Chapter 1 Marketings Value to Consumers, Firms, and Society

Marketing: The performance of activities that seek to accomplish an organizations objectives by anticipating
customer/client needs and directing a flow of need-satisfying goods and services from producer to
customer/client
o Macro-Marketing: Directs an economys flow of goods and services from producers to consumers in a
way that effectively matches supply/demand and accomplishes objectives of society
o Macro-Trends:
Turbulent economic environment aggressive companies are expanding market share when
competitors lay low
Shorter product lifespan especially with trickle-down effect; also technology allows products
to be copied easily
Globalization opens up opportunities around the world, emerging markets, firm can enter and
take advantage of this
Competitive pressure
Non-profits embracing marketing
Empowered customers due to increase in options, increased influence of consumers on firm
production/decisions, greater # of methods to find products (internet), consumers also have a
greater voice and can blog/review
Separation between producers and consumers: Producers/consumers separated by
o Space
o Time
o Information/Values
o Ownership
o Discrepancy of Quantity/Discrepancy of Assortment
Structure of Economy/Trade
o Command Economy: government decides what/how much is to be produced
o Market-Directed Economy: individual decisions of many producers and consumers make the macro-level
decisions for whole economy
o According to book:
Initially society began as trade era families traded surplus
Moved to production era company focused on production of few specific products; If we can
make it, we can sell it
Sales era company emphasized selling because of increased competition; cool sales
techniques Buy what we made
Marketing department era all marketing activities brought under control of ne department to
improve short-run policy planning
Marketing company era people develop long term and short term plans
Marketing vs. Production orientation offering customers what they need vs. producing
whatever is easy to produce and trying to sell them
Customer satisfaction drives marketing system
o According to lecture notes:
Product orientation
Sales orientation
Consumer orientation (classic marketing concept) make what consumers want
Competitor orientation actions and counteractions with other firms

CRM, Customer Relationship Management CLV, customer lifetime value; keep customer
satisfied, loyal, keep recommending
o Profit is bottom-line measure of firms success
Customer value: difference between benefits customer sees from a market offering and the costs of obtaining
those benefits. Low price high customer value necessarily
o Necessary to build good long-term relationships with customers
Provide customer value before AND after purchase
*Value marketing: customers have needs/problems, market products are delivery of solution
o Customer is an asset to the firm
Social responsibility: firms obligation to improve its positive effects on society and reduce its negative effects
o Customer needs sometimes arent all good for them should they be satisfied?
o Marketing ethics comes from this

Chapter 2 Marketing Strategy Planning

Marketing management process: plan marketing activities, direct implementation of plans, and control these
plans
Marketing Strategy: specifies target market and related marketing mix, big picture of what a firm will do in the
market
o *5 Cs: (STRATEGY)
Company SWOT analysis essential
Customers
Competitors
Collaborators
Context
Implementation
o *Target market homogeneous group of customers to whom a company wishes to appeal
Ideal target markets must be homogeneous, not necessarily small
Ex: parents of young children are homogeneous on many levels
Focus on specific target customers so that you can develop superior marketing mix to cater to
specific needs
*Target Marketing: marketing mix is tailored to fit some specific target customers
Careful targeting = less likely to have direct competitors
Superior customer value achieved by marketing mix, not just low price
*Mass marketing: Typical production-oriented approach vaguely aims at everyone with
same marketing mix
NOT the same as mass marketers marketers like Kraft Foods/Wal-Mart aim at clearly
defined target markets that are large and spread out
o *Marketing Mix: controllable variables the company puts together to satisfy the target group
*4 Ps of the Marketing Mix: (TACTICAL)
Product
Place
Promotion
Price
Product: develop right product for target market (physical good, service, or both), branding,
packaging, warranties
Place: Get the right product to the right place, must be available
Channel of Distribution: series of firms/individuals that participate in the flow of
products from producer to final user/consumer
Promotion: Telling the target market/others in the channels of distribution
Goals: Acquire or retain customers
Personal selling: direct spoken communication
Mass selling: communicating with large # of customers at the same time
o Advertising
o Publicity
Sales promotion: stimulate interest, trial, purchase
Price: estimate/respond to customer reactions to potential prices
Markups
Discounts

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Other terms of sale

*Customer Equity: expected earnings stream (profitability) of firms current/prospective customers over
period of time
Competitive Advantage: Firm has marketing mix that target market sees as better than competitors mix
Achieved through positive differentiation
Search for opportunities customers with needs that arent being satisfied as well as they could be
*Market penetration: Increase sales of a firms present products in its present market more
aggressive marketing mix
Present product, present market
Market development: present product, new market
Product development: new products, present markets
Diversification: New markets, new products
Biggest risk
Ex: failed attempt for McDonalds to launch hotels in Switzerland
International growth becoming very feasible with technology
Serving internationally may improve economies of scale
If you fail to go international, creeping may occur where foreign firms encroach on your
at-home markets
Fresh start in new market
Find better trends
However, much riskier

Chapter 3 Evaluating Opportunities in the Changing Marketing Environment

Marketing environment: economic, technological, political/legal, cultural/social

Competitive environment: affects # and types of competitors
o Choose strategies that avoid head-on competition
o When this is unavoidable, plan for it
o Pure competition
o Oligopoly
o Monopolistic competition
# of different firms offer marketing mixes that at least some customers see as different
Each competitor tries to gain control of its own target market
Competition exists because some customers see the various alternatives as substitutes
Developed economies
Improvement on secondary characteristics important
o Monopoly
One company controls broad product-market
Governments regulate these
o Most product markets head toward pure competition over long run close substitutes, managers
compete with lower prices, profit margins shrink
o Avoiding pure competition = avoid downward spiral in prices/profits
o Successful strategy draws in copycats
o Competitive barriers: Conditions that make it difficult/impossible to compete
Economic environment: changes rapidly, requires changes in marketing strategy
o Changes accompanied by changes in interest rate for borrowing, directly affects total price borrowers
must pay, affects when/if people will buy products
o Exchange rate also prompts change in international strategy
Political environment
o Nationalism can change how macro-marketing works, may reduce sales in international markets
o EU, NAFTA
Cultural/Social environment: how and why people live and behave as they do, affecting buying behavior, leads
to implications in other environments
o Ex: role of women shifting
o Understanding demographics is important to marketing strategic planning
o Many firms focus on developing countries because of sharp population growth
o Shift from rural to urban areas simplifies Place/Promotion decisions
o Profitable markets require income
o Literacy of market directly impacts economy development, and on market strategy planning
o Important to look at age distribution ex: baby boom
Screening criteria necessary to strategy development
o Sustainability
o Achievability
o Quantitative/qualitative components
o Long term/short term
o Total product approach management forecasts potential sales and costs during life of the plan to
estimate profitability
Multi-product firms have a harder time with strategic planning

o Must develop strategic plans for very different businesses

o Balance plans and resources
Continuum of Environmental Sensitivity (how much the environment affects the products reception)
o Insensitive: most industrial products
o Middling: Basic commodity-type consumer products
o Sensitive: Consumer products that are linked to cultural variables
Ex: Some cultures view dieting as unhealthy so Diet Pepsi does poorly
o Explains why most of early successes in international marketing were basic commodities

Marketing Math

Unit contribution = Revenue/unit Variable cost/unit

Profit margin = Unit Contribution/Revenue per Unit
o Percentage of selling price
o Margin analysis analyze values through value chain
Suppliers, manufacturers, distributors => end customer
Break even volume = Fixed costs/Unit contribution
o Use BEV to make decisions about new investments
o Remember that this only covers fixed costs, in order to profit you must sell more
Market share: how much of total market you have
o Sales market share = Firm sales/Total market sales
o Units sold market share = Firm units sold/Total market unit sold
o Customer market share = Firm customers/Total customers
o MUST DEFINE MARKET
Profit = (Unit contribution)*(Units sold) Fixed costs
Customer Lifetime Value = (Annual Profit per customer) * (years as a customer)
o Does not account for discounting profits over time
o Mortality/attrition
o Segments with different values/lifetimes
Opportunity cost = value of next best choice
o Alternatives must deliver value above OC to be acceptable
Sunk cost = Cost @ Time 0
Premium = % of manufacturer price (retailer cost) that is added to get retail price
Depreciation = Investment/# years of use
o A method for accounting large fixed costs over time
Return on Investment = net profit/investment
o Used to make net profit
Markup = added price/total selling price

