues 16-21

Recruiting and Selecting Salespeople
Personal Selling Recruiting and Selecting Salespeople Issues in recruiting and selecting include: Careful selection Increases sales performance Poor selection Increases recruiting and training costs Lost sales Disrupts customer relationships 16-22

Compensating Salespeople
Personal Selling Compensating Salespeople Compensation is made up of: Fixed amounts Variable amounts Expenses Fringe benefits 16-23

Personal Selling Compensating Salespeople Fixed amounts, usually a salary, give the salesperson some stable income Variable amounts can include commission or bonus based on sales performance; rewards the salesperson for greater effort and success 16-24

Personal Selling Compensating Salespeople Companies are moving from high commission plans that may drive salespeople to make short-term grabs for business and not develop long-term customer relationships Companies are moving to compensation plans that reward salespeople for building customer relationships and growing long-term value with each customer 16-25

Supervising and Motivating Salespeople
Personal Selling Supervising and Motivating Salespeople The goal of supervision is to help salespeople work smart by doing the right things in the right ways The goal of motivation is to encourage salespeople to work hard and energetically toward sales force goals 16-26

Personal Selling Supervising and Motivating Salespeople Sales force automation systems are computerized. Digitalized sales force operations let salespeople work more effectively anywhere, anytime, providing improved: Time management Customer service Lower sales costs Higher sales performance 16-27

Personal Selling Supervising and Motivating Salespeople Sales morale and performance can be increased through: Organizational climate Sales quotas Positive incentives 16-28

Personal Selling Supervising and Motivating Salespeople Organizational climate describes the feeling that salespeople have about their opportunities, value, and rewards for good performance 16-29

Personal Selling Supervising and Motivating Salespeople Sales quotas are standards stating the amount salespeople should sell and how sales should be divided among the company’s products 16-30

Personal Selling Supervising and Motivating Salespeople Positive incentives include: Sales meetings that can provide social occasions to meet management and discuss opportunities and challenges Sales contests to motivate the sales force to make additional effort 16-31

Evaluating Salespeople and Sales Force Performance
Personal Selling Evaluating Salespeople and Sales Force Performance Sales reports Call reports Expense reports 16-32

The Personal Selling Process
The goal of the personal selling process is to get new customers and obtain orders from them 16-33

Steps in the Personal Selling Process Prospecting and qualifying Pre-approach Approach Presentation and demonstration Handling objections Closing Follow-up 16-34

Steps in the Personal Selling Process Prospecting identifies qualified potential customers through referrals from: Customers Suppliers Dealers Internet 16-35

Steps in the Personal Selling Process Qualifying is identifying good customers and screening out poor ones by looking at: Financial ability Volume of business Needs Location Growth potential 16-36

Steps in the Personal Selling Process Pre-approach is the process of learning as much as possible about a prospect, including needs, who is involved in the buying, and the characteristics and styles of the buyers 16-37

Steps in the Personal Selling Process In the pre-approach stage, the salesperson sets call objectives and the best approach Objectives Qualify the prospect Gather information Make an immediate sale Approaches Personal visit Phone call Letter 16-38

Steps in the Personal Selling Process Approach is the process where the salesperson meets and greets the buyer and gets the relationship off to a good start, and involves the salesperson’s: Appearance Opening lines Follow-up remarks 16-39

Steps in the Personal Selling Process Opening lines should be positive, build goodwill, and be followed by key questions to learn about the customer’s needs or by showing a display or sample to attract the buyer’s attention and curiosity The most important attribute is for the salesperson to: Listen 16-40

Steps in the Personal Selling Process Presentation is when the salesperson tells the product story to the buyer, presenting customer benefits and showing how the product solves the customer’s problems Need-satisfaction approach: Buyers want solutions, and salespeople should listen and respond with the right products and services to solve customer problems 16-41

Steps in the Personal Selling Process Buyers dislike salespeople that are: Pushy Late Deceitful Disorganized Unprepared 16-42

Steps in the Personal Selling Process Buyers appreciate salespeople that are: Good listeners Empathetic Honest Dependable Thorough Follow-up types 16-43

Steps in the Personal Selling Process Handling objections is the process where salespeople resolve problems that are logical, psychological, or unspoken When handling objections from buyers, salespeople should: Be positive Seek out hidden objections Ask the buyers to clarify any objections Take objections as opportunities to provide more information Turn objections into reasons for buying 16-44

Steps in the Personal Selling Process Closing is the process where salespeople should recognize signals from the buyer, including physical actions, comments, and questions to close the sale 16-45

Steps in the Personal Selling Process Closing techniques can include: Asking for the order Reviewing points of agreement Offering to help write up the order Asking if the buyer wants this model or another one Making note that the buyer will lose out if the order is not placed now Offering incentives to buy, including lower price or additional quantity 16-46

Personal Selling and Customer Relationship Management Personal selling is a transaction-oriented approach to close a specific sale with a specific customer, with the long-term goal to develop a mutually profitable relationship 16-47

Personal Selling and Customer Relationship Management Attributes of a favorable supplier include the ability to: Deliver a coordinated set of products and services to many locations Work with customer teams and improve products and processes Listen to customers and understand their needs 16-48

