Chapter  2  –  Company  &  Marketing  Strategy:  Partnering  to  Build  Customer  Relationships  

 

Companywide  Strategic  Planning:  Defining  Marketing’s  Role  (Pg  35)  

- Strategic  Planning  (Developing  and  maintaining  a  strategic  fit  between  organization’s  goals  and  capabilities  and  its  changing  marketing  opportunities)  

 

- Defining  a  Market-­‐Oriented  Mission  o Mission  Statement  (Statement  of  the  organization’s  purpose)  

! Should  be  market-­‐oriented  ! Defined  in  terms  of  customer  needs  ! Should  not  be  too  narrow/broad  ! Should  be  realistic  ! Should  be  specific  ! Should  fit  market  environment  ! Should  base  on  distinctive  competencies  ! Should  be  motivating  

 

- Setting  Company  Objectives  &  Goals  o Mission  needs  to  be  turned  into  detailed  supporting  objectives  for  each  level  of  

management    

- Designing  the  Business  Portfolio  o Business  Portfolio  (Collection  of  businesses  and  products  that  make  up  the  company)  o Analyze  current  business  portfolio  

! Portfolio  Analysis  (Evaluates  products  and  businesses  making  up  the  company)  

! Strategic  Business  Unit  (SBU)  (Unit  of  company  having  separate  mission  and  objectives  and  can  be  planned  independently  from  other  company  businesses)  

! Attractiveness  of  SBU’s  market  or  industry  ! Strength  of  SBU’s  position  in  that  market  or  industry  

• Invest  more  to  build  share  • Invest  just  enough  to  hold  at  current  level  • Harvest  to  milk  short-­‐term  cash  flow  regardless  of  long-­‐term  effect  • Divest  by  selling  or  phasing  it  out  

 

o Shape  future  portfolio  ! Objective  must  be  “profitable  growth”,  not  growth  itself  ! Market  Penetration  (Making  more  sales  to  current  customers  without  

changing  products)-­‐  existing  markets,  existing  products  ! Market  Development  (Identifying  and  developing  new  markets  for  

current  products)-­‐  new  markets,  existing  products  ! Product  Development  (Offering  modified  or  new  products  to  current  

markets)-­‐  existing  markets,  new  products  ! Diversification  (Starting  up  or  buying  businesses  outside  of  current  

products  and  markets)-­‐  new  markets,  new  products  • Careful  not  to  lose  market  focus  

! Downsizing  • Market  environment  has  changed,  making  some  products  or  

markets  less  profitable  • Firm  has  grown  too  fast  and  entered  areas  where  it  lacks  

experience  • Firm  enters  too  many  foreign  markets  without  proper  research  • Introduces  new  products  that  do  not  offer  superior  customer  

value    

Planning  Marketing:  Partnering  to  Build  Customer  Relationships  (Pg  42)  

- Partnering  with  Other  Company  Departments  o Value  Chain  (Series  of  departments  that  carry  out  value-­‐creating  activities  to  design,  

produce,  market,  deliver  and  support  a  firm’s  products)  o Success  depends  on  how  well  each  department  performs  its  work  and  how  well  activities  of  

various  departments  are  coordinated    

- Partnering  with  Others  in  the  Marketing  System  o Value-­‐Delivery  Network  (Network  made  up  of  the  company,  suppliers,  distributors  and  

ultimately  customers  who  “partner”  each  other  to  improve  performance  of  entire  system)  o Competition  no  longer  takes  place  between  individuals.  Rather,  it  takes  place  between  the  

entire  value-­‐delivery  networks  created  by  competitors.              

Marketing  Strategy  &  the  Marketing  Mix  (Pg  45)  

- Customer-­‐Centered  Marketing  Strategy  o Market  Segmentation  (Dividing  a  market  into  distinct  groups  of  buyers  who  have  distinct  

needs,  characteristics  or  behavior  and  who  might  require  separate  products  or  marketing  mixes)  

o Target  Marketing  (Evaluating  each  market  segment’s  attractiveness  and  selecting  one  or  more  segments  to  enter)  

o Market  Positioning  (Arranging  for  a  product  to  occupy  a  clear,  distinctive  and  desirable  place  relative  to  competing  products  in  minds  of  target  consumers)  

! Distinguish  from  competing  brands  ! Give  greatest  strategic  advantage  in  their  target  markets  

 

- Developing  the  Marketing  Mix  o Four  Ps/Four  Cs  

! Product/Customer  Solution  (Goods-­‐and-­‐services  combination  company  offers  to  target  market)  

! Price/Customer  Cost  (Amount  customers  pay  to  obtain  product)  ! Place/Convenience  (Company  activities  that  make  product  available  to  

target  consumers)  ! Promotion/Communication  (Activities  communicating  merits  of  product  

and  persuading  target  customers  to  buy)    

- Managing  the  Marketing  Effort  (Pg  50)  - Marketing  Analysis  (SWOT)  

o Find  attractive  opportunities  o Avoid  environmental  threats  o Analyze  company  strengths  and  weaknesses  o Analyze  current  and  possible  marketing  actions  

 

- Marketing  Planning  (addresses  “What”  &  “Why”  of  marketing  activities)  o Executive  Summary  o Current  Marketing  Situation  o Threats  &  Opportunities  Analysis  o Objectives  &  Issues  o Marketing  Strategy  o Action  Programs  o Budgets  o Controls  

- Marketing  Implementation  (addresses  “Who”,  “Where”,  “When”  &  “How”)  o Depends  on  how  well  the  company  blends  its  people,  organizational  structure,  decision  and  

reward  systems  and  company  culture  into  a  cohesive  action  program  that  supports  its  strategies  

 

- Marketing  Department  Organization  o Functional  Organization  (Different  marketing  activities  headed  by  a  functional  specialist)  o Geographic  Organization  (Sales  and  marketing  people  assigned  to  specific  countries,  

regions  and  districts)  o Product  Management  Organization  (Product  manager  develops  and  implements  a  complete  

strategy  and  marketing  program  for  a  specific  product  or  brand)  o Market  or  Customer  Management  Organization  (Market  managers  develop  marketing  

strategies  and  plans  for  their  specific  markets  or  customers)    

- Marketing  Control  (Measuring  and  evaluating  results  of  marketing  strategies  and  plans  and  taking  corrective  action  to  ensure  objectives  are  achieved)  o Operating  Control  (Checking  ongoing  performance  against  annual  plan  and  taking  

corrective  action  when  necessary)  o Strategic  Control  (Looking  at  whether  company’s  basic  strategies  are  well  matched  to  its  

opportunities)    

- The  Marketing  Environment    

Measuring  &  Managing  Return  on  Marketing  (Pg  54)  

- Return  on  Marketing/Marketing  ROI  (Net  return  divided  by  costs  of  the  marketing  investment)  o Standard  Marketing  Performance  

! Brand  Awareness  ! Sales  ! Market  Share  

o Customer-­‐Centered  Measures  ! Customer  Acquisition  ! Customer  Retention  ! Customer  Lifetime  Value  

Chapter  3  –  The  Marketing  Environment  

 

The  Company’s  Microenvironment  (Actors  close  to  the  company  affecting  its  ability  to  serve  its  customers)  (Pg  60)  

- The  Company  o All  departments  must  “think  customer”  and  work  in  harmony  to  provide  superior  customer  

value  and  satisfaction    

- Suppliers  o Marketing  managers  must  watch  supply  availability  (e.g.  supply  shortages  or  delays,  labor  

strikes)  o Marketing  managers  must  monitor  price  trends  of  their  key  inputs  

 

- Marketing  Intermediaries  (Firms  helping  company  to  promote,  sell  and  distribute  goods  to  final  buyers)  o Large  and  growing  reseller  organizations  have  enough  power  to  dictate  terms  or  even  shut  

manufacturer  out  of  large  markets  o Physical  distribution  firms  stock  and  move  goods  o Marketing  services  agencies  target  and  promote  products  to  the  right  markets  o Financial  intermediaries  finance  transactions  or  insure  against  risks  

 

- Customers  o Consumer  Markets  (Individuals  and  households  buy  goods  and  services  for  personal  

consumption)  o Business  Markets  (Buy  goods  and  services  for  further  processing  or  for  use  in  production)  o Reseller  Markets  (Buy  goods  and  services  to  resell  at  a  profit)  o Government  Markets  (Government  agencies  buy  goods  and  services  to  produce  public  

services  or  transfer  to  others  who  need  them)  o International  Markets  (Buyers  in  other  countries)  

 

- Competitors    

- Publics  (Any  group  having  an  actual  or  potential  interest  in  or  impact  on  an  organization’s  ability  to  achieve  its  objectives)  o Financial  Publics  (Influence  company’s  ability  to  obtain  funds)  

o Media  Publics  (Carry  news,  features  and  editorial  opinion)  o Government  Publics  o Citizen-­‐Action  Publics  o Local  Publics  (Neighborhood  residents  and  community  organizations)  o General  Public  o Internal  Publics  (Workers,  managers,  volunteers  and  board  of  directors)  

 

The  Company’s  Macroenvironment  (Larger  societal  forces  affecting  microenvironment)  (Pg  63)  

- Demographic  Environment  o Demography  (Study  of  human  populations  in  terms  of  size,  density,  location,  age,  gender,  

race,  occupation  and  other  statistics)    

o Changing  Age  Structure  of  the  Population  ! Baby  Boomers  (Born  following  World  War  II  until  early  1960s)  

• Lucrative  market  for  new  housing  and  home  remodeling,  financial  services,  travel  and  entertainment,  eating  out,  health  and  fitness  products  and  high-­‐priced  cars  and  other  luxuries    

! Generation  X  (Born  between  1965  and  1976  in  “baby  dearth”  following  baby  boom)  

• More  cautious  economic  outlook  • Care  about  environment  • Less  materialistic  • More  skeptical  • Family-­‐oriented  • Increasing  divorce  rates  

! Generation  Y  (Born  between  1977  and  1994)  • Large  teen  and  young  adult  market  • Utter  fluency  and  comfort  with  computer,  digital  and  information  

technology  ! Generation  Z  (Born  between  early  1990s  and  2010)  

• Highly  connected  • Media  technology  era  

 

! Generational  Marketing  • Marketers  need  to  form  more  precise  age-­‐specific  segments  • Segment  by  their  lifestyle  or  life  stage  

• Try  to  be  broadly  inclusive  and  offer  each  generation  something  specifically  designed  for  it  at  the  same  time    

o The  Changing  American  Family  ! Special  needs  of  nontraditional  households  ! Child  day  care  business  and  increased  consumption  of  convenience  foods  

and  services,  career-­‐oriented  women’s  clothing  and  financial  services    

o Geographic  Shifts  in  Population  ! Created  a  booming  SOHO  market  

 

o A  Better-­‐Educated  and  More  White-­‐Collar  Population  ! Demand  for  quality  products,  books,  magazines,  travel,  PCs  and  internet  

services    

o Increasing  Diversity  ! Ethnic,  racial  and  cultural  diversity  ! Gay  and  lesbian  consumers  ! People  with  disabilities  

• Market  for  online  grocery  shopping,  home  delivery,  travel,  sports  and  other  leisure-­‐oriented  products  and  services  

 

- Economic  Environment  (Factors  affecting  consumer  buying  power  and  spending  patterns)    

o Changes  in  Income  ! Marketers  try  to  offer  greater  value  (Right  combination  of  product  quality  

and  good  service  at  a  fair  price)  ! Marketers  should  pay  attention  to  income  distribution  as  well  as  average  

income  • Upper-­‐Class  Consumers  –  Market  for  luxury  goods  • Middle  Class  Consumers  –  Market  for  good  quality  goods  • Working  Class  Consumers  –  Market  for  basics  of  food,  clothing  and  

shelter  • Underclass  Consumers  –  Market  for  most  basic  purchases  

 

o Changing  Consumer  Spending  Patterns  ! Different  income  levels  have  different  spending  patterns  

 o Value  marketing  involves  wats  to  offer  financially  conscious  buyers  greater  value-­‐  the  

right  combination  of  quality  and  service  at  a  fair  price.    

- Natural  Environment  (Natural  resources  are  needed  as  inputs  by  marketers  or  are  affected  by  marketing  activities)    o Growing  shortages  of  raw  materials  

! Firms  making  products  required  raw  materials  face  large  cost  increases  even  if  the  materials  remain  available    

o Increased  pollution    

o Increased  government  intervention  ! Marketers  should  develop  solutions  to  the  material  and  energy  problems  ! Consumer  demands  with  ecologically  safer  products,  recyclable  or  

biodegradable  packaging,  recycled  materials  and  components,  better  pollution  controls  and  more  energy-­‐efficient  operations    

o Environmentally  sustainable  strategies    

- Technological  Environment  (Forces  that  create  new  technologies,  creating  new  product  and  market  opportunities)    o Most  dramatic  force  o Create  new  markets  and  opportunities  o Every  new  technology  replaces  an  older  technology  o Fantasy  products  must  not  only  be  technical,  but  also  commercial  (practical  and  affordable)  

   

- Political  Environment  (Laws,  government  agencies  and  pressure  groups  influencing  and  limiting  various  organizations  and  individuals  in  a  given  society)    o Legislation  Regulating  Business  (public  policies  to  guide  commerce-­‐  limit  business  for  

the  good  of  society)  ! Increasing  Legislation  

• To  protect  companies  from  each  other  by  defining  and  preventing  unfair  competition  

• To  protect  consumers  from  unfair  business  practices  by  defining  and  enforcing  unfair  business  practices  

• To  protect  interests  of  society  against  unrestrained  business  behavior  by  ensuring  firms  take  responsibility  for  societal  costs  of  their  production  or  products    

! Changing  Government  Agency  Enforcement    

o Increased  Emphasis  on  Ethics  &  Socially  Responsible  Actions    

! Socially  Responsible  Behavior  • Enlightened  companies  look  beyond  what  the  regulatory  system  

allows  and  simply  “do  the  right  thing”  to  protect  long-­‐run  interests  of  consumers  and  environment    

! Cause-­‐Related  Marketing  • To  exercise  social  responsibility  and  build  more  positive  images,  

companies  link  themselves  to  worthwhile  causes    

- Cultural  Environment  (Institutions  and  other  forces  affecting  society’s  basic  values,  perceptions,  preferences  and  behaviors)    o Persistence  of  Cultural  Values  

! Marketers  have  some  chance  of  changing  secondary  values,  but  little  chance  of  changing  core  values    

o Shifts  in  Secondary  Cultural  Values  ! Marketers  want  to  predict  cultural  shifts  in  order  to  spot  new  

opportunities  or  threats      

! People’s  Views  of  Themselves  • People  use  products,  brands  and  services  as  a  means  of  self-­‐

expression  and  matching  their  views  of  themselves    

! People’s  Views  of  Others  • People  want  to  be  with  and  serve  others  • Greater  demand  for  “social  support”  products  and  services  that  

improve  communication  between  people  such  as  health  clubs  

! People’s  Views  of  Organizations  • People  today  see  work  not  as  a  source  of  satisfaction,  but  as  a  

required  chore  to  earn  money  to  enjoy  nonwork  hours  • Organizations  need  to  find  new  ways  to  win  consumer  and  

employee  confidence    

! People’s  Views  of  Society  • People’s  orientation  to  their  society  influences  their  consumption  

patterns  and  attitudes  toward  the  marketplace    

! People’s  Views  of  Nature  • People  recognized  nature  is  finite  and  fragile  and  can  be  destroyed  

or  spoiled  by  human  activities  • Created  a  sizable  “lifestyles  of  health  and  sustainability”  (LOHAS)  

market  for  everything  from  natural,  organic  and  nutritional  products  to  renewable  energy  and  alternative  medicine    

! People’s  Views  of  the  Universe  • Some  futurists  have  noted  a  renewed  interest  in  spirituality  • Presents  a  unique  marketing  opportunity  for  brands  

 Responding  to  the  Marketing  Environment  (Pg  85)  

- Smart  marketing  managers  will  take  a  proactive  rather  than  reactive  approach  to  marketing  environment  

 

 

 

 

 

 

 

 

 

Chapter  4  –  Managing  Marketing  Information  

- Marketing  Information  System  (MIS)  (People,  equipment  and  procedures  to  gather,  sort,  analyze,  evaluate  and  distribute  needed,  timely  and  accurate  information  to  marketing  decision  makers)    

Assessing  Marketing  Information  Needs  (Pg  91)  

- MIS  should  monitor  marketing  environment  in  order  to  provide  decision  makers  with  necessary  information  to  make  key  marketing  decisions  

- Company  must  decide  whether  benefits  of  having  additional  information  are  worth  the  costs  of  providing  it    

Developing  Marketing  Information  (Pg  92)  

- Marketers  can  obtain  information  from  [1]  internal  data,  [2]  marketing  intelligence  and  [3]  marketing  research  

- Internal  Data  o Internal  databases  (Electronic  collections  of  information  obtained  from  data  sources  within  

company)  ! Sources  include  

• Accounting  department  prepares  financial  statements  and  keeps  detailed  records  of  sales,  costs  and  cash  flows  

• Operation  reports  on  production  schedules,  shipments  and  inventories  

• Sales  force  reports  on  reseller  reactions  and  competitor  activities  • Marketing  department  furnishes  information  on  customer  

demographics,  psychographics  and  buying  behavior  • Customer  service  department  keeps  records  of  customer  

satisfaction  or  service  problems  ! Can  be  accessed  more  quickly  and  cheaply  ! May  be  incomplete  or  in  wrong  form  ! Requires  major  effort  to  be  kept  updated  ! Must  be  well  integrated  and  readily  accessible  

 - Marketing  Intelligence  (Systematic  collection  and  analysis  of  publicly  available  information  

about  competitors  and  developments  in  marketing  environment)  o Techniques  range  from  quizzing  company’s  own  employees  and  benchmarking  

competitors’  products  to  researching  internet,  lurking  around  industry  trade  shows  and  rooting  through  rivals’  trash  bins  

o Most  companies  are  taking  steps  to  protect  their  own  information  

o With  availability  of  legitimate  intelligence  sources,  company  does  not  have  to  break  law  or  accepted  codes  of  ethics  to  get  good  intelligence    

- Marketing  Research  (Systematic  design,  collection,  analysis  and  reporting  of  data  relevant  to  a  specific  marketing  situation  facing  an  organization)  (Pg  92)  

- Companies  can  have  [1]  own  research  departments  working  with  marketing  managers,  [2]  hire  outside  research  specialists  or  [3]  purchase  data  collected  by  outside  firms    

- Defining  the  Problem  &  Research  Objectives  o Exploratory  research  is  to  gather  preliminary  information  to  help  define  problem  and  

suggest  hypothesis  o Descriptive  research  is  to  describe  marketing  problems,  situations  or  markets  o Casual  research  is  to  test  hypotheses  about  cause-­‐and-­‐effect  relationships  