Chapter 5 Final Consumers and Their Buying Behavior

Consumers are economic buyers: people who know all facts and logically compare choices to get greatest
satisfaction from spending time/$
Consumers decide what to buy based on economic needs
o Economy of purchase/use
o Efficiency in operation or use
o Dependability in use
o Improvement of earnings
o Convenience
o Ability to satisfy these depends on how much money a consumer has available
o Consumers spend a large portion of income on necessities
o Discretionary Income what is left of income after paying taxes/necessities; used to buy luxuries
Subjective some people view internet as a necessity, some as a luxury, etc.
Needs: Basic forces that motivate a person to do something; physical well-being, self-view, relationship with
others; utilitarian or psychological
o When not satisfied, leads to a drive reasons behind behavior
o Physiological needs: biological needs
o Safety needs
o Social needs
o Personal needs: need for personal self-satisfaction, unrelated to what others think or do
o Many are culturally or socially learned
Need for food => specific food wants
o People realize the difference between their actual/ideal state
Depletion state
(or more distal needs)
o Achieving value = solving problems
o Marketing can influence need recognition makes you aware of discrepancies between actual/ideal
Create something new to force a discrepancy, create new perception of ideal state
Wants: needs that are learned during a persons life
Marketers analyze existent needs, wants, drives to know how to satisfy them
Perception: gather and interpret information from world around us
o Selective exposure: our eyes and minds seek out and notice only info that interests up
o Selective perception: we screen/modify ideas, messages, and info that conflict with previously learned
attitudes and beliefs
o Selective retention: we remember only what we want to remember
o Explains why people are not affected by some advertising
o Marketers try to use cues that have positive associations from other situations and relate to marketing
mix
Meeting expectations is important
Psychographics/Lifestyle analysis: persons day to day pattern of living as expression of Activities, Interests,
Opinions
o Singles/young couples more willing to try new things, but are careful/price conscious
o Teenagers are a target for many firms
o Empty nesters will spend money in other ways (not children any more)
o Who is the family purchasing agent?

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Social class is important

Reference groups: group to which an individual looks when forming attitudes about a particular topic
Opinion Leaders are important because they influence others not necessarily better educated
Do ethnic groups buy differently?
Stereotypes are misleading
Ethnic markets are becoming more important
Ex: Asian Americans, African Americans, Hispanics = lower median age, higher birthrate
Income/population create ethnic market buying power
Individuals affected by purchase situation purchase reason, time, surroundings (ex: excitement at on-site
auction)
Extensive problem solving: put effort into deciding how to satisfy a need
o Avid computer gamer great deal of effort into buying a new gaming computer
Limited problem solving: some effort required
o Seasoned computer gamer already knows he likes sports games, might get some advice and check out
some alternatives but limited amount of effort
Routinized response behavior: regularly selects a particular way of satisfying need when it occurs
o Low involvement purchases purchases that have little importance/relevance
Buying salt
Automatic, resource saving (not trying to think rationally, trying to make choice and get out)
*Heuristics choice tactics or rules of thumb
o Price, habit, normative, more is better
Price used to make inference about quality so you dont have to investigate it buy something
in the middle between high price/low price, lean to high end
Dont want to get ripped off or to be overly cheap
Ex: olive oil, wine lists
o If you have an expensive $100 wine, add in the $200 and it goes much faster
Habit: always buy Tide because its always satisfactory and you never do comparison
Refer to low involvement purchases
Normative: default choice of peers if everyone is using it, it must be good (ex: laptops)
Purchase Decision: experience and reinforcement
o Heuristic => choice => usage => reinforcement, no reinforcement, or punishment
Post Purchase Process
o Satisfaction/dissatisfaction is foundation of business
o Repeat business is profit center
o Factors that influence satisfaction:
Not directly quality quality when PRICE is considered too = VALUE
When you pay more, your expectations rise
Disconfirmation: satisfaction or dissatisfaction occurs when there is a discrepancy between
expectations and the products actual performance
Therefore => never overpromise, always overdeliver
o Dissonance: second thoughts/wonder if they made the right choice
o Post-purchase regret is a bigger problem; regret is not likely to lead to same decision in the future
o Some customers spread the word afterward
New products require adoption process
o Awareness
o Interest gather information

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Evaluation mental trial

Trial
Decision
Confirmation continues to search for further reinforcement

Chapter 6 Business/Organizational Customers and their Buying Behavior

Buyers who buy for resale or to produce other goods/services

o Producers of goods and services
o Intermediaries
o Government units
o Nonprofit
B2B Market business to business market
Most organizations make purchases for same basic reason
o Focus on economic factors
Total cost and marketing mix
Dependability is an emphasis
o Less emotional in buying than final customers
o Still behave similarly; influenced by own needs
o Work ethically, expect sellers to do the same
Usually approached through sales representative; seller has more chance to adjust marketing mix for each
customer
Organizations rely on purchasing managers, buying specialists for their employers
o Do not want to be sold, want accurate information
Multiple buying influences (many have influence in purchase decision)
o Users production line users or their supervisors
o Influencers engineering or R&D who write specifications/supply info for alternatives
o Buyers purchasing managers who work with suppliers and arrange terms of sale
o Deciders the people in the organization who have the power to select or approve the supplier
o Gatekeepers people who control the flow of information within organization, ex: research assistants,
secretaries
Use vendor analysis to rate suppliers on relevant areas of performance
*New task buying: occurs when customer organization has a new need and wants a great deal of information
o Actively seeking information; advertising, trade show exhibits, brochures, salespeople essential for
getting attention
o Begin with search engines, online marketplaces
o Ask for competitive bids
*Straight rebuying: routine repurchase; buyers probably dont bother looking for new information or new
sources
o Small or recurring purchases are of this type
o Often use computer systems, automatic
*Modified rebuying: in-between process where some review of the buying situation is done, but not as much as
in new-task buying
o Sometimes competitor will get lazy with a straight rebuy system so other marketers may jump in
Benefits to close working relationship between supplier/customer firm
o Cooperation
o Information sharing
Exchange of propriety cost data, discussion of demand forecasts, joint work on product designs
Info sharing can lead to better decisions, reduce uncertainty about future
Firms dont want to share info if theres a risk of misuse
o Operational linkages,

Direct ties between internal operations of buyer and seller firms

Coordination of activities
Reduce total inventory cost, maintain adequate inventory levels, keep production lines moving
Providing a customer with enough inventory when its needed: just-in-time delivery (reliably
getting products there just before customer needs them)
Packaging and labeling to be more convenient for customer
o Legal bonds (negotiated contract buying), relationship-specific adaptations
o Violation of trust is serious issue
Customer may still use several sources to spread risk
Few manufacturers in comparison to final customers
Industrial markets concentrated in certain geographic areas
Producers of services are smaller, more spread out; growing fast have to be close to their customers
o Purchases by small service firms are handled by whoever is in charge
o Rely on e-commerce if not sought out by salespeople
Retailers and wholesalers
o Space is limited, retail chains dont want to carry everything offered to them
o Decisions to add/drop lines handled by buying committee
o Buyer does not have final responsibility; seller pitches to them and buyer pitches to committee
Reduces impact of persuasive salesman
Favors firms with hard data
o Buyers watch computer output closely
o Reorders are straight rebuys
o Budget means they are either open or not to buy
Government market
o Largest customer group in many countries
o Spend in public interest subject to much public review
o Avoid charges of favoritism; use mandatory bidding procedure
Accept lowest bid that meets specifications
o Negotiation important marketing mix should emphasize more than a low price
o Selling to foreign government is challenging; most governments favor their own countries

Chapter 4 Focusing Marketing Strategy with Segmentation and Positioning

Getting firm to focus on specific target market is vital

Generic market: broadly similar needs, sellers offer various, diverse ways of satisfying those needs
o Ex: entertainment seekers
o Different product types may compete with each other
*Product market: very similar needs and sellers offering various close substitute ways of satisfying those needs
o Product type describes goods/services that customers want
o Customer needs customer needs refer to needs the product to satisfy
o Customer types final consumer/user; try to avoid intermediaries in this
o Geographic area where the firm competes
o These boundaries provide focus
Too broad of a definition makes the companys efforts and resources seem insignificant
o Ex: Coca-Cola very successful in cola-drinkers market but not in drinks worldwide
*Market Segmentation naming broad product-markets and segmenting them; identify bases for segmenting
market; develop segment profiles
o Must disaggregate whole mass market and find demographic/needs characteristics to segment the
market
o Assume product-markets consist of sub-markets
o Allows established companies to expand markets, new companies to find niches, determine
appropriate media
Ex: previously minority groups were not being served with specialized beauty products, but now
there are products that address these needs - customized
o Segments: relatively homogeneous group of customers who will respond to marketing mix in similar
way
Look for similarities in needs
Outliers: should not be forced into groups; not that many of them and dont want to dilute
segment homogeneity
Homogeneous within
Heterogeneous between
Substantial
Operational
Stable
Segmenting dimensions to consider
Qualifying dimensions relevant to including a customer type into product-market
o Geographic
o Demographic
o Socio-cultural (culture/subculture)
o Use-related (usage rate, awareness status, brand loyalty)
Determining dimensions those that actually affect customers purchase of a
product/brand
o Psychological (need/motivation)
o Psychographic (outdoorsy, green) aka lifestyle
o Use situation
o Benefit (what is user seeking?)
Help identify core benefits that must be offered

