COLEGIO BRITANICO DE CARTAGENA

Marketing

Gabriela Stephan

Grado doce

Cartagena de Indias-Colombia

2013/2014

Here is to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs

in the square holes, the ones who see things differently-they’re not fond of rules. You

can quote them, disagree with them, glorify or vilify them, but the only thing you can’t

do is ignore them because they change things, they push the human race forward,

and while some may see them as the crazy ones, we see genius, because the ones

who are crazy enough to think that they can change the world, are the ones who do.

Think different.

Steve Jobs

Table of Content

I. What is marketing?

a. Buyer’s and Seller’s market

II. Marketing Conception

a. Production Concept

b. Sales Concept

c. Marketing Concept

III. Marketing Instruments

a. Product

i. Product levels

ii. Product Classification

iii. Packaging

iv. Product Design

v. New-product development

vi. Challenges in new-product development

vii. Brand decisions

1. Brand definition

2. Level of Brand meanings

3. Brand Strategy

b. Price

i. Background

ii. Setting the price

iii. Promotional Pricing Techniques

IV. Promotion

a. Developing effective marketing communications

b. Common Communication Platforms

Abstract

It is an old believe that marketing is just within the limited context of

advertising or selling, but this is not the whole story. Marketing is a

crucial management discipline that allows the producers of goods and

services to interpret customer wants, needs and desires in delivery to

their target consumers. Every product we buy, every store we visit, every

media message we receive, every choice we make in our consumer

society has been shaped by the forces of marketing. We are bombarded

with advertisement every minute of our lives. The advertising industry

has penetrated into every aspect our society. However, most of us do

not realize the mind games the advertisers have been playing on our

subconscious minds for the past half century.

Resumen

Es una antigua creencia que el marketing abarca solamente los ámbitos

de la publicidad o de la venta. El marketing es una disciplina

fundamental que permite a los productores de bienes y servicios

interpretar las necesidades y los deseos del cliente. Cada producto que

compramos, cada mensaje de los medios de comunicación que

recibimos, cada elección que hacemos en nuestra sociedad de

consumo ha sido moldeada por las fuerzas del marketing. Nos

bombardean con anuncios en cada minuto de nuestras vidas. La

industria de la publicidad ha penetrado en cada aspecto de nuestra

sociedad. Sin embargo, la mayoría de nosotros no se da cuenta de los

juegos psicológicos de los anunciantes que han estado manipulando

nuestra mente subconsciente durante el último medio siglo.

What is marketing?

“Branding is not just about being seen as better than the competition. It’s about being

seen as the only solution to your audience’s problem”

Advertisements bombard every minute of our lives. The advertising industry has

penetrated into every aspect our society. When we wake up in the morning, the first

thing we hear is my radio blaring out the latest ad for Sears or the Penn State

Bookstore. At night, the last thing we see is the latest peroxide innovation on the

toothpaste tube. Most of us ignore these ads as we drive by the Marlboro billboard

on the way to work or to the countryside on a lovely day. However, most of us do not

realize the mind games the advertisers has been playing on our subconscious minds

for the past half century. It's a scary thought, really, when you realize the advertisers

has gained control of our lives without us even knowing it. And here is it when

marketing comes in. But what exactly is marketing?

The heart of a business’s success lies in successful marketing and in the center of

that management are the customers. Without marketing, a business may offer the

best products or services in your industry, but none of your potential customers

would know about it. Marketing is all about getting the right product or service to the

customer at the right price, in the right place and at the right time.

It is an old believe that marketing is just within the limited context of advertising or

selling, but this is not the whole story. Marketing is a crucial management discipline

that allows the producers of goods and services to interpret customer wants, needs

and desires-and match or exceed them, in delivery to their target consumers. Every

product we buy, every store we visit, every media message we receive, every choice

we make in our consumer society has been shaped by the forces of marketing.

Today, as competitive pressures increase, marketing skills have never been more

highly valued.

However, we have to keep in mind, that the market is changing constantly and

continuing today’s strategy could be extremely risky. Therefore, tomorrow’s

successful companies will have to heed three certainties:

Global forces will continue to affect everyone’s business and personal life.

Technology will continue to advance and amaze us.

There will be a continuing push toward deregulation of the economic sector.1

We can say with some confidence that “the marketplace isn’t what it used to be.” It is

changing dramatically as a consequence of major forces such as technological

advances, globalization, and deregulation. These forces have created new behaviors

and challenges:

Business and Marketing are changing customers to expect higher quality and

service.

Customers perceive fewer real product differences and show less brand

loyalty.

They can obtain extensive product information from the Internet and other

sources, permitting them to shop more intelligently.

They are showing greater price sensitivity in their search for value.

Brand manufacturers are facing intense competition from domestic and

foreign brands, which is resulting in rising promotion costs and shrinking profit

margins.

1 http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf

Brand manufactures are being further struck by powerful retailers who

command limited shelf space and are putting out their own store brands in

competition with national brands

Buyer’s and seller’s market

Through globalization and technological advances the world market has changed.