- Developing  the  Research  Plan  o Research  plan  outlines  sources  of  existing  data  and  spells  out  specific  research  approaches,  

contact  methods,  sampling  plans  and  instruments  researchers  will  need  to  gather  new  data  

o Research  objectives  must  be  translated  into  specific  information  needs  o To  meet  information  needs,  research  plan  can  call  for  gathering  secondary  data,  primary  

data  or  both  - Gathering  Secondary  Data  (Information  that  already  exists  somewhere,  collected  for  another  

purpose)  o Company  can  use  [1]  own  internal  database,  [2]  buy  secondary  data  reports  from  outside  

suppliers  and  [3]  use  commercial  online  databases  of  industry  association,  government  agency,  business  publication  and  news  medium  

o Advantages  ! Quicker  at  lower  cost  ! Can  collect  data  an  individual  company  cannot  collect  on  its  own  

o Disadvantages  ! May  not  exist  ! May  not  be  very  usable  ! May  not  be  relevant  ! May  not  be  accurate  ! May  not  be  current  ! May  not  be  impartial  

- Primary  Data  Collection  o Research  Approaches  

! Observational  Research  (Observing  relevant  people,  actions  and  situations)  

• Can  obtain  information  people  are  unwilling  or  unable  to  provide  • Ethnographic  research  involves  sending  trained  observers  to  

watch  ! Survey  Research  (Asking  people  questions  about  their  knowledge,  

attitudes,  preferences  and  buying  behavior)  • Can  obtain  descriptive  information  • Single-­‐source  data  systems  electronically  monitor  survey  

respondents’  purchases  and  exposure  to  various  marketing  activities  

• Advantages  o Flexible  

• Disadvantages  o People  are  unable  to  answer  survey  questions  sometimes  o People  may  be  unwilling  to  respond  o People  may  give  pleasing  answers  o Busy  people  may  not  take  the  time  o People  may  resent  the  intrusion  into  privacy  ! Experimental  Research  (Selecting  matched  groups  of  subjects,  giving  

them  different  treatments,  controlling  related  factors  and  checking  for  differences  in  group  responses)  

• Tries  to  explain  cause-­‐and-­‐effect  relationships  o Contact  Methods  

! Mail,  Telephone  &  Personal  Interviewing  • Mail  questionnaires  can  collect  [1]  large  amounts  of  information  at  

low  cost  per  respondent,  [2]  more  honest  and  [3]  unbiased  answers  

• Mail  questionnaires  are  [1]  not  flexible,  [2]  take  longer  to  complete,  [3]  response  rate  is  often  low  and  [4]  it  is  hard  to  control  who  at  mailing  address  fills  out  questionnaire    

• Telephone  interviewing  is  [1]  quick,  [2]  more  flexible  and  [3]  respond  rates  tend  to  be  higher  

• Telephone  interviewing’s  [1]  cost  per  respondent  is  higher,  [2]  introduces  interviewer  bias,  [3]  different  interviewers  may  interpret  and  record  responses  differently  and  [4]  some  may  cheat  under  time  pressures    

• Individual  interviewing  is  [1]  flexible  and  [2]  actual  products,  advertisements  or  packages  can  be  shown  to  observe  reactions  and  behavior  

• Individual  interviewing’s  [1]  cost  is  high    

• Focus  group  interviewing  [1]  encourages  free  and  easy  discussion  and  [2]  brings  out  actual  feelings  and  thoughts  

• Focus  group  interviewing  [1]  takes  time  and  cost,  [2]  hard  to  generalize  from  results  and  [3]  interviewer  bias  is  greater  

! Online  Marketing  Research  (Through  internet  surveys  and  online  focus  groups)  

• [1]  Results  are  instantaneous,  [2]  low  in  cost  and  [3]  excellent  for  reaching  the  hard-­‐to-­‐reach  

• [1]  Internet  access  is  restricted,  [2]  cannot  control  who  is  in  sample,  [3]  lacks  dynamics  of  more  personal  approaches  and  [4]  concerns  consumer  privacy    

o Sampling  Plan  (Selecting  segment  of  population  to  represent  whole  population)  ! Who  is  to  be  surveyed  ! How  many  should  be  surveyed  ! How  should  people  be  chosen  

• Probability  Sample  (Each  population  member  has  known  chance  of  being  included  and  researchers  can  calculate  confidence  limits  for  sampling  error),  e.g.  simple  random  sample,  stratified  random  sample  and  cluster  (area)  sample  

• Nonprobability  Sample  (Sampling  error  cannot  be  measured),  e.g.  convenience  sample,  judgment  sample  and  quota  sample  

o Research  Instruments  ! Questionnaires  are  very  flexible,  but  researchers  should  use  simple,  

direct,  unbiased  wording  and  arrange  questions  in  logical  order  ! Mechanical  instruments  monitor  consumer  behavior  

- Implementing  the  Research  Plan  o Involves  collecting,  processing  and  analyzing  information  

- Interpreting  &  Reporting  the  Findings  o Managers  and  researchers  must  work  together  closely  when  interpreting  research  results  

       

Analyzing  Marketing  Information  (Pg  105)  

- Customer  Relationship  Management  (CRM)  (Building  and  maintaining  profitable  customer  relationships  by  delivering  superior  customer  value  and  satisfaction)  o CRM  manages  detailed  information  about  individual  customers  and  carefully  manages  

customer  touch  points  to  maximize  customer  loyalty  o CRM  analysts  develop  data  warehouses  and  use  sophisticated  date  mining  techniques  to  

dig  out  interesting  findings  about  customers  o CRM  is  part  of  an  effective  overall  CRM  strategy,  not  only  a  technology  and  software  

solution    

Distributing  &  Using  Marketing  Information  (Pg  107)  

- Information  distribution  involves  entering  information  into  databases  and  making  it  available  in  user-­‐friendly  and  timely  way  through  intranet  and  extranet    

Other  Marketing  Information  Considerations  (Pg  107)  

- Marketing  Research  in  Small  Businesses  &  Nonprofit  Organizations  o Managers  of  small  businesses  and  nonprofit  organizations  can  [1]  observe  things  around  

them,  [2]  conduct  informal  surveys  using  small  convenience  sample,  [3]  conduct  simple  experiments  and  [4]  obtain  most  secondary  data  available  

- International  Marketing  Research  o Difficult  to  find  good  secondary  data  because  many  countries  have  almost  no  research  

services  at  all  o Difficult  to  collect  primary  data  because  of  difficulty  in  developing  good  samples  o Reaching  respondents  is  not  easy  due  to  [1]  not  everyone  has  phones  or  personal  

computers,  [2]  poor  roads  and  transportation  systems  and  [3]  language  obstacle  in  some  countries  

o Consumers  vary  in  attitudes  toward  marketing  research  in  different  countries  due  to  customs  

o Some  respondents  may  be  unable  to  respond  due  to  high  functional  illiteracy  rates  - Public  Policy  &  Ethics  in  Marketing  Research  

o Intrusions  on  Consumer  Privacy  ! Some  consumers  resent  marketing  research  because  [1]  previous  

“research  surveys”  turned  out  to  be  attempts  to  sell  something  or  [2]  they  thought  it  was  not  really  needed  or  too  personal  

! Organizations  can  educate  consumers  about  benefits  of  marketing  research  and  to  distinguish  it  from  telephone  selling  and  database  building  

! Companies  can  appoint  “chief  privacy  officer”  (CPO)  to  safeguard  privacy  of  consumers  

! Researchers  can  provide  value  in  exchange  for  information  o Misuse  of  Research  Findings  

! Few  advertisers  openly  rig  their  research  designs  or  blatantly  misrepresent  findings  

! Each  company  must  accept  responsibility  for  policing  the  conduct  and  reporting  of  own  marketing  research  to  protect  consumers’  and  own  best  interests  

Chapter  5  –  Consumer  Markets  &  Consumer  Buyer  Behavior  

- Consumer  Buying  Behavior  (Buying  behavior  of  final  consumers  –  individuals  and  households  who  buy  goods  and  services  for  personal  consumption)  

- Consumer  Market  (All  individuals  and  households  who  buy  or  acquire  goods  and  services  for  personal  consumption)    

Model  of  Consumer  Behavior  (Pg  122)  

- Marketing  &  Other  Stimuli  o Four  Ps  –  Product,  Price,  Place  &  Promotion  o Buyer’s  Environment  –  Economic,  Technological,  Political  &  Cultural  

- Buyer’s  Black  Box  o Buyer’s  characteristics  influence  perceptions  and  reactions  to  stimuli  o Buyer’s  decision  process  affects  buyer’s  behavior  

- Buyer  Responses  o Product  Choice,  Brand  Choice,  Dealer  Choice,  Purchase  Timing  &  Purchase  Amount  

 Characteristics  Affecting  Consumer  Behavior  (Pg  123)  

- Cultural  Factors  o Culture  (Set  of  basic  values,  perceptions,  wants  and  behaviors  learned  by  member  of  

society  from  family  and  other  important  institutions)  ! Cultural  influences  vary  greatly  from  country  to  country  ! Cultural  shifts,  e.g.  toward  greater  concern  about  health  and  fitness,  

toward  informality  o Subculture  (Group  of  people  with  shared  value  systems  based  on  common  life  experiences  

and  situations)  ! Includes  nationalities,  religions,  racial  groups  and  geographic  regions  ! Hispanic  consumers  [1]  buy  more  branded  and  higher-­‐quality  products,  

[2]  make  shopping  a  family  affair,  [3]  children  have  big  say,  [4]  are  brand  loyal  and  [5]  favor  companies  who  show  special  interest  in  them  

! African  American  consumers  [1]  are  more  price  conscious,  [2]  strongly  motivated  by  quality  and  selection,  [3]  brands  are  important,  [4]  enjoy  shopping  and  [5]  most  fashion-­‐conscious  

! Asian  Americans  [1]  are  most  tech-­‐savvy,  [2]  shop  frequently,  [3]  most  brand-­‐conscious  and  [4]  least  brand  loyal  

! Mature  consumers  [1]  are  better  off  financially  and  [2]  have  more  time  o Social  Class  (Relatively  permanent  and  ordered  divisions  in  society  whose  members  share  

similar  values,  interests  and  behaviors)  

! Measured  as  combination  of  occupation,  income,  education,  wealth  and  other  variables  

- Social  Factors  o Groups  (Two  or  more  people  who  interact  to  accomplish  individual  or  mutual  goals)  

! Membership  groups,  which  a  person  belongs,  have  direct  influence  ! Reference  groups,  which  people  don’t  belong,  have  direct  (face-­‐to-­‐face)  or  

indirect  influence  ! Marketers  try  to  identify  reference  groups  of  target  markets  ! Marketers  try  to  identify  opinion  leaders  (people  within  reference  group  

who,  because  of  special  skills,  knowledge,  personality  or  other  characteristics,  exerts  influence)  and  direct  marketing  efforts  toward  them  

o Family  ! Buying  roles  of  husband  and  wife  changes  with  evolving  consumer  

lifestyles  ! Children  may  have  strong  influence  on  family  buying  decisions  

o Roles  &  Status  ! People  usually  choose  products  appropriate  to  their  roles  (activities)  and  

status  (esteem)  - Personal  Factors  

o Age  &  Life-­‐Cycle  Stage  ! People  change  goods  and  services  they  buy  over  their  lifetimes  ! Buying  is  shaped  by  stage  of  family  life  cycle  ! However,  alternative  and  nontraditional  stages  are  increasing,  e.g.  

unmarried  couples,  singles  marrying  later  in  life,  childless  couples,  same-­‐sex  couples,  single  parents  and  extended  parents  

o Occupation  ! Occupation  affects  goods  and  services  bought  

o Economic  Situation  ! Economic  situation  affects  product  choice  

o Lifestyle  (Pattern  of  living  as  expressed  in  activities,  interests  and  opinions)  ! Most  widely  used  lifestyle  classification  is  SRI  Consulting’s  Values  and  

Lifestyles  (VALS)  typology,  which  divides  consumers  based  on  primary  motivation  (ideals,  achievement  or  self-­‐expression)  and  resources  (high  or  low)  

o Personality  (Unique  psychological  characteristics  leading  to  relatively  consistent  and  lasting  responses  to  one’s  own  environment)  &  Self-­‐Concept  

! Brands  have  personalities  and  consumers  are  likely  to  choose  brands  whose  personalities  match  their  own  

! Brand  personality  is  specific  mix  of  human  traits  that  may  be  attributed  to  particular  brand  

! Self-­‐concept/self-­‐image  means  people’s  possessions  contribute  to  and  reflect  their  identities  

- Psychological  Factors  o Motivation  

! Motive/Drive  (Need  that  is  sufficiently  pressing  to  direct  person  to  seek  satisfaction  of  need)  

! Sigmund  Freud  suggests  person’s  buying  decisions  are  affected  by  subconscious  motives  that  even  buyer  may  not  fully  understand  

! Abraham  Maslow  suggests  person  tries  to  satisfy  needs  in  order  of  physiological  needs,  safety  needs,  social  needs,  esteem  needs  and  self-­‐actualization  needs  

o Perception  (Process  by  which  people  select,  organize  and  interpret  information  to  form  meaningful  picture  of  the  world)  

! Perception  influences  how  person  acts  ! People  form  different  perceptions  because  of  three  perceptual  processes  

• Selective  Attention  –  Tendency  to  screen  out  most  of  exposed  information  

• Selective  Distortion  –  Tendency  to  interpret  information  that  will  support  what  is  already  believed  

• Selective  Retention  –  Tendency  to  remember  good  points  made  about  favored  brand  and  forget  good  points  made  about  competing  brands  

o Learning  (Changes  in  individual’s  behavior  arising  from  experience)  ! Occurs  through  interplay  of  drives,  stimuli,  cues,  responses  and  

reinforcement  o Beliefs  (Descriptive  thoughts  a  person  holds  about  something)  &  Attitudes  (Person’s  

consistently  favorable  or  unfavorable  evaluations,  feelings  and  tendencies  toward  object  or  idea)  

! Beliefs  make  up  product  and  brand  images  that  affect  buying  behavior  ! Company  should  fit  products  into  existing  attitudes  rather  than  attempt  

to  change  attitudes                

Types  of  Buying  Decision  Behavior  (Pg  137)  

- Complex  Buying  Behavior  –  high  involvement,  significant  differences  o Occurs  under  conditions  of  high  consumer  involvement  and  significant  perceived  brand  

differences  o Highly  involved  because  product  is  expensive,  risky,  purchased  infrequently  and  highly  

self-­‐expressive  o Marketers  need  to  [1]  help  buyers  learn  about  product-­‐class  attributes  and  relative  

importance  and  [2]  differentiate  brand’s  features  (e.g.  computers)  - Dissonance-­‐Reducing  Buying  Behavior  –  high  involvement,  few  differences  

o Occurs  under  conditions  of  high  consumer  involvement,  but  few  perceived  brand  differences  

o To  counter  postpurchase  dissonance  (after-­‐sale  discomfort)  consumers  may  experience,  marketers  after-­‐sale  communications  should  provide  evidence  and  support  to  help  consumers  feel  good  (e.g.  carpets)  

- Habitual  Buying  Behavior  –  low  involvement,  few  differences  o Occurs  under  conditions  of  low  consumer  involvement  and  few  significant  perceived  brand  

differences  o Lowly  involved  because  product  is  low-­‐cost  and  purchased  frequently  o Marketers  often  use  price  and  sales  promotion,  visual  symbols  and  imagery  for  association  

(e.g.  salt)  - Variety-­‐Seeking  Buying  Behavior  –  low  involvement,  significant  differences  

o Occurs  under  conditions  of  low  consumer  involvement,  but  significant  perceived  brand  differences  

o Market  leader  will  encourage  habitual  buying  behavior  by  dominating  shelf  space,  keeping  shelves  fully  stocked  and  running  frequent  reminder  advertising  

o Challenger  firms  will  encourage  variety  seeking  by  offering  lower  prices,  special  deals,  coupons,  free  samples  and  advertising  that  presents  reasons  for  trying  something  new  (e.g.  cookies)    

The  Buyer  Decision  Process  (Pg  139)  

- Need  Recognition  (Consumer  recognizes  problem  or  need)  o Can  be  triggered  by  internal  or  external  stimuli  

- Information  Search  (Consumer  is  aroused  to  search  for  more  information  and  may  simply  heightened  attention  or  may  go  into  active  information  search)  o Sources  include  personal  sources  (family,  friends,  neighbors,  acquaintances),  commercial  

sources  (advertising,  sales-­‐people,  dealers,  packaging,  displays),  public  sources  (mass  media,  consumer-­‐rating  organizations)  and  experiential  sources  (handling,  examining,  using  product)  

o Commercial  sources  inform  buyer,  but  personal  sources  legitimize  or  evaluate  products  for  buyer  

- Evaluation  of  Alternatives  (Consumer  uses  information  to  evaluate  alternative  brands  in  choice  set)  

- Purchase  Decision  (Buyer’s  decision  about  which  brand  to  purchase)  o Two  factors  that  can  come  between  purchase  intention  and  purchase  decision  are  [1]  

attitudes  of  others  and  [2]  unexpected  situational  factors  - Postpurchase  Behavior  (Consumers  take  further  action  after  purchase,  based  on  satisfaction  

or  dissatisfaction)  o Satisfaction  or  dissatisfaction  lies  in  relationship  between  consumer’s  expectations  and  

product’s  perceived  performance  o Sellers  should  promise  only  what  their  brands  can  deliver  o Cognitive  dissonance  (buyer  discomfort  caused  by  postpurchase  conflict)  resulted  from  

consumers  feeling  uneasy  about  acquiring  drawbacks  of  chosen  brand  and  losing  benefits  of  brands  not  purchased    

Customer  satisfaction  is  the  key  to  building  profitable  relationships  with  consumers-­‐  to  keeping  and  growing  consumer  base  and  reaping  their  lifetime  value.  