Sales Promotion Sales promotion is the short-term incentives to encourage purchases or sales of a product or service 16-49

Rapid Growth of Sales Promotion Types of Sales Promotions
Consumer promotions Trade promotions Sales force promotions 16-50

Rapid Growth of Sales Promotion
Factors in the Growth of Sales Promotions Product managers are under pressure to increase current sales Companies face more competition Competing brands offer less differentiation Advertising efficiency has declined due to rising costs, clutter, and legal constraints Consumers have become more deal-oriented Large retailers are demanding more deals from suppliers 16-51

Rapid Growth of Sales Promotion
Factors in the Growth of Sales Promotions Developing a sales promotion program Set sales promotion objectives Select sales promotion tools 16-52

Sales Promotion Objectives
Setting sales promotion objectives include using: Consumer promotions Trade promotions Sales force promotions 16-53

Consumer promotions objectives are to: Urge short-term customer buying Enhance long-term customer relationships 16-54

Trade promotions urge retailers to: Carry new items or more inventory Buy in advance Advertise company products Get more shelf space 16-55

Sales force promotion objectives include getting: More sales force support for new or current products Salespeople to sign up new accounts 16-56

Major Sales Promotion Tools
Consumer promotion tools Trade promotion tools Business promotion tools 16-57

Major Sales Promotion Tools Consumer Promotion Tools
Patronage rewards Point of purchase displays Demonstrations Contests Sweepstakes Games Samples Coupons Cash refunds Price packs Premiums Advertising specialties 16-58

Price packs offer consumers savings off the regular price of a product Premiums are goods offered either free or at low cost to buy a product Advertising specialties are useful articles imprinted with the advertiser’s name, logo, or message that are given as gifts to consumers 16-59

Samples offer a trial amount of a product Coupons are certificates that give buyers a saving when they purchase specified products Cash refunds are similar to coupons except that the price reduction occurs after the purchase 16-60

Patronage rewards are cash or other awards offered for the regular use of a certain company’s products or services Point-of-purchase promotions include displays and demonstrations that take place at the point of sales 16-61

Contests, sweepstakes, and games give consumers the chance to win something, such as cash, trips, or goods, by luck or through extra effort Contests require an entry by a consumer Sweepstakes require consumers to submit their names for a drawing Games present consumers with something that may or may not help them win a prize 16-62

Trade Promotion Tools Trade promotion tools persuade resellers to: Carry a brand Give the brand more shelf space Promote the brand in advertising Push the brand to consumers 16-63

Trade Promotion Tools Trade promotion tools include: Discount Allowance Free goods Specialty advertising 16-64

Major Sales Promotion Tools Business Promotion Tools
Business promotion tools are used to: Generate leads Stimulate purchases Reward customers Motivate salespeople Conventions and trade shows Sales contests 16-65

Major Sales Promotion Tools Business Promotion Tools
Conventions and trade shows are effective ways to reach many customers not reached with the regular sales force Sales contests are effective in motivating salespeople or dealers to increase performance over a given period 16-66

Developing the Sales Promotion Program
Size of the incentive Conditions for participation Promote and distribute the program Length of the program Evaluation of the program 16-67

The End

17 Principles of Marketing Direct and Online Marketing: Building Direct Customer Relationships

Learning Objectives After studying this chapter, you should be able to: Define direct marketing and discuss its benefits to customers and companies Identify and discuss the major forms of direct marketing Explain how companies have responded to the Internet and other powerful new technologies with online marketing strategies Discuss how companies go about conducting online marketing to profitably deliver more value to customers Overview the public policy and ethical issues presented by direct marketing 17-2

Chapter Outline The New Direct-Marketing Model
Growth and Benefits of Direct Marketing Customer Databases and Direct Marketing Forms of Direct Marketing Online Marketing Integrated Direct Marketing Public Policy Issues in Direct Marketing 17-3

The New Direct-Marketing Model
Direct marketing consists of direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships No intermediaries An element of the promotion mix Fastest-growing form of marketing 17-4

Growth and Benefits of Direct Marketing
Benefits to Buyers Convenience Ready access to many products Access to comparative information about companies, products, and competitors Interactive and immediate 17-5

Growth and Benefits of Direct Marketing
Benefits to Sellers Tool to build customer relationships Low-cost, efficient, fast alternative to reach markets Flexible Access to buyers not reachable through other channels 17-6

Customer Databases and Direct Marketing
Customer database is an organized collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic, and behavioral data 17-7

Customer Databases and Direct Marketing
Uses: Locate good and potential customers Generate sales leads Learn about customers Develop strong long-term relationships 17-8

Forms of Direct Marketing
Personal selling direct marketing Direct-mail direct marketing Catalog direct marketing Telephone marketing Direct-response television marketing Kiosk marketing Digital direct marketing Online marketing 17-9

Direct-mail marketing involves an offer, announcement, reminder, or other item to a person at a particular address Personalized Easy-to-measure results Costs more than mass media Provides better results than mass media 17-10

Catalog direct marketing involves printed and Web-based catalogs Benefits of Web-based catalogs Lower cost than printed catalogs Unlimited amount of merchandise Real-time merchandising Interactive content Promotional features Challenges of Web-based catalogs Require marketing Difficulties in attracting new customers 17-11