Each submarket motivated by different set of dimensions

International marketing requires even more attention to segmenting
*Targeting develop positioning for target segments, develop marketing mix for each segment
o Based on segment size, growth, value, stability
o Important:
Company position within segment (ease of entry, ability to reach and serve)
Competitors (# and strength, ease of entry)
Product life cycle
o *Single target market approach: segmenting market and picking one of the homogeneous segments as
firms target market
Fine tune mixes for each target market; perhaps make change in product itself
Want to satisfy segment very well
Superior value and satisfy better greater profit potential
Hope to achieve larger share of business in the markets they target
Satisfying fully can lead to a close relationship
o *Multiple target market approach: segmenting market and picking two or more segments, then
treating each as separate target market needing different marketing mix
o *Combined target market approach: combining one or two submarkets into one larger target market as
a basis for one strategy
Try to increase size of target markets, satisfy pretty well
Extend or modify basic offering to appeal to both with one marketing mix
Achieve economies of scale
Less investment; attractive for limited resources
Risky if done too much; innovative segmenters may chip away
o *Mass marketing same product and marketing mix for everyone (efficient)
o Which approach should be used? depends on resources, nature of competition and similarity of
customer needs/attitudes/buying behavior
Usually safer to be a segmenter
Cost considerations probably encourage more aggregating to create economies of scale
Profit is balancing point how unique of a marketing mix can we afford?
o Clustering Techniques: try to find similar patterns within sets of data use computers
Max {between grp/within grp}
Choose centers of groups randomly, allocate point to nearest center
Choose centers again as centroids of clusters from iteration
Allocate each point according to distance from center
Keep repeating until optimized
Ex: PRIZM, SBI values
o *Customer Relationship Management (CRM)
Move towards segment of one = micro-segmentation
Creating and maintaining relationship with an individual to build lifetime value
Identify, differentiate, interact, customize
Ex: Harrahs (casino), Amazon
o DIFFERENTIATION SERVES CUSTOMERS BETTER, but me-too imitators may come along and copy firm
strategy
*Positioning: refers to how customers think about proposed or present brands in a market
o Critical elements: target, frame of reference, point of differentiation, reason to believe

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Difficult to differentiate without realistic view of how customers think about the product
Manager should know what ideal perception is
Two alternatives: make physical changes in product or make promotional changes so image shifts
Ex: most cola drinkers cant pick out differences in blind test, so only image shift necessary
Formal marketing research necessary
Perceptual mapping = product space with 2 dimensions
We can see different submarkets of consumers clustered near ideal preferences
Compare to where the perception of the product lies
Go after nearby segments
By varying promotion, may be able to go after multiple segments
Also can move product into segment where competition is weaker
Product-oriented approach
Blue ocean: no competitors

Chapter 7 Improving Decisions with Marketing Information (Marketing Research)

Marketing research develops and analyzes new information about a market

Reduce uncertainty, manage risk
Criteria
o Current
o Validity external (can this be generalized to other settings/outward?) and internal (are we measuring
what we want to measure? liking purchase intent)
o Reliability if it is conducted again, will the results be correlated?
o Representative is the sample representative of the whole population?
Diagnostic analysis: how did consumers perceive our offerings? How do these explain our current situation?
o AVAILABILITY inappropriate distribution channels, insufficient production
o AWARENESS insufficient absolute advertising, insufficient relative advertising
o PERCEPTIONS poor performance on secondary attributes, poor advertising positioning
o HISTORY poor past performance drags on current sales; there is a PERCEPTION LAG
o COMPETITION performance is always relative to competitors moves
Opportunity analysis: are there opportunities? Can we grow?
o Reposition an underperforming brand, introducing a new brand
o Need to see through eyes of customer
Marketing information system (MIS): organized way of continually gathering, accessing, and analyzing
information that marketing managers need to make ongoing decisions
o Makes information accessible /organized
o Used to conduct sales analysis
Marketing dashboard: displays up-to-the-minute marketing data in an easy-to-read format (customized to a
managers area of responsibility)
Marketing model: statement of relationships among marketing variables
Guided by scientific method
o Define problem
Dont confuse problems with symptoms
o Analyze situation
Informal study of what information is already available in the area
Find relevant secondary data ideally already available in MIS
Government data, private sources, search engines, online databases
Yields a lot for very little => you can construct a research proposal
o Getting problem-specific data
DIRECT ELICITATION (surveys) vs. INDIRECT ELICITATION
Problems with direct elicitation: consumers often respond positively in research but
dont follow through in behavior
o Dont always know why you like something and force an answer
o People embarrassed to reveal preferences
o Preset notions of what products should be
Failure of crossovers best of both worlds ends up being terrible in
combination; ideal offering is NOT sum of parts
o Customers dont know requirements with any precision
o ESPECIALLY TRUE FOR: infrequently made decisions, lack of awareness in
attribute variation, sensitive soft attributes, new attributes/technologies

Conjoint addresses the problems of direct elicitation

Vary attribute levels and have people do tradeoffs for hypothetical products
Calculate part-worth utilities
Shows preferences
Conduct what-if studies segmentation studies, price sensitivity
Look for spikes in conjoint results
Most widely used pre-launch, design and forecasting tool
Perceptual map start w/ semantic scales for each attribute, plot X, Y, conduct study to decide
which axes to map
Dont give tactical advice
Does not forecast how consumers would respond
Qualitative research in-depth, open-ended responses
Focus groups stimulate discussions 6-10 people in informal group setting
o Online focus groups solve problems of in-person focus groups (freedom of
expression, aggressive individual less likely to dominate one group, etc.)
o However: conclusions drawn usually skewed by whoever watches
o Can be done quickly, low cost
Difficult to measure objectively
Should be used to prepare for quantitative research; ideas should be tested with bigger
represented sample
Quantitative research seeks structured responses that can be summarized in numbers
Survey questionnaire
o Problem: response rate is low
o May be misleading of respondents are not representative
o Takes a month or two for data to come back
o Difficult to get responders to expand on particular points
o Be careful that interviewer doesnt affect respondents answers
o People may try to impress/please interviewer
Fixed responses more convenient for computer analysis
Observing what you see is what you get
Researchers try to see or record what subject does naturally
Video tapes, secret shoppers, watch customers try new products
Observing website visitors
o Keyword analysis
o How did the customer come to the website? Email promotion? Link from review?
Checkout scanners see who your customers are and what they are purchasing
Customer panels group of customers who provide info on continuing basis
Experimental method researchers compare responses of two or more groups that are similar
except on characteristic being tested
Causation vs. correlation
Interpreting the data
Statistical packages make this step easier
Cross tabulation relationship between answers to different questions
Is your sample representative?
Confidence intervals
Validity (see above)

Does quantitative analysis support conclusions of the interpretation?

Ex: car buyers asked to rank cars on most to least preferred; one performed slightly
better so it was said to be the best one, but 70% of respondents had ranked it last place
Solving the problem

Chapter 8 Brands/Branding

Product through eyes of the customer

Product means need-satisfying offering. Good, service, or both
o Goods are tangible, services are intangible
o Goods you know what you get ahead of time, services uncertainty; customer must seek out
information
=> this is why service providers often show physical evidence of quality diplomas, etc.
o Goods usually mass produced far away, services are close to the customer and produced after customer
has decided to buy.
Difficult to achieve economies of scale with services
o Services are perishable, hard to balance supply and demand
*Product assortment is the set of all product lines and individual products that a firm sells
*Product line is a set of individual products that are closely related
Products differentiated by brand, level of service offered, etc.
*Branding means use of a name, term, symbol or design or a combination of these to identify a product
Brand name = the actual name
o Well-recognized brands make shopping easier, connects customer with benefits to expect
o Good brand reduces the selling time and effort for marketers
o Improve companys image, speed acceptance of new pockets
Good branding:
o Easy to label/identify by brand/trademark
o Quality is easy to maintain and the best value for the price
o Dependable and widespread availability is possible.
o Demand is strong, market price can be high enough to make branding effort profitable
o Economies of scale
o Favorable shelf locations and display space
*Brand familiarity means how well customers recognize and accept companys brand
o Awareness=>associations=>relationship
o Emotional connection contract, loyalty, trust (ex: Coke trying to promote New Coke failed)
o Brand rejection: customers wont buy a brand unless its image is changed. Overcoming this can be very
expensive
o Brand nonrecognition: final consumers dont recognize the brand at all, even though intermediaries
may use the brand name for identification and inventory control
o Brand recognition means that customers remember the brand
o Brand preference means that customers usually choose the brand over other brands
o Brand insistence means customers insist on a firms branded product and are willing to search for it
*Brand equity value of a brands overall strength in the market
o Has been growing for firms, reputation counts for more of what firm is valued at on the market
o Strong brands have higher market share, higher prices, higher margins, better market position
Importance of branding
o Identified vs. blind taste tests: Beer/peanut butter had most pronounced importance of branding
People rated samples, pick them out as favorite. With labels, prestated preference won. No
labels, prestated preference did not do any better
o fMRi study: brand loyalists enjoy/get a larger reaction physically than others
brands can actually physically change how people see a brand