                                         

 

Chapter  6  –  Business  Markets  &  Business  Buyer  Behavior  

- Business  Buyer  Behavior  (Buying  behavior  of  organizations  that  buy  goods  and  services  for  use  in  production  of  other  products  and  services  or  for  purpose  of  reselling  or  renting  them  to  others  at  a  profit)  

- Business  Buying  Process  (Decision  process  by  which  business  buyers  determine  which  products  and  services  their  organizations  need  to  purchase  and  then  find,  evaluate  and  choose  among  alternative  suppliers  and  brands)    

Business  Markets  (Pg  150)  

- Characteristics  of  Business  Markets  o Market  Structure  &  Demand  

! Business  markets  contain  fewer  but  larger  buyers  ! Business  customers  are  more  geographically  concentrated  ! Business  buyer  demand  is  derived  from  final  consumer  demand  –  B-­‐to-­‐B  

marketers  sometimes  promote  their  products  directly  to  final  consumers  to  increase  business  demand  

! Demand  in  business  markets  is  more  inelastic  –  Demand  is  not  affected  much  in  short  run  by  price  changes  

! Demand  in  business  markets  fluctuates  more  and  more  quickly  o Nature  of  the  Buying  Unit  

! Business  purchases  involve  more  decision  participants  ! Business  buying  involves  a  more  professionally  purchasing  effort  

o Types  of  Decisions  &  the  Decision  Process  ! Business  buyers  usually  face  more  complex  buying  decisions  ! Business  buying  process  is  more  formalized  ! In  business  buying,  buyers  and  sellers  are  more  dependent  on  each  other,  

so  they  work  more  closely  together  and  build  close  long-­‐run  relationships  –  Supplier  Development  (Systematic  development  of  networks  of  supplier-­‐partners  to  ensure  appropriate  and  dependable  supply  of  products  and  materials  used  in  marking  own  products  or  resell  to  others)  

- A  Model  of  Business  Buyer  Behavior  o Marketing  stimuli  (four  Ps  –  product,  price,  place  and  promotion)  and  other  stimuli  

(economic,  technological,  political,  cultural  and  competitive)  affect  buying  organization  (buying  center  and  buying-­‐decision  process)  and  produce  buyer  responses  (product  or  service  choice,  supplier  choice,  order  quantities,  delivery  terms  and  times,  service  terms  and  payment)    

 

Business  Buyer  Behavior  (Pg  152)  

- Major  Types  of  Buying  Situations  o In  straight  rebuy,  a  routine  purchase  where  buyer  reorders  without  any  modifications    o In  modified  rebuy,  buyer  wants  to  modify  product  specifications,  prices,  terms  or  suppliers  

-­‐  Usually  involves  more  decision  participants  o In  new  task,  buyer  purchases  product  or  service  for  first  time  –  The  greater  cost  or  risk,  the  

more  decision  participants  and  greater  the  efforts  to  collect  information  o Systems  Selling  (Buying  packaged  solution  to  problem  from  single  seller,  avoiding  all  

separate  decisions  in  complex  buying  situation)    

- Participants  in  the  Business  Buying  Process  o Buying  Center  (All  individuals  and  units  participating  in  business  buying-­‐decision  process)  

! Users  will  use  product  or  service,  initiate  buying  process  and  help  define  product  specifications  

! Influencers  help  define  specifications  and  provide  information  for  evaluating  alternatives  –  Technical  personnel  

! Buyers  have  formal  authority  to  select  supplier  and  arrange  terms  of  purchase  –  High-­‐level  officers  

! Deciders  have  formal  or  informal  power  to  select  or  approve  final  suppliers  

! Gatekeepers  control  flow  of  information  to  others,  e.g.  secretaries    

- Major  Influences  on  Business  Buyers  o When  suppliers’  offers  are  similar,  business  buyers  have  little  basis  for  strictly  rational  

choice,  so  they  allow  influence  of  personal  factors    o When  competing  products  differ,  business  buyers  are  more  accountable  for  choice,  so  they  

pay  more  attention  to  economic  factors  o Environment  Factors  

! [1]  Economic  developments,  [2]  supply  conditions,  [3]  technological  change,  [4]  political  and  regulatory  developments,  [5]  competitive  developments,  [6]  culture  and  customs,  [7]  demand  for  product,  [8]  cost  of  money  

o Organizational  Factors  ! [1]  Objectives,  [2]  policies,  [3]  procedures,  [4]  organizational  structure  

and  [5]  systems  o Interpersonal  Factors  

! [1]  Authority,  [2]  status,  [3]  empathy  and  [4]  persuasiveness      

o Individual  Factors  ! [1]  Age,  [2]  education,  [3]  job  position,  [4]  personality,  [5]  risk  attitudes,  

[6]  income,  [7]  motives/  perceptions    

- The  Business  Buying  Process  o Problem  Recognition  (Someone  in  company  recognizes  problem  or  need  that  can  be  met  

by  acquiring  good  or  service)  ! Can  result  from  internal  (need  for  new  product/equipment)  or  external  

stimuli  (idea  from  trade  show,  advertising  or  competitors)  ! Business  marketers  should  alert  customers  to  potential  problems  and  

show  how  their  products  provide  solutions  o General  Need  Description  (Company  describes  general  characteristics  and  quantity  of  

needed  item)  ! Business  marketers  should  help  buyers  define  their  needs  and  provide  

value  of  different  product  characteristics  o Product  Specification  (Buying  organization  decides  on  and  specifies  best  technical  

product  characteristics  for  needed  item)  ! Sellers  should  use  value  analysis  (approach  to  cost  reduction  by  studying  

components  to  determine  if  they  can  be  redesigned,  standardized  or  produced  less  costly)  to  [1]  secure  new  account  and  [2]  turn  straight  rebuy  into  new-­‐task  situations  

o Supplier  Search  (Buyer  tries  to  find  best  vendors)  ! Supplier  should  get  listed  in  major  directories  and  build  good  reputation  ! Salespeople  should  watch  for  companies  searching  for  suppliers  and  

make  certain  their  firm  is  considered  o Proposal  Solicitation  (Buyer  invites  qualified  suppliers  to  submit  proposals)  o Supplier  Selection  (Buyer  reviews  proposals  and  selects  supplier  or  suppliers,  negotiate  

for  favourable  terms  and  conditions)  ! Supplier  development  managers  want  to  develop  full  network  of  

supplier-­‐partners  to  [1]  avoid  being  totally  dependent  on  one  supplier  and  to  [2]  allow  price  and  performance  comparisons  

o Order-­‐Routine  Specification  (Buyer  writes  final  order  with  chosen  supplier  or  suppliers)  o Performance  Review  (Buyer  assess  supplier  performance  and  decides  to  continue,  modify  

or  drop  arrangement)  ! Seller  should  monitor  same  factors  used  by  buyers  to  make  sure  seller  is  

giving  expected  satisfaction          

- Business  Buying  on  the  Internet  o E-­‐procurement  [1]  gives  buyers  access  to  new  suppliers,  [2]  lowers  purchasing  costs  and  [3]  

hastens  order  processing  and  delivery  o Business  marketers  can  connect  with  customers  online  to  [1]  share  marketing  information,  

[2]  sell  products  and  services,  [3]  provide  customer  support  services  and  [4]  maintain  ongoing  customer  relationships  

o Benefits  ! Shaves  transaction  costs  and  results  in  more  efficient  purchasing  for  both  

buyers  and  sellers  ! Eliminates  paperwork  ! Reduces  time  between  order  and  delivery  ! Frees  purchasing  people  to  focus  on  more  strategic  issues  

o Problems  ! Can  erode  decades-­‐old  customer-­‐supplier  relationships  as  firms  can  

search  for  better  suppliers  online  ! Creates  potential  security  disasters  

 Institutional  &  Government  Markets  (Pg  164)  

- Institutional  Markets  (Schools,  hospitals,  nursing  homes,  prisons  and  other  institutions  providing  goods  and  services  to  people  in  their  care)  o Have  low  budgets  and  captive  patrons  

 - Government  Markets  (Government  units  –  federal,  state  and  local  –  purchasing  or  renting  

goods  and  services  for  carrying  out  main  functions  of  government)  o Require  suppliers  to  submit  bids  o Favour  domestic  suppliers  over  foreign  suppliers  o Favour  depressed  business  firms  and  areas,  small  business  firms,  minority-­‐owned  firms  

and  business  firms  that  avoid  race,  gender  and  age  discrimination  o Carefully  watched  by  outside  publics  o Good  credit  o Require  considerable  paperwork  from  suppliers  

             

Market  Segmentation  (Chapter  7)  (Dividing  heterogenous  market  into  smaller  groups  of  buyers  with  distinct  needs,  characteristics  or  behaviors  who  might  require  separate  products  or  marketing  mixes)  (Pg  173)  

Segmenting  Consumer  Markets  

o Geographic  Segmentation  (Dividing  market  into  different  geographical  units  such  as  nations,  states,  regions,  countries,  cities  or  neighborhoods)  

! Companies  are  localizing  their  products,  advertising,  promotion  and  sales  efforts  to  fit  needs  of  individual  geographical  units  

! Companies  are  seeking  to  cultivate  as-­‐yet  untapped  geographic  territory  ! Retailers  are  developing  new  store  concepts  to  give  them  access  to  higher-­‐density  

urban  areas    

o Demographic  Segmentation  (Dividing  market  into  groups  based  on  demographic  variables  such  as  age,  sex,  family  size,  family  life  cycle,  income,  occupation,  education,  religion,  race  and  nationality)  

! Consumer  needs,  wants  and  usage  rates  often  vary  closely  with  demographic  variables  ! Demographic  variables  are  easier  to  measure  (e.g.  to  assess  size  of  target  market)  ! Age  &  Life-­‐Cycle  Stage  

• Age  &  Life-­‐Cycle  Segmentation  (Dividing  market  into  different  age  and  life-­‐cycle  groups)  

• Marketers  must  guard  against  stereotypes  • Age  is  often  a  poor  predictor  of  a  person’s  life  cycle,  health,  work  or  family  status,  

needs  and  buying  power  ! Gender  

• Gender  Segmentation  (Dividing  market  into  different  groups  based  on  gender)    

! Income  • Income  Segmentation  (Dividing  market  into  different  income  groups)  

 o Psychographic  Segmentation  (Dividing  market  into  different  groups  based  on  social  class,  

lifestyle  or  personality  characteristics)    

o Behavioral  Segmentation  (Dividing  market  into  groups  based  on  consumer  knowledge,  attitude,  use  or  response  to  a  product)  

! Occasions  • Occasion  Segmentation  (Dividing  market  into  groups  according  to  occasions  

when  buyers  get  the  idea  to  buy,  actually  make  their  purchase  or  use  the  purchased  item)  

! Benefits  Sought  • Benefit  Segmentation  (Dividing  market  into  groups  according  to  different  

benefits  that  consumers  seek  from  the  product)  • Finding  major  benefits  people  look  for  in  the  product  class  • Finding  kinds  of  people  who  look  for  each  benefit  • Finding  major  brands  that  deliver  each  benefit  

! User  Status  • Markets  can  be  segmented  into  groups  of  nonusers,  ex-­‐users,  potential  users,  

first-­‐time  users  and  regular  users  ! Usage  Rate  

• Markets  can  be  segmented  into  light,  medium  and  heavy  product  users  • Marketers  usually  prefer  to  attract  one  heavy  user  to  several  light  users  • Companies  often  target  light  users  with  their  ads  and  promotions  

! Loyalty  Status  • Buyers  can  be  divided  into  groups  according  to  degree  of  loyalty  • By  studying  its  less  loyal  buyers,  company  can  detect  which  brands  are  most  

competitive  with  its  own  o Using  Multiple  Segmentation  Bases  

! Identify  smaller,  better-­‐defined  target  groups  ! PRIZM  “You  Are  Where  You  Live”  (One  of  the  leading  lifestyle  segmentation  systems  by  

Claritas)  classifies  everyone  into  one  62  unique  neighborhood  types  or  “clusters”    

- Segmenting  Business  Markets  o Business  marketers  use  variables,  mainly  buyer  behaviour  and  benefits  sought  by  customers,  

others  such  as  customer  operating  characteristics,  purchasing  approaches,  situational  factors  and  personal  characteristics    

- Segmenting  International  Markets  o Few  companies  have  either  resources  or  will  to  operate  in  all,  or  even  most,  countries  

 o Different  countries,  even  those  that  are  close  together,  can  vary  greatly  in  economic,  cultural  

and  political  makeup    

o Geographic  Location  ! Assuming  nations  close  to  one  another  will  have  many  common  traits  and  behaviors,  

but  there  are  many  exceptions        

o Economic  Factors  ! Population  income  levels  or  overall  level  of  economic  development  

 o Political  &  Legal  Factors  

! Type  and  stability  of  government,  receptivity  to  foreign  firms,  monetary  regulations  and  amount  of  bureaucracy    

o Cultural  Factors  ! Common  languages,  religions,  values  and  attitudes,  customs  and  behavioral  patterns  

 o Intermarket  Segmentation  (Forming  segments  of  consumers  having  similar  needs  and  buying  

behavior  even  though  they  are  located  in  different  countries)    

- Requirements  for  Effective  Segmentation  o Measurable  –  Segmentation  variables  should  be  able  to  be  measured  o Accessible  –  Market  segments  should  be  able  to  be  effectively  reached  and  served  o Substantial  –  Market  segments  should  be  large  or  profitable  enough  to  serve  o Differentiable  –  Segments  should  be  conceptually  distinguishable  and  respond  differently  to  

different  marketing  mix  elements  and  programs  o Actionable  –  Effective  programs  should  be  designed  for  attracting  and  serving  the  segments  

 

Target  Marketing  (Process  of  evaluating  each  market  segment’s  attractiveness  and  selecting  one  or  more  segments  to  enter)  (Pg  183)  

- Evaluating  Market  Segments  o Segment  Size  &  Growth  

! Right  size  and  growth  characteristics    

o Segment  Structural  Attractiveness  ! Strong  and  aggressive  competitors,  actual  or  potential  substitute  products,  powerful  

buyers  and  powerful  suppliers  can  decrease  segment  attractiveness    

o Company  Objectives  &  Resources    

- Selecting  Target  Market  Segments  o Target  Market  (A  set  of  buyers  sharing  common  needs  or  characteristics  that  company  

decides  to  serve)    

o Undifferentiated  (Mass)  Marketing  (Market-­‐coverage  strategy  in  which  firm  decides  to  ignore  market  segment  differences  and  go  after  whole  market  with  one  offer)  ! Focuses  on  what  is  common  in  needs  of  consumers  rather  than  differences  

 o Differentiated  (Segmented)  Marketing  (Market-­‐coverage  strategy  in  which  firm  decides  

to  target  several  market  segments  and  designs  separate  offers  for  each)  ! Creates  more  total  sales  than  undifferentiated  marketing  across  all  segments  ! Increases  costs  of  doing  business  ! Company  must  weigh  increased  sales  against  increased  costs  

 o Concentrated  (Niche)  Marketing  (Market-­‐coverage  strategy  in  which  firm  goes  after  a  

large  share  of  one  or  a  few  segments  or  niches)  ! Appealing  when  company  resources  are  limited  ! Greater  knowledge  of  consumer  needs  in  niches  company  serves  ! Special  reputation  ! Company  can  market  more  effectively  and  efficiently  ! Involves  higher-­‐than-­‐normal  risks  –  Company  will  suffer  greatly  if  segment  turns  

sour  or  if  larger  competitors  decide  to  enter  same  segment  with  greater  resources    

o Micromarketing  (Practice  of  tailoring  products  and  marketing  programs  to  needs  and  wants  of  specific  individuals  and  local  customer  groups)    

! Local  Marketing  (Tailoring  brands  and  promotions  to  needs  and  wants  of  local  customer  groups  –  cities,  neighborhoods  and  even  specific  stores)  • Drive  up  manufacturing  and  marketing  costs  by  reducing  economics  of  scale  • Create  logistics  problems  • Brand’s  overall  image  might  be  diluted  • Helps  company  to  market  more  effectively  in  face  of  pronounced  regional  and  

local  differences  ! Meets  needs  of  company’s  first-­‐line  customers  –  retailers  ! Individual  Marketing  (Tailoring  products  and  marketing  programs  to  needs  and  

preferences  of  individual  customers  –  also  labeled  “markets-­‐of-­‐one  marketing”,  “customized  marketing”  and  “one-­‐to-­‐one  marketing”)  • Mass  Customization  (Process  though  which  firms  interact  one-­‐to-­‐one  with  

masses  of  customers  to  design  products  and  services  tailor-­‐made  to  individual  needs)  

• Companies  need  to  involve  customers  more  in  all  phases  of  product  development  and  buying  process,  increasing  opportunities  for  buyers  to  practice  self-­‐marketing  (individual  customers  taking  more  responsibility  to  determine  which  products  and  brands  to  buy)    

o Choosing  a  Target  Marketing  Strategy  ! Company  Resources  

• When  firm’s  resources  are  limited,  concentrated  marketing  makes  more  sense    

! Degree  of  Product  Variability  • Undifferentiated  marketing  is  more  suited  for  uniform  products  • Products  varying  in  design  are  more  suited  to  differentiation  or  concentration  

 ! Product’s  Life-­‐Cycle  Stage  

• When  firm  introduces  a  new  product,  undifferentiated  marketing  or  concentrated  marketing  may  make  more  sense  

• In  mature  stage  of  product  life  cycle,  differentiated  marketing  makes  more  sense    

! Market  Variability  • If  most  buyers  have  same  tastes,  buy  same  amounts  and  react  the  same  to  

marketing  efforts,  undifferentiated  marketing  is  appropriate        

! Competitor’s  Marketing  Strategies  • Differentiated  or  concentrated  marketing  is  more  advantageous  

 - Socially  Responsible  Target  Marketing  

o Biggest  issues  usually  involve  targeting  of  vulnerable  or  disadvantaged  consumers  with  controversial  or  potentially  harmful  products    

   

Chapter  9  –  New-­‐Product  Development  &  Product  Life-­‐Cycle  Strategies  

- Firms  must  [1]  develop  new  products  to  replace  aging  ones  and  [2]  adapt  its  marketing  strategies  in  face  of  changing  tastes,  technologies  and  competition    

New-­‐Product  Development  Strategy  (Pg  237)  

- Firms  can  obtain  new  products  through  [1]  acquisition  or  [2]  new-­‐product  development  (Development  of  original  products,  product  improvements,  product  modifications  and  new  brands  through  firm’s  own  R&D  efforts)  

- New  products  fail  because  [1]  market  size  has  been  overestimated,  [2]  actual  product  is  not  designed  as  well  as  it  should  have  been,  [3]  incorrectly  positioned  in  market,  priced  too  high  or  advertised  poorly,  [4]  pushed  despite  poor  marketing  research  findings,  [5]  costs  of  product  development  are  higher  than  expected  or  [6]  competitors  fight  back  harder  than  expected  

- Step  1  –  Idea  Generation  (Systematic  search  for  new-­‐product  ideas)  o Internal  Idea  Sources  