Telephone direct marketing involves using the telephone to sell directly to consumers and business customers Outbound telephone marketing sells directly to consumers and businesses Inbound telephone marketing uses toll-free numbers to receive orders from television and print ads, direct mail, and catalogs 17-12

Challenges of Web-based catalogs Unsolicited outbound telephone marketing Do-Not-Call Registry Benefits of telephone direct marketing Purchasing convenience Increased product service and information 17-13

Direct-response television (DRTV) marketing involves 60- to 120-second advertisements that describe products or give customers a toll-free number or Web site to purchase and 30-minute infomercials such as home shopping channels Less expensive than other forms of promotion Easier to track results 17-14

Kiosk marketing involves placing information and ordering machines in stores, airports, trade shows, and other locations 17-15

Digital direct marketing technologies Mobile phone marketing Podcasts Vodcasts Interactive TV 17-16

Mobile phone marketing includes: Ring-tone giveaways Mobile games Ad-supported content Contests and sweepstakes 17-17

Podcasts and Vodcasts involve the downloading of audio and video files via the Internet to a handheld device such as a PDA or iPod and listening to them at the consumer’s convenience 17-18

Interactive TV (ITV) lets viewers interact with television programming and advertising using their remote controls and provides marketers with an interactive and involving means to reach targeted audiences 17-19

Marketing and the Internet
Online Marketing Marketing and the Internet Internet is a vast public web of computer networks that connects users of all types around the world to each other and to a large information repository 17-20

Online Marketing Domains
Business to consumer (B2C) Business to business (B2B) Consumer to consumer (C2C) Consumer to business (C2B) 17-21

Business to consumer (B2C) involves selling goods and services online to final consumers Business to business (B2B) involves selling goods and services, providing information online to businesses, and building customer relationships 17-22

Consumer to consumer (C2C) occurs on the Web between interested parties over a wide range of products and subjects Blogs Offer a fresh, original, and inexpensive way to reach fragmented audiences Difficult to control 17-23

Consumer to business (C2B) involves consumers communicating with companies to send suggestions and questions via company Web sites 17-24

Types of Online Marketers
Online Marketing Types of Online Marketers Click-only marketers Click-and-mortar marketers 17-25

Online Marketing Types of Online Marketers Click-only marketers operate only online without any brick and mortar presence E-tailers Search engines and portals Shopping or price comparison sites Internet service providers (ISP) Transaction sites Content sites 17-26

Online Marketing Types of Online Marketers E-tailers are dot coms that sell products and services directly to final buyers via the Internet Amazon Expedia Search engines and portals are ports of entry to the Internet Yahoo! Google 17-27

Online Marketing Types of Online Marketers Internet service providers (ISP) provide Internet connections for a fee AOL Earthlink Shopping or price comparison sites provide product and price comparison information Yahoo! shopping 17-28

Online Marketing Types of Online Marketers Transaction sites take commissions for transactions on their sites eBay Content sites provide financial, news, research, and other information New York Times.com ESPN.com 17-29

Online Marketing Types of Online Marketers Click-and-mortar companies are brick-and-mortar companies with an online presence Advantages of click and mortar companies include: Known and trusted brand names Strong financial resources Large customer bases Industry knowledge Reputation Strong supplier relationships More options for customers 17-30

Setting Up an Online Presence
Online Marketing Setting Up an Online Presence Creating a Web site requires designing an attractive site and developing ways to get consumers to visit the site, remain on the site, and return to the site 17-31

Online Marketing Setting Up an Online Presence Types of sites Corporate Web site Marketing Web site 17-32

Setting up an Online Presence
Online Marketing Setting up an Online Presence Corporate Web site is designed to build customer goodwill and to supplement other channels, rather than to sell the company’s products directly to: Provide information Create excitement Build relationships 17-33

Online Marketing Setting Up an Online Presence Marketing Web site is designed to engage consumers in interaction that will move them closer to a direct purchase or other marketing outcome 17-34

Designing Effective Web Sites
Online Marketing Designing Effective Web Sites To attract visitors, companies must: Promote in offline promotion and online links Create value and excitement Constantly update the site Make the site useful 17-35

Online Marketing Designing Effective Web Sites The seven Cs of effective Web site design Context Content Community Customization Communication Connection Commerce 17-36

Online Marketing Designing Effective Web Sites Context is the site’s layout Content is the site’s pictures, sound, and video Community is the site’s means to enable user-to-user communication Customization is the site’s ability to tailor itself to different users or to allow users to personalize the site 17-37

Online Marketing Designing Effective Web Sites Communication is the way the site enables user-to-user, user-to-site, or two-way communication Connection is the degree that the site is lined to other sites Commerce is the site’s capabilities to enable commercial transactions 17-38

Online Marketing Designing Effective Web Sites The eighth C To keep customers coming back, the site needs to constantly change 17-39

Placing Ads and Promotions Online
Online Marketing Placing Ads and Promotions Online Forms of online advertising Display ads Search-related ads Online classifieds 17-40

Online Marketing Placing Ads and Promotions Online Display ads Banners are banner-shaped ads found on a Web site Interstitials are ads that appear between screen changes Pop-ups are ads that suddenly appear in a new window in front of the window being viewed Rich media ads incorporate animation, video, sound, and interactivity 17-41