*Brand personality
o Beyond brand image describe brand as if it were a person, write down adjectives and factor analyze it
o Five personality dimensions in USA: Sincerity, Excitement, Competence, Sophistication, Ruggedness
o Whirlpool vs. Kitchenaid: cheerful/quiet/creative/modern/gentle vs.
smart/aggressive/glamorous/wealthy/elegant, attractive suburban woman vs. fashionable career
woman
These are nearly identical products
o Used to target people more effectively to REINFORCE BRAND IMAGE
*Brand inferences issue because people make inferences that brand must reinforce, otherwise they will switch
o Ex: Toyota seen as economical, value, so invested in making a NEW brand Lexus for luxury to enter that
market
o Building a new brand builds new associations so dont have to worry about diluting the brand image
o Schemas organized thoughts/cognitions that provide efficient way of organizing new info
o Brand extensions leverage schemas
Example: Arm & Hammer known as baking soda that cleans, so extended brand to toothpaste,
cat litter, and fabric care
Levis associated with Jeans. Losing market share during 80s. Decided to launch shirts/khakis
mens suits and FAILED because associations didnt match. Awareness isnt enough
Differentiation
o Operational excellence: price/efficiency
o Relational/Intimacy: customer responsiveness
o Performance/Superiority: product differentiation
o INSIGHT: Price/quality/service you cant deliver all three at once
Most successful companies are extreme on one dimension/on par or medium on others
o Differentiation via branding
Branders of more than one product must decide what kind of branding to use
o Family brand: same brand name for several products, like Keebler snack foods
o Licensed brand: family brand name that sellers pay to use, like Sunkist
o Individual brands: important for products to have separate identity
Avoid confusion, makes segmenting/positioning easier
o Generic products: products that have no brand at all other than identification of contents, plain
packages and lower price, common in underdeveloped nations
*Manufacturer brands are created by producers (aka national brands) like Nabisco, Campbells, Ford, IBM
*Dealer brands (aka private brands) are brands created by intermediaries like Wal-Mart, Radio Shack, Sears
Packaging involves promoting, protecting and enhancing the product
o Can make the important difference in a new marketing strategy
o Sometimes makes the product easier/safer to use
o Can tie back to the rest of the marketing strategy ex: Energizer batteries feature the bunny
o Can also give more promotional effect, like showing you exactly what the product is (clear)
o Save space and weight so easy to transport
Warranty: explains what the seller promises about the product, often used to improve appeal of marketing mix
o Reduce consumer risk, can send consumers a signal about brand quality
Product classes help marketing strategy consumer vs. business products
o Consumer
Convenience products consumer needs but isnt willing to spend much time or effort on
*Staples bought often, routinely, and without much thought (packaged food)

o
o

*Impulse product bought quickly as unplanned because of strongly felt need decides
to buy on sight. If not seen at right time, the sale might be lost
*Emergency products purchased immediately when the need is great. Price is not
important, no time to shop around (ambulance service, raincoat)
Shopping products products the consumer feels are worth the time and effort to compare
with competing products
*Homogeneous shopping products products the customer sees as the same and wants
the lowest price
o Branding important to avoid head-to-head price competition
*Heterogeneous shopping products products the customer sees as different and wants
to inspect for quality/sustainability
o Branding less important
Specialty products consumer really wants and makes a special effort to find
Any product customer insists on by name is specialty product; means satisfying
customer every time
Unsought products need promotion; potential customers dont yet want or know they can buy.
Promotion essential to showing their value
New unsought products offer really new ideas that potential customers dont know
about yet
Regularly unsought products stay unsought but not unbought forever
o Personal selling is very important
One product may be seen in many ways
Business
Derived demand demand for business products derives from demand for final products
Ex: buying steel to manufacture cars
Total industry demand is fairly inelastic, but try to buy as economically as possible
=> This means that demand for individual sellers is extremely elastic, they are
replaceable if their costs are too high
Business product classes based on how buyers think about products/how they are used
Installation important capital items, special negotiation of each sale with top manager
In times of growth, in demand, but otherwise no
Ex: buildings, land rights, major equipment
Sometimes suppliers need to include special services with installation (ex: install
equipment for free as well as selling it)
Accessories short lived capital items, tools and equipment used in production or office
activities
Ex: copy machines, portable drills
More standardized and more needed
Multiple buying influence less important
Top managers uninvolved
Raw materials unprocessed expense items
Need for grading someone must sort and grade raw materials to satisfy the market
segments
Long term contracts at guaranteed prices to ensure steady quantities, since nature is
unpredictable
Components processed expense items that become part of a finished product

Ex: wire, plastic, textiles

Already processed but need to be processed further
Buyer may develop close partnership with dependable supplier
Supplies expense items that dont become part of a finish product
Maintenance, Repair and Operating = MRO supplies
Item will be ordered because its needed, but buyers will not spend much time
For nuisance products branding is important, and breadth of assortment and
dependability
Professional services
Ex: management consulting, information tech, advertising agencies, food services
Compare price of buying professional services outside firm to having people inside
company do them

Chapter 10 Distribution

Place making goods & services available in right quantities and locations when consumers want them
Biggest driver of movie success = # of theaters its released in
Accounts for 30-40% of final selling price
Most important because its difficult to change easily
*Intermediaries:
o Agent/broker: negotiates sales without taking title
o Wholesaler: takes title to good/resells
o Retailer: sells to end users
o Facilitating agency: moves the goods (postal service, railroad, storage warehouse, etc.)
*Channel of distribution: a series of firms or individuals who participate in the flow of products from producer to
final user or consumer
o Transaction functions (buying, selling, risk taking)
o Logistical function (transporting, storing, sorting, breaking bulk, creating assortments)
o Facilitating functions (financing, info/research, promoting, inspecting/testing)
Product classes, product life cycle suggest Place objectives
o As products mature, they typically need broader distribution to reach different target customers
*Direct distribution: firms distribute directly to final consumer
o Can control whole marketing job
o Serve target customers at lower cost or do work more effectively than intermediaries
o Wholesalers, retailers carry competing products, but with direct all emphasis is on one product
o Made easier by internet
o More aware of changes in customer attitudes, can adjust marketing mix accordingly
o Salespeople have necessary training
o May be necessary if suitable intermediaries are not available
o Common with business customers, services
o Not to be confused with direct marketing (direct communication between seller/customer using
promotion method other than face-to-face selling) this is promotion
o Significant investment in facilities, people, information tech
*Indirect distribution: use channels of distribution
o Customers have established buying patterns
Ex: contractors like to make purchases in one convenient stop, at a wholesaler
o Customers are spread through many geographic areas and prefer to shop for certain products at specific
places
o Consumer products rely heavily on indirect channels
o Convenient for company with limited resources
o Some intermediaries buy the producers output and carrying it until it is all sold
o May supply needed information for customers
o Resolves discrepancy of quantity: # of products it is economical for producer to make vs. # final users
want. Regrouping activities include
Accumulation collect products from many small producers
Bulk-breaking dividing larger quantities into smaller quantities as products get closer to final
market

Resolves discrepancy of assortment: difference between lines a typical producer makes and the
assortment consumers want (ex: want to get all their golf accessories in one stop) Regrouping activities
include
Sorting separating products into grades and qualities desired by different target markets
Assorting putting together a variety of products to give a target market what it wants (usually
done to whoever is closest to final consumer/user)
*Ideal market exposure product is widely available enough to satisfy customers needs but not exceed them
o Selective usually moves to intensive as market grows
o Intensive distribution selling product through all reasonable wholesalers/retailers
Convenience products, business supplies
Customers want these products nearby
Ex: Batteries are impulse buys
High conflict potential between resellers
o Selective distribution selling through only intermediaries who will give product special attention
Advantages of exclusive but with better market coverage
Avoid selling to wholesalers/retailers that
Place orders that are too small to justify making calls
Make too many returns/request too much service
Poor credit rating
Not in a position to do a satisfactory job
Wholesalers/retailers will promote more aggressively if they know theyre going to obtain
majority of sales through own efforts
Resellers COMPETE to carry the product
Less reseller loyalty
o Exclusive distribution selling through only one intermediary in a particular geographic area
Advantages of above
Firm can help control prices/service offered in a channel
High influence of reseller marketing activities
High margins throughout the channel
Less competition at point of sale
Horizontal arrangements among competitors are illegal
Vertical arrangements between producers and intermediaries may or may not be illegal
*Multichannel distribution: producer uses several competing channels to reach the same target market
o Perhaps intermediaries + direct
o This is necessary if present channels are doing a poor job
*Reverse channels: used to retrieve products that customers no longer want
Integration
o *Vertical integration: combines successive stages of production and distribution under single ownership
VMS, Lux Ottica (lenses, frames, Rayban, Armani, Lenscrafters, Sunglass Hut), Zara
o *Administered VMS
Want tightly clustered and controlled suppliers mitigates risk
Detroit model
Trends
o Growth of direct-to-consumer marketing
o Major DOWNSTREAM shifts from producers/wholesalers to retailers/customers
o Much greater sophistication in order fulfillment and customer tracking