! Formal  research  and  development  ! Brains  of  employees,  e.g.  “intrapreneurial”  programs  ! Creative  innovation  approaches,  e.g.  Eureka!  Ranch  

o External  Idea  Sources  ! Customers  

• Company  can  analyze  customer  questions  and  complaints  • Company  can  meet  with  and  work  alongside  customers  • Company  can  conduct  surveys  or  focus  groups  • Company  can  put  new  products  and  uses  created  by  consumers  on  

market  • Crowdsourcing:  invite  broad  communities  of  people  into  the  

innovation  process-­‐  company  can  give  customers  tools  and  resources  to  design  products  

! Competitors  • Company  can  buy  competing  new  products,  take  them  apart  to  see  

how  they  work,  analyze  their  sales  and  decide  ! Distributors  &  Suppliers  

• Company  can  obtain  information  about  consumer  problems  and  new-­‐product  possibilities  from  resellers  

• Company  can  obtain  new  concepts,  techniques  and  materials  from  suppliers  

! Trade  magazines,  shows  and  seminars,  government  agencies,  new-­‐product  consultants,  advertising  agencies,  marketing  research  firms,  university  and  commercial  laboratories  and  inventors  

- Step  2  –  Idea  Screening  (Screening  new-­‐product  ideas  to  spot  good  and  drop  poor  ones)  - Step  3  –  Concept  Development  &  Testing  

o Product  idea  is  idea  for  possible  product  that  company  can  see  itself  offering  to  market  o Product  concept  is  detailed  version  of  idea  stated  in  meaningful  consumer  terms  o Product  image  is  the  way  consumers  perceive  actual  or  potential  product  o Concept  Testing  (Testing  new-­‐product  concepts  with  group  of  target  consumers  to  find  

out  consumer  appeal)  - Step  4  –  Marketing  Strategy  Development  (Designing  initial  marketing  strategy  for  new  

product  based  on  product  concept)  o First  part  describes  [1]  target  market,  [2]  planned  product  positioning  and  [3]  sales,  

market  share  and  profit  goals  for  first  few  years  o Second  part  outlines  [1]  planned  price,  [2]  distribution  and  [3]  marketing  budget  for  first  

year  o Third  part  describes  [1]  planned  long-­‐run  sales,  [2]  profit  goals  and  [3]  marketing  mix  

strategy  - Step  5  –  Business  Analysis  (Review  of  sales,  costs  and  profit  projections  to  find  out  whether  

they  satisfy  company’s  objectives)  - Step  6  –  Product  Development  (Developing  product  concept  into  physical  product  to  ensure  

product  idea  can  turn  into  workable  product)  o R&D  department  will  develop  and  test  one  or  more  physical  versions  of  product  concept  o Products  undergo  rigorous  tests  to  ensure  [1]  safe  and  effective  performance  or  [2]  

consumers  find  value  in  them  o New-­‐product  must  [1]  have  required  functional  features  and  [2]  convey  intended  

psychological  characteristics  - Step  7  –  Test  Marketing  (Product  and  marketing  program  are  tested  in  more  realistic  market  

settings)  o Test  marketing  [1]  costs  can  be  high  and  [2]  takes  time  that  may  allow  competitors  to  gain  

advantages  o However,  test  marketing  costs  are  often  small  compared  to  costs  of  major  mistake  o When  [1]  costs  of  developing  and  introducing  product  are  low  or  [2]  management  is  

already  confident,  company  may  do  little  or  no  test  marketing  o Approach  1  –  Standard  Test  Markets  o Approach  2  –  Controlled  Test  Markets  o Approach  3  –  Simulated  Test  Markets  

- Step  8  –  Commercialization  (Introducing  new  product  into  market)  o Company  must  decide  [1]  introduction  timing  and  [2]  where  to  launch  new  product  o Can  develop  [1]  planned  market  rollout  over  time  or  [2]  global  rollouts  

- Managing  New-­‐Product  Development  o Customer-­‐centered:  find  new  ways  to  solve  customer  problems  and  create  more  customer-­‐

satisfying  experiences  

o Team-­‐based:  departments  work  closely  together,  overlap  and  save  time  and  increase  effectiveness  

o Systematic:  install  an  innovation  management  system  to  collect,  review,  evaluate  and  manage  new  ideas  

 

The  Product  Life  Cycle  model  can  help  to  analyze  maturity  stages  of  products  and  industries.  

Any  company  is  constantly  seeking  ways  to  grow  future  cash  flows  by  maximizing  revenue  from  the  sale  of  products  and  services.  Cash  Flow  allows  a  company  to  maintain  its  viability,  invest  in  new  product  development  and  improve  its  workforce.  All  this  in  an  effort  to  acquire  additional  market  share  and  become  a  leader  in  its  respective  industry.    A  constant  and  sustainable  cash  flow  (revenue)  stream  from  product  sales  is  key  to  any  long-­‐term  investment,  and  the  best  way  to  attain  a  stable  revenue  stream  is  to  have  one  or  more  Cash  Cows.  Cash  Cows  are  strong  products  that  have  achieved  a  large  market  share  in  mature  markets.      

Also,  the  modern  Product  Life  Cycle  is  becoming  shorter  and  shorter.  Many  products  in  mature  industries  are  revitalized  by  product  differentiation  and  market  segmentation.  Organizations  increasingly  reassess  product  life  cycle  costs  and  revenues,  because  the  time  available  to  sell  a  product  and  recover  the  investment  shrinks.    Although  the  product  life  cycle  shrinks,  the  operating  life  of  many  products  is  lengthening.  For  example,  the  operating  life  of  some  durable  goods,  such  as  automobiles  and  appliances,  has  increased  substantially.  As  a  result,  the  companies  that  produce  these  products  must  take  their  market  life  and  service  life  into  account  when  they  are  planning.  Increasingly,  companies  are  attempting  to  optimize  revenue  and  profits  over  the  entire  life  cycle.  They  do  this  through  the  consideration  of  product  warranties,  spare  parts,  and  the  ability  to  upgrade  existing  products.    It  is  clear  that  the  Product  Life  Cycle  concept  has  significant  impact  upon  business  strategy  and  corporate  performance.  The  Product  Life  Cycle  method  identifies  the  distinct  stages  affecting  sales  of  a  product.  From  the  product's  inception  until  its  retirement.    

 

 The  stages  in  the  Product  Life  Cycle  

• Product  development  begins  when  the  company  finds  and  develops  a  new-­‐product  idea.  Sales  are  zero,  investment  costs  mount  (negative)    

• Introduction  stage.  The  product  is  introduced  in  the  market  through  a  focused  and  intense  marketing  effort  designed  to  establish  a  clear  identity  and  promote  maximum  awareness.  Launch  strategy  must  be  consistent  with  product  positioning.  Many  trial  or  impulse  purchases  will  occur  at  this  stage.  Slow  sales  growth,  no  profit  because  of  high  distribution  and  promotion  expense  

o Growth  stage.  Can  be  recognized  by  rapid  acceptance  (consumer  education),  increasing  sales  and  the  emergence  of  competitors.  It  is  also  characterized  by  sustained  marketing  activities  to  gain  economies  of  scale.  Some  customers  make  repeat  purchases.  To  sustain  rapid  market  growth,  firm  can  [1]  improve  product  quality  and  add  new  features  and  models,  [2]  enter  new  market  segments  and  distribution  channels,  [3]  shift  advertising  from  building  product  awareness  to  product  conviction  and  purchase  and  [4]  lower  prices  at  right  time    

o Maturity  stage.  This  phase  can  be  recognized  when  competitors  beginning  to  leave  the  market.  Also,  sales  velocity  is  dramatically  reduced,  and  sales  volume  reaches  a  steady  level.  At  this  point  in  time,  typically  loyal  customers  purchase  the  product.  Profit  level  off/decline  because  of  increased  marketing  outlays  to  defend  product  against  competition  (many  substitutes,  overcapacity  leads  to  competition).  Increased  promotion  and  R&D.  Should  consider  modifying  market,  product  and  marketing  mix    

♦ To  modify  market,  company  can  [1]  look  for  new  users  and  market  segments,  [2]  reposition  brand  to  appeal  to  larger  or  faster-­‐growing  segment,  [3]  increase  usage  among  present  customers  and  [4]  find  new  uses  

♦ To  modify  product,  company  can  [1]  improve  product’s  quality  and  performance  and  [2]  product’s  styling  and  attractiveness  

♦ To  modify  marketing  mix,  company  can  [1]  cut  prices  and  [2]  launch  better  advertising  campaign  or  use  aggressive  sales  promotion  

• Decline  stage.  The  lingering  effects  of  competition,  unfavorable  economic  conditions,  new  trends,  etc,  often  explain  the  decline  in  sales.  Profits  drop;  can  decide  to  maintain,  harvest  or  drop  product  

    Introduction   Growth   Maturity   Decline  

Characteristics  

Sales   Low  sales   Rapidly  rising  sales  

Peak  sales   Declining  sales  

Costs  High  cost  per  customer  

Average  cost  per  customer  

Low  cost  per  customer  

Low  cost  per  customer  

Profits   Negative   Rising  profits   High  profits  Declining  profits  

Customers   Innovators   Early  adopters  Middle  majority  

Laggards  

Competitors   Few  Growing  number  

Stable  number  

beginning  to  decline  

Declining  number  

Marketing  Objectives  

 Create  product  awareness  and  

trial  

Maximize  market  share  

Maximize  profit  while  defending  

market  share  

Reduce  expenditures  and  milk  the  

brand  

    Introduction   Growth   Maturity   Decline  

Strategies  

Product   Offer  basic  product  

Offer  product  extensions,  service,  warranty  

Diversify  brand  and  models  

Phase  out  weak  items  

Price   Use  cost-­‐plus  Price  to  penetrate  market  

Price  to  match  or  beat  

competitors  Cut  price  

Distribution  Build  selective  distribution  

Build  intensive  distribution  

Build  more  intensive  distribution  

Go  selective,  phase  out  unprofitable  outlets  

Advertising  

Build  product  awareness  among  early  adopters  and  dealers  

Build  awareness  

and  interest  in  mass  market  

Stress  brand  differences  and  benefits  

Reduce  to  level  needed  to  retain  hard-­‐core  loyals  

Sales  Promotion  

Use  heavy  sales  promotion  to  entice  trial  

Reduce  to  take  advantage  of  

heavy  consumer  demand  

Increase  to  encourage  brand  

switching  

Reduce  to  minimal  level  

 

 

       

 

 

The  Buyer  Decision  Process  for  New  Products  Chapter  5  (Pg  142)  

- New  Product  (Good,  service  or  idea  perceived  by  some  potential  consumers  as  new)  - Stages  in  the  Adoption  Process  (Mental  process  through  which  individual  passes  from  first  

hearing  about  innovation  to  final  adoption)  o [1]  Awareness,  [2]  Interest,  [3]  Evaluation,  [4]  Trial  &  [5]  Adoption  

- Individual  Differences  in  Innovativeness  o Five  adopter  groups  in  chronological  order  are  [1]  innovators,  [2]  early  adopters,  [3]  early  

majority,  [4]  late  majority  and  [5]  laggards  o Innovative  firm  should  direct  marketing  efforts  toward  innovators  and  early  adopters  

- Influence  of  Product  Characteristics  on  Rate  of  Adoption  o Relative  Advantage  –  If  innovation  appears  superior  to  existing  products,  rate  increases  o Compatibility  –  If  innovation  fits  values  and  experiences  of  potential  consumers,  rate  

increases  o Complexity  –  If  innovation  is  difficult  to  understand  or  use,  rate  decreases  o Divisibility  –  If  innovation  may  be  tried  on  limited  basis,  rate  increases  o Communicability  –  If  results  of  using  innovation  can  be  observed  or  described  to  others,  

rate  increases  o Other  characteristics  include  initial  and  ongoing  costs,  risk  and  uncertainty  and  social  

approval  - Consumer  Behavior  Across  International  Borders  

o International  markets  must  understand  differences  and  adjust  products  and  marketing  programs  accordingly  

o Differences  include  [1]  obvious  differences,  [2]  physical  differences  in  consumers  and  environments,  [3]  differences  in  customs  and  behaviors  and  [4]  unique  cultures  

 Innovation  Adoption  Curve  

The  adoption  curve  is  useful  to  remember  it  is  useless  to  try  to  quickly  and  massively  convince  the  mass  of  a  new  controversial  idea.  It  is  better  to  start  first  with  convincing  the  innovators  and  the  early  adopters.  Also  the  categories  and  percentages  can  be  used  as  a  first  draft  to  estimate  target  groups  for  communication  purposes.  

Five  elements:    

1. Characteristics  of  an  innovation  which  may  influence  its  adoption;    2. Decision-­‐making  process  that  occurs  when  individuals  consider  to  adopt  a  new  idea,  

product  or  practice;    3. Characteristics  of  individuals  that  make  them  likely  to  adopt  an  innovation;    4. Consequences  for  individuals  and  society  of  adopting  an  innovation;  and    

5. Communication  channels  used  in  the  adoption  process.    

Innovation  Adoption  Curve  categories  

• Innovators.  Brave  people,  pulling  the  change.  Innovators  are  very  important  communication  mechanisms.  

• Early  Adopters.  Respectable  people,  opinion  leaders,  try  out  new  ideas,  but  in  a  careful  way.  • Early  Majority.  Thoughtful  people,  careful  but  accept  change  more  quickly  than  average  

people  do.  • Late  Majority.  Skeptic  people,  will  use  new  ideas  or  products  only  when  the  majority  is  using  

it.  • Laggards.  Traditional  people,  love  to  stick  to  the  "old  ways",  are  critical  about  new  ideas  and  

will  only  accept  it  if  the  new  idea  has  become  mainstream  or  even  tradition.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4P  –  Product    Chapter  8  What  is  a  Product?  (Pg  204)  

- Product  (Anything  that  can  be  offered  to  market  for  attention,  acquisition,  use  or  consumption,  satisfying  want  or  need)  includes  more  than  just  tangible  goods  

- Service  (Any  activity  or  benefit  one  party  can  offer  to  another  that  is  essentially  intangible  and  not  resulting  in  ownership  of  anything)  

- Experience  (represent  what  buying  the  product/service  will  do  for  the  customer)    

- Levels  of  Product  &  Services  o Level  1  –  Core  Benefit  

! Core,  problem-­‐solving  benefits  or  services  consumers  seek  o Level  2  –  Actual  Product  

! [1]  Features,  [2]  design,  [3]  quality  level,  [4]  brand  name  and  [5]  packaging  o Level  3  –  Augmented  Product  

! Additional  consumer  services  and  benefits,  e.g.  after-­‐sales  service,  warranty,  installation  and  delivery  and  credit    

- Product  &  Service  Classifications    o Consumer  Products  (Products  bought  by  consumer  for  personal  consumption)  

 Convenience  Product  

Shopping  Product   Specialty  Product   Unsought  Product  

Customer  Buying  Behavior  

♦ Frequent  purchase  

♦ Little  planning  and  shopping  effort  

♦ Little  comparison  

♦ Low  customer  involvement  

♦ Less  frequent  purchase  

♦ Much  planning  and  shopping  effort  

♦ Brand  comparison  on  price,  quality,  style  

♦ Strong  brand  preference  and  loyalty  

♦ Special  purchase  effort  

♦ Little  brand  comparison  

♦  Low  price  sensitivity  

♦ Little  product  awareness,  knowledge  (If  aware,  little  or  even  negative  interest)  

Price   Low   Higher   High   Varies  

Distribution  Widespread,  convenient  locations  

Selective,  fewer  outlets  

Exclusive,  one  or  few  outlets  per  market  area  

Varies  

Promotion  Mass  promotion  by  producer  

Advertising  and  personal  selling  by  producer  and  resellers  

More  carefully  targeted  promotion  by  producer  and  resellers  

Aggressive  advertising  and  personal  selling  by  producer  and  resellers  

Examples  

Toothpaste,  magazines,  laundry  detergent  

Major  appliances,  televisions,  furniture,  clothing  

Luxury  goods  Life  insurance,  Red  Cross  blood  donations  

 

o Industrial  Products  (Products  bought  by  individuals  and  organizations  for  further  processing  or  for  use  in  conducting  business)  ! Materials  &  Parts  

• Include  [1]  raw  materials  and  [2]  manufactured  materials  and  parts  • Price  and  service  are  major  marketing  factors  

! Capital  Items  • Aid  in  buyer’s  production  or  operations  • Include  [1]  installations  and  [2]  accessory  equipment  

! Supplies  &  Services  • Supplies  include  [1]  operating  supplies  and  [2]  repair  and  maintenance  items  • Services  include  [1]  maintenance  and  repair  services  and  [2]  business  advisory  services    

Product  &  Service  Decisions  (Pg  209)  

- Level  1  –  Individual  Product  &  Service  Decisions    o Product  &  Service  Attributes  

! Product  Quality  (Ability  of  product  to  perform  its  functions,  includes  overall  durability,  reliability,  precision,  ease  of  operation  and  repair)  • Creates  customer  value  and  satisfaction  

• Companies  should  [1]  choose  performance  quality  level  matching  target  market  needs  and  competing  products  and  [2]  strive  for  high  conformance  quality  (consistency)  

! Product  Features  • Competitive  tool  to  differentiate  product  from  competitors’  • Companies  should  [1]  drop  features  customers  value  little  in  relation  to  costs  and  [2]  add  features  customers  value  highly  in  relation  to  costs  

! Product  Style  &  Design  • Style  describes  product  appearance,  but  design  contributes  to  product’s  usefulness  as  well  as  looks  • Shapes  customers’  product  or  service  experience  • Product  designers  should  think  [1]  less  about  product  attributes  and  technical  specifications  and  [2]  more  about  how  customers  use  and  benefit  from  product    

o Branding  ! Brand  (Name,  term,  sign,  symbol,  design  or  combination  to  identify  and  differentiate  goods  or  services)  

! [1]  Helps  consumers  identify  products  that  might  benefit  them  and  [2]  tells  buyer  about  product  quality  

! [1]  Basis  on  which  whole  story  can  be  built  about  product’s  special  qualities,  [2]  provides  legal  protection  for  unique  product  features  and  [3]  helps  segment  markets  

! Brand  equity:  differential  effect  that  the  brand  name  has  on  customer  response  to  the  product  and  its  marketing    

o Packaging  (Activities  of  designing  and  producing  container  or  wrapper  for  product)  !  [1]  Contains  and  protects  product,  [2]  attracts  attention,  [3]  describes  product,  [4]  makes  sale,  [5]  consider  product  safety  

! Many  companies  reduce  packaging  and  use  environmentally  responsible  packaging  material    

o Labeling  ! [1]  Identifies  product  or  brand,  [2]  describes  “who”,  “where”,  “when”,  “what”  and  “how”  about  product  and  [3]  promotes  product  through  attractive  graphics    

o Product  Support  Services  ! Companies  [1]  survey  customers  periodically  to  assess  current  services’  value  and  obtain  ideas  for  new  ones,  [2]  assess  cost  of  providing  these  services  and  [3]  develop  package  of  services  delighting  customers  and  yielding  profits  to  company  