Many years ago there was no use of marketing, because the market was a seller’s

market. There were only a few products with a high cost and demand, and sellers

had only few or none competitors2. Nevertheless, the market changed to a buyer’s

market due to all the advances. Nowadays, there are many homogenous products

on the market, with lower prices and demand, because the competition increased.

The customers can purchase the item that benefits them most.

Marketing-Conception

A marketing conception is a management philosophy according to which a firm's

goals can be best achieved through identification and satisfaction of the customers'

stated and unstated needs and wants. Today most firms have adopted the marketing

concept, but this has not always been the case.

In 1776 in The Wealth of Nations, Adam Smith wrote that the needs of producers

should be considered only with regard to meeting the need of consumers. While this

philosophy is consistent with the marketing concept, it would not be adopted widely

until nearly 200 years later.3

To better understand the marketing concept, it is essential to review other

philosophies that once were predominant. While these alternative concepts prevailed

2 http://www.cbplourde.com/buyers/buyers-market-vs-sellers-market/ 3 http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf

during different historical time frames, they are not restricted to those periods and

are still practiced by some companies today.

The Production Concept

The production concept

prevailed from the time of

industrial revolution until the

early 1920’s. The production

concept was the idea that a

company should focus on

those products that it could

produce most efficiently and

that the creation of a supply of low-cost products would in and of itself create the

demand for the products. The key questions that a firm would ask before producing a

product were:

Can we produce the product?

Can we produce enough of it?

At the time, the production concept worked fairly well because the goods that were

produced were largely those of basic necessity and there was a relatively high level

4of unfilled demand. Virtually everything that could be produced was sold easily by a

sales team whose job it was simply to execute transactions at a price determined by

the cost of production. The production concept prevailed into the late 1920’s.

4 Image: http://courses.unt.edu/kt3650_1/images/img045.gif

The Sales Concept

By the early 1930’s however, mass production had become a commonplace,

competition had increased, and there was little unfulfilled demand. Around this time,

firms began to practice the Sales Concept, under which companies not only would

produce the products, but also try to convince customers to buy them through

advertising and personal selling. Before producing a product, the key questions

were:

Can we sell the product?

Can we charge enough of it?

The Sales Concept paid little attention to whether the product was actually needed;

the goal simply was to beat the competition to the sale with little regard to customer

satisfaction. Marketing was a function that was performed after the product was

developed and produced, and many people came to associate marketing with hard

selling. Even today, many people use the term “marketing” when they really mean

sales.

The Marketing Concept

After World War II, the variety of products increased and hard selling no longer could

be relied upon to generate sales. With increased income, customers could afford to

be selective and buy only those products that precisely met their changing needs,

and these needs were not immediately obvious.5 The key questions became:

What do customers want?

Can we develop it while they still want it?

5 http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf

How can we keep our customers satisfied?

In response to the discerning customers, firms began to adopt the marketing

concept, which involves:

Focusing on customer needs before developing the product

Aligning all functions of the company to focus on those needs

Realizing a profit by successfully satisfying customer needs over the long-

term

There are five fundamental elements in the marketing conception:

Marketing Instruments:

The main function of the marketing instruments is to stimulate the customers, in

order to obtain a higher demand.6

Stimulation

Company Demand

There can be stimulation over the:

6 Image: http://www.viewmichiganhomes.com/Blog/Supply-and-Demand

Product

Advertisement

Packaging

Special price action

Shelf placement in the shop

Sponsoring

Price

Availability

Discounts

Instructions

Press reports

Etc.

The marketing instruments are known as the 4 P’s:

Product

A product is anything that can be offered to a market to satisfy a want or need.

Products include physical goods, services, experiences, events, persons, places,

properties, organizations, information, and ideas. The customer will judge the

offering by three basic elements: product features and quality, services mix and

quality, and price appropriateness. As a result, marketers must carefully think

through the level at which they set each product’s features, benefits, and quality.

Price

Place Promotion

Product

Product levels:

Marketers plan their market offering at five levels. Each level adds more customer

value, and together the five levels create a customer value hierarchy. The most

essential level is the core benefit: the fundamental service or benefit that the

customer is really buying. For example a hotel guest is buying “rest and sleep”.

Effective marketers therefore see themselves as providers of product benefits, not

just product features. At the second level, the marketer has to turn the core benefit

into a basic product. Thus, a hotel room includes a bed, bathroom, towels, and

closet. At the third level, the marketer prepares an expected product, a set of

attributes and conditions that buyers normally expect when they buy the product.

Hotel guests expect a clean

bed, fresh towels, and so on.

7Because most hotels can

meet this minimum

expectation, the traveler

normally will settle for

whichever hotel is most

convenient or least

expensive. At the fourth

level, the marketer prepares

an augmented product that exceeds customer expectations. A hotel might include a

remote-control television set, fresh flowers, and express check-in and checkout.