Online Marketing Placing Ads and Promotions Online Search-related ads are ads in which text-based ads and links appear alongside search engine results on sites such as Google and Yahoo! and are effective in linking consumers to other forms of online promotion 17-42

Online Marketing Placing Ads and Promotions Online Other forms of online promotion include: Content sponsorships Alliances Affiliate programs Viral advertising 17-43

Online Marketing Placing Ads and Promotions Online Content sponsorships provide companies with name exposure through the sponsorship of special content such as news or financial information Alliances and affiliate programs are relationships where online companies promote each other Viral marketing is the Internet version of word-of-mouth marketing and involves the creation of a Web site, an message, or another marketing event that customers pass along to friends 17-44

The Future of Online Advertising
Online Marketing The Future of Online Advertising Online advertising provides a useful purpose as a supplement to other marketing efforts and is playing an increasingly important role in the marketing mix 17-45

Creating or Participating in Web Communities
Online Marketing Creating or Participating in Web Communities Web communities allow members to congregate online and exchange views on issues of common interest iVillage.com MyFamily.com 17-46

Online Marketing Using E-mail
Marketers are developing enriched messages that include animation, interactivity, and personal messages with streaming audio and video to compete with the cluttered environment 17-47

Integrated Direct Marketing
Integrated direct marketing involves the use of carefully coordinated multiple-media, multiple-stage campaigns 17-48

Public Policy Issues in Direct Marketing
Customer irritation, unfairness, deception, and fraud Privacy Security 17-49

Irritation, Unfairness, Deception, and Fraud Irritation includes annoying and offending customers Unfairness includes taking unfair advantage of impulsive or less-sophisticated buyers Deception includes “heat merchants” who design mailers and write copy designed to mislead consumers Internet fraud includes identity theft and financial scams 17-50

Invasion of Privacy The concern is that markers may know too much about consumers and use this information to take unfair advantage Sale of databases Microsoft 17-51

A Need for Action California Online Privacy Protection Act (OPPA) Children’s Online Privacy Protection Act (COPPA) TRUSTe 17-52

The End

18 Principles of Marketing Creating Competitive Advantage

Learning Objectives After studying this chapter, you should be able to: Discuss the need to understand competitors as well as customers through competitor analysis Explain the fundamentals of competitive marketing strategies based on creating value for customers Illustrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization 18-2

Chapter Outline Competitor Analysis Competitive Strategies
Balancing Customer and Competitor Orientations 18-3

Identifying Competitors
Competitor Analysis Identifying Competitors Competitors can include: All firms making the same product or class of products All firms making products that supply the same service All firms competing for the same consumer dollars 18-4

Competitor Analysis Identifying Competitors Competitor myopia refers to a firm focusing on what it considers to be its direct competition and not being aware of indirect or new competitors 18-5

Competitor Analysis Identifying Competitors Industry point of view refers to competitors within the same industry Market point of view refers to competitors trying to satisfy the same customer need or build relationships with the same customer group 18-6

Competitor Analysis Identifying Competitors Market point of view is considered to provide a broader set of actual and potential competitors, and a competitor map illustrates the steps buyers take in obtaining the product 18-7

Competitor Analysis Identifying Competitors Competitor map highlights both competitive opportunities and challenges facing the firm Center is the list of consumer activities First outer ring lists main competitors Second outer ring lists indirect competitors 18-8

Assessing Competitors
Competitor Analysis Assessing Competitors Competitor’s objectives Competitor’s strategies Competitor’s strengths and weaknesses Competitor’s actions and reactions 18-9

Determining Competitor’s Objectives
Competitor Analysis Determining Competitor’s Objectives Competitor’s objectives include: Profitability Market share growth Cash flow Technological leadership Service leadership 18-10

Identifying Competitor’s Strategies
Competitor Analysis Identifying Competitor’s Strategies A strategic group is a group of firms in an industry following the same or similar strategy in a given target market Competition is most intense within a strategic group Competition among strategic groups is due to overlapping customers and lack of perceived differentiation and expansion of one strategic group into new segments 18-11

Identifying Competitor’s Strategies
Competitor Analysis Identifying Competitor’s Strategies Companies need to understand the competitor’s ability to deliver value to its customers Product quality Product features Customer service Pricing policy Distribution coverage Sales force strategy Promotion programs Financial strategies R&D 18-12

Assessing Competitor’s Strengths and Weaknesses
Competitor Analysis Assessing Competitor’s Strengths and Weaknesses Primary data Secondary data Personal experience Word of mouth Benchmarking is the comparison of the company’s products or services to competitors or leaders in other industries to find ways to improve quality and performance 18-13

Estimating Competitor’s Reactions
Competitor Analysis Estimating Competitor’s Reactions Marketing managers need to develop an understanding of a given competitor’s mentality, culture, values, and way of doing business to anticipate how the competitor will react to the company’s marketing strategies 18-14

Selecting Competitors to Attack and Avoid
Competitor Analysis Selecting Competitors to Attack and Avoid Customer value analysis determines the benefits that target customers value and how customers rate the relative value of various competitor’s offers. Identification of major attributes that customers value and the importance of these values Assessment of the company’s and competitors’ performance on the valued attributes 18-15