 

- Level  2  –  Product  Line  Decisions  (Group  of  products  closely  related  because  of  similar  functions,  same  customer  groups,  same  types  of  marketing  outlets  or  similar  price  ranges)  o Product  line  length  is  the  number  of  items  in  the  product  line,  influenced  by  [1]  company  

objectives,  e.g.  allow  for  upselling,  allow  cross-­‐selling  and  protect  against  economic  swings,  and  [2]  resources  

o Company  can  perform  line  stretching  by  lengthening  product  line  beyond  current  range  ! Stretch  downward  to  [1]  plug  market  hole,  [2]  respond  to  competitor’s  attack  on  upper  end,  [3]  grow  faster  in  low-­‐end  

! Stretch  upward  to  [1]  add  prestige  to  current  products,  [2]  grow  faster  or  earn  higher  margins  at  higher  end  

! Companies  at  upper  end  can  stretch  downward,  middle  range  in  both  directions  and  lower  end  can  stretch  upward  

o Company  can  perform  line  filling  by  adding  more  items  within  present  range  ! To  [1]  reach  for  extra  profits,  [2]  satisfy  dealers,  [3]  use  excess  capacity,  [4]  be  leading  full-­‐line  company  and  [5]  plug  holes  to  keep  out  competitors  

! Overdone  if  it  results  in  cannibalization  and  customer  confusion  ! Companies  should  ensure  new  items  are  noticeably  different  from  existing  ones    

- Level  3  –  Product  Mix  Decisions  (Set  of  all  product  lines  and  items)    o Product  mix  width:  number  of  different  product  lines  o Product  mix  length:  total  number  of  items  within  the  lines  o Product  line  depth:  number  of  versions  offered  of  each  product  in  line  o Product  mix  consistency:  how  closely  related  various  product  lines  are  in  end  use,  

production  requirements,  distribution  channels  or  other  ways    

 Services  Marketing  (Pg  225)  

- Nature  &  Characteristics  of  a  Service  o Service  Intangibility  (Cannot  be  seen,  tasted,  felt,  heard  or  smelled  before  they  are  bought)  

! Service  provider  should  [1]  make  service  tangible  in  one  or  more  ways  and  [2]  send  right  signals  about  quality  

o Service  Inseparability  (Produced  and  consumed  at  same  time  and  cannot  be  separated  from  providers)  

o Service  Variability  (Quality  may  vary  greatly,  depending  on  who  provides  them,  when,  where  and  how)  

o Service  Perishability  (Cannot  be  stored  for  later  sale  or  use)  ! Service  firms  should  design  strategies  for  producing  better  match  between  demand  

and  supply    

- Marketing  Strategies  for  Service  Firms  o The  Service-­‐Profit  Chain  (Chain  linking  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     Company    

Internal  

Marketing    

External  

Marketing  

Employees  Interactive  

Marketing  Customers  

 

! Internal  Marketing  (Marketing  to  train  and  effectively  motivate  customer-­‐contact  employees  and  all  supporting  service  people  to  work  as  team  to  provide  customer  satisfaction)  

! Interactive  Marketing  (Marketing  that  recognizes  perceived  service  quality  depends  heavily  on  quality  of  buyer-­‐seller  interaction)  ♦ Managing  Service  Differentiation  

o Can  differentiate  service  offer  by  including  innovative  features  o Can  differentiate  service  delivery  by  [1]  more  able  and  reliable  customer-­‐

contact  people,  [2]  superior  physical  environment  or  [3]  superior  delivery  process  

o Can  differentiate  service  image  by  [1]  symbols  and  [2]  branding  ♦ Managing  Service  Quality  

o Should  not  only  provide  good  service  every  time,  but  also  recover  from  service  mistakes,  i.e.  service  recovery,  by  empowering  front-­‐line  service  employees  

♦ Managing  Service  Productivity  • To  increase  service  productivity,  [1]  train  current  employees  better  or  hire  

new  ones,  [2]  increase  quantity  of  service  by  giving  up  some  quality,  [3]  “industrialize  service”  by  adding  equipment  and  standardizing  production  and  [4]  harness  power  of  technology  

! However,  may  reduce  longer-­‐run  ability  to  [1]  innovate,  [2]  maintain  service  quality  or  [3]  respond  to  consumer  needs  and  desires    

4P  -­‐  Price  - Companies  should  sell  value,  not  price,  i.e.  higher  price  for  company’s  brand  is  justified  by  

greater  value  it  delivers    

What  is  a  Price?  (Pg  266)  

- Price  ([1]  Amount  of  money  charged  for  product  or  service  or  [2]  sum  of  values  consumers  exchange  for  benefits  of  having  or  using  product  or  service)    

- Today’s  New  Pricing  Environment  o Dynamic  Pricing  (Charging  different  prices  depending  on  individual  customers  and  

situations)  o Advantages  for  marketers  include  ability  to  [1]  price  tailored  products  accordingly  and  [2]  

change  prices  on  the  fly  o Advantages  for  buyers  include  ability  to  [1]  compare  product  and  price  instantly  on  

websites  and  [2]  negotiate  lower  prices  - Pricing:  An  Important  but  Difficult  Decision  

o In  marketing  mix,  price  is  [1]  only  element  producing  revenue  and  [2]  one  of  most  flexible  element  

o Mistakes  include  [1]  reducing  prices  too  quickly  to  get  sale  rather  than  convincing  product’s  worth,  [2]  pricing  that  is  too  cost  oriented  rather  than  customer-­‐value  oriented  and  [3]  price  that  does  not  take  rest  of  marketing  mix  into  account    

Factors  to  Consider  when  Setting  Prices  (Pg  267)  

- Internal  Factors  Affecting  Pricing  Decisions  o Marketing  Objectives  

! Pricing  strategy  is  largely  determined  by  market  positioning  and  also  by  general  objectives,  e.g.  [1]  survival,  [2]  current  profit  maximization,  [3]  market  share  leadership  and  [4]  product  quality  leadership  

! Pricing  strategy  for  not-­‐for-­‐profit  and  public  organizations  depends  on  objectives,  e.g.  [1]  partial  cost  recovery  or  [2]  full  cost  recovery  

o Marketing  Mix  Strategy  ! Many  firms  support  target  costing  (Pricing  that  starts  with  ideal  selling  price,  then  targets  costs  that  will  ensure  price  is  met)  

! Other  firms  create  non-­‐price  positions,  i.e.  not  charging  lowest  price,  but  differentiating  marketing  offer  to  make  product  worth  higher  price  

! Some  firms  even  feature  high  prices  as  part  of  positioning      

o Costs  ! Company  wants  price  to  [1]  cover  all  costs  and  [2]  deliver  fair  rate  of  return  for  effort  and  risk  

! Types  of  Costs  • Fixed  Costs  (Costs  not  varying  with  production  or  sales  level)  • Variable  Costs  (Costs  varying  directly  with  level  of  production)  • Total  Costs  (Sum  of  fixed  and  variable  costs  for  any  level  of  production)  • If  costs  are  more  than  competitors’,  company  have  to  [1]  charge  higher  price  or  [2]  make  less  profit,  putting  it  at  competitive  disadvantage  

! Costs  at  Different  Levels  of  Production  • To  price  wisely,  management  needs  to  know  how  costs  vary  with  different  level  of  production  and  choose  optimal  level  

! Costs  as  a  Function  of  Production  Experience  • Experience/Learning  Curve  (Drop  in  average  per-­‐unit  production  cost  that  comes  with  accumulated  production  experience)  • For  downward-­‐sloping  experience  curve,  company  must  get  large  market  share  early  in  product’s  life  cycle  by  following  strategy,  i.e.  low  initial  price  "  sales  increase  "  costs  will  decrease  "  lower  prices  further  • However,  [1]  it  may  give  product  a  cheap  image,  [2]  competitors  may  fight  it  out  to  meet  price  cuts  and  [3]  competitors  may  find  lower-­‐cost  technology  that  allows  starting  at  lower  prices  than  market  leader’s    

o Organizational  Considerations  ! Management  must  decide  who  within  organization  should  set  prices    

- External  Factors  Affecting  Pricing  Decisions  (Pg  276)  o The  Market  &  Demand  

! Costs  set  lower  limit  of  prices  while  market  and  demand  set  upper  limit  ! Pricing  in  Different  Types  of  Markets  

• Pure  Competition  o Seller  cannot  charge  more  and  will  not  charge  less  than  market  price  

• Monopolistic  Competition  o Sellers  differentiate  by  price,  branding,  advertising  and  personal  selling  

• Oligopolistic  Competition  o Each  seller  is  alert  and  responds  to  competitors’  strategies  and  moves  

• Pure  Monopoly  o In  regulated  monopoly,  the  seller  set  rates  permitted  by  government  o In  non-­‐regulated  monopoly,  the  seller  prices  at  what  market  will  bear  

! Consumer  Perceptions  of  Price  &  Value  

• Companies  must  [1]  understand  how  much  value  consumers  place  on  benefits  received  from  product  and  [2]  set  price  that  fits  this  value  

! Analyzing  the  Price-­‐Demand  Relationship  • [1]  Demand  curve  (Curve  showing  number  of  units  market  will  buy  at  different  prices)  slopes  downwards  normally,  but  [2]  sometimes  upwards  for  prestige  goods  because  consumers  think  higher  prices  mean  more  quality  • When  measuring  demand  curves  by  estimating  demand  at  different  prices,  companies  must  not  allow  other  factors  affecting  demand  to  vary  

! Price  Elasticity  (Sensitivity  of  demand  to  price  change)  of  Demand  • Buyers  are  less  price  sensitive  when  [1]  product  is  unique  or  high  in  quality,  prestige  or  exclusiveness,  [2]  substitute  is  hard  to  find  or  substitute’s  quality  is  hard  to  compare  with,  [3]  total  expenditure  is  low  relative  to  income  or  is  shared  • If  demand  is  elastic,  sellers  can  increase  revenue  by  [1]  lowering  prices  as  long  as  extra  costs  do  not  exceed  extra  revenue,  but  must  avoid  pricing  that  turns  products  into  commodities,  or  [2]  differentiate  their  offerings  

o Competitors’  Costs,  Prices  &  Offers  ! Company  must  consider  [1]  competitors’  costs  and  prices,  [2]  possible  competitor  reactions  and  [3]  nature  of  competition  affected  by  pricing  strategy  

o Other  External  Factors  ! Company  must  consider  [1]  economic  conditions,  [2]  prices’  impact  on  other  parties  in  its  environment,  e.g.  resellers,  [3]  government  and  [4]  social  concerns    

General  Pricing  Approaches  (Pg  272)  

- Cost-­‐Based  Pricing  o Cost-­‐Plus  Pricing  (Adding  standard  markup  to  product  cost)  

! Unlikely  to  lead  to  best  price  because  it  ignores  demand  and  competitor  prices  ! Works  only  if  assigned  price  brings  in  expected  sales  level  ! Popular  because  [1]  pricing  is  simplified  as  sellers  are  more  certain  about  costs  than  demand,  [2]  when  all  firms  in  industry  use  this  pricing  method,  prices  tend  to  be  similar  and  price  competition  is  minimized  and  [3]  fairer  to  both  buyers  and  sellers    

- Break-­‐Even  Analysis  &  Target  Profit  Pricing  o Break-­‐Even/Target  Profit  Pricing  (Setting  price  to  [1]  break  even  on  costs  of  making  and  

marketing  product  or  [2]  make  target  profit)    

Cost-­‐Based  Pricing  

Product   "   Cost   "   Price   "   Value   "   Customers  

 

o Cost-­‐based  pricing  is  product  driven  ! Company  designs  what  it  considers  to  be  good  product  ! Company  totals  costs  of  making  product  ! Company  sets  price  covering  costs  plus  target  profit  ! Company  convinces  buyers  value  at  that  price  justifies  purchase    

- Value-­‐Based  Pricing  (Setting  price  based  on  buyers’  perceptions  of  value  rather  than  on  seller’s  cost)    

Value-­‐Based  Pricing  

Customers   "   Value   "   Price   "   Cost   "   Product  

 

o Value-­‐based  pricing  is  customer  driven  ! Company  sets  target  price  based  on  customer  perceptions  of  product  value  ! Targeted  value  and  price  drive  decisions  about  product  design  and  what  costs  can  be  incurred    

o Value  Pricing  (Offering  just  right  combination  of  quality  and  good  service  at  fair  price)  ! Involves  [1]  introducing  less  versions  of  established,  brand  name  products  or  [2]  redesigning  existing  brands  to  offer  more  quality  for  given  price  or  same  quality  for  less  

! Everyday  low  pricing  (EDLP)  involves  charging  constant,  everyday  low  price,  but  few  or  no  temporary  price  discounts  

! High-­‐low  pricing  involves  higher  prices  on  everyday  basis,  but  frequent  promotions  to  lower  prices  temporarily  on  selected  items  

o Value-­‐Added  Pricing  ! Rather  than  cutting  prices  to  match  competitors,  companies  attach  value-­‐added  services  to  differentiate  offers  and  thus,  support  higher  margins  

   - Competition-­‐Based  Pricing  (Setting  price  based  on  prices  that  competitors  charge  for  similar  

products)  o Going-­‐rate  pricing  involves  basing  price  largely  on  competitors’  prices,  with  less  attention  

paid  to  own  costs  or  demand  

! Popular  because  [1]  when  demand  elasticity  is  hard  to  measure,  going  price  represents  collective  wisdom  of  industry  concerning  price  that  will  yield  fair  return  and  [2]  it  prevents  harmful  price  wars  

o Sealed-­‐bid  pricing  when  firms  bid  for  jobs    

 

New-­‐Product  Pricing  Strategies  (Pg  286)  

- Pricing  strategies  usually  change  as  product  passes  through  its  life  cycle  - Market-­‐Skimming  Pricing  (Setting  high  price  for  new  product  to  skim  maximum  revenues  

layer  by  layer  from  segments  willing  to  pay  high  price)  o Company  makes  fewer,  but  more  profitable  sales  o [1]  Product’s  quality  and  image  must  support  higher  price  and  enough  buyers  must  want  

product  at  that  price,  [2]  costs  of  producing  smaller  volume  cannot  be  so  high  that  advantage  of  charging  more  is  cancelled  and  [3]  competitors  should  not  be  able  to  enter  market  easily  and  undercut  high  price  

- Market-­‐Penetration  Pricing  (Setting  low  price  for  new  product  to  attract  large  number  of  buyers  and  large  market  share)  o High  sales  volume  results  in  falling  costs,  allowing  company  to  cut  price  even  further  o [1]  Market  must  be  highly  price  sensitive  so  that  low  price  produces  more  market  growth,  

[2]  production  and  distribution  costs  must  fall  as  sales  volume  increases  and  [3]  low  price  must  help  keep  out  competition  and  low  price  position  must  be  maintained    

Product  Mix  Pricing  Strategies  (Pg  287)  - Product  Line  Pricing  (Setting  price  steps  between  various  products  in  product  line  based  on  

[1]  cost  differences  between  products,  [2]  customer  evaluations  of  different  features  and  [3]  competitors’  prices)  o Seller’s  task  is  to  establish  perceived  quality  differences  that  support  price  differences  

- Optional-­‐Product  Pricing  (Pricing  of  optional  or  accessory  products  along  with  main  product)  o Seller  have  to  decide  which  items  to  include  in  base  price  and  which  to  offer  as  options  

- Captive-­‐Product  Pricing  (Setting  price  for  products  that  must  be  used  along  with  main  product)  o Producers  often  price  main  product  low  and  set  high  markups  on  supplies  o Two-­‐part  pricing,  i.e.  fixed  fee  plus  variable  usage  rate,  in  the  case  of  services  

- By-­‐Product  Pricing  (Setting  price  for  by-­‐products  to  make  main  product’s  price  more  competitive)  o Manufacturer  seek  market  for  by-­‐products  and  should  accept  any  price  covering  more  

than  cost  of  storing  and  delivering  them    

- Product  Bundle  Pricing  (Combining  several  products  and  offering  bundle  at  reduced  price)  Price  bundling  can  promote  sales  of  products  consumers  might  not  otherwise  buy,  but  combined  price  must  be  low  enough  to  get  them  to  buy  bundle  

- Price  Adjustment  strategies  

o Discount  and  Allowance  Pricing  reduces  prices  to  reward  customer  responses  such  as  paying  early  or  promoting  the  product.  

! Discount  is  a  straight  reduction  in  price  on  purchases  during  stated  period  of  time  or  of  larger  quantities.  

! Allowance  is  promotional  money  paid  by  manufacturers  to  retailers  in  return  for  an  agreement  to  feature  the  manufacturers’  products  in  some  ways.  E.g.  trade  ins  

- Segmented  Pricing  is  selling  a  product  or  service  at  two  or  more  prices,  where  the  difference  in  prices  is  not  based  on  difference  in  costs.  It  can  take  the  form  of  customer  segment,  product  form,  or  location  pricing.  For  it  to  be  effective:  

o Market  must  be  able  to  be  segmented  

o Segments  must  show  different  degree  of  demand  or  respond  to  segment  pricing.  

o Cost  incurred  cannot  exceed  the  extra  revenue  obtained  from  price  difference.  

o Must  be  legal    

- Psychological  Pricing  occurs  when  sellers  consider  the  psychology  of  prices  and  not  simply  the  economies.  

o Reference  Prices  are  prices  that  buyers  carry  in  their  minds  and  refer  to  when  looking  at  a  given  product.  For  example,  noting  current  prices,  remembering  past  prices,  and  assessing  the  buying  situations.    

- Promotional  Pricing  occurs  when  prices  are  temporarily  reduced  below  list  price  or  cost  to  increase  demand.  They  come  in  the  forms  of:  

o Loss  leaders  o Special  event  pricing    o Cash  rebates  o Low-­‐interest  financing    o Longer  Warranties  o Free  Maintenance    o The  risk  of  it  would  be  that  it  is  used  too  frequently  and  copied  by  competitors  can  create  “deal-­‐prone”  

customers  who  will  wait  for  promotions  and  avoid  buying  at  regular  prices.  It  also  reduces  brand’s  value  in  customers’  eyes  and  creates  prices  wars.    