Today’s competition essentially takes place at the product-augmentation level. (In

less developed countries, competition takes place mostly at the expected product

7https://.unigoettingen.de%2Fde%2Fdocument%2Fdownload%2Fa5c008dbbcfe2ee463e221fae72b5b64.pdf%2FLehrbuch%2520Marketing%252020.%2520Januar.pdf&ei

Core Benefit

Basic Product

Expected Product

Augmented Product

Potential Product

level.) However, augmented benefits soon become, expected benefits, which means

that competitors have to search for still other features and benefits. And as

companies raise the price of their augmented product, some competitors can offer a

“stripped-down” version of the product at a much lower price. At the fifth level stands

the potential product, which includes all of the possible augmentations and

transformations the product might go through in the future. Here, a company

searches for entirely new ways to satisfy its customers and distinguish its offer.

Product Classification:

In addition to understanding a product’s position in the hierarchy, the marketer also

must understand how to classify the product on the basis of three characteristics:

durability, tangibility, and consumer or industrial use. Each product classification is

associated with a different marketing-mix strategy.8

Durability and tangibility. Nondurable goods are tangible goods that are

normally consumed in one or a few uses (such as beer and soap). Because

these goods are consumed quickly and purchased frequently, the appropriate

strategy is to make them available in many locations, charge only a small

markup, and advertise heavily to induce trial and build preference. Durable

goods are tangible goods that normally survive many uses (such as

refrigerators). These products normally require more personal selling and

service, command a higher margin, and require more seller guarantees.

Services are intangible, inseparable, variable, and perishable products (such

8https://unigoettingen.de%2Fde%2Fdocument%2Fdownload%2Fa5c008dbbcfe2ee463e221fae72b5b64.pdf%2

FLehrbuch%2520Marketing%252020.%2520Januar.pdf&ei=m4NsUornJdG0kQejyoFw&usg=AFQjCNFIKZWdfknZPmHZU5i37zCtWS8ubQ

as haircuts or cell phone service), so they normally require more quality

control, supplier credibility, and adaptability.

Consumer-goods classification. Classified according to consumer shopping

habits, these products include: convenience goods that are usually purchased

frequently, immediately, and with a minimum of effort, such as newspapers;

shopping goods that the customer, in the process of selection and purchase,

characteristically compares on the basis of suitability, quality, price, and style,

such as furniture and specialty goods with unique characteristics or brand

identification, such as cars, for which a sufficient number of buyers are willing

to make a special purchasing effort.9

Industrial-goods classification. Materials and parts are goods that enter the

manufacturer’s product completely. Raw materials can be either farm

products (e.g., wheat) or natural products (e.g., lumber). Farm products are

sold through intermediaries and natural products are generally sold through

long-term supply contracts, for which price and delivery reliability are key

purchase factors.10

9 http://www.socialenterprisesolutions.co.uk/wp-content/uploads/2011/03/82_marketing_promotion.pdf 10 http://online-marketing.eco.de/files/2011/10/Richtlinie-OM_2011.pdf

Packaging

Packaging includes the activities of designing and producing the container for a

product. The container is called the package, and it11

might include up to three levels of material. Old Spice

aftershave lotion is in a bottle (primary package) that is in

a cardboard box (secondary package) that is in a

corrugated box (shipping package) containing six dozen

boxes of Old Spice. The following factors have contributed

to packaging’s growing use as a potent marketing tool:12

Self-service: The typical supermarket shopper

passes by some 300 items per minute.13 Given that

53 percent of all purchases are made on impulse, an effective package

attracts attention, describes features, creates confidence, and makes a

favorable impression.

Consumer affluence: Rising consumer affluence means consumers are willing

to pay a little more for the convenience, appearance, dependability, and

prestige of better packages.

Company and brand image: Packages contribute to instant recognition of the

company or brand. Campbell Soup estimates that the average shopper sees

its red and white can 76 times a year, the equivalent of $26 million worth of

advertising.

Innovation opportunity: Innovative packaging can bring benefits to consumers

and profits to producers. Toothpaste pump dispensers, for example, have

11

Image: http://www.atmydoorsteps.com/store/media/catalog/product/cache/1/image/147fbf 12 Image: http://www.corrugated.co.in/Product_image/corrugated-boxes.jpg 13 http://faculty.mu.edu.sa/public/uploads/1361465754.8876marketing%20mix30.pdf

captured 12 percent of the toothpaste market because they are more

convenient and less messy.

Developing an effective package for a new product requires several decisions. The

first task is to establish the packaging concept, defining what the package should

basically be or do for the particular product. Then decisions must be made on

additional elements—size, shape, materials, color, text, and brand mark, plus the

use of any “tamperproof” devices. All packaging elements must be in harmony and,

in turn, must harmonize with the product’s pricing, advertising, and other marketing

elements. Next come the engineering tests to ensure that the package stands up

under normal conditions; visual tests, to ensure that the script is legible and the

colors harmonious; dealer tests, to ensure that dealers find the packages attractive

and easy to handle; and, finally, consumer tests, to ensure favorable response.

