Marketing Strategies: Discussion 9
The Marketing Program
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C H A P T E R
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Marketing Program
The strategic combination of the four marketing mix elements
The product receives the most attention because it is most responsible for fulfilling the customers’ needs and wants.
Involves creating an offering that is an array of physical (tangible), service (intangible), and symbolic (perceptual) attributes designed to satisfy customers’ needs and wants
Due to commoditization, the core product typically becomes incapable of differentiating the offering.
Most organizations work to enhance the service and symbolic elements of their offerings to stand out in a crowded market.
Typically done by changing price, distribution, or promotion.
The Marketing Program
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Defines what the organization does and why it exists
A product offering’s real value comes from its ability to deliver benefits that enhance a customer’s situation or solve a customer’s problems.
Products fall into two general categories
Consumer products – for personal use and enjoyment
Business products – for resale, use in making other products, or use in a firm’s operations
Product Strategy
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Convenience Products
Shopping Products
Specialty Products
Unsought Products
Types of Consumer Products (Exhibit 6.1)
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Raw Materials
Component Parts
Process Materials
Maintenance, Repair, and Operating Products
Accessory Equipment
Installations
Business Services
Types of Business Products (Exhibit 6.1)
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Product Line
A group of closely related product items
Product Mix or Portfolio
The total group of products offered by the firm
Strategic Decisions
Variety – number of product lines offered
Assortment – depth of each product line
The Product Portfolio
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P&G’s Portfolio of Household Care Products (Exhibit 6.2)
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Economies of Scale
Package Uniformity
Standardization
Sales and Distribution Efficiency
Equivalent Quality Beliefs
Potential Benefits of Offering a Large Product Portfolio
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Consider the number of product choices available in the U.S. consumer market. In virtually every product category, consumers have many options to fulfill their needs.
Are all of these options really necessary? Is having this many choices a good thing for consumers? Why or why not?
Is it a good thing for marketers and retailers that have to support and carry all of these product choices? Why or why not?
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Balancing supply (capacity) with demand
Time and place dependency of demand
Difficulty of evaluating service quality prior to purchase
Inconsistency of service quality
Difficulty in tying offerings to customers’ needs (i.e., the need is not always apparent to customers)
The Challenges of Service Products
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Intangibility
Simultaneous Production and Consumption
Perishability
Heterogeneity
Client-Based Relationships
Unique Characteristics of Services (Exhibit 6.3)
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A vital part of a firm’s effort to sustain growth and profits
Depends on the firm’s ability to create a differential advantage for the new product
Customer perception of newness is critical
Developing New Products
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New-to-the-World Products (Discontinuous Innovations)
New Product Lines
Product Line Extensions
Improvements or Revisions of Existing Products
Repositioning
Cost Reductions
Strategic Options for Newness of a Product
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Idea Generation
Screening and Evaluation
Development
Test Marketing
Commercialization
New Product Development Process
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Is a key factor in producing revenue for the firm
Is the easiest of all marketing variables to change
Is an important consideration in competitive intelligence
Is considered to be the only real means of differentiation in highly commoditized markets
Pricing Strategy
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The Firm’s Cost Structure
Perceived Value
The Price/Revenue Relationship
Pricing Objectives
Price Elasticity
Key Issues in Pricing Strategy
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Breakeven in Units
Total Fixed Costs
Unit Price - Unit Variable Costs
Selling Price
Average Unit Cost
1 - Markup Percent (decimal)
The Firm’s Cost Structure
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Value is a customer’s subjective evaluation of benefits relative to costs to determine the worth of a firm’s product offering relative to other product offerings.
Benefits – everything the customer obtains from the offering
Costs – everything the customer must give up
Value is intricately tied to every element in the marketing program.
Perceived Value
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Myth #1 – When business is good, a price cut will capture greater market share.
Myth #2 – When business is bad, a price cut will stimulate sales.
Price cutting is generally not in the best interests of the firm unless sales volume will increase.
A better strategy is to build value into the product offering at the same (or even a higher) price.