- Geographical  Pricing  is  used  for  customers  in  different  parts  of  the  country  or  the  world.  o FOB-­‐origin  Pricing  –  Which  goods  are  placed  free  on  board  a  carrier;  the  customer  pays  the  freight  from  the  

factory  to  destination.  o Uniform-­‐delivered  Pricing  –  Which  company  charges  the  same  price  plus  freight  to  all  customers,  regardless  

of  their  location.  o Zone  Pricing  –  is  when  the  company  sets  two  or  more  zones.  All  customers  within  the  same  zone  pays  the  

same  total  price;  the  more  distant  the  zone,  the  higher  the  price.  

o Basing-­‐Point  Pricing  –  the  seller  designates  some  city  as  the  basing  point  and  charges  all  customers  the  freighting  cost  from  that  city  to  the  customers.  

o Freighting-­‐Absorption  Pricing  –  the  seller  absorbs  all  or  part  of  the  freight  charges  to  get  the  desired  businesses.    

- Dynamic  Pricing  occurs  when  prices  are  adjusted  continually  to  meet  the  characteristics  and  needs  of  the  individual  customer  and  situations.  Sometimes  called  real-­‐time  pricing.  

- International  Pricing  occurs  when  prices  are  set  in  a  specific  country  based  on  country  specific  factors  such  as  economic  conditions,  competitive  conditions,  laws  and  regulations,  infrastructure,  and  company  marketing  objective.  

8.2.3  Price  Changes  

In  order  to  initiate  a  price  cut  or  price  increase,  a  company  must  anticipate  possible  buyer  and  competitor  reactions.  

Price  cuts  may  occur  due  to:  

- Excess  Capacity    - Failing  demand  from  price  competition  - Desired  to  increase  market  share  –  increased  volume  likely  to  reduce  cost  

Price  Increase  may  occur  due  to:  

- Cost  inflation  - Increased  Demand  - Lack  of  Supply  

Buyers’  Reaction  to  Pricing  Changes  

 

Competitors’  reactions  must  also  be  taken  into  considerations  as  well,  whether  they  behave  alike  or  not.  The  differences  can  be  due  to  differences  in  size,  market  share,  or  policies.  

Responding  to  Price  Changes    

Solutions  that  can  be  taken  –    

1. Reduce  price  to  match  competition  2. Maintain  prices  but  raise  the  perceived  value  through  communications  3. Improve  quality  and  increase  price  4. Launch  a  lower-­‐priced  “fighting”  brand  

 

   

8.2.4  Public  Policy  and  Marketing    

Federal  Legislation  on  price-­‐fixing  states  that  sellers  must  set  prices  without  talking  to  competitors.  If  not,  price  collusion  is  committed.  

Sellers  are  also  prohibited  from  using  predatory  pricing  –  selling  below  cost  with  the  intention  of  punishing  a  competitor  or  gaining  higher  long-­‐run  profits  by  putting  competitors  out  of  business.  

 

The  Robinson-­‐Patman  Act  seeks  to  prevent  unfair  price  discrimination  by  ensuring  sellers  offer  the  same  price  terms  to  customers  at  a  given  level  of  trade.  

- Laws  also  prohibit  retail  (resale)  price  maintenance;  manufacturers  cannot  require  dealers  to  charge  a  specific  retail  price  for  its  product.  - Deceptive  pricing  occurs  when  a  seller  states  prices  or  price  savings  that  mislead  customers  or  are  not  actually  available  to  consumers.  It  also  

includes  scanner  fraud  and  price  confusion.  

 

 

 

 

 

 

 

 

 

4P  -­‐  Place  

Place  strategies  Refers  to  how  an  organisation  will  distribute  the  product  or  service  they  are  offering  to  the  end  user.  

! Right  place  at  the  right  time.    ! Meet  its  overall  marketing  objectives.    ! If  organisation  underestimate  demand  and  customers  cannot  purchase  products  because  of  

it  profitability  will  be  affected.    Channel  of  distribution  Indirect  distribution  involves  distributing  your  product  by  the  use  of  an  intermediary.    Direct  distribution  involves  distributing  direct  from  a  manufacturer  to  the  consumer    e.g.  For  example  Dell  Computers.    Clearly  direct  distribution  gives  a  manufacturer  complete  control  over  their  product.         Indirect  Distribution         Direct  Distribution    

 

 

 

 

 

 Distribution  Strategies  

1.  Intensive  distribution:  Used  commonly  to  distribute  low  priced  or  impulse  purchase  products.  Stock  in  as  many  outlets  as  possible.  E.g.  chocolates,  soft  drinks.    

2.  Exclusive  distribution:  Involves  limiting  distribution  to  certain  outlets.  The  product  is  usually  highly  priced,  and  requires  the  intermediary  to  place  much  detail  in  its  sell.  An  example  of  would  be  the  sale  of  vehicles  through  exclusive  dealers.  

3.  Selective  Distribution:  A  small  number  of  retail  outlets  are  chosen  to  distribute  the  product.  Selective  distribution  is  common  with  products  such  as  computers,  televisions  household  

appliances,  where  consumers  are  willing  to  shop  around  and  where  manufacturers  want  a  large  geographical  spread.  

4P  -­‐  Promotion  

Advertising:    any  non-­‐personal  paid  form  of  communication  using  any  form  of  mass  media.  

Public  relations:  Involves  developing  positive  relationships  with  the  organisation  media  public.  The  art  of  good  public  relations  is  not  only  to  obtain  favorable  publicity  within  the  media,  but  it  is  also  involves  being  able  to  handle  successfully  negative  attention.  

Sales  promotion:  Commonly  used  to  obtain  an  increase  in  sales  short  term.  Could  involve  using  money  off  coupons  or  special  offers.  

Personal  selling:  Selling  a  product  service  one  to  one.  

Direct  Mail:  Is  the  sending  of  publicity  material  to  a  named  person  within  an  organisation.  

New  Marketing  Communications  Landscape  (e.g.  Facebook,  Twitter):  ♦ Consumers  are  better  informed  ♦ More  communication  ♦ Less  mass  marketing  ♦ Changing  communications  technology  

 Integrated  marketing  communications  is  the  integration  by  the  company  of  its  communication  channels  to  deliver  a  clear,  consistent,  and  compelling  message  about  its  organisation  and  its  brands.    The  Promotion  Mix  

 

 Setting  the  total  promotion  budget    Affordable  budget  method  

♦ Sets  the  budget  at  an  affordable  level  ♦ Ignores  the  effects  of  promotion  on  sales      

 Percentage  of  sales  method  

♦ Sets  the  budget  at  a  certain  percentage  of  current  of  forecasted  sales  or  unit  sales  price  ♦ Easy  to  use  ♦ Helps  management  think  about  the  relationship  between  promotion,  selling  price  and  profit  

per  unit  ♦ Wrongly  views  sales  as  the  cause  rather  than  the  result  of  promotion  

 Competitive-­‐parity  method  

♦ Sets  the  budget  to  match  competitor  outlays  ♦ Represents  industry  standards  ♦ Avoids  promotion  wars    

 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      Promotion  Mix  Strategies    Push  strategy:  Producer  -­‐>  Retailers  and  wholesalers  -­‐>  Consumers  

♦ Producer  and  reseller  marketing  activities    

Pull  strategy:  Consumers  -­‐>  Retailers  and  wholesalers  -­‐>  Producer  ♦ Demand  and  producer  marketing  activities  to  consumers  

 Advertising    

♦ Any  paid  form  of  non-­‐personal  presentation  and  promotion  of  ideas,  goods  or  services  by  an  identified  sponsor  

♦ Reaches  masses  of  geographically  dispersed  buyers  at  a  low  cost  per  exposure  ♦ Allows  seller  to  repeat  a  message  many  times      ♦ Types:  Broadcast,  print,  internet,  outdoor  

o Newspapers,  television,  radio,  magazines,  direct  mail,  outdoor,  internet  etc  

   

   Advertising  Budget:    

♦ Product  life-­‐cycle  stage  o New  products  require  larger  budgets  o Mature  brands  require  lower  budgets    

 ♦ Market  share  

o Larger  budgets  when:    ! Building  or  taking  market  share  ! Markets  with  heavy  competition  ! Markets  with  high  advertising  clutter  ! Undifferentiated  brands    

           

Public  Relations  ♦ Involves  building  good  relations  with  the  company’s  various  publics  by  obtaining  favourable  

publicity  ♦ Building  up  a  good  corporate  image  ♦ Handling  and  heading  off  unfavourable  stories  and  events  ♦ A  very  believable  form  of  promotion  to  promote  product,  people,  ideas  and  activities    

 Types:  

   Role  and  impact:  

♦ Lower  cost  than  advertising  ♦ Stronger  impact  on  public  awareness  as  it  appears  more  credible  ♦ Powerful  brand  building  tool  

     Personal  Selling  (Pg  420)  - The  Nature  of  Personal  Selling  

o Salesperson  may  be  order  taker,  e.g.  standing  behind  counter,  or  order  getter,  e.g.  positions  demand  creative  selling  and  relationship  building  

- The  Role  of  the  Sales  Force  o Personal  selling  is  interpersonal  arm  of  promotion  mix,  involving  two-­‐way  (personal  

communication  between  salespeople  and  individual  customers)  o Advertising  is  one-­‐way  (nonpersonal  communication  with  target  consumer  groups)  o Personal  selling  can  be  more  effective  because  salespeople  can  probe  to  learn  about  

customers’  problems  and  adjust  marketing  offer  and  presentation  to  fit  each  needs  o Sales  force  represent  [1]  company  to  customers  and  [2]  customers  to  company  

 Managing  the  Sales  Force  (Pg  458)  

- Sales  Force  Management  (Analysis,  planning,  implementation  and  control  of  sales  force  activities,  includes  [1]  setting  and  designing  sales  force  strategy  and  [2]  recruiting,  selecting,  training,  supervising,  compensating  and  evaluating  firm’s  salespeople)    

- Step  1  -­‐  Designing  Sales  Force  Strategy  &  Structure  o Sales  Force  Structure  

! Territorial  Sales  Force  Structure  (Assigns  each  salesperson  to  exclusive  geographic  territory  selling  company’s  full  line)  

• Defines  each  salesperson’s  job  and  fixes  accountability  • Improves  selling  effectiveness  due  to  desire  to  build  local  business  

relationships  • Travel  expenses  are  small  

! Product  Sales  Force  Structure  (Salespeople  specialize  in  selling  only  portion  of  company’s  products  or  lines)  

! Customer  Sales  Force  Structure  (Salespeople  specialize  in  selling  only  to  certain  customers  or  industries)  

! Complex  Sales  Force  Structures  (Combines  several  types  of  sales  force  structures)    

! Team  Selling  (Teams  of  people  from  sales,  marketing,  engineering,  finance,  technical  support  and  even  upper  management  servicing  large,  complex  accounts)  

• Serves  complete  needs  of  each  important  customer  • Problems  for  customers  and  salespeople  used  to  one-­‐salesperson  concept  • Sticky  compensation  issues  due  to  difficulties  in  evaluating  individual  

contributions    

- Step  2  –  Recruiting  &  Selecting  Salespeople  o Most  productive  and  expensive  asset  o Careful  selection  increases  overall  sales  force  performance  and  avoids  costly  turnover  o Salespeople  should  be  [1]  motivated  from  within,  [2]  disciplined  in  work  style,  [3]  

persistent  and  [4]  customer  problem  solvers  and  relationship  builders  o Companies  should  analyze  sales  job  itself  and  characteristics  of  its  most  successful  

salespeople  to  identify  traits  needed    - Step  3  –  Training  Salespeople  

o Training  programs  are  expensive  but  yield  strong  returns  o Today,  companies  add  in  web-­‐based  training  

 - Step  4  –  Compensating  Salespeople  

o Fixed  Amount  –  Salary  gives  stable  income  o Variable  Amount  –  Commissions  or  bonuses  rewards  for  greater  effort  and  success  o Expense  Allowances  –  Repaying  for  job-­‐related  expenses  allows  undertaking  of  needed  

and  desirable  selling  efforts  

o Fringe  Benefits  –  Paid  vacations,  sickness  or  accident  benefits,  pensions  and  life  insurance  provide  job  security  and  satisfaction    

 To  Gain  Market  Share  Rapidly  

To  Solidify  Market  Leadership  

To  Maximize  Profitability  

Ideal  Salesperson  

-­‐  Independent  self-­‐starter  

-­‐  Competitive  Problem  Solver  

-­‐  Team  Player  

-­‐  Relationship  Manager  

Sales  Focus  -­‐  Deal  Making  

-­‐  Sustained  High  Effort  -­‐  Consultative  Selling   -­‐  Account  Penetration  

Compensation  Role  

-­‐  To  capture  accounts  

-­‐  To  reward  high  performance  

-­‐  To  reward  new  and  existing  account  sales  

-­‐  To  manage  product  mix  

-­‐  To  encourage  team  selling  

-­‐  To  reward  account  management  

 

o Companies  should  reward  for  building  customer  relationships  and  growing  long-­‐run  value  of  each  customer  instead  of  driving  salespeople  to  make  short-­‐term  grabs    

- Step  5  –  Supervising  Salespeople  o Companies  can  help  to  identify  customer  targets  and  set  call  norms  o Companies  can  help  to  set  time  management  priorities,  e.g.  annual  call  plan  and  time-­‐and-­‐

duty  analysis  o Companies  can  adopt  sales  force  automation  systems  o Salespeople  must  be  motivated  by  sales  managers  and  through  organizational  climate,  

sales  quotas  and  positive  incentives    

- Step  6  –  Evaluating  Salespeople  o By  [1]  sales  reports,  [2]  call  reports,  [3]  expense  reports,  [4]  personal  observation,  [5]  

customer  surveys  and  [6]  talks  with  other  salespeople      

The  Personal  Selling  Process  (Pg  434)  

- Personal  Selling  &  Customer  Relationship  Management  o Company  wants  profitable  customer  relationships,  not  simply  transaction-­‐oriented  

personal  selling    

 

Direct  Marketing  (Pg  446)  

- The  New  Direct-­‐Marketing  (Direct  communications  with  carefully  targeted  individual  consumers  using  telephone,  mail,  fax,  e-­‐mail,  internet  and  other  tools)  Model  o Changing  from  being  supplementary  channel  or  medium  to  being  the  only  approach  

- Benefits  &  Growth  of  Direct  Marketing  o For  buyers,  it  is  [1]  convenient,  easy  to  use  and  private,  [2]  ready  access  to  wealth  of  

products  and  comparative  information  and  [3]  immediate  and  interactive  o For  sellers,  it  [1]  targets  small  groups  or  individual  consumers,  [2]  tailors  offers  to  

individual  needs,  [3]  promotes  through  personalized  communications,  [4]  reaches  prospects  at  right  moments,  [5]  gives  access  to  buyers  unreachable  through  other  channels,  [6]  is  low-­‐cost  and  efficient,  [7]  tool  to  build  customer  relationships,  [8]  elxible  

- Customer  Databases  (Organized  collection  of  comprehensive  data  about  individual  customers  or  prospects)  &  Direct  Marketing  o Database  can  help  to  [1]  identify  prospects  and  generate  sales  leads,  [2]  deepen  customer  

loyalty,  [3]  profile  customers  based  on  previous  purchasing  and  [4]  decide  which  customers  should  receive  particular  offers  

- Forms  of  Direct  Marketing  o Telephone  Marketing  

! [1]  Purchase  convenience  and  [2]  increased  product  and  service  information  ! However,  unsolicited  telephone  marketing  annoys  consumers  

o Direct-­‐Mail  Marketing  ! Paper  based,  fax  mail,  e-­‐mail  and  voice  mail  ! [1]  Direct,  one-­‐to-­‐one  communication,  [2]  permits  high  target-­‐market  selectivity,  [3]  

can  be  personalized,  [4]  flexible,  [5]  allows  easy  measurement  of  results  and  [6]  people  reached  are  better  prospects  

! However,  [1]  cost  is  higher  and  [2]  may  be  resented  as  “junk  mail”  o Catalog  Marketing  

! Printed  and  web-­‐based  ! Web-­‐based  catalogues  [1]  save  on  production,  printing  and  mailing  costs,  [2]  offer  

almost  unlimited  amount  of  merchandise,  [3]  allow  real-­‐time  merchandising  and  [4]  can  be  spiced  up  with  interactive  entertainment  and  promotional  features  

! However,  web-­‐based  catalogues  lack  emotional  appeal  of  paper  version,  passive  and  must  be  marketed  

o Direct-­‐Response  Television  Marketing  ! Direct  response  advertising  and  infomercials  on  home  shopping  channels  ! Direct  response  TV  commercials  are  [1]  cheaper  to  make,  [2]  media  purchase  is  less  

costly  and  [3]  results  are  easily  measured  o Kiosk  Marketing  (e.g.  photo  printing)  o Digital  direct  marketing  technology  

! Mobile  phone  marketing  (games  etc)  ! Podcasts,  vodcasts  ! Interactive  tv  

o Online  marketing  ! Business  to  consumer,  business  to  business,  consumer  to  business,  consumer  to  

consumer  ! Website:  

• Design  attractive  website  to  attract  consumers  to  visit,  remain  and  revisit  • 7Cs:  Context,  content,  community,  customization,  communication,  

connection,  commerce  ! Social  networks:  

• Allow  members  to  congregate  online  and  exchange  views  on  issues  of  common  interest  

• Facebook,  Twitter,  Tumblr,  Youtube,  Instagram  ! Email:  

• Permission-­‐based  marketing  makes  it  optional  • Develop  enriched  messages  with  animation,  interactivity,  audio,  video  • Compete  with  cluttered  email  environment  

! Viral  marketing  ! Search-­‐related  advertisements  (Google,  Yahoo)  ! Display  advertisements  (banners,  pop-­‐ups  etc)  

 - Integrated  Direct  Marketing  

o Using  carefully  coordinated  multiple-­‐media,  multiple-­‐stage  campaigns  o Improve  response  rates  and  profits  

Branding  Strategy:  Building  Strong  Brands  (Pg  216)  

- Brand:  customer's  perceptions  and  feelings  about  a  product  and  its  performance.  Company’s  promise  to  deliver  consistently  to  customer.    