Here are some examples of packaging which function is to attract:

14

14

Images: http://www.time4kids.ch/uploads/pics/elmex-Junior-Zahnpasta-RGB.jpg http://www.sparfreunde.com/sites/default/files/dealpics/Lindt_Goldhase_enl.jpg https://www.worldshop.eu/medias/sys_master/genmedia_PIC1740014_RL_01.jpg

Examples of packaging which have a functional use:

15

Product Design

“Product design is the translation of intellectual wisdom, requirements of the

entrepreneurs, or needs of the consumers, etc. into a specific product."16

Meaning of Product Design

15 Images: http://www.scjohnson.de/media//corporate/de/WC_Ente_AktivGel.jpg http://us.123rf.com/400wm/-flaschendeckel--isoliert-mit-beschneidungspfad.jpg http://src.discounto.de/pics/product/26384/4321black-star-Eau-de-Parfum-26384_xxl.jpeg 16 http://kalyan-city.blogspot.com/2012/02/what-is-product-design-definition.html

1. Form design means the shape and appearance of the product.

2. Functional design means the working of the product. That is, how the

product works. It is very important because the product will sell only if it works

as expected.

3. Product development involves the modification of an existing product or the

formulation of an entirely new product.

4. Product research is defined as marketing research that yields information

about desired characteristics of the product or service.

17The iPhones for example are known for their thin,

simple and elegant design.

But who should ultimately design the product? The customer, of course.

Every company must develop new products, due to the fact that new-product

development shapes the company’s future and replacement products must be

created to maintain or build sales. Customers desire new products, and competitors

will do their best to supply them. Each year over 16,000 new are introduced into

groceries and drugstores. A company can add new products through acquisition or

development. The acquisition route can take three forms: The company can buy

17Image: http://niklausgerber.com/blog/designing-for-iphone4/

other companies, it can acquire patents from other companies, or it can buy a

license or franchise from another company.

And the development route can take two forms: The Company can develop new

products in its own laboratories or it can contract with independent researchers or

new-product-development firms to develop specific new products.

There are six categories to identify new products:

1. New-to-the-world products: New products that create an entirely new market.

2. New product lines: New products that allow a company to enter an established

market for the first time.

3. Additions to existing product lines: New products that supplement a company’s

established product lines (package sizes, flavors, and so on).

4. Improvements and revisions of existing products: New products that provide

improved performance or greater perceived value and replace existing products.

5. Repositioning’s: Existing products that are targeted to new markets or market

segments.

6. Cost reductions: New products that provide similar performance at lower cost.

Less than 10 percent of all new products are truly innovative and new to the world.

These products involve the greatest cost and risk because they are new to both the

company and the marketplace. Most new-product activity is devoted to improving

existing products. At Sony, over 80 percent of new-product activity is undertaken to

modify and improve existing Sony products.18

18 http://www.sony.com/

Challenges in new-product development

Companies that are not developing new products are putting themselves at great

risk. Their existing products are vulnerable to changing customer needs and tastes,

new technologies, shortened product life cycles, and increased domestic and foreign

competition. At the same time, new-product development is risky. For example

Texas Instruments lost $660 million before withdrawing from the home computer

business and Ford lost $250 million on its Edsel.19 To get a feel for how much money

can be thrown at a product that is destined to fail, consider the fate of the smokeless

cigarette.

By the late 1980s, R. J. Reynolds Tobacco Company (RJR) had already spent more

than $300 million on the reduced-smoke Premier cigarette. Five months after its

introduction in 1988, Premier disappeared from the test markets because smokers

didn’t like the taste and it was also difficult to light. However RJR went on to spend

an additional $125 million on another attempt. In 1997 RJR tested its smokeless

Eclipse cigarette in Chattanooga, Tennessee. But

smokers say they’re not switching. Eclipse seemed like

a good alternative; the cigarette heats the tobacco

instead of burning it, resulting in only 10 percent of the

20smoke of conventional cigarettes. Only problem is

smokers like smoke. So far, nonsmokers are the only ones who like Eclipse.

New products continue to fail at a disturbing rate. When you consider that it costs

$20 million to $50 million to launch a new product, you wonder why people continue

to innovate at all. Yet product failures can serve one useful purpose: Inventors,

19 http://content.time.com/time/specials/2007/article/0,28804,1658545_1657867_1657781,00.html 20 Image: http://www.pbs.org/wgbh/nova/body/safer-cigarettes-history.html

entrepreneurs, and new-product team leaders can learn valuable lessons about what

not to do.

Why do new products fail?

A high-level executive pushes a favorite idea through in spite of negative

market research findings.

The idea is good, but the market size is overestimated.

The product is not well designed.

The product is incorrectly positioned in the market, not advertised effectively

overpriced.

Development costs are higher than expected.

Competitors fight back harder than expected.

Several other factors hinder new-product development:

Shortage of important ideas in certain areas: There may be few ways left to

improve some basic products (such as steel, detergents).

Fragmented markets: Keen competition is leading to market fragmentation.

Companies have to aim their new products at smaller market segments, and

this can mean lower sales and profits for each product.