The Price/Revenue Relationship
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Common Pricing Objectives (Exhibit 6.4)
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Refers to customers’ sensitivity to changes in price
The relative impact on the demand for a product, given specific increases or decreases in the price charged for that product
Perhaps the most important overall consideration in setting effective prices.
Price Elasticity
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Availability of Substitute Products
Customers are more sensitive to price changes when they can choose among a number of substitute products.
Higher Total Expenditure
The higher the total expense, the more elastic the demand.
Noticeable Price Differences
Products having heavily promoted prices tend to experience more elastic demand.
Easy Price Comparisons
Customers are more price sensitive if they can shop around for a better price.
Situations That Increase Price Sensitivity
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Lack of Substitutes
Customers are less price sensitive when they have fewer options.
Real or Perceived Necessities
These products have very inelastic demand because customers have to have them.
Complementary Products
If the price of one product falls, customers will be less sensitive to the price of complementary products.
Situations That Decrease Price Sensitivity
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Perceived Product Benefits
Sometimes, products are “just worth it” to consumers.
Situational Influences
Customers are less price sensitive in certain situations (time pressure, emergencies, gift giving, etc.)
Product Differentiation
Differentiation reduces the number of perceived substitutes.
The goal is to differentiate the product so well that customers perceive that no competing product can take its place.
Situations That Decrease Price Sensitivity (continued)
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Service pricing is critical because price may be the only cue to quality in advance of purchase.
Service pricing becomes more important and difficult when:
Service quality is hard to detect prior to purchase
Costs are difficult to determine
Customers are unfamiliar with the service process
Brand names are not well established
Customers can perform the service themselves
Advertising within the service category is limited
The total price of the service is difficult to state beforehand
Pricing Service Products
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Pricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues?
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Service pricing becomes a key issue in balancing supply and demand during peak and off-peak demand times.
Yield management allows the firm to simultaneously control capacity and demand.
Control capacity by limiting available capacity at certain price points
Control demand through price changes and overbooking capacity
Yield management also allows service firms to segment markets based on price elasticity.
Service Pricing and Yield Management
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Yield Management for a Hypothetical Hotel (Exhibit 6.5)
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Price Skimming
Price Penetration
Prestige Pricing
Value-Based Pricing (EDLP)
Competitive Matching
Non-Price Strategies
Base Pricing Strategies
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Discounting
Reference Pricing
Price Lining
Odd Pricing
Price Bundling
Adjusting the Base Price
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Adjusting Prices in Business Markets
Trade discounts
Discounts and allowances
Geographic pricing
Transfer pricing
Barter and countertrade
Price discrimination
Pricing Strategies in Business Markets
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Marketing Channels
An organized system of marketing institutions through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user.
Physical Distribution
Coordinating the flow of information and products among members of the channel to ensure that products are available in the right places, in the right quantities, at the right times, and in a cost-efficient manner.
Supply Chain
The connection and integration of all members of the marketing channel
Supply Chain Strategy
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Connectivity
Informational and technological linkages among firms
Community
Compatible goals and objectives among firms
Collaboration
Recognition of mutual independence among firms
The most seamlessly integrated supply chains blur the boundaries between firms.
Supply Chain Integration
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Factors in Successful Supply Chain Integration (Exhibit 6.6)
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Contact Efficiency
Channel Functions
Sorting
Breaking bulk
Maintaining inventories
Maintaining convenient locations
Provide services
All channel functions must be performed regardless of who does them
Strategic Supply Chain Issues: Marketing Channel Functions
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Some manufacturers and retailers advertise that customers should buy from them because they “eliminate the middleman.” Evaluate this comment in light of the functions that must be performed in a marketing channel. Does a channel with fewer members always deliver products to customers at lower prices? Defend your position.
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Breakdown of Total Distribution Costs (Exhibit 6.7)
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Exclusive Distribution
Giving one merchant or outlet the sole right to sell a product within a defined geographic region
Selective Distribution
Giving several merchants or outlets the right to sell a product within a defined geographic region
Intensive Distribution
Making a product available in the maximum number of merchants or outlets to gain as much exposure and sales opportunities as possible
Strategic Supply Chain Issues: Marketing Channel Structure
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The Basis of Conflict in the Supply Chain
Each firm is different, and has its own goals and objectives
Mutual interdependence goes against the natural tendency of firms to seek their own self-interests.