Close or Distant Competitors
Competitor Analysis Close or Distant Competitors Close competitors resemble the company the most 18-16

Good or Bad Competitors
Competitor Analysis Good or Bad Competitors Good competitors: Increase total demand Share costs of market and product development Legitimize new technologies Serve less attractive market segments Provide more product differentiation Lower the anti-trust risk Improve bargaining power versus legislators and regulators 18-17

Good or Bad Competitors
Competitor Analysis Good or Bad Competitors Bad competitors: Try to share rather than earn in the market Take large risks Create disruption 18-18

Designing a Competitive Intelligence System
Competitor Analysis Designing a Competitive Intelligence System Identifies competitive information and the best sources of this information Continually collects information Checks information for validity and reliability Interprets information Organizes information Sends key information to relevant decision makers Responds to inquiries about competitors 18-19

Competitive Strategies
Approaches to Marketing Strategy Stages of approaches to marketing strategy include: Entrepreneurial marketing Formulated marketing Intrepreneurial marketing 18-20

Approaches to Marketing Strategy Entrepreneurial marketing involves visualizing an opportunity and constructing and implementing flexible strategies Formulated marketing involves developing formal marketing strategies and following them closely Intrepreneurial marketing involves the attempt to reestablish an internal entrepreneurial spirit and refresh marketing strategies and approaches 18-21

Basic Competitive Strategies Michael Porter’s four basic competitive positioning strategies Overall cost leadership Differentiation Focus Middle-of-the-roaders 18-22

Basic Competitive Strategies Overall cost leadership strategy is when a company achieves the lowest production and distribution costs and allow it to lower its prices and gain market share 18-23

Basic Competitive Strategies Differentiation strategy is when a company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader 18-24

Basic Competitive Strategies Focus strategy is when a company focuses its effort on serving few market segments well rather than going after the whole market 18-25

Basic Competitive Strategies Porter believed that companies that pursued a clear strategy would achieve superior performance and that companies without a clear strategy would not succeed Porter considered them to be “middle-of-the-roaders” 18-26

Basic Competitive Strategies Michael Treacy and Fred Wiersema suggest companies can gain leadership positions by delivering superior value to their customers in three strategies or “value disciplines” Operational excellence Customer intimacy Product leadership 18-27

Basic Competitive Strategies Operational excellence refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system 18-28

Basic Competitive Strategies Customer intimacy refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers 18-29

Basic Competitive Strategies Product leadership refers to a company providing superior value by offering a continuous stream of leading-edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market. 18-30

Basic Competitive Strategies Product leadership refers to a company providing superior value by offering a continuous stream of leading edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market. 18-31

Competitive Positions Market leader strategy Market challenger strategy Market follower strategy Market nicher strategy 18-32

Competitive Positions Market leader is the firm with the largest market share and leads the market price changes, product innovations, distribution coverage, and promotion spending Market challengers are firms fighting to increase market share Market followers are firms that want to hold onto their market share Market nichers are firms that serve small market segments not being pursued by other firms 18-33

Market Leader Strategies Expand total demand Protect their current market Expand market share 18-34

Market Leader Strategies Expanding Total Demand Expand total demand by developing: New users New uses More usage of its products 18-35

Market Leader Strategies Protecting Market Share Protect current market by: Fixing or preventing weaknesses that provide opportunities to competitors Maintaining consistent prices that provide value Keeping strong customer relationships Continuous innovation 18-36

Market Leader Strategies Expanding Market Share Expand market share by: Increasing market share in served markets, thus increasing profitability Producing high-quality products Creating good service experiences Building close customer relationships 18-37

Market Challenger Strategies Challenge the leader with an aggressive bid for more market share Play along with competitors and not rock the boat 18-38

Market Challenger Strategies Second mover advantage occurs when a market follower observes what has made the leader successful and improves on it Challenges firms its own size or smaller 18-39

Market Nicher Strategies Ideal market niche is big enough to be profitable with high growth potential and has little interest from competitors Key to market niching is specialization Market Customer Product Marketing mix 18-40

Balancing Customer and Competitor Orientations
Companies need to continuously adapt strategies to changes in the competitive environment Competitor-centered company Customer-centered company Market-centered company 18-41

Competitor-centered company spends most of its time tracking competitor’s moves and market shares and trying to find ways to counter them Advantage is that the company is a fighter Disadvantage is that the company is reactive 18-42

Customer-centered company spends most of its time focusing on customer developments in designing strategies Provides a better position than competitor-centered company to identify opportunities and build customer relationships 18-43

Market-centered company spends most of its time focusing on both competitor and customer developments in designing strategies 18-44

The End

19 Principles of Marketing The Global Marketplace

Learning Objectives After studying this chapter, you should be able to: Discuss how the international trade system, economic, political-legal, and cultural environments affect a company’s international marketing decisions Describe three key approaches to entering international markets Explain how companies adapt their marketing mixes for international markets Identify the three major forms of international marketing organizations 19-2

Chapter Outline Global Marketing Today
Looking at the Global Marketing Environment Deciding Whether to Go Global Deciding Which Markets to Enter Deciding How to Enter the Market Deciding on the Global Marketing Program Deciding on the Global Marketing Organization 19-3