Social and governmental constraints: New products have to satisfy consumer

safety and environmental concerns. Government requirements slow down

innovation in drugs, toys, and some other industries.

Costliness of the development process: A company typically has to generate

many ideas to find just one worthy of development. Furthermore, the company

often faces high manufacturing, and marketing costs.

Capital shortages: Some companies with good ideas cannot raise the funds

needed to research and launch them.21

Given these challenges, what can a company do to develop successful new

products? The number-one success factor is a unique, superior product. Products

with a high product advantage succeed 98 % of the time, compared to products with

a moderate advantage (58 % success) or minimal advantage (18 %success).

Another key success factor is a well-defined product concept prior to development.

The company carefully defines and assesses the target market, product

requirements, and benefits before proceeding. Other success factors are

technological and marketing synergy, quality of execution in all stages, and market

attractiveness.

New-product success is greater the deeper the company’s understanding of

customer needs, the higher the performance-to-cost ratio, the earlier the product is

introduced ahead of competition, the greater the expected contribution margin, the

more spent on announcing and launching the product, the greater the top

management support, and the greater the cross-functional teamwork.

New-product development is most effective when there is teamwork among

engineering, manufacturing, purchasing, marketing, and finance. The product idea

must be researched from a marketing point of view, and a specific cross-functional

team must guide the project throughout its development.

21 http://smallbusiness.chron.com/four-reasons-new-product-fails-18004.html

Brand Decisions

Branding is a major issue in product strategy. On the one hand, developing a

branded product requires a huge long-term investment, especially for advertising,

promotion, and packaging. On the side, manufacturers eventually learn that market

power comes from building their own brands. The Japanese firms Sony and Toyota,

for example, have spent liberally to build their brand names globally.22 Even when

companies can no longer afford to manufacture their products in their homelands,

strong brand names continue to command customer loyalty.

Top five world brands (2013 Rank)

23

What is behind these succesful brands? In order to answer this question we have to

clearify some concepts.

What is a Brand?

Perhaps the most distinctive skill of professional marketers is their ability to create,

maintain, protect, and enhance brands. The American Marketing Association defines

a brand as a name, term, sign, symbol, or design, or a combination of these,

intended to identify the goods or services of one seller or group of sellers and to

differentiate them from those of competitors. 24 Whether it is a name, trademark,

logo, or another symbol, a brand is essentially a seller’s promise to deliver a specific

set of features, benefits, and services consistently to the buyers. The best brands

22

http://www.interbrand.com/es/best-global-brands/2013/top-100-list-view.aspx 23Images: http://www.brands.com/es/top-brands/2013/top-100-list-view.aspx 24 http://www.marketingpower.com/_layouts/dictionary.aspx?dLetter=B

convey a warranty of quality. But a brand is an even more complex symbol. It can

convey up to six levels of meaning. The branding challenge is to develop a deep set

of positive associations for the brand. Marketers must decide at which level(s) to

anchor the brand’s identity. One mistake would be to promote only attributes. First,

buyers are not as interested in attributes as they are in benefits. Second, competitors

can easily copy attributes. Third, today’s attributes may become less desirable

tomorrow. Ultimately, a brand’s most enduring meanings are its values, culture, and

personality, which define the brand’s essence. Smart firms therefore craft strategies

that do not dilute the brand values and personality built up over the years.25

Levels of Brand Meaning

Meaning Description Example

Attributes A brand brings to mind certain attributes.

Mercedes suggests expensive, well-built, durable, high-prestige vehicles.

Benefits Attributes must be translated into functional and emotional benefits.

The attribute “durable” could translate into the functional benefit “I won’t have to buy another car for several years.”

Values The brand says something about the producer’s values.

Mercedes stands for high performance, safety and prestige.

Culture The brand may represent a certain culture.

Mercedes represents German culture: organized, efficient, high quality.

Personality The brand can project a certain personality.

Mercedes may suggest a non-nonsense boss (person) or a reigning lion (animal).

User The brand suggests the kind of costumer who buys or uses the product.

Mercedes vehicles are more likely to be bought by 55 year-old top managers than by 20 year old store clerks.

25 http://www.tronviggroup.com/the-difference-between-marketing-and-branding/

Brand Strategy Decision

A company has five choices when it comes to brand strategy. The company can

introduce line extensions, brand extensions, multibrands, new brands and co-brands.

Line Extensions:

Line extensions introduce additional items in the same product category under the

same brand name, such as new flavors, forms, colors, added ingredients, and

package sizes. The vast majority of new products are actually line extensions. Line

extension involves risks and has provoked heated debate among marketing

professionals. On the downside, extensions may lead to the brand name losing its

specific meaning.” A consumer asking for a Coke in the past would receive a 6.5-

ounce bottle. Today the seller will have to ask: New, Classic, or Cherry Coke?

Regular or diet? With or without caffeine? Bottle or can?

However, the success of a new line extension sometimes hurts other items in the

line. A line extension works best when it takes sales away from rivals, not when it

deflates or cannibalizes the company’s other items.