Entering international markets

o Exporting selling some of what the firm produces to foreign markets
Take advantage of excess capacity, get rid of inventory
Change little about product
Sometimes not very satisfactory if nothing is changed
Other firms change marketing mixes slightly using intermediaries
o Licensing selling right to use some process, trademark, patent for a fee
Licensee takes most of risk because it takes initial investment
Licensee does most of marketing strategy planning
o Management contracting seller provides only management and marketing skills, others own
production/distribution facilities
Low level of commitment to fixed facilities
Ex: Hilton
Attractive especially in developing nations
o Joint venture a domestic firm enters partnership with foreign firm
Both parties make significant investments and agree on marketing strategy
Difficult to end if things arent working out
o Direct investment parent firm has division in foreign market
Complete control of marketing strategy planning
Big commitment, big risk
Provide local jobs strong presence in new market, good relationship with government and
customers
Dont have to share profits
The Soft 3
o Cost of factory production = $1
o Cost to final consumer = $4
o The $3 added = VALUE ADDED SERVICES => Move downstream

Chapter 12 Retailers, Wholesalers, and their Strategy Planning

*Retailing covers all activities involved in the sale of products to final consumers
o Retailer strategy critical because of competition regardless who sells it, producer still makes profit
o Convenience (available hours, finding needed products, fast checkout, location)
o Product selection (width and depth of assortment, brands, quality)
o Special services (special orders, home delivery, gift wrap, entertainment)
o Fairness in dealings (honesty, correcting problems, return privileges, purchase risks)
o Helpful information (courteous sales help, displays, demos, product info)
o Prices (value, credit, discounts, taxes, extra charges)
o Social image (status, prestige, fitting in with other shoppers)
o Shopping atmosphere (comfort, safety, excitement, relaxation, sounds, smells)
o LOW BARRIER TO ENTRY
o Replication and scale necessary in order to succeed
o Cash flow stock market pressure
Create cash flow, then sell and use cash flow to further business
Buy something, have 60 days to pay for it, sell it the next day and for 59 days the cash can be
directed to other ventures
BASICALLY EXPAND ON FLOATING CASH
Segmenting and positioning decisions important, along with economic/social/emotional needs
KEY BUSINESS METRICS:
o Total revenue = top line
o Gross margin %
o Balance between sufficient variety (slower turning items) and stockouts
Slow turn costs $ in inventory and useless cash
Usually comes as a result of variety less popular products, but the option is still there
General stores used to be the main retailers in USA
Now most conventional retailers are single-line/limited-line stores
o Specialize in certain lines
o Satisfy some target markets better
o Specialty shop is small and has distinct personality; unique product assortment, knowledgeable
salesclerks, good service
o Department store is larger and organized into many departments; strong in customer services, variety,
credit, merchandise return, sales help
Conventional retailers buy low and sell high (both specialty and department)
o *Mass merchandising concept: retailers should offer low prices to get faster turnover and greater sales
volumes by appealing to larger markets
Begun by move to supermarkets profits came from large-volume sales, not from high markups
Supermarkets planned for max efficiency; scanners make it possible to analyze sales/see what
moves fast and should get good shelf space
Discount houses offered hard goods @ substantial price cuts to customers
Mass merchandisers are large, self-service stories with many departments that emphasize soft
goods (housewares, clothing, fabrics) and staples (health/beauty aids)
Little sales help
Many mass-merchandisers have moved toward becoming supercenters, carry all goods
and services customer purchases routinely

Convenience/Food stores: convenience oriented variation of conventional limited-line stores

Convenience rather than assortment, 10-20% higher than normal supermarkets
Pickup or fill-in items on the go
When many retailers expanded their hours, these stores suffered
o Door-to-Door = salesperson going directly to house, accounts for < 1% of sales in USA
o Telephone/Direct mail marketing allows consumers to shop at home
Reduces costs by using mailing lists to target SPECIFIC customers
Use warehouse-type buildings, limited sales help
Slower growth/increased competition in recent years
o Internet retailing still in growth stage
Lower cost of communication and makes it faster
How do you get many SMALL purchases to a consumer?
Downfall of online retailers: not investing properly in back door costs aka distribution centers,
investing more in front door of the website
Wide assortment
Consumer cant really inspect a product
However detailed product info is just a click away
Price comparisons are easy
Internet sellers MUST differentiate what they offer
Cost occurs if must return item
For retailers already strongly established physically, website used to SUPPLEMENT stores/other
promotions; used to drive traffic into stores and emphasize items with highest profit margins
Some retailers take multichannel distribution approach and use websites to COMPLEMENT
stores and catalogs; retailers who have higher profit margins on the lines they sell
Online, catalog, and store outlets focus on different benefits
Online-only retailers try to DIFFERENTIATE by being more EFFICIENT low prices on products
in very competitive product-markets (books, computers, shoes) that have lower profit margins
Need high sales volume to offset large investments
Some try to DIFFERENTIATE by being very FOCUSED on SPECIFIC NEEDS of consumer many
dont have similar offerings in local market use web to supplement catalog operation or
limited number of stores. Typical in smaller companies that cant afford brand-building
advertising campaigns
Email promotions used to acquire new customers, exceptional customer service to
retain them
*WHEEL OF RETAILING THEORY:
o New types of retailers enter the market as low-status, low-margin, low-price
o Evolve into conventional higher service, higher operating costs, higher price
o Are threatened again by new low-status, low-margin, low-price retailers
o Many innovations found in DISTRIBUTIONthis is one of the most expensive/hardest to change parts of
retail marketing so costs cut here are extremely important
o Exceptions: Vending machines (high-cost high-margin upon entrance), suburban shopping centers
MANY RETAILERS FOCUSED ON BECOMING BRANDS private brandings
o Greater profit opportunity and raised margins
Some of this can be given to consumer
o UNIQUE offering creates differentiation from retail competitors (Ex: 365 only @ Whole Foods)
o Increases bargaining clout with national brand suppliers

Suppliers become more competitive for the smaller shelf space, increases retailer leverage
*STORE BRAND STRATEGIES
Inferior good strategy generics lower quality, lower price
Not too widely done anymore
Look significantly different from actual quality products not branded, often name is
just name of product. Aimed at low end
Exploit installed base
Parity quality @ value price
Me toos that mimic leading national brands @ 30% savings
Try to look similar try to look like leading products as much as possible
Older/younger people buy these disproportionately to savemoney
People of higher intelligence buy these exact same thing, same ingredients, cheaper
price
Does this mean brand value is beoing eroded?
o However, people still do trust brands CVS vs. Advil is not a huge difference but
ABC Pharmacy vs. Advil might be
Private label as differentiator exclusive brands offering unique quality
Ex: Trader Joes has almost ALL differentiated products
Higher unique quality unable to be found anywhere else
Unique offerings, branded and sold ONLY @ THAT LOCATION
A consistent mark reoccurs throughout the store
Retail absorbs all marketing/inventory investment
o You soak up losses and risk
Distribution/good shelf placement GUARANTEED
Private labels get 100% pass-through; few arbitrage possibilities
o Vertical integration
Adds competitive edge to traditional buyer-seller relationship
STORE BRAND ARCHITECTURE
Umbrella brands
Store or endorsed brands: carry name of store e.g. Trader Joes
Group brands: all products carry nonstore name across wide variety of products
(Presidents Choice)
Exclusive brands
Exclusive, quasi, non-endorsed brands: unique private label dedicated to specific
product line or category, e.g. Mossimo, Isaac Mizrahi, INC, Choxie
o Choxie created by Target, luxury chocolate, offered in funky packaging that does
cheap chic trend that Target is famous for
Branded variants: Ryobi drill Exclusive for Home Depot, Target CDs (like how Target
CDs have exclusive Target track)
PROS AND CONS OF STORE BRANDS
Pros:
Creates impression of wide product selection
Replacement for secondary or tertiary brands (you keep Tylenol, get rid of 3rd/4th
brands and replace with store brand replace SLOW TURN ITEMS with HIGHER BRAND
with HIGH MARGIN, reduced double marginalization)

Exclusive offering reinforces premium products/services

Allows retailer to offer products less compatible with existing brand equity (upscale or
outside core competence, like Choxie)

