Marketing Strategies: Discussion 9

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The Marketing Program

C H A P T E R

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

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

Convenience Products

Shopping Products

Specialty Products

Unsought Products

Types of Consumer Products (Exhibit 6.1)

Raw Materials

Component Parts

Process Materials

Maintenance, Repair, and Operating Products

Accessory Equipment

Installations

Business Services

Types of Business Products (Exhibit 6.1)

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

P&G’s Portfolio of Household Care Products (Exhibit 6.2)

Economies of Scale

Package Uniformity

Standardization

Sales and Distribution Efficiency

Equivalent Quality Beliefs

Potential Benefits of Offering a Large Product Portfolio

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?

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

Intangibility

Simultaneous Production and Consumption

Perishability

Heterogeneity

Client-Based Relationships

Unique Characteristics of Services (Exhibit 6.3)

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

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

Idea Generation

Screening and Evaluation

Development

Test Marketing

Commercialization

New Product Development Process

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

The Firm’s Cost Structure

Perceived Value

The Price/Revenue Relationship

Pricing Objectives

Price Elasticity

Key Issues in Pricing Strategy

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

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

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

Common Pricing Objectives (Exhibit 6.4)

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

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

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

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)

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

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?

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

Yield Management for a Hypothetical Hotel (Exhibit 6.5)

Price Skimming

Price Penetration

Prestige Pricing

Value-Based Pricing (EDLP)

Competitive Matching

Non-Price Strategies

Base Pricing Strategies

Discounting

Reference Pricing

Price Lining

Odd Pricing

Price Bundling

Adjusting the Base Price

Adjusting Prices in Business Markets

Trade discounts

Discounts and allowances

Geographic pricing

Transfer pricing

Barter and countertrade

Price discrimination

Pricing Strategies in Business Markets

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

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

Factors in Successful Supply Chain Integration (Exhibit 6.6)

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

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.

Breakdown of Total Distribution Costs (Exhibit 6.7)

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

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

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

The Trend in Outsourcing (Exhibit 6.8)

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

Components of IMC Strategy (Exhibit 6.9)

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

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.

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

Change in U.S. Measured Ad Spending, 2010-2011 (Exhibit 6.10)

Internet Ad Revenues by Advertising Format, 2011 (Exhibit 6.11)

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

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

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

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

Sales Force Compensation Methods (Exhibit 6.12)

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

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

Growth in Mobile Coupon Users (Exhibit 6.13)