Brand Extensions:

A company may use its existing brand name to launch new

products in other categories. Brand-extension strategy offers many

of the same advantages as line extensions—but it also involves

risks. One risk is that the new product might disappoint buyers and

damage their respect for the26 company’s other products. Another

is that the brand name may be inappropriate to the new product—

consider Bic perfume, a classic failure because buyers did not associate the Bic 26 Image: http://fimgs.net/images/perfume/nd.12390.jpg

brand with fragrance products. A third risk is brand dilution, which occurs when

consumers no longer associate a brand with a specific product or highly similar

products.

Multibrands:

A company will often introduce additional brands in the same product category.

Sometimes the firm is trying to establish different features or appeal to different

buying motives. Multibranding also enables the company to lock up more distributor

shelf space and to protect its major brand by setting up flanker brands.

New Brands:

When a company launches products in a new category, it may find that none of its

current brand names are appropriate.

Co-brands:

A rising phenomenon is the emergence of co-branding, in which two or more well-

known brands are combined in an offer. Each brand sponsor expects that the other

brand name will strengthen preference or purchase intention. In the case of co-

packaged products, each brand hopes it might be reaching a new audience by

associating with the other brand.27

27 http://www.brandchannel.com/images/papers/what_is_a_brand.pdf

Examples of Brand Strategies

Line extensions

Brand extensions

Multibrands

Co-brands

28

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Price

All organizations set prices on their goods or services. Whether the price is called

rent (for an apartment), tuition (for education), fare (for travel), or interest (for

borrowed money), the concept is the same. Throughout most of history, prices were

set by negotiation between buyers and sellers. Then, the “one-price policy”29 was

developed, due to the fact that organizations had so many items and employees. In

a “one-price policy” the same price is offered to every customer who purchases the

product under the same conditions. It also means that prices are set and cannot be

negotiated by customers.

Now, 100 years later, technology is taking us back to an era of negotiated pricing.

The Internet, corporate networks, and wireless setups are linking people, machines,

and companies around the globe, connecting sellers and buyers as never before.

On-line auction sites like eBay.com and Onsale.com make it easy for buyers and

sellers to negotiate prices on thousands of items. At the same time, new

technologies are allowing sellers to collect detailed data about customers’ buying

habits, preferences, even spending limits, so they can modify their products and

prices. In the entire marketing mix, price is the one element that produces revenue;

the others produce costs. Price is also one of the most flexible elements; it can be

changed quickly, unlike product features.

29 http://www.businessdictionary.com/definition/one-price-policy.html

Setting the Price

A firm must set a price for the first time when it develops a new product and the price

is also the key element used to support a product’s quality positioning.

Because an organization, in developing its strategy, must decide where to position

its product on price and quality, there can be competition between price-quality

segments.30

In setting a product’s price, marketers follow a six-step procedure:

Step 1: Selecting the Pricing Objective

A company can pursue any of five major objectives through pricing:

Survival: This is a short-term objective that is appropriate only for companies

that are plagued with overcapacity, intense competition, or changing

consumer wants. As long as prices cover variable costs and some fixed costs,

the company will be able to remain in business. 30 http://www.businessdictionary.com/definition/one-price-policy.html

1. selecting the pricing objective

2. determining

demand

3.estimating costs

4. analyzing competitors’ costs, prices,

and offers

5. selecting a pricing

method

6. selecting the final price

Maximum current profit: To maximize current profits, companies estimate the

demand and costs associated with alternative prices and then choose the

price that produces maximum current profit, cash flow, or return on

investment. However, by emphasizing current profits, the company may

sacrifice long-run performance by ignoring the effects of other marketing-mix

variables, competitors’ reactions, and legal restraints on price.

Maximum market share: Firms choose this objective because they believe

that higher sales volume will lead to lower unit costs and higher long-run

profit. With this market-penetration pricing, the firms set the lowest price,

assuming the market is price sensitive. This is appropriate when (1) the

market is highly price sensitive, so a low price stimulates market growth; (2)

production and distribution costs fall with accumulated production experience;

and (3) a low price discourages competition.

Maximum market skimming: Many companies favor setting high prices to

“skim” the market. This objective makes sense under the following conditions:

(1) A sufficient number of buyers have a high current demand; (2) the unit

costs of producing a small volume are not so high that they cancel the

advantage of charging what the traffic will bear; (3) the high initial price does

not attract more competitors to the market; and (4) the high price

communicates the image of a superior product.

Product-quality leadership: Companies that aim to be product-quality leaders

will offer premium products at premium prices. Because they offer top quality

plus innovative features that deliver wanted benefits, these firms can charge

more.31

Step 2: Determining Demand

Each price will lead to a different level of demand and, therefore, will have a different

impact on a company’s marketing objectives. Normally, demand and price are

inversely related: The higher the price, the lower the demand. In the case of prestige

goods, nevertheless, the demand curve sometimes slopes upward because some

consumers take the higher price to signify a better product. Still, if the price is too

high, the level of demand may fall.