Sources of Power in a Supply Chain
Legitimate power
Reward power
Coercive power
Information power
Referent power
Strategic Supply Chain Issues: Power in the Supply Chain
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Technological Improvements
E-commerce
Radio frequency identification (RFID)
Outsourcing Channel Functions
Outsourcing vs. offshoring
Growth of Non-Traditional Channels
Catalog and direct marketing
Direct selling
Home shopping networks
Vending
Direct response advertising
Trends in Supply Chain Strategy
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The Trend in Outsourcing (Exhibit 6.8)
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Integrated Marketing Communications (IMC)
The strategic, coordinated use of promotion to create one consistent message across multiple channels to ensure maximum persuasive impact on the firm’s current and potential customers
Takes a 360-degree view of the customer
The Importance of IMC
Foster’s long-term relationships
Reduces or eliminates promotional redundancies
Technology allows better targeting of customers
Integrated Marketing Communications
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Components of IMC Strategy (Exhibit 6.9)
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IMC must have clear promotional goals and objectives
The AIDA Model
Attention
Interest
Desire
Action
Promotional Goals Regarding the Supply Chain
Pull strategy – focus promotional efforts toward consumers
Push strategy – focus promotional efforts toward the supply chain
Strategic Issues in Integrated Marketing Communications
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Review the steps in the AIDA model. In what ways has promotion affected you in various stages of this model? Does promotion affect you differently based on the type of product in question? Does the price of the product (low versus high) make a difference in how promotion can affect your choices? Explain.
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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Can be used to reach a mass audience or a precisely defined market segment
Very cost efficient when used to reach a mass audience
Traditional mass audiences are fragmenting due to increasing media options
Digital communication (Internet, mobile) is the fastest growing form of advertising.
Traditional media (newspapers, radio, magazines) are struggling for relevance.
Advertising
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Change in U.S. Measured Ad Spending, 2010-2011 (Exhibit 6.10)
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Internet Ad Revenues by Advertising Format, 2011 (Exhibit 6.11)
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Corporate Affairs
A collection of strategic activities aimed at marketing an organization, its issues, and its ideals to potential stakeholders (consumers, general public, shareholders, media, government, and so on).
Goal of Public Relations
To track public attitudes, identify issues that may elicit public concern, and develop programs to create and maintain positive relationships between a firm and its stakeholders
Use of Public Relations
To promote the firm, its people, its ideas, and its image
To create an internal shared understanding among employees
Public Relations
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Publicity is a part of public relations, but is more narrowly focused on gaining media attention
Public Relations Methods
News (or Press) releases
Feature articles
White papers
Press conferences
Event sponsorship
Employee relations
Public Relations Methods
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Focused less on sales and more on developing long-term, personal relationships with buyers
The most precise form of communication, but with very high cost per contact
Has evolved to take on elements of customer service and marketing research
The frontline knowledge held by the sales force is one of the most important assets of the firm.
Personal Selling and Sales Management
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The Sales Management Process
Developing sales force objectives
Determining sales force size
Recruiting and training salespeople
Controlling and evaluating the sales force
The Impact of Technology on Personal Selling
Integrated supply chains and e-procurement have reduced the size of the sales force.
How can firms use new technology to reduce costs and increase productivity while maintaining personalized, one-to-one client relationships?
Sales Management
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Sales Force Compensation Methods (Exhibit 6.12)
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Accounts for the bulk of promotional spending in many firms
Activities that create buyer incentives to purchase a product or that add value for the buyer or the trade
Has one universal goal: to induce product trial and purchase
Typically used to support other promotional activities rather than as a stand-alone promotional element
Sales Promotion
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Consumer Sales Promotion
Business (Trade) Sales Promotion
Consumer and Trade Sales Promotion
| Coupons | Point-of-purchase |
| Rebates | Premiums |
| Samples | Contests and sweepstakes |
| Loyalty programs | Direct mail |
| Trade allowances | Cooperative advertising |
| Free merchandise | Training assistance and sales incentives |
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Growth in Mobile Coupon Users (Exhibit 6.13)
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