Global Marketing Today
A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors The global firms sees the world as one market 19-4

Global Marketing Today
Global firms ask a number of basic questions What market position should we try to establish in our own country, in our economic region, and globally? Who will our global competitors be, and what are their strategies and resources? Where should we produce or source our product? What strategic alliances should we form with other firms around the world? 19-5

Looking at the Global Marketing Environment
The International Trade System Restrictions on trade between nations include: Tariffs Quotas Exchange controls Non-tariff trade barriers 19-6

The International Trade System Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic firms Quotas are limits on the amount of foreign imports a country will accept in certain product categories to conserve on foreign exchange and protect domestic industry and employment 19-7

The International Trade System Exchange controls are a limit on the amount of foreign exchange and the exchange rate against other currencies Nontariff trade barriers are biases against bids or restrictive product standards that go against American product features 19-8

The International Trade System The World Trade Organization and GATT The General Agreement on Tariffs and Trade (GATT) is a 59-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers Uruguay Round reduced merchandise tariffs by 30 percent and set up the World Trade Organization to enforce GATT rules 19-9

The International Trade System The World Trade Organization and GATT World Trade Organization Enforces GATT rules Mediates disputes Imposes trade sanctions 19-10

The International Trade System Regional Free Trade Zones Economic communities are free trade zones created by nations to work toward common goals in the regulation of international trade European Union (EU) North American Free Trade Agreement (NAFTA) Caribbean Free Trade Agreement (CAFTA) South American Community of Nations (CSN) 19-11

Economic Environment Economic factors reflect a country’s attractiveness as a market Industrial structure Income distribution 19-12

Economic Environment Industrial Structure Subsistence economies Raw material exporting economies Industrializing economies Industrial economies 19-13

Economic Environment Industrial Structure Subsistence economies have a large majority of people engaged in agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities. Raw material exporting economies are rich in one or more natural resources. They are good markets for large equipment, tools, supplies, and trucks. If there is a wealthy upper class, then they are also a market for luxury goods. 19-14

Economic Environment Industrial Structure Industrializing economies have manufacturing that represents 10 percent to 20 percent of the economy and needs imports of raw textile materials, steel, and heavy machinery and fewer imports of finished textiles, paper products, and automobiles. These economies create a rich upper class and a small but growing middle class that demand new types of imported goods. Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade among themselves and export to other economies. They represent an attractive market for all types of goods and services. 19-15

Economic Environment Income Distribution Low-income households Middle-income households High-income households 19-16

Political-Legal Environment Country’s attitude toward international buying Government bureaucracy Political stability Monetary regulations 19-17

Political-Legal Environment Country’s attitude toward international buying involves the country’s receptiveness to foreign business Monetary regulations involve the stability of exchange rates and currency limitations 19-18

Political-Legal Environment Countertrade is a non-cash payment Barter is the exchange of goods or services Compensation or buyback is the sale of a plant or equipment and the payment in resulting products Counterpurchase is when the seller receives payment and agrees to spend some of the money in the other country 19-19

Cultural Environment Impact of Culture on Marketing Strategy Business norms Cultural preferences, traditions, and behaviors 19-20

Deciding Whether to Go Global
Factors to consider Global competition in the home market Stagnant or shrinking home market Foreign markets with more opportunity Expansion of customers to international markets 19-21

Deciding Which Markets to Enter
Define international marketing objectives and policies Foreign sales volume How many countries to market to Types of countries to market to based on: Geography Income and population Political climate 19-22

Deciding Which Markets to Enter
Rank potential global markets based on: Market size Market growth Cost of doing business Competitive advantage Risk level 19-23

Deciding How to Enter the Market
Ways to enter global markets include: Exporting Joint venturing Direct investment 19-24

Exporting is when the company produces its goods in the home country and sells them in a foreign market. It is the simplest means involving the least change in the company’s product lines, organization, investments, or mission. Indirect exporting Direct exporting 19-25

Exporting Indirect exporting is when the firm works through an independent international marketing intermediary. This requires less investment and risk since the firm does not require an overseas organization or network. Direct exporting is when the firm handles its own exports. This requires a greater investment and risk. Domestic export department Send home-based salespeople abroad Use of foreign distributors 19-26

Joint venturing is when a firm joins with foreign companies to produce or market products or services Licensing Contract manufacturing Management contracting Joint ownership Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad 19-27

Joint Venturing Licensing is when a firm enters into an agreement with a licensee in a foreign market. For a fee or royalty, the licensee buys the right to sue the company’s process, trademark, patent, trade secret, or other item of value 19-28

Joint Venturing Contract manufacturing is when a firm contracts with manufacturers in the foreign market to product its product or provide its service. Benefits include faster startup, less risk, and the opportunity to form a partnership or to buy out the local manufacturer. 19-29

Joint Venturing Management contracting is when the domestic firm supplies management skill to a foreign company that supplies capital. The domestic firm is exporting management services rather than products. Joint ownership is when one company joins forces with foreign investors to create a local business in which they share joint ownership and control. Joint ownership is sometimes required for economic or political reasons. 19-30

Direct investment is the development of foreign-based assembly or manufacturing facilities and offers a number of advantages: Lower costs Raw material Labor Government incentives Logistics Control 19-31