Demand Curve

A demand curve is a graphic representation of the

relationship between product, price and the quantity

of the product demanded. It is drawn with price on

the vertical axis of the graph and quantity

demanded on the horizontal axis.

Price Sensitivity

The demand curve shows the market’s probable purchase quantity at alternative

prices, summing the reactions of many individuals who have different price

sensitivities. The price sensitivity is less when:

The product is more distinctive

31 http://strategies-to-grow-business.blogspot.com/2011/03/6-steps-to-setting-price-strategy-for.html

Buyers are less aware of substitutes

Buyers cannot easily compare the quality of substitutes

The expenditure is a lower part of buyer’s total income

The expenditure is small compared to the total cost of the end product

Part of the cost is borne by another party

The product is used in conjunction with assets previously bought

The product is assumed to have more quality, prestige, or exclusiveness, and

Buyers cannot store the product.

A number of forces, such as instant price comparisons that are available over the

Internet, have turned products into commodities in the eyes of consumers and

increased their price sensitivity. More than ever, companies need to understand the

price sensitivity of their target market.

Step 3: Estimating Costs

While demand sets a ceiling on the price the company can charge for its product,

costs set the floor. Every company should charge a price that covers its cost of

producing, distributing, and selling the product and provides a fair return for its effort

and risk.

A company’s costs take two forms: fixed and variable. Fixed costs (also known as

overhead) are costs that do not vary with production or sales revenue, such as

payments for rent, heat, interest, salaries, and other bills that must be paid

regardless of output. In contrast, variable costs vary directly with the level of

production. To price intelligently, management needs to know how its costs vary with

different levels of production. A firm’s cost per unit is high if only a few units are

produced every day, but as production increases, fixed costs are spread over a

higher level of production results in each unit, bringing the average cost down. At

some point, however, higher production will lead to higher average cost because the

plant becomes inefficient (due to problems such as machines breaking down more

often). By calculating costs for different-sized plants, a company can identify the

optimal plant size and production level to achieve economies of scale and bring

down the average cost.

Step 4: Analyzing Competitors’ Costs, Prices, and Offers

Within the range of possible prices determined by market demand and company

costs, the firm must take into account its competitors’ costs, prices, and possible

price reactions. If the firm’s offer is similar to a major competitor’s offer, then the firm

will have to price close to the competitor or lose sales. If the firm’s offer is inferior, it

will not be able to charge more than the competitor charges. If the firm’s offer is

superior, it can charge more than does the competitor—remembering, however, that

competitors might change their prices in response at any time.32

Step 5: Selecting a Pricing Method

The three Cs: the customers’ demand schedule, the cost function, and competitors’

prices, are major considerations in setting price First, costs set a floor to the price.

Second, competitors’ prices and the price of substitutes provide an orienting point.

Third, customers’ assessment of unique product features establishes the ceiling

price. Companies must therefore select a pricing method that includes one or more

of these considerations.

32 http://telecomespana.files.wordpress.com/2013/04/larevolucic3b3nllamadafaxmail.jpg

Step 6: Selecting the Final Price

The previous pricing methods narrow the range from which the company selects its

final price. In selecting that price, the company must consider additional factors such

as psychological pricing.

Psychological Pricing

Many consumers use price as an indicator of quality. Image pricing is especially

effective with ego-sensitive products such as perfumes and expensive cars. A $100

bottle of perfume might contain $10 worth of scent, but gift givers pay $100 to

communicate their high regard for the receiver. Similarly, price and quality

perceptions of cars interact:

Higher-priced cars are perceived to possess

high quality; higher-quality cars are likewise

perceived to be higher priced than they

actually are. In general, when information

about true quality is unavailable, price acts as

a signal of quality. 33

Sellers often manipulate these reference prices. For example, a seller can situate its

product among expensive products to imply that it belongs in the same class.

Reference-price thinking is also created by stating a high manufacturer’s suggested

price, by indicating that the product was priced much higher originally, or by pointing

to a rival’s high price. Often sellers set prices that end in an odd number, believing

that customers who see a television priced at $299 instead of $300 will perceive the

33 Imagen: http://thumbs.dreamstime.com/z/psychological-price-pricing-21693187.jpg

price as being in the $200 range rather than the $300 range. Another explanation is

that odd endings convey the notion of a discount or bargain, which is why both

toysrus.com and etoys.com set prices ending in 99. But if a company wants a high-

price image instead of a low price image, it should avoid the odd-ending tactic.34

Promotional Pricing Techniques

Technique Description Example

Loss-leader pricing Stores drop the price on well-known brands to stimulate additional store traffic.

Kmart cuts the price of selected toys to attract shoppers before Christmas.

Special-event pricing Sellers establish special prices in certain seasons to draw in more customers

Panamericana offers special prices on stationary items during a back-to-school sale.

Cash rebates Manufacturers offer cash rebates to encourage purchase of their products within a specified period; this helps clear inventories without cutting the stated price.

Mazda advertises cash rebates on the purchase of selected previous-year models to clear these vehicles out of dealer inventory.

Low-interest financing Instead of cutting its price, the company can offer customers low-interest financing.