- Brand  Equity  (Positive  differential  effect  that  knowing  the  brand  name  has  on  customer  response  to  product  or  service)  o A  measure  of  brand’s  equity  is  extent  to  which  customers  are  willing  to  pay  more  for  brand  o Powerful  brand  [1]  enjoys  high  level  of  consumer  brand  awareness  and  loyalty,  [2]  has  

more  leverage  in  bargaining  with  resellers,  [3]  can  more  easily  launch  line  and  brand  extensions,  [4]  offers  company  defense  against  fierce  price  competition  and  [5]  most  importantly,  builds  strong  and  profitable  customer  relationships,  i.e.  customer  equity  

- Building  Strong  Brands  o Brand  Positioning  

! At  lowest  level,  position  brand  on  product  attributes,  but  [1]  attributes  can  be  easily  copied  and  [2]  customers  are  not  interested  in  attributes  as  such,  but  what  they  can  do  for  them  

! At  higher  level,  position  brand  on  product  benefits  ! At  highest  level,  position  brand  on  strong  beliefs  and  values  ! When  positioning,  marketer  should  establish  mission  for  brand  and  vision  of  what  

brand  must  be  and  do  o Brand  Name  Selection  

! Brand  name  should  [1]  suggest  about  product’s  benefits  and  qualities,  [2]  easy  to  pronounce,  recognize  and  remember,  [3]  distinctive,  [4]  extendable,  [5]  translate  easily  into  foreign  languages  and  [6]  capable  of  registration  and  legal  protection  

! Firms  protect  and  try  to  build  brand  name  that  will  eventually  become  identified  with  product  category,  but  risk  brand  name  becoming  generic  name  any  seller  can  use  

o Brand  Sponsorship  ! Manufacturer’s  Brands  versus  Private  Brands  

• Manufacturers’  brands  have  long  dominated  retail  scene,  but  more  retailers  and  wholesalers  have  created  their  own  private/store  brands  

• Retailers  can  [1]  control  what  products  to  stock,  [2]  where  products  go  on  shelf,  [3]  what  prices  to  charge,  [4]  which  products  to  feature  in  local  circulars  and  [5]  charge  manufacturers  slotting  fees  

• Private  brands  [1]  yield  higher  profit  margins  for  reseller,  [2]  give  resellers  exclusive  products  that  cannot  be  bought  from  competitors  and  [3]  greater  store  traffic  and  loyalty  

• However,  private  brands  are  [1]  hard  to  establish  and  [2]  costly  to  stock  and  promote  

• Leading  brand  marketers  have  to  [1]  invest  in  R&D,  [2]  design  strong  advertising  programs  and  [3]  “partner”  with  major  distributors  

! Licensing  • Provides  instant  and  proven  brand  name  • Includes  name,  character  and  corporate  brand  licensing  

! Co-­‐Branding  (Using  established  brand  names  of  two  different  companies  on  same  product)  

• Combined  brands  [1]  create  broader  consumer  appeal  and  greater  brand  equity,  [2]  allow  expansion  of  existing  brand  into  category  that  is  difficult  to  enter  alone  

• However,  co-­‐branding  involves  [1]  complex  legal  contracts  and  licenses,  [2]  careful  coordination  of  advertising,  sales  promotion  and  other  marketing  efforts  and  [3]  trust  between  partners  

 o Brand  Development  

 

  Existing  Product  Category   New  Product  Category  

Existing  Brand  Name   Line  Extension   Brand  Extension  

New  Brand  Name   Multibrands   New  Brands  

 

! Line  Extensions  • [1]  Low-­‐cost,  low-­‐risk  way  to  introduce  new  products,  [2]  meet  consumer  

desires  for  variety,  [3]  use  excess  capacity  and  [4]  commands  more  shelf  space  from  resellers  

• However,  overextended  brand  name  may  [1]  lose  specific  meaning,  [2]  cause  consumer  confusion  or  frustration  and  [3]  “cannibalize”  company’s  other  items  

! Brand  Extensions  • [1]  Gives  new  product  instant  recognition  and  faster  acceptance  and  [2]  

saves  high  advertising  costs  • However,  extension  may  [1]  confuse  image  of  main  brand,  [2]  harm  

consumer  attitudes  toward  other  products  carrying  same  brand  name  if  brand  extension  fails  and  [3]  not  be  appropriate  to  new  product  

! Multibrands  • [1]  Establishes  different  features  and  appeal  to  different  buying  motives  and  

[2]  locks  up  more  reseller  shelf  space  

• However,  each  brand  may  [1]  obtain  only  small  market  share  and  [2]  not  be  very  profitable  

! New  Brands  • [1]  Power  of  existing  brand  name  is  waning  and  [2]  none  of  current  brand  

names  is  appropriate  • However,  offering  too  many  brands  may  [1]  result  in  spreading  resources  

too  thin  and  [2]  too  few  differences  between  brands    - Managing  Brands  

o Brand’s  positioning  must  be  continuously  communicated  to  consumers  o Everyone  in  company  must  live  the  brand  o Companies  need  to  periodically  audit  brands’  strengths  and  weaknesses,  i.e.  brand  audit  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer  Relationship  Management  (CRM)  

CRM  is  a  business  strategy  and  is  more  than  a  functional  strategy.  It  touches  the  organization  as  a  whole:  marketing,  sales,  IT,  logistics,  finance,  production,  R&D,  HR,  management,  etcetera.  If  we  thus  define  CRM,  it  is  immediately  clear  that  implementing  full-­‐size  CRM  is  a  daunting  challenge.      

Creating  profitable  and  very  efficient  (client-­‐facing)  processes  is  not  enough.  For  true  Customer  Relationship  Management  a  customer  intimacy  strategy,  a  relation  marketing  philosophy  rather  than  a  transaction  marketing  philosophy,  as  well  as  a  client-­‐orientation  of  the  whole  organization  are  required.        

Usage  of  Customer  Relationship  Management.  Applications  

• Companies  that  want  to  realize  a  customer  intimacy  strategy.  • Companies  that  want  to  accomplish  a  customer  friendly  image.  

Steps  in  Customer  Relationship  Management.  Process  

The  following  things  make  up  the  main  elements  to  create  a    customer  relation  oriented  organization:  

1. Strong  customer-­‐oriented  leadership.    2. The  mission  to  be  a  relation-­‐oriented  organization  aimed  at  long-­‐term  interaction.    3. The  corporate  purpose  is  aimed  at  the  customer.  4. The  main  strategy  is  to  win  by  customer  intimacy.  5. Company  values  and  employee  values  focus  on  caring  for  customers.  6. Behavioral  standards  reflect  customer  empathy  and  the  wish  to  build  long-­‐term  

relationships  and  commitment.  7. A  relation-­‐oriented  organizational  culture.  8. An  organization  that  is  putting  customer  contacts  in  the  center.  Compare:  Co-­‐Creation,  

Business  Process  Reengineering.  9. People:  empathic  communication  skills,  caring  for  customers.  10. Systems  that  can  help  to  connect  and  manage  hard  values  with  soft  values,  such  as  the  

Value  Profit  Chain  and  the  Balanced  Scorecard.  

Strengths  of  Customer  Relationship  Management.  Benefits  

• Strong  relations  with  clients  offer  a  degree  of  protection  against  actions  of  competitors.  • Loyal  customers  can  be  more  profitable.  Winning  new  customers  is  expensive,  satisfied  

customers  may  buy  more,  happy  customers  can  bring  additional  customers,  etc.  

Limitations  of  Customer  Relationship  Management.  Disadvantages  

• Implementing  CRM  in  a  holistic  way  is  no  sinecure.  • Making  large  CRM  investments  profitable  is  difficult.  • Achieving  a  Sustainable  Competitive  Advantage  with  CRM  is  even  more  difficult.  

Assumptions  of  Customer  Relationship  Management.  Conditions  

• If  we  are  good  to  customers,  they  will  be  good  to  us.  • Changing  from  the  current  strategic  discipline  towards  a  customer  intimate  discipline  is  

possible.  

SWOT  analysis  

Strengths  and  weaknesses  are  internal  factors  that  create  value  or  destroy  value.  They  can  include  assets,  skills,  or  resources  that  a  company  has  at  its  disposal,  compared  to  its  competitors.  They  can  be  measured  using  internal  assessments  or  external  benchmarking.    

Opportunities  and  threats  are  external  factors  that  create  value  or  destroy  value.  A  company  cannot  control  them.  But  they  emerge  from  either  the  competitive  dynamics  of  the  industry/market  or  from  demographic,  economic,  political,  technical,  social,  legal  or  cultural  factors  (PEST).    

Any  organization  must  try  to  create  a  fit  with  its  external  environment.  The  SWOT  diagram  is  a  very  good  tool  for  analyzing  the  (internal)  strengths  and  weaknesses  of  a  corporation  and  the  (external)  opportunities  and  threats.  However,  this  analysis  is  just  the  first  step.  To  really  create  the  fit  with  the  external  environment  is  often  the  most  difficult  work.    

Strengths  

• Specialist  marketing  expertise  • Exclusive  access  to  natural  resources  • Patents  • New,  innovative  product  or  service    • Location  of  your  business  • Cost  advantage  through  proprietary  

know-­‐how  • Quality  processes  and  procedures  • Strong  brand  or  reputation  

Weaknesses  

• Lack  of  marketing  expertise  • Undifferentiated  products  and  

service  (i.e.  in  relation  to  your  competitors)    

• Location  of  your  company  • Competitors  have  superior  access  to  

distribution  channels  • Poor  quality  of  goods  or  services  • Damaged  reputation  

 Opportunities  

• Developing  market  (China,  the  Internet)    

• Mergers,  joint  ventures  or  strategic  alliances    

• Moving  into  new  attractive  market  segments  

• A  new  international  market  • Loosening  of  regulations  • Removal  of  international  trade  barriers  

• A  market  that  is  led  by  a  weak  competitor  

Threats  

• A  new  competitor  in  your  home  market    

• Price  war  • Competitor  has  a  new,  innovative  

substitute  product  or  service  • New  regulations  • Increased  trade  barriers  • A  potential  new  taxation  on  your  

product  or  service  

PEST  analysis    Used  to  scan  the  external  macro-­‐environment  in  which  a  firm  operates  

• Political  • Economic  • Social  • Technological  

PEST  factors  play  an  important  role  in  the  value  creation  opportunities  of  a  strategy.  However  they  are  usually  outside  the  control  of  the  corporation  and  must  normally  be  considered  as  either  threats  or  opportunities.  Remember  macro-­‐economical  factors  can  differ  per  continent,  country  or  even  region,  so  normally  a  PEST  analysis  should  be  performed  per  country.    

In  the  table  below  you  find  examples  of  each  of  these  factors.  

Political  (incl.  Legal)  

   

Economic  

   

Social  

   

Technological  

   Environmental  regulations  

and  protection  Economic  growth     Income  distribution  

Government  research  spending  

Tax  policies  Interest  rates  &  monetary  policies  

Demographics,  Population  growth  rates,  

Age  distribution  

Industry  focus  on  technological  effort  

International  trade  regulations  and  restrictions  

Government  spending   Labor  /  social  mobility  New  inventions  and  

development  Contract  enforcement  law  Consumer  protection  

Unemployment  policy   Lifestyle  changes  Rate  of  technology  

transfer    

Employment  laws   Taxation  Work/career  and  leisure  

attitudes  Entrepreneurial  spirit  

Life  cycle  and  speed  of  technological  obsolescence    

Government  organization  /  attitude    

Exchange  rates   Education   Energy  use  and  costs  

Competition  regulation   Inflation  rates   Fashion,  hypes  (Changes  in)  Information  

Technology  

Political  Stability  Stage  of  the  business  

cycle  Health  consciousness  &  welfare,  feelings  on  safety  

(Changes  in)  Internet  

Safety  regulations   Consumer  confidence   Living  conditions  (Changes  in)  Mobile  

Technology  

   

 

Competitive  Advantage  (Competition)  Page  478  

(Advantage  over  competitors  by  offering  consumers  greater  value  through  lowering  prices  or  providing  more  benefits  that  justify  higher  prices)  - Step  1  –  Competitor  Analysis  ([1]  Identify  key  competitors,  [2]  assess  their  objectives,  

strategies,  strengths,  weaknesses  and  reaction  patterns  and  [3]  select  which  competitors  to  attack  or  avoid)  

- Step  2  –  Competitive  Marketing  Strategies  (Strongly  position  company  against  competitors  and  give  company  strongest  possible  strategic  advantage)    

Competitor  Analysis  (Pg  495)  

- Step  1  –  Identifying  Competitors  o At  narrowest  level  of  definition,  competitors  offer  similar  products  and  services  at  similar  

prices  o Next,  competitors  make  same  product  or  class  of  products  o Next,  competitors  make  products  that  supply  same  service  o At  widest  level  of  definition,  competitors  compete  for  same  consumer  dollars  o Companies  must  avoid  “competitor  myopia”  and  identify  current  as  well  as  latent/future  

competitors  o Companies  can  identify  competitors  from  [1]  industry  or  [2]  market  point  of  view  

- Step  2  –  Assessing  Competitors  o Determining  Competitors’  Objectives  

! Competitor’s  mix  of  objectives  reveals  [1]  whether  competitor  is  satisfied  with  current  situation,  [2]  how  it  may  react  to  different  competitive  actions,  [3]  opportunity  if  competitor  discovers  new  segment,  [4]  warning  if  competitor  plans  new  moves  into  segments  now  served  by  company  

! Profitability,  market  share  growth,  cash  flow,  technological  leadership,  service  leadership  

o Identifying  Competitors’  Strategies  ! Strategic  Group  (Firms  in  industry  following  same  or  similar  strategy)  ! Competition  is  most  intense  within  strategic  group,  but  also  among  groups  because  [1]  

some  strategic  groups  appeal  to  overlapping  customer  segments,  [2]  customers  may  not  see  difference  and  [3]  companies  may  expand  into  new  strategic  segments  

o Assessing  Competitors’  Strengths  &  Weaknesses  ! Companies  learn  about  competitors’  strengths  and  weakness  through  [1]  secondary  

data,  [2]  personal  experience,  [3]  word  of  mouth  and  [4]  conducting  marketing  research  

! Benchmarking  (Comparing  products  and  processes  to  find  ways  to  improve  quality  and  performance)  

o Estimating  Competitors’  Reactions  ! Gives  clues  on  how  to  [1]  attack  competitors  or  [2]  defend  company’s  current  

positions  - Step  3  –  Selecting  Competitors  to  Attack  &  Avoid  

o Customer  Value  Analysis:  to  determine  what  benefits  target  customers  value  and  how  they  rate  the  relative  values  of  various  competitor’s  offers  

o Strong  or  Weak  Competitors  ! Competing  against  weak  competitors  requires  less  resources  and  time,  but  may  gain  

little  ! Competing  with  strong  competitors  sharpens  abilities  and  provides  greater  returns  

o Close  or  Distant  Competitors  ! Companies  compete  with  close  rather  than  distant  competitors  ! Companies  should  avoid  “destroying”  close  competitors  because  this  may  force  weak  

competitors  to  sell  out  to  larger  firms,  resulting  in  larger  competitors  o “Good”  or  “Bad  Competitors  

! Good  competitors  [1]  help  increase  total  demand,  [2]  share  market  and  product  development  costs,  [3]  help  legitimize  new  technology,  [4]  serve  less-­‐attractive  segments  or  lead  to  more  product  differentiation,  [5]  lower  antitrust  risk  and  [6]  improve  bargaining  power  versus  labor  or  regulators  

! Bad  competitors  shake  up  industry  by  [1]  buying  share  rather  than  earning  it  and  [2]  taking  large  risks  

- Designing  a  Competitive  Intelligence  System  o System  should  be  cost-­‐effective  as  cost  in  money  and  time  of  gathering  competitive  

intelligence  is  high    Competitive  Strategies  (Pg  486)  - Approaches  to  Marketing  Strategy  

o Stage  1  –  Entrepreneurial  Marketing  ! Visualize  opportunity,  construct  flexible  strategies  and  knock  on  every  door  to  gain  

attention  o Stage  2  –  Formulated  Marketing  

! Develop  formal  marketing  strategies  and  adhere  to  them  closely  o Stage  3  –  Intrepreneurial  Marketing  

! Reestablish  within  company  entrepreneurial  spirit  and  actions  that  made  them  successful  in  the  first  place    

- Basic  Competitive  Strategies  o Porter’s  o Companies  should  pursue  a  clear  strategy  and  not  to  be  middle-­‐of-­‐the-­‐roaders  

 

! Overall  Cost  Leadership  • Low  production  and  distribution  costs  allow  lower  price  and  win  large  

market  share  ! Differentiation  

• Highly  differentiated  product  line  and  marketing  program  makes  company  class  leader  in  industry  

! Focus  • Focus  on  serving  few  market  segments  well  instead  of  going  after  whole  

market    

o Companies  can  pursue  one  or  more  value  disciplines  to  deliver  superior  customer  value  ! Treacy  and  Wiserma’s  ! Operational  Excellence  

• Reduce  costs,  increase  convenience  and  create  lean  and  efficient  value-­‐delivery  system  to  provide  reliable,  good-­‐quality  products  or  services  

! Customer  Intimacy  • Specialise  in  satisfying  unique  customer  needs  through  segmentation  and  

close  relationship  with  and  intimate  knowledge  of  the  customers,  tailor  products  or  services  to  match  needs  of  target  customers  exactly  

! Product  Leadership  • Provide  superior  value  by  offering  a  continuous  stream  of  leading-­‐edge  

products  or  services    

- Competitive  Positions  o Market  Leader  (Firm  with  largest  market  share)  o Market  Challenger  (Runner-­‐up  firm  fighting  hard  to  increase  market  share)  o Market  Follower  (Runner-­‐up  firm  wanting  to  hold  its  share  without  rocking  the  boat)  o Market  Nicher  (Firm  serving  small  segments  overlooked  or  ignored  by  other  firms)  o Classifications  do  not  apply  to  whole  company,  but  only  to  position  in  specific  industry  

- Market  Leader  Strategies  o Expanding  the  Total  Demand  

! Develop  [1]  new  users,  e.g.  in  current  markets,  new  demographic  segments  or  new  geographic  segments,  [2]  new  uses  and  [3]  more  usage  of  its  products,  e.g.  use  product  more  often  or  more  per  occasion  

o Protecting  Market  Share  ! Prevent  or  fix  weaknesses  that  provide  opportunities  for  competitors  ! Always  fulfill  value  promise  ! Prices  must  remain  consistent  with  value  customers  see  in  brand  ! Keep  strong  relationships  with  valued  customers  

! “Plug  holes”  so  competitors  do  not  jump  in  ! Continuous  innovation  ! Increase  competitive  effectiveness  and  value  to  customers  

o Expanding  Market  Share  ! Produce  high  quality  products,  create  good  service  experiences,  build  close  

relationships  ! Profitability  rises  with  increasing  market  share  only  when  [1]  unit  costs  fall  with  

increased  market  share  or  [2]  premium  price  is  charged  for  superior-­‐quality  product  that  more  than  covers  cost  of  offering  higher  quality    