Deciding on the Global Marketing Program
Standardize marketing mix involves selling the same products and using the same marketing approaches worldwide Adapted marketing mix involves adjusting the marketing mix elements in each target market, bearing more costs but hoping for a larger market share and ROI 19-32

Product Strategies Straight product extension means marketing a product in a foreign market without any change Product adaptation involves changing the product to meet local conditions or wants Product invention consists of creating something new for a specific country market Maintain or reintroduce earlier products Create new products 19-33

Promotion Strategies Companies can either adopt the same communication strategy they use at home or change it for each market 19-34

Price Strategies Uniform pricing is the same price in all markets but does not consider income or wealth where the price may be too high in some markets or not high enough in other markets Market-based pricing is the price that markets can pay but does not consider actual costs Standard markup pricing is a price based on a percentage of cost but can cause problems in countries with high costs 19-35

Distribution Strategies Whole-Channel View Seller’s headquarters organization supervises the channel and is also a part of the channel Channels between nations move the products to the borders of the foreign nations Channel within nations move the products from their foreign point of entry to the final customers 19-36

Distribution Strategies Differences Within Countries Numbers and types of intermediaries Size and character of retail units 19-37

Deciding on the Global Marketing Organization
Typical management of international marketing activities include: Organize and export department with a sale manager and staff Create an international division organized by geography, products, or operating units Become a complete global organization 19-39

The End

20 Principles of Marketing Marketing Ethics and Social Responsibility

Learning Objectives After studying this chapter, you should be able to: Identify the major social criticisms of marketing Define consumerism and environmentalism and explain how they affect marketing strategies Describe the principles of socially responsible marketing Explain the role of ethics in marketing 20-2

Chapter Outline Social Criticisms of Marketing
Citizen and Public Actions to Regulate Marketing Business Actions Toward Socially Responsible Marketing 20-3

Social Criticisms of Marketing
Marketing’s Impact on Individual Consumers High cost of distribution High advertising and promotion costs Excessive markups Deceptive practices 20-4

Marketing’s Impact on Individual Consumers High Cost of Distribution Complaint: Intermediaries mark up prices beyond their value due to inefficiencies and unnecessary or duplicative services Response: Markups reflect the cost of the services that consumers expect Convenience Larger stores and assortments More service Return privileges 20-5

Marketing’s Impact on Individual Consumers High Advertising and Promotion costs Complaint: Prices are inflated to absorb advertising and sales promotion costs, and packaging only adds to the psychological, not functional, value of the product Response: Advertising does add to product cost but also to product value by informing potential customers of the availability and merits of the product 20-6

Marketing’s Impact on Individual Consumers Excessive Markups Response: Most businesses try to deal fairly with consumers because they want to build relationships and repeat business Complaint: Companies mark up products excessively 20-7

Marketing’s Impact on Individual Consumers Deceptive Practices Complaint: Companies use deceptive practices that lead customers to believe they will get more value than they actually do. These practices fall into three categories: Deceptive pricing Deceptive promotion Deceptive packaging 20-8

Marketing’s Impact on Individual Consumers Deceptive Practices Deceptive pricing includes practices such as falsely advertising “factory” or “wholesale” prices or a large price reduction from a phony high retail list price Deceptive promotion includes practices such as misrepresenting the product’s features or performance or luring the customer to the store for a bargain that is out of stock Deceptive packaging includes exaggerating packaging contents through subtle design, using misleading labeling or describing size in misleading terms 20-9

Marketing’s Impact on Individual Consumers Deceptive Practices Legislation to protect consumer from deceptive practices Wheeler-Lea Act—gives the Federal Trade Commission (FTC) power to regulate “unfair or deceptive acts or practices” Is it deception or alluring or puffery that is just an exaggeration for effect? Products that are harmful Products that provide little benefit Products that are not made well 20-10

Marketing’s Impact on Individual Consumers Deceptive Practices High-Pressure Selling Complaint: Salespeople use high-pressure selling that persuades people to buy goods they had no intention of buying Response: Most selling involves building long-term relationships and valued customers. High pressure or deceptive selling can damage these relationships. 20-11

Marketing’s Impact on Individual Consumers Deceptive Practices Shoddy, Harmful, or Unsafe Products Response: Today’s marketers know that customer-driven quality results in customer value and satisfaction that creates profitable customer relationships. There is no value in marketing shoddy, harmful, or unsafe products. Complaint: Products have poor quality, provide little benefit, and can be harmful 20-12

Marketing’s Impact on Individual Consumers Deceptive Practices Planned Obsolescence Complaint: Producers follow a program of planned obsolescence, causing their products to become obsolete before they actually need replacement. Producers also continually change consumers’ concepts of acceptable styles to encourage more and earlier buying. Response: Planned obsolescence is really the result of competitive market forces leading to ever-improving goods and services. Marketers know that customers like style changes and want the latest innovations even if older models still work. 20-13

Marketing’s Impact on Individual Consumers Deceptive Practices Poor Service to Disadvantaged Consumers Response: Some marketers profitably target these customers, and the FTC has taken action against marketers that do advertise false values, wrongfully deny service, or charge disadvantaged customers too much. Complaint: American marketers serve disadvantaged customers poorly. Some retail companies “redline” poor neighborhoods and avoid placing stores there. 20-14