Cons:
Customers dont readily associate brand with store (ex: Mossimo)
No existing brand equity or track record of success
Fragmented need to launch several of own brands to gain sufficient scale
Retailers must beware of speedy imitation, squeeze on profit
Many small retailers being squeezed out of business
Franchise operation franchisor develops a good marketing strategy, and the retail franchise holders carry out
the strategy in their own units
Brands becoming retailers
o Like Apple getting Apple stores
o Why?
Use retail stores as giant advertising billboard
Its full of nothing but your brand
Greater market coverage
Control over the brand message ex: Apple products in CompUSA, Best Buy were being shown
as inferior
Education and image
Allow information free-riding by other retailers, free-riding accounted for
Ability to offer FULL product line
Reduce wholesale markdowns
No double marginalization
*Wholesaler concerned with activities of those persons/establishments that sell to retailers and other
merchants, DO NOT SELL TO FINAL CUSTOMERS
o Cost-conscious buyers sometimes want to negotiate directly with the producer
o Producers see advantages in having closer direct relationships with fewer suppliers
o Putting pressure on wholesalesr
o Merchant wholesalers take title to products they sell
Service wholesalers provide:
General merchandise wholesalers carry wide variety of nonperishable items
Single-line wholesalers carry narrower line of merchandise; they serve single-line and
limited-line stores
Specialty wholesalers carry very narrow range of products, offer more
information/service
Limited-function wholesalers provide only some wholesaling functions
Cash-and-carry wholesalers customers pay cash and common in less-developed nations
Drop-shippers take title to products they sell but do not actually handle, stock or deliver them.
Mainly involved in selling. Get orders and pass them to producers
Truck wholesalers deliver products that they stock in their own trucks, help retailers keep a
tight rein on inventory
Rack jobbers specialize in hard-to-handle assortments of products that a retailer doesnt want
to manage, ex: paperback books and magazines
Catalog wholesalers sell out of catalogs

Chapter 9 Product Life Cycle

*Product life cycle describes stages a really new product idea goes through from beginning to end
o Industry follows this pattern, not individual brands
o Length of cycle varies across products mp3 players had very long intro phase, refrigerator has been in
decades-long maturity
o Product life cycles are getting shorter
o Some are influenced by fashion/fads
o *Market Introduction customers arent looking for the product
Market development stage
Demand: unproven, must be created
Product: attributes/functions may not be totally developed
Sales: low/slow
Competition: sparse
Profitability: negative to very little
Risk: high (First mover advantage does not guarantee success)
o *Market Growth competitors enter the market
Market: expanding rapidly takeoff stage
Product differentiation begins
Sales: steadily increasing
Monopolistic competition typical
Biggest profits for industry, rapid sales and earning growths, but at the end marks decline,
competition and consumer price sensitivity increases
o *Market Maturity industry sales level off and competition gets tougher; industry profits go down
further because promotion costs rise, competitors cut prices
Less efficient firms drop out; late entrants have a tough battle
Intense competition on all 4 Ps
Clear, fairly static segmentation
Experienced, well-informed buyers
Slowdown in new customer acquisition
Repeat/replacement sales are key
Squeeze out profits however possible
Niche branding, differentiation on minor attributes, cost-cutting
Products may differ only slightly
Most competitors have really copied the leaders
Market share is valued at least as much as profit
Usually longest stage
Price sensitivity is a HUGE factor
o *Sales Decline new products replace old, price competition becomes more vigorous unless
differentiation has been successful
Sales, profit declining
No new customers or firm investments
Often due to new dominant replacement technology
Four basic strategies (see below)
o Marketing mix must change during life cycle, total sales vary in each of stages

Sales and profits do not move together over time; industry profits decline while industry sales are still
rising

o
o Other shapes as well this is standard
Adopters categories based on innovativeness

o
o
o

Innovation spreads through population

WHOLE BASIS OF VIRAL MARKETING ideas spread, it takes a certain kind of person to spread, blog,
hype, etc.
Introduction Strategies Two issues
o Trial vs. Repeat Sales: diffusion
Huge upfront investment can drive lots of trial, but if experience is poor, then bad repeat sales
Repeat sales drive long-run success
o Skim vs. penetration
*Skim: start slow then grow
Follows diffusion of innovation framework
Firm can extract max value from most interested customers
Can be profitable from the start, but big money comes later
Relies on INNOVATORS, marketing costs are low, distribution is low, prices are high,
innovators go after it, buzz it and bring others
Harness natural diffusion
Ex: flat screen tv, innovative products (hybrid seed corn)

*Penetration: Big bang

Mass market from the beginning
# of new adopters peaks early
Requires significant resources, but can yield high ROI
Fast growth so others cant jump in quickly
Repeat sales drives profitability
Significant market resources from the beginning
Ex: Swiffer, cumulative penetration of music CD, grocery products
% of First-Year
Triers

1
0.8
0.6
0.4
0.2
0

Week

Managing the Growth Stage

o Skim: Things become lower priced, higher selling effort
o Penetration: things become lower selling effort, higher price
Managing maturing products
o Capitalize on a slightly better product, lower production or marketing costs
o Or differentiate from competitors ex: graham crackers were in mature stage, teddy grahams promoted
heavily and were very different
o Find new markets
o Find new uses for the product ex: Teflon, nylon perpetual growth
Managing products in decline
o Key question: how to get most out of the end
o Withdraw
o Harvest maintain level of sales with little investment
o Niche identify remaining strengths, focus on these
o Market leadership markets dont always stay in decline, establish leadership and grow market
(Starbucks)

Strategy
Industry structure for
managing decline

Comparative strengths for demand pockets remaining

Favorable

Possess
Leadership, Niche

Lack
Harvest, divest quickly

Unfavorable

Niche, harvest

Divest quickly

Phasing out is also a strategy

o Phase out gradually
o Cut losses
o Ongoing/declining demand is still demand; some customers are willing to pay high prices to keep old
favorite
*ACCORD Model
o Advantage to what it replaces
o Compatibility with current behavior
o Complexity of communicating the benefits (people dont know benefits until they try it)

o
o
o

Observability of product benefits

Risk of product failure
Divisibility or Trial-ability can you try it without giving up everything else?
Ex: low for car or business-to-business software
Advantage
Compatibility
Complexity
Observability
Risk
Divisibility

Skim
High
Low
High
Low
High
Low

Penetrate
Medium
High
Low
High
Low
High

Price
Place
Product
Promotion

Skim
High
Low
High
Low

Penetrate
Low
High
Low
High

o
Continued evaluation of new ideas profitability and ROI, screening = essential to development
Idea generation => screening => idea evaluation => development => commercialization
*Total quality management philosophy that everyone in the organization is concerned about quality,
throughout all of the firms activities, to better service customer needs
o Used to focus on reducing defects
o Less expensive to do something right the first time than to fix problems later
o Continuous improvement
o Start with customer needs
o Pareto Chart graph that shows # of time a problem occurs; deal with most common first
o Fishbone diagram helps organize cause/effect relationships for things gone wrong can decide what
to fix, so kill two birds with one stone

Chapter 16/17 Pricing Objectives and Policies/Price Setting in the Business World

*Price Planning: Develop pricing objective => estimate demand => determine costs => evaluate pricing
environment => choose pricing strategy => choose price tactics
*Pricing Objectives: 1) how flexible prices will be 2) level of prices over PLC 3) to whom and when
discounts/allowances will be given 4) transportation costs
Target return objective: sets specific level of profit as an objective
o Stated as % of sales or of capital investment
o Profit maximization objective: seeks to get as much profit as possible; charge all the traffic will bear
Ex: Steinway low customer market share, low unit market share, but 25% rev. market share
and 30% profit market share
o Sales/Market share-oriented objective: seeks some level of unit sales, dollar sales, or share of market
Make sure still focusing on profit sales and profit dont necessarily go together
Internet, cable, wireless
To achieve this: price low introductory incentives; build and maintain market share
o Status-quo objectives: dont rock the pricing boat objectives stabilize prices, meet competition, or
avoid competition
This may be part of an overall marketing strategy focusing on NONPRICE COMPETITION
aggressive action on a P other than Price
o Competitive Effect: send a signal, disrupt other firms product introductions
Ex: Crest was releasing new spin brush so Colgate immediately dropped prices so people didnt
switch over immediately
o Customer Satisfaction
o Image Enhancement (exclusivity, high end) ex: Burberry
Estimate demand: see later; Determine costs: marketing math, see later
*Pricing environment
o Economic factors
Ex: in recessionary environment, reduce quantity given with same price
o Competitive factors
What area of the PLC are we in, who are our competitors?
o Channel concerns
Maintain price points on internet
Maintain profitability through channels
o Consumer trends (segmentation, cross channel shopping, buying up vs. buying down)
o Governmental concerns (predatory pricing, collusion, gauging); maintain ethical/legal standards
Administered prices: consciously set prices that help achieve objectives
o Difficult to administer prices through a channel
Price Flexibility Policies
o One-Price Policy: means offering the same price to all customers who purchase products under
essentially the same conditions and in the same quantities
Many traditional retailers used this for administrative convenience, consumer goodwill
Must be careful to avoid broadcasting price that competitors can undercut
o Flexible-Price Policy: offer the same product and quantities to different customers @ different price
Most common in channels, in direct sales of business products, and at expensive retail
Too much price-cutting erodes profit
Small price cuts result in large drops in profit because of MARGIN