- Market  Challenger  Strategies  o Fight  aggressively  to  increase  market  share  o Challenger  defines  which  competitors  to  challenge  and  its  strategic  objective  o Challenger  can  attack  market  leader  to  take  over  market  leadership  or  to  wrest  more  

market  share,  second-­‐mover  advantage  by  observing  what  has  made  the  leader  successful  and  improves  upon  it  

o Challenger  can  avoid  the  leader  and  attack  similar  or  smaller  local  and  regional  firms  to  put  them  out  of  business  

o Full  Frontal  Attack-­‐  matching  competitor’s  product,  price,  advertising,  distribution  effort  ! Attacks  competitor’s  strengths  rather  than  weaknesses  ! When  company  has  more  resources  than  competitor  ! Largely  depends  on  who  has  greater  strength  and  endurance  

o Indirect  Attack  ! Attacks  competitor’s  weaknesses  or  on  gaps  in  competitor’s  market  coverage  ! When  company  has  fewer  resources  than  competitor  

 - Market  Follower  Strategies  

o Want  to  hold  onto  market  share  o Advantages  are  [1]  avoiding  huge  expenses  of  developing  new  products  and  markets,  

expanding  distribution  and  educating  market  (already  done  by  market  leader),  [2]  learning  from  leader’s  experience  and  [3]  copying  or  improving  leader’s  products  and  programs  with  less  investment  

o Follow  Closely  ! To  win  customers  from  market  leader  

o Follow  at  a  Distance  ! To  avoid  retaliation  

o Second-­‐mover  advantage  by  observing  what  has  made  the  leader  successful  and  improves  upon  it  

o Play  along  with  competitors,  challenge  firms  its  own  size  or  smaller  o Follower  must  keep  manufacturing  costs  low  and  product  quality  and  services  high  

o Bring  distinctive  advantages  to  target  market-­‐  location,  services,  financing  - Market  Nicher  Strategies  

o Advantages  are  [1]  knowing  target  customer  group  so  well  that  needs  are  met  better  and  so  [2]  can  charge  substantial  markup  over  costs,  [3]  safe  and  profitable  

o Target  subsegments  o Safe  and  profitable-­‐  little  interest  to  major  competitors  but  big  enough  to  have  growth  

potential  and  be  profitable  o Specialization  

! Customer,  geographic  market,  quality-­‐price  and  service,  marketing  mix  o Multiple  Niching  

! Niche  may  dry  up  ! Attract  large  competitors  after  growth  ! Therefore,  multiple  niching-­‐  Increases  chances  for  survival  

   

Balancing  Customer  &  Competitor  Orientations  (Pg  488)  

- Competitor-­‐Centered  Company  (Moves  mainly  based  on  competitors’  actions  and  reactions)  o Develops  fighter  orientation,  but  becomes  too  reactive  o May  end  up  simply  matching  or  extending  industry  practices  rather  than  seeking  

innovative  new  ways  to  create  more  value  for  customers    

- Customer-­‐Centered  Company  (Focuses  on  customer  developments  in  designing  marketing  strategies  and  on  delivering  superior  value  to  target  customers)  o Better  position  to  identify  new  opportunities  and  set  long-­‐run  strategies  

 - Market-­‐Centered  Company  (Pays  balanced  attention  to  both  customers  and  competitors  in  

designing  marketing  strategies)    

  Not  Customer-­‐Centered   Customer-­‐Centered  

Not  Competitor-­‐Centered  

Stage  1  -­‐  Product  Orientation   Stage  2  -­‐  Customer  Orientation  

Competitor-­‐Centered   Stage  3  -­‐  Competitor  Orientation  

Stage  4  (Today)  -­‐  Market  Orientation  

 

 

Positioning  for  Competitive  Advantage  (Arranging  for  product  to  occupy  a  clear,  distinctive  and  desirable  place  relative  to  competing  products  in  minds  of  target  consumers)  (Pg  191)  

- Consumers  position  products  with  or  without  the  help  of  marketers,  but  marketers  do  not  want  to  leave  their  products’  positions  to  chance    

- Positioning  Maps  o Perceptual  positioning  maps  show  consumer  perceptions  of  company’s  brands  versus  

competing  products  on  important  buying  dimensions    

- Choosing  a  Positioning  Strategy  DIFFERENTIATION  o Identifying  Possible  Competitive  Advantages  (Advantage  over  competitors  gained  by  

offering  consumers  greater  value,  either  through  lower  prices  or  by  providing  more  benefits  that  justify  higher  prices)  ! Product  Differentiation  

• Products  can  be  differentiated  on  features,  performances  or  style  and  design  • Can  differentiate  products  on  attributes  as  consistency,  durability,  reliability    or  reparability  

! Services  Differentiation  • Speedy,  convenient  or  careful  delivery  • Repair  Services  • Providing  customer  training  service  or  consulting  services  

! Channel  Differentiation  • The  way  companies  design  its  channel’s  coverage,  expertise  and  performance  

! People  Differentiation  • Hiring  and  training  better  people  than  competitors  do  

! Image  Differentiation  • Company  or  brand  image  should  convey  product’s  distinctive  benefits  and  positioning  • Symbols,  famous  characters,  colors  and  other  image  elements    

o Choosing  the  Right  Competitive  Advantage  ! How  Many  Differences  to  Promote?  

• Develop  a  unique  selling  proposition  (USP)  as  buyers  tend  to  remember  number  one  better,  especially  in  an  over  communicated  society  • Position  on  more  than  one  differentiator  if  two  or  more  firms  are  claiming  to  be  best  on  same  attribute  • As  companies  increase  number  of  claims,  they  risk  disbelief  and  loss  of  clear  positioning  

! Which  Differences  to  Promote?  

• Important  –  Difference  delivers  a  highly  valued  benefit  to  target  buyers  • Distinctive  –  Competitors  do  not  offer  the  difference  or  company  can  offer  it  more  distinctively  • Superior  –  Difference  is  superior  to  other  ways  that  customers  might  obtain  the  same  benefit  • Communicable  –  Difference  is  communicable  and  visible  to  buyers  • Preemptive  –  Competitors  cannot  easily  copy  the  difference  • Affordable  –  Buyers  can  afford  to  pay  for  difference  • Profitable  –  Company  can  introduce  difference  profitably    

 o Selecting  an  Overall  Positioning  Strategy  

 ! Value  Proposition  (Full  positioning  of  brand  –  Full  mix  of  benefits  upon  which  it  is  positioned)  

! More  for  More  • Providing  most  upscale  product  or  service  and  charging  a  higher  price  to  cover  the  higher  costs  • Often  invite  imitators  who  claim  the  same  quality  but  at  a  lower  price  

! More  for  the  Same  • Introducing  a  brand  offering  comparable  quality  to  more-­‐for-­‐more  positioned  competitors  but  at  a  lower  price  

! The  Same  for  Less    • Offering  brands  same  as  department  stores  and  specialty  stores  but  at  deep  discounts  based  on  superior  purchasing  power  and  lower-­‐cost  operations  

! Less  for  Much  Less  • Products  that  offer  less  and  therefore  cost  less  • Involves  meeting  consumers’  lower  performance  or  quality  requirements  at  a  much  lower  price  

! More  for  Less  • In  the  short  run,  some  companies  can  actually  achieve  such  lofty  positions  • In  the  long  run,  companies  will  find  it  very  difficult  to  sustain  such  best-­‐of-­‐both  positioning  • Companies  that  try  to  deliver  both  may  lose  out  to  more  focused  competitors    

o Developing  a  Positioning  Statement  (Statement  that  summarizes  company  or  brand  positioning  –  To  (target  segment  and  need)  our  (brand)  is  (concept)  that  (point-­‐of-­‐difference))  

! Placing  a  brand  in  a  specific  category  suggests  similarities,  but  brand’s  superiority  is  made  on  its  points  of  difference  

! Sometimes,  marketers  put  a  brand  in  a  surprisingly  different  category  before  indicating  points  of  difference    

- Communicating  &  Delivering  the  Chosen  Position  o All  the  company’s  marketing  mix  (4  Ps)  efforts  must  support  the  positioning  strategy  o Company  must  take  care  to  maintain  the  desired  position  through  consistent  performance  

and  communication  o Product’s  position  should  evolve  gradually  as  it  adapts  to  ever-­‐changing  marketing  

environment  

Porter’s  Five  Forces  The  Five  Forces  model  of  Porter  is  an  Outside-­‐in  business  unit  strategy  tool  that  is  used  to  make  an  analysis  of  the  attractiveness  (value)  of  an  industry  structure.  The  Competitive  Forces  analysis  is  made  by  the  identification  of  5  fundamental  competitive  forces:  

1. Entry  of  competitors.  How  easy  or  difficult  is  it  for  new  entrants  to  start  competing,  which  barriers  do  exist.  

2. Threat  of  substitutes.  How  easy  can  a  product  or  service  be  substituted,  especially  made  cheaper.  

3. Bargaining  power  of  buyers.  How  strong  is  the  position  of  buyers.  Can  they  work  together  in  ordering  large  volumes.  

4. Bargaining  power  of  suppliers.  How  strong  is  the  position  of  sellers.  Do  many  potential  suppliers  exist  or  only  few  potential  suppliers,  monopoly?  

5. Rivalry  among  the  existing  players.  Does  a  strong  competition  between  the  existing  players  exist?  Is  one  player  very  dominant  or  are  all  equal  in  strength  and  size.    

 Threat  of  New  Entrants  depends  on:  

• Economies  of  scale.  • Capital  /  investment  requirements.  • Customer  switching  costs.  • Access  to  industry  distribution  channels.  • Access  to  technology.  • Brand  loyalty.  Are  customers  loyal?  • The  likelihood  of  retaliation  from  existing  

industry  players.  • Government  regulations.  Can  new  entrants  

get  subsidies?  

Bargaining  Power  of  Suppliers  depends  on:  

• Concentration  of  suppliers.  Are  there  many  buyers  and  few  dominant  suppliers?    

• Branding.  Is  the  brand  of  the  supplier  strong?  • Profitability  of  suppliers.  Are  suppliers  forced  

to  raise  prices?  • Suppliers  threaten  to  integrate  forward  into  

the  industry  (for  example:  brand  manufacturers  threatening  to  set  up  their  own  retail  outlets).  

• Buyers  do  not  threaten  to  integrate  backwards  into  supply.  

• Role  of  quality  and  service.    • The  industry  is  not  a  key  customer  group  to  

the  suppliers.  • Switching  costs.  Is  it  easy  for  suppliers  to  find  

new  customers?  

Threat  of  Substitutes  depends  on:  

• Quality.  Is  a  substitute  better?  • Buyers'  willingness  to  substitute.  • The  relative  price  and  performance  of  

substitutes.  • The  costs  of  switching  to  substitutes.  Is  it  

easy  to  change  to  another  product?  Intensity  of  Rivalry  depends  on:  

• The  structure  of  competition.  Rivalry  will  be  more  intense  if  there  are  lots  of  small  or  

Bargaining  Power  of  Buyers  depends  on:  

• Concentration  of  buyers.  Are  there  a  few  dominant  buyers  and  many  sellers  in  the  industry?  

• Differentiation.  Are  products  standardized?  • Profitability  of  buyers.  Are  buyers  forced  to  

be  tough?  • Role  of  quality  and  service.    • Threat  of  backward  and  forward  integration  

into  the  industry.  • Switching  costs.  Is  it  easy  for  buyers  to  switch  

their  supplier?  

equally  sized  competitors;  rivalry  will  be  less  if  an  industry  has  a  clear  market  leader.  

• The  structure  of  industry  costs.  Industries  with  high  fixed  costs  encourage  competitors  to  manufacture  at  full  capacity  by  cutting  prices  if  needed.  

• Degree  of  product  differentiation.  Industries  where  products  are  commodities  (e.g.  steel,  coal)  typically  have  greater  rivalry.  

• Switching  costs.  Rivalry  is  reduced  when  buyers  have  high  switching  costs.  

• Strategic  objectives.  If  competitors  pursue  aggressive  growth  strategies,  rivalry  will  be  more  intense.  If  competitors  are  merely  "milking"  profits  in  a  mature  industry,  the  degree  of  rivalry  is  typically  low.  

• Exit  barriers.  When  barriers  to  leaving  an  industry  are  high,  competitors  tend  to  exhibit  greater  rivalry.  

Strengths  of  the  Five  Competitive  Forces  Model.  Benefits  The  model  is  a  strong  tool  for  competitive  analysis  at  industry  level.  Compare:  PEST  Analysis  It  provides  useful  input  for  performing  a  SWOT  Analysis.  

Ansoff’s  Expansion  Grid  

Determine  growth  opportunities.  The  Product/Market  Grid  has  two  dimensions:  products  and  markets.    

Over  these  2  dimensions,  four  growth  strategies  can  be  formed.  

 Four  growth  strategies  in  the  Product/Market  Grid  

1. Market  Penetration.  Sell  more  of  the  same  products  or  services  in  current  markets.  These  strategies  normally  try  to  change  incidental  clients  to  regular  clients,  and  regular  client  into  heavy  clients.  Typical  systems  are  volume  discounts,  bonus  cards  and  Customer  Relationship  Management.  Strategy  is  often  to  achieve  economies  of  scale  through  more  efficient  manufacturing,  more  efficient  distribution,  more  purchasing  power,  overhead  sharing.    

2. Market  Development.  Sell  more  of  the  same  products  or  services  in  new  markets.  These  strategies  often  try  to  lure  clients  away  from  competitors  or  introduce  existing  products  in  foreign  markets  or  introduce  new  brand  names  in  a  market.  New  markets  can  be  geographic  or  functional,  such  as  when  we  sell  the  same  product  for  another  purpose.  Small  modifications  may  be  necessary.  Beware  of  cultural  differences.    

3. Product  Development.  Sell  new  products  or  services  in  current  markets.  These  strategies  often  try  to  sell  other  products  to  (regular)  clients.  These  can  be  accessories,  add-­‐ons,  or  completely  new  products.  Cross-­‐selling.  Often,  existing  communication  channels  are  used.    

4. Diversification.  Sell  new  products  or  services  in  new  markets.  These  strategies  are  the  most  risky  type  of  strategies.  Often  there  is  a  credibility  focus  in  the  communication  to  explain  why  the  company  enters  new  markets  with  new  products.  On  the  other  hand  diversification  strategies  also  can  decrease  risk,  because  a  large  corporation  can  spread  certain  risks  if  it  operates  on  more  than  one  market.  Diversification  can  be  done  in  four  ways:  

o Horizontal  diversification.  This  occurs  when  the  company  acquires  or  develops  new  products  that  could  appeal  to  its  current  customer  groups  even  though  those  new  products  may  be  technologically  unrelated  to  the  existing  product  lines.  

o Vertical  diversification.  The  company  moves  into  the  business  of  its  suppliers  or  into  the  business  of  its  customers.  

o Concentric  diversification.  This  results  in  new  product  lines  or  services  that  have  technological  and/or  marketing  synergies  with  existing  product  lines,  even  though  the  products  may  appeal  to  a  new  customer  group.    

o Conglomerate  diversification.  This  occurs  when  there  is  neither  technological  nor  marketing  synergy  and  this  requires  reaching  new  customer  groups.  Sometimes  used  by  large  companies  seeking  ways  to  balance  a  cyclical  portfolio  with  a  non-­‐cyclical  one.    

 

The  BCG  Matrix  method  is  the  most  well-­‐known  portfolio  management  tool.  The  BCG  Matrix  can  be  used  to  determine  what  priorities  should  be  given  in  the  product  portfolio  of  a  business  unit.  To  ensure  long-­‐term  value  creation,  a  company  should  have  a  portfolio  of  products  that  contains  both  high-­‐growth  products  in  need  of  cash  inputs  and  low-­‐growth  products  that  generate  a  lot  of  cash.  The  Boston  Consulting  Group  Matrix  has  2  dimensions:  market  share  and  market  growth.    

The  basic  idea  behind  it  is:  if  a  product  has  a  bigger  market  share,  or  if  the  product's  market  grows  faster,  it  is  better  for  the  company.  

 The  four  segments  of  the  BCG  Matrix  

Placing  products  in  the  BCG  matrix  provides  4  categories  in  a  portfolio  of  a  company:  

• Stars  (high  growth,  high  market  share)  o Stars  are  using  large  amounts  of  cash.  Stars  are  leaders  in  the  business.  Therefore  they  

should  also  generate  large  amounts  of  cash.  o Stars  are  frequently  roughly  in  balance  on  net  cash  flow.  However  if  needed  any  attempt  

should  be  made  to  hold  your  market  share  in  Stars,  because  the  rewards  will  be  Cash  Cows  if  market  share  is  kept.  

• Cash  Cows  (low  growth,  high  market  share)  o Profits  and  cash  generation  should  be  high.  Because  of  the  low  growth,  investments  which  

are  needed  should  be  low.  o Cash  Cows  are  often  the  stars  of  yesterday  and  they  are  the  foundation  of  a  company.  

• Dogs  (low  growth,  low  market  share)  o Avoid  and  minimize  the  number  of  Dogs  in  a  company.  o Watch  out  for  expensive  ‘rescue  plans’.  o Dogs  must  deliver  cash,  otherwise  they  must  be  liquidated.  

• Question  Marks  (high  growth,  low  market  share)  o Question  Marks  have  the  worst  cash  characteristics  of  all,  because  they  have  high  cash  

demands  and  generate  low  returns,  because  of  their  low  market  share.  o If  the  market  share  remains  unchanged,  Question  Marks  will  simply  absorb  great  amounts  

of  cash.  o Either  invest  heavily,  or  sell  off,  or  invest  nothing  and  generate  any  cash  that  you  can.  

Increase  market  share  or  deliver  cash.  

The  BCG  Matrix  and  one  size  fits  all  strategies  

The  BCG  Matrix  method  can  help  to  understand  a  frequently  made  strategy  mistake:  having  a  one  size  fits  all  strategy  approach,  such  as  a  generic  growth  target  (9  percent  per  year)  or  a  generic  return  on  capital  of  say  9,5%  for  an  entire  corporation.      In  such  a  scenario:  

• Cash  Cows  Business  Units  will  reach  their  profit  target  easily.  Their  management  have  an  easy  job.  The  executives  are  often  praised  anyhow.  Even  worse,  they  are  often  allowed  to  reinvest  substantial  cash  amounts  in  their  mature  businesses.    

• Dogs  Business  Units  are  fighting  an  impossible  battle  and,  even  worse,  now  and  then  investments  are  made.  These  are  hopeless  attempts  to  "turn  the  business  around".    

• As  a  result  all  Question  Marks  and  Stars  receive  only  mediocre  investment  funds.  In  this  way  they  can  never  become  Cash  Cows.  These  inadequate  invested  sums  of  money  are  a  waste  of  money.  Either  these  SBUs  should  receive  enough  investment  funds  to  enable  them  to  achieve  a  real  market  dominance  and  become  Cash  Cows  (or  Stars),  or  otherwise  companies  are  advised  to  disinvest.  They  can  then  try  to  get  any  possible  cash  from  the  Question  Marks  that  were  not  selected.