Ford offers low-or no-interest financing to encourage the purchase of selected vehicles.

Longer payment terms Sellers stretch loans over longer periods and thus lower the monthly payments that customer pay.

Auto companies and montage banks use this approach because consumers are more concerned with affordable payments than with the interest rate.

Warranties and service contracts

Companies can promote sales by adding a free or low cost warranty or service contract.

Real estate brokers offer special warranties on selected homes to expedite sales.

Psychological discounting

Used legitimately, this involves offering the item at substantial savings from the normal price.

A jewelry store lowers the price of a diamond ring and advertises “Was $359, now $299.”

34 http://www.development.tas.gov.au/__data/assets/pdf_file/0014/39200/Marketing_and_Promotion.pdf

Promotion

Promotion is the method a business uses to spread the word about its product or

service to customers, stakeholders and the broader public.

Once you’ve identified your target market, you’ll have a good idea of the best way to

reach them, but most businesses use a mix of advertising, personal selling, referrals,

sales promotion and public relations to promote their products or services.

Developing effective marketing communications

Today there is a new view of communications as an interactive dialogue between the

company and its customers that takes place during the preselling, selling,

consuming, and post consuming stages. Successful companies are asking not only

“How can we reach our customers?” but, in a break from the past, are also asking

“How can our customers reach us?” Now sellers use a variety of communication

platforms to stay in touch with customers.35

Increasingly, it is the newer technologies, such as the Internet, that have encouraged

more firms to move from mass communication to more targeted communication and

one-to-one dialogue with customers and other stakeholders. There are eight steps to

follow in developing an effective marketing communications:

35 http://www.development.tas.gov.au/__data/assets/pdf_file/0014/39200/Marketing_and_Promotion.pdf

Common Communication Platforms

Advertising Sales Promotion

Public Relations

Personal Selling

Direct Marketing

Print, broadcast, online ads

Contests, games

Press kits

Sales presentations

Catalog

Packaging

Premium, gifts

Speeches

Sales meeting

Mailings

Brochures

Fairs, trade shows

Seminars

Incentive programs

Telemarketing

1 • Identify the target audience

2 • Determine the communication objectives

3 • Design the message

4 • Select the communication channels

5 • Establish the total communication budget

6 • Decide on the communication mix

7 • measure the communications’ results

8 • manage the integraded marketing communication process

Billboards

Coupons

Sponsorship

Fairs and trade shows

Electronic shopping

Display signs

Rebates

Charitable donations

E-mail

Logos and Symbols

Sampling

Lobbying

TV shopping

Web sites

Tie-ins

Special events

Fax mail

In essence, marketing has a quintessential function in our society, due to the fact

that it brings new variety of useful and quality goods to consumers. This raises the

standard of living. Better marketing gives room for mass production. Under mass

production, cost of production will be low and hence price of the article will be low,

since price is low people can buy more goods for their money. This will result in a

higher standard of living.

Marketing also increases employment opportunities. Just as every industry provides

employment opportunities to thousands of skilled and unskilled labor in various,

marketing also provides employment to millions of people. Marketing is a complex

mechanism involving number of functions and sub-functions which call for different

specialized persons for employment. The major marketing functions are buying and

selling, transport, warehousing, financing, risk bearing, market information and

standardization. In each such function, different activities are to be performed by a

large number of individuals or institutions. It is said that roughly 30 to 40% of the

population depend directly or indirectly on marketing.

Another aspect is that marketing increase national income. The nation’s income is

composed of goods and services which money can buy. Efficient system of

marketing reduces the cost to the minimum. This in turn lowers the prices and the

consumer’s purchasing power increases. This will increase the national income.

It also helps to maintain economic stability and development. Economic stability is

the sign of any efficient and dynamic economy. Economic stability is maintained only

when there is a balance of supply and demand. If production is more than demand,

the excess goods cannot be sold at acceptable prices. Then the stocks of goods

would be piled up and there would be glut in the market, resulting in fall in price.

Similarly, if production is less then demand, prices shoot up resulting in inflation. In

such a situation, marketing maintains the economic stability by balance production

and consumption.

However, marketing often modifies the world of consumption by creating an artificial

need in the mind of the consumer. This sells the product, and this is the ultimate

goal of the business. The advertising industry, a prominent and powerful industry,

engages in deceptive subliminal advertising which most us are unaware of. By

bypassing our unconscious mind using subliminal techniques, advertisers tap into

the vulnerabilities surrounding our unconscious mind, manipulating and controlling

us in many ways. For instance, you can find subliminals in every major

advertisement and magazine cover. Legislation against the advertisers has had no

effect in curbing the use of subliminals. In this Information Age, it seems people are

no longer in control of the people. The ones in control are the ones with knowledge

(as usual). In this case, the advertisers have it; you don't. Until now.

Bibliography

Books:

“The principles of Marketing” by Philipp Kotler (second edition)

“Marketing 2.0” by Ardath Albee” (sixth edition)

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things-to-think-about/4003981.article (25.10.13)

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