Price-Level Policies over the PLC

o Skimming price policy tries to sell the top of a market @ high price before aiming at more pricesensitive customers
Maximize profit in the introduction stage for innovation
Useful when you dont know shape of the demand curve
Slow reduction in price over time
Often accompanied by series of changes in marketing strategy
o Penetration pricing policy sell whole market at one low price
Works when elite market is small
Selling larger quantities => lower costs because of economies of scale
Does not keep competitors out of market permanently
o Introductory price dealing temporary price cuts to speed new products into a market and get
customers to try them; raise prices as soon as introductory offer is over
Basic list price: price final consumer or users are asked to pay for products
Discounts: reductions from list price
o Quantity discounts offered to encourage customers to buy in larger amounts; shifts storing function to
buyer, reduces shipping/selling costs
Cumulative Quantity Discounts apply to purchases over a given period, and discount increases
as amount purchased increases.
Encourages repeat buying, develop loyalty
Discourages shopping around
Attractive to business customers who dont want to run up inventory; rewarded for
buying in large amounts even if individual purchases are small
Noncumulative Quantity Discounts apply only to individual orders
Encourage larger orders but do not tie a buyer to the seller after that one purchase
o Seasonal discounts discounts offered to encourage buyers to buy earlier than present demand
requires
Service firms that face irregular demand, excess capacity use seasonal discounts (like tourist
attractions)
o Trade (functional) discount list price reduction given to channel members for the job theyre going to
do (retailing)
Wholesalers/retailers are expected to pass the discount on to their own customers
o Sale price temporary discount from list price to encourage immediate buying
Quickly can respond to changing market conditions without changing basic marketing strategy
Clear extra inventory, or meet competing stores prices
EVERYDAY LOW PRICING (ELP) strategy where firms (generally convenience-product sellers)
set low list price rather than relying on frequent sales
Credit terms can also encourage purchases, but can also expose retailers to risk of losses
Allowances: given to final consumers, customers, or channel members for doing something and accepting less of
something
o Advertising allowances price reductions given to firms to encourage them to advertise or promote
locally
o Stocking (aka slotting) allowances given to intermediary to get shelf space for a product, often used
for new products (offsets handling and risk)
o Push money allowances given to retailers to pass on to salesclerks for aggressively selling certain
items

Trade-in allowance price reduction given for used products when similar new products are bought
Lower effective price without reducing list price
Coupons: discount off list price; retailers accept these coupons because it increases their sales and they are
usually compensated
Rebates: refunds paid to consumers after a purchase; many are never redeemed
Handling Transportation-based pricing
o F.O.B Pricing: free on board seller pays cost of loading products, then title of the product passes to
buyer; shipping point pricing simplifies the sellers pricing but may narrow the market
o Zone Pricing: making an average freight charge to all buyers within specific geographic areas
o Uniform delivered pricing: making an average freight charge to all buyers
o Freight-absorption pricing: absorbing freight cost so that a firms delivered price meets that of the
nearest competitor; amounts to cutting list price to appeal to new market segments
In mature markets there is downward pressure on both prices and profit margins
o Necessitates innovation
o Sometimes unethical ex: keeping cereal box price same and reducing size

Price setting can be cost-oriented, competition-oriented or demand-oriented

Cost oriented more common usually small retail
o Set prices by using a markup dollar amount added to the cost of products to get the selling price
(stated as percentage of selling price)
o Many use standard markup percent; makes pricing much easier
o Usually set close to gross margin = net sales cost of goods
o Markup chain sequence of markups firms use at different levels in a channel
o High markups may result in a price that is too high, few customers will buy, low profit
o Low markups can speed turnover and increase profit since business runs up costs over time
o Stockturn rate - # of times the average inventory is sold in a year; low is bad for profits
o Using same standard markup percent on all products ignores importance of fast turnover
o Mass merchandisers put low markups on fast-selling items and high markups on slow-selling items
o Calculation: Selling price = Average production cost per unit x Constant
However, even determining which cost/unit to go by is complicated
o Average-cost pricing: add reasonable markup to average cost of a product
Divide total cost for last year by all units produced and sold in that period
However, easy to lose money with Average Cost Pricing
Doesnt consider cost variations at different levels of output
Costs are high with low output, then economies of scale set in average cost/unit dropas as
quantity produced increased
Ex: if overhead = $30,000 and labor/materials = $32,000 total cost = $62,000. With production
of 40,000, ATC=$1.55. Add markup => $2.00 selling price.
However, if firm can only produce/sell 20,000 next year, yields $40,000 revenue. Overhead
remains $30,000, labor/materials = $16,000 and total cost = $46,000 => LOSE MONEY
Basically this method is risky because each kind of cost changes in a different way as output
changes
Works best if you sell exactly how many you used to calculate this
If demand < anticipated => LOSS

Major weakness = lack of consideration of demand

o *Break-even analysis: BEP = Total Fixed Cost/Unit Contribution
If the firm sells this many, it will cover all fixed and variable costs
If the firm sells any more => profit
Compute break-even point for several prices and compare BEP to likely demand @ that price
Competition-oriented
o Going rate, price leadership
Demand-oriented
o Necessary to estimate demand curve
Evaluate customers price sensitivity
Price sensitive: many substitutes, ease of comparison, greater total expenditure
Less price sensitive: someone else paying (business trip), greater significance of end benefit,
high switching costs (regardless of price, would save more by staying)
Auctions often show what a group of customers will pay
o *Marginal analysis focuses on changes in total revenue and total cost from selling one more unit to
find most profitable price and quantity
Slight miss doesnt mean failure because demand estimates dont have to be exact
Usually a range of very profitable prices whereas you can very easily miscalculate for ACP
Focus is on seeing how profit varies across range of relevant prices
o Value-based: leads to superior customer value setting a fair price level for a marketing mix that gives
the target market superior customer value (see below)
Doesnt mean cheap
Deliver on promises
Pleasant surprises increases value and loyalty
Value-in-use pricing: setting prices that will capture some of what customers will save by
substitution
Create superior product that saves customers money; convince buyer of savings
AKA EVC economic value to customer
EDLP (every day low price)
Low price EVERY DAY; savings in terms of price, savings in terms of time/effort, dont
have to shop around
o Sequential price reductions used for products with short life/short supply, but would run up inventory
costs if not sold
Appeals to segments who are least price sensitive first until product is sold
o Similarly, *Yield Management: hotels and airlines manage capacity, max revenue
Empty seat = lost revenue that can never get back
High fixed cost, low marginal cost
Increasingly reliant on auxiliary costs (hotel restaurants, first class seats, Sky Mall)
How many seats left, how long until product is consumed, how fast seats are selling determine
the price
o Demand-backward pricing: setting an acceptable final consumer price and working backward to what a
producer can charge
Used for gift items because often consumers look for $10 or $15 gift
Start with retail price, subtract typical margins
See how much can be spent producing the item; sometimes alter size/quality of item to keep
consistent with necessary price

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Similarly: *Target-costing: figure out price point at which people buy something and reverse engineer a
product
Leader pricing: set very low prices to get customers into retail stores
Sell high quantities of leader items
Get customers into store to buy other products
Can backfire if consumers only buy leaders
Bait pricing: setting very low prices to attract customers but sell most expensive models and brands
once the customer is in the store
Trade up customers
Salespeople point out disadvantages of low priced item and convince them to buy more
expensive model
Channel pricing: different prices based on channel sold at, geographic location
E-commerce Pricing: e.g. dynamic pricing (customers have negative reaction to this), auctions
*Psychological pricing: set prices that have special appeal to target customers
Odd-even pricing: setting prices that end in certain numbers.
Products selling below $50 often end in 5 or 9
Products selling higher are $1 or $2 under the next even dollar figure
Customers see these prices as lower than the next highest even price
Reference prices: price consumer expects to pay
If firm price < reference price, value added, demand increases
Position a product in such a way that compares it with product that has higher reference
price
Price/Quality inference
Price lining: setting a few price levels for a product line and marking all items at these prices
Ex: ties would be sold at $20, $30, $40, $50
Simplicity, also good better best
Some customers also only consider items in one price class decide which items to
choose at that price
Promotional cues sales, coupons, etc. (see previous section)
Prestige pricing: setting high price to suggest high quality or high status
Common for luxury items
Common for service items, where customer cant see product and relies on price to judge its
quality
Backward bending demand curve
Full-line pricing: setting prices for a full line of products
If all products are aimed at same general target market, all prices and values should be logically
related
An item with low customer value may bring down image of whole line
An item with low price may cause low-end perception of whole line
If all products are aimed at different target markets, doesnt have to have any price relation
Two Part Pricing: activation/initial and monthly fee
Payment Pricing: pioneered by auto industry pay by month loans, pay over a long period of time
This takes into account reduced price sensitivity when payment is broken up into chunks
Complementary product pricing: setting prices on several products as a group
Setting one product priced very low so profits from complement will increase
Ex: shaver priced low, but shaver blade replacements priced high

