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COMM 131: Marketing Final Exam Review

Chapter 1: Marketing Creating and Capturing Customer Value


Managing profitable customer relationships
The Marketing Process

***Chapter 1 step 1 and 2, Chapter 2 step 3 and 4


1. Understand Marketplace and Customer Needs and Wants
Need: felt deprivation (ex. hunger)
Want: specific form of need shaped by culture and personality (ex. chewy bar)
Demand: a want backed by buying power
2. Design Customer-Driven Marketing Strategy
Marketing Management Orientations (Concepts)
1. Production Concept consumers favour available / affordable products; work on improving
production / distribution efficiency ** traditional way of thinking! lead to marketing
myopia

COMM 131: Marketing Final Exam Review

2. Product Concept consumers favour quality, performance, innovative features; make


continuous product improvements
Marketing myopia: paying more attention to specific product instead of benefits or
needs it fulfills (ex. building better mousetrap when better solution can be chemical
spray, housecat, etc.)
3. Selling Concept used for unsought goods (ex. insurance); aim to sell what company
makes, rather than what market wants
4. Marketing Concept achieving organizational goals depend on catering to needs / wants
and delivering better than competitors
Customer focus are paths to sales / profits
Outside-in approach Sense and respond, rather than make and sell
5. Societal Marketing Concept marketing strategy should consider society long-run interest
Socially + environmentally responsible marketing
3. Integrated Marketing Program The 4 Ps (product, price, place, promotion)
4. Build Profitable Relations
Relationship Building Blocks: Customer value and Satisfaction
Customer lifetime value: value of entire stream of purchases over lifetime
Share of customer: portion of customers purchasing (ex. banks share of wallet,
restaurants share of stomach)

Building Customer Equity


Total combined customer lifetime values of all companys customers
Measure future value of companys customer base
Customer Relationship Groups
Build the right relationships with the right customers
Ex. Best Buy not all customers are profitable

COMM 131: Marketing Final Exam Review

Chapter 2: Company and Marketing Strategy: Partnering to Build


Customer Relationships
Steps in Strategic Planning
1. Define company mission
Should be market-oriented, defined in terms of customer needs (not profit)
Ex. product-orientated: We run theme parks, market-orientated: We create
fantasies a place where dreams come true, etc
2. Set company objectives and goals
Broad mission leads to hierarchy of objectives including overall business
objectives and current marketing objectives
3. Design business portfolio
Collection of businesses and products that make up company
Strategic business units (SBU): key businesses that make up company
BCGs Growth-Share Matrix

Consider: amount of investment required and return on investment


Choose to build, hold, harvest, or divest the SBU
Problems difficult to define SBUs, measure market share and growth, focus on current
businesses but no advice for future planning

Product / Market Expansion Grid

COMM 131: Marketing Final Exam Review

Planning Marketing partnering to build customer relations


Partnering with Other (Internal) Company Departments develop value chain
Ex. Walmarts purchasing department gets low prices to sell at low prices
Partnering with Others in Marketing System improve value delivery network
Ex. LOreal builds close relationship with suppliers

The Four Ps and the Four Cs


1. Concern Four Ps takes sellers POV
Four Ps

Four Cs

1.
2.
3.
4.

1.
2.
3.
4.

Product
Price
Place
Promotion

Customer Solution
Customer Cost
Convenience
Communication

Managing the Marketing Effort


1.
2.
3.
4.

Marketing Analysis SWOT analysis


Marketing Planning
Marketing Implementation
Marketing Control measuring return on marketing investment

Chapter 7: Segmentation, Targeting, and Positioning


Steps in Designing a Customer-Driven Marketing Strategy
1.
2.
3.
4.

Segmentation: divide market distinct needs/characteristics diff. market strategies


Targeting: select segment
Differentiation: create superior value
Positioning: put market offering in minds of target consumers

Segmenting Consumer Markets


1. Geographic (ex. countries, regions, population size, urban vs. rural)
2. Demographic (ex. age, gender, income, ethnic, life cycle married, children, mature)
Most popular base for segmentation due to ease of measure
But correlation to underlying needs may be low
3. Psychographic (ex. social class, lifestyle, personality)
4. Behavioural / Volume (occasions, benefits, user status & rate, loyalty)
Based on consumer knowledge, attitudes, uses, or responses to the product
Benefit segmentation casual, rather than descriptive (BETTER)
Segmenting Business Markets
Demographically (ex. industry, company size)
Can also use customer operating characteristics, purchasing approaches, etc
Segmenting International Markets
1.
2.
3.
4.

Geographic
Economic (ex. population income levels, level of economic development)
Political and Legal (ex. government type/stability, receptivity to foreign firms, bureaucracy)
Culture (ex. languages, religions, customs, values)

Inter-market segmentation: similar needs / buying behaviours, though located in diff. countries
Requirements for Effective Segmentation
1.
2.
3.
4.

Measurable in size, purchasing power, etc. ex. no way to identify / target left-handed
Accessible must be able to reach ex. group may shop or live in certain areas
Substantial large enough to be profitable
Differentiable respond differently to marketing mix / strategies

5. Actionable ex. small airline seven market segments, but staff too small to develop
separate marketing program for each one
Evaluating Segments
1. Size & Growth
Largest segment not always most attractive (lack resources to serve, competitive)
2. Structural Attractiveness
Aggressiveness / number of competitors
Bargaining power of buyers + suppliers ex. buyer with strong bargaining power
try to force price down, demand more services, set competitors against another
3. Company Objectives and Resources
Target Market Strategies
1.
2.
3.
4.

Undifferentiated Marketing mass, one offer


Differentiated Marketing several market segments, separate offers for each
Concentrated Marketing niche, large share of few segments
Micromarketing local or individual, mass customization

Choosing Targeting Strategy


Need to Consider:
1.
2.
3.
4.
5.

Company Resources
Product Variability (ex. grapefruit vs. cameras or cars)
Product Life-cycle Stage (ex. introduction launch one version first, mature differentiate)
Market Variability (ex. buyer have same tastes? React same way to marketing?)
Competitors Marketing Strategy (ex. bad if undifferentiated in differentiated market)

Socially responsible target marketing controversy targeting children

Differentiation and Positioning


Positioning: position product to occupy clear, distinctive, desirable place in consumers minds
Create psychological associations
Schema: associative network of related concepts and ideas
Want schema to be distinctive, positive, easily memorable

Positioning Map shows position of different products


Price vs. Orientation (ex. luxury vs. performance)
Size of circles = Relative Market Share

1. Identify Possible Value Differences / Competitive Advantages


Product features, performance, style, design
Services speed, convenience, care
Channels coverage, expertise

People hiring / training better employees, known for humour? Beauty?


Image symbols, benefits (ex. McDonalds golden arches, Apple is hip)

2. Choose Right Competitive Advantage how many differences, which ones?


1. Important
2. Distinctive
3. Superior to other ways of obtaining same benefit
4. Communicable
5. Pre-emptive competitors cant easily copy the difference
6. Affordable buyers can afford to pay the difference
7. Profitable
3. Overall Positioning Strategy
Unique Selling Proposition (USP): focus one attribute, aggressive promote as best
Multiple Selling Proposition