Marketing’s Impact on Society as a Whole False Wants and Too Much Materialism Complaint: The marketing system urges too much interest in material possessions. People are judged by what they own rather than who they are, creating false wants that benefit industry more than they benefit consumers. Response: People do have strong defenses against advertising an other marketing tools. Marketers are most effective when they appeal to existing wants rather than creating new ones. The high failure rate of new products shows that companies cannot control demand. 20-15

Marketing’s Impact on Society as a Whole Too Few Social Goods Response: There needs to be a balance between private and public goods Producers should bear full social costs of their operations Consumers should pay the social costs of their purchases Complaint: Businesses oversell private goods at the expense of public goods and require more public goods to support them 20-16

Marketing’s Impact on Society as a Whole Cultural Pollution Response: Marketing and advertising are planned to reach only a target audience, and advertising makes radio and television free to users and helps to keep the cost of newspapers and magazines down. Today’s consumers have alternatives to avoid marketing and advertising from technology. Complaint: Marketing and advertising creates cultural pollution 20-17

Marketing’s Impact on Society as a Whole Too Much Political Power Complaint: Businesses wield too much political power over mass media, limiting media to report independently and objectively Response: American industries do promote their own interests, and regulators are seeking to balance the interests of big businesses against the public Microsoft Tobacco 20-18

Marketing’s Impact on Other Businesses Acquisition of competitors Marketing practices Unfair competitive marketing practices 20-19

Marketing’s Impact on Other Businesses Acquisition of competitors can sometimes be good for society when the acquiring company gains economies of scale that lead to lower prices Marketing practices can also bar new competitors from entering an industry and can create use patents, heavy promotional spending to drive out existing competitors Unfair competitive marketing practices such as setting prices below cost, threatening to cut off business with suppliers, or discouraging the buying of a competitor’s product can hurt or destroy other firms 20-20

Citizen and Public Actions to Regulate Marketing
Consumerism is the organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers Environmentalism is an organized movement of concerned citizens, businesses, and government agencies to protect and improve people’s living environment 20-21

Consumerism Traditional sellers’ rights include: The right to introduce any product in any size and style, provided it is not hazardous to personal health or safety, or if it is, to include proper warning and controls The right to charge any price for the product, provided no discrimination exists among similar kinds or buyers The right to spend any amount to promote the product, provided it is not defined as unfair competition The right to use any product message, provided it is not misleading or dishonest in content or execution The right to use any buying incentive programs, provided they are not unfair or misleading 20-22

Environmentalism People and organizations should operate with more care for the environment The marketing system’s goal should not be to maximize consumption, consumer choice, or satisfaction, but rather to maximize life quality. Environmental costs should be included in both producer and consumer decision making. 20-23

Environmentalism Environmental Sustainability Pollution prevention Product stewardship Design for environment (DFE) New environmental technologies Sustainability vision 20-24

Environmentalism Environmental Sustainability Pollution prevention involves not just cleaning up waste but also eliminating or minimizing waste before it is created Product stewardship involves minimizing the pollution from production and all environmental impact throughout the full product life cycle Design for environment (DFE) involves thinking ahead to design products that are easier to recover, reuse, or recycle 20-25

Environmentalism Environmental Sustainability New environmental technologies involve looking ahead and planning new technologies for competitive advantage Sustainability vision is a guide to the future that shows the company that the company’s products, process, and policies must evolve and what is needed to get there 20-26

Business Actions Toward Socially Responsible Marketing
Enlightened Marketing Enlightened marketing refers to a company’s marketing effort supporting the best long-run performance of the marketing system and consists of five principles: Consumer-oriented marketing Customer-value marketing Innovative marketing Sense-of-mission marketing Societal marketing 20-27

Enlightened Marketing Consumer-oriented marketing means that a company should view and organize its marketing activities from the consumer’s perspective Customer-value marketing means that the company should put most of its resources into customer-value-building marketing investments—long-term customer loyalty and relationships—by continually improving the value consumers receive from the firm’s market offerings Innovative marketing requires the company to continually seek real product and marketing improvements 20-28

Enlightened Marketing Sense-of-mission marketing means the company should define its mission in broad social terms rather than narrow product terms Societal marketing means the company makes marketing decisions by considering consumers’ wants and interests, the company’s requirements, and society’s long-run interests Views societal problems as opportunities Designs pleasing and beneficial products 20-29

Enlightened Marketing Deficient products have neither immediate appeal nor long-term benefits Bad-tasting and ineffective medicine Pleasing products have high immediate satisfaction but may hurt consumers in the long run Cigarettes and junk food 20-30

Enlightened Marketing Salutary products have low appeal but may benefit consumers in the long run Seat belts and air bags Desirable products give both immediate satisfaction and high long-term benefits Tasty and nutritious breakfast food 20-31

Marketing Ethics Corporate marketing ethics are broad guidelines that everyone in the organization must follow that cover distributor relations, advertising standards, customer service, pricing, product development, and general ethical standards 20-32

Marketing Ethics Philosophies Issues are decided by the free market and legal system Responsibility is not on the system but in the hands of the individual company and managers 20-33

The End

Principles of Marketing

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Principles of Marketing

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