Product-bundle pricing: one price for set of products

Cheaper to buy products at the same time than separately connotes value
Spend more and buy more products
Also can sell inferior product by selling with superior product
Saves packaging/shipping costs
Induces trial of new goods consumer may not have otherwise considered

Chapter 13/15 Promotion: Introduction to Integrated Marketing Communications

& Advertising and Sales Promotion

*Promotion: communicating information between seller and potential buyer or others in the channel to
influence attitudes and behavior
o Marketing plan => promotional goals => promotional strategy (push/pull) => communications mix =>
execute/evaluate
o Objectives must be clearly defined
Informing education to show it meets needs better
Persuading persuade to buy and keep buying, favorable set of attitudes
Reminding remind of past satisfaction to keep from switching to competitor
o *AIDA Model
Get Attention
Hold Interest
Arouse Desire
Obtain Action
o Noisedistraction that can reduce effectiveness of process (ex: cluttering of too many ads)
o *Integrated marketing communications many methods of promotion intentional coordination to
convey consistent/complete message. Listed in order of high=> low control:
Advertising
Sales promotion
Personal selling sales force
Public relations
Word of mouth
Why IMC?
Extend brand relationships
Advertisement may not be action oriented but reinforces brand
Improve effectiveness of marketing tactics
Improve relevance of message
o Branding: positioning relative to competition; reinforce positioning
o Unique selling proposition what is that singular attribute that differentiates?
More effectively manage marketing resources
Drive results and ROI
o Creative strategy => appeal
o Creative execution comparative, emotion (fear = crucial balance between too much and too little),
testimonial, humor, sex
o *Media
Media planning, targeting
Metrics: reach, frequency, gross ratings points, cost per thousand, ROI, return on objectives
o Pushing normal promotion effort
Direct marketing communications aka direct-response promotion
Prompt immediate feedback from consumers
Includes telephone, print, email, website, broadcast, interactive video
Relies on CRM database to target specific prospects
Direct solicitation can be seen as annoying instead of informative

Personal selling: involves direct spoken communication between sellers and potential
customers
Mass selling: communicating with large numbers of potential customers at the same time
Less expensive, but less flexible
Advertising: any paid form of non-personal presentation of ideas, goods, or services by an
identified sponsor
*Sales promotion: stimulate trial, interest, purchase other than advertising, pub, or personal
selling
Can be aimed at consumers, intermediaries, or firms own employees
Pushing within = emphasizing importance of marketing to own employees internal
marketing effort
o Pulling = Getting customers to ask intermediaries for product
Customer may initiate the communication using searchable message channels
After each message consumer can decide whether to search further or not
However, may see critical reviews online
If intermediaries wont work with the producer (probably carrying competing brands), producer
will work on pulling approach by itself
Sales promotions can be pulling coupons, samples temporarily bypassing intermediaries if
necessary
If this works, intermediaries are forced to stock item prominently to meet demand
Customers may lose interest if intermediary is slow/reluctant to make product available
Build interest, short-term sales, brand familiarity
Publicity: unpaid form of non-personal presentation of ideas, goods, or services
Attract attention to the firm and its offering without having to pay media costs
With a very new message, publicity may be more effective than advertising
However, media doesnt always portray what the firm intends
Viral marketing create message or website that is so appealing to target customers
that they want to pass it along
Product Placement aka Branded content integration
Advertainment = creating content specifically for advertisement purposes
Guerrilla Marketing
Field/Event marketing
o Taking message directly to the audience
o Getting company directly engaged with brand
Often unconventional, unexpected methodology
o Reliance on creativity vs. budget
o Requires time, energy, imagination
o Suited for entrepreneurial companies
Looking for sources of publicity
Ex: Citi rickshaws
Promotion blends vary over PLC
o During market introduction, basic promotion objective is informing
Must build primary demand demand for general product idea
Personal selling helpful to attract in innovator
Sales promotion may be targeted at salespeople, channel members to get them interested
o During market growth,

Must build selective demand demand for companys own brand

Buy and keep buying companys product
Mass selling becomes more economical
o During market maturity,
Mass selling, sales promotion may dominate promotion blends
Business products may require more aggressive personal selling, perhaps supplemented by
advertising
Firms that have differentiated their marketing mixes may favor mass selling
Firm with strong brand may use reminder-type advertising, target frequent-buyer promotions
As market drifts towards pure competition, some companies resort to price cutting
o During sales decline,
Total amount spent on promotion usually decreases as firms try to cut costs to remain profitable
Target promotion at those who still buy the product
Promotion sometimes used to slow cycle of decline ex: Crayola urged parents to buy kids a
fresh box
Some economies of scale in promotion
o Ads on national TV cost less per person than ads on local TV
o Total cost forces small firms to use methods more expensive/contact
Budgeting for promotion expenditures:
o Compute percentage of either past or expected sales OR
o Task method basing budget on job to be done

Advertising, sales promotion central role in promotion blend

o Per contact basis: low cost
o Results are uneven though
o Look and feel in different countries is different due to different cultural mindsets
2.5% of sales dollars spent on advertising, but varies significantly over product categories
Advertising objectives should be more specific than personal selling objectives
Product advertising: tries to sell a product
Institutional advertising: promotes organizations image, reputation, ideas
Pioneering advertising: tries to develop primary demand for product category rather than demand for a specific
brand
Competitive advertising: tries to develop selective demand for product firm forced into this as PLC moves
along
o Direct: aims for immediate buying action
Ex: Delta Airlines
o Indirect: points out product advantages to affect future buying decisions
o Comparative advertising: making specific brand comparisons to show firms advantages
Can sometimes backfire by drawing attention to competing products that customers had
previously not considered
Reminder advertising: keeps products name before the public
o Useful when product has achieved brand preference or insistence, perhaps in market maturity or sales
decline stages
o Reinforces previous promotion

o Soft-sell ads
Institutional advertising: focuses on name and prestige of an organization or industry; seek to inform, persuade,
remind
o Develop goodwill or improve organizations relations with various groups
o Company name is often brand name
Producers sometimes aware that advertising can be done more effectively/economically by someone further
down channel hence advertising allowances (mentioned earlier)
Cooperative advertising: involves producers sharing in the cost of ads with wholesalers or retailers,
intermediaries can compete in their local markets
o Retailer/wholesaler is more likely to follow through
o Coordination/integration of ad messages, reduce inconsistency
Choosing a medium medium should support promotion objectives
o Display product benefits => TV
o Inform, with detailed story/precise pictures => Internet
o Broad target market => Print media
o Match media to market as well
o Advertisers pay for the whole audience the media delivers choose based on cost/unit size
o Advertisers direct attention to reaching smaller, more defined target markets
o Internet popup or pop-under ads seek direct response
o Behavioral targeting: delivers ads to consumers based on previous websites the customer has visited
o Websites: After customer clicks to a companys website, the site has to provide something of interest or
the customer will click away
Customized landing page keeps customers at site
High level of users of Youtube, Facebook etc. means firms want these for advertising
*Copy thrust what words and illustrations should communicate
o Get attention: large headlines, shocking statements, attractive models
o Holding interest: tone and language must fit with experiences and attitudes
o Arousing desire to buy: Testimonials, product comparisons, UNIQUE SELLING PROPOSITION
o Obtaining Action: most difficult part
Measuring advertising effectiveness not easy
Run lab tests to determine if it was effective or not
Try to measure how much consumers recall about an ad
Sales promotion: complements other promotion methods
o How it affects sales:
1) Issuing coupons may lead to consumers buying early to take advantage of coupon, but
delaying next purchase
2) Pop culture or toy promotion may lead to consumers buying more from a fast food chain but
once promo ends it stops (Happy Meals)
3) Free samples pull in new customers who keep coming back after promotion ends <=ideal
o Used because they are generally competing in mature markets
o Consumers are more price sensitive, so lower the price consumers pay
o Do sales promotions erode brand loyalty? Will deal-seekers switch back and forth between brands?
o Sales promotions aimed at final consumers tries to increase demand or speed up at the time of purchase
o Once a product is established, promotion focuses on short term sales increases
o For intermediaries: emphasizes price-related matters; encourage intermediaries to stock new items, buy
in larger quantity, buy early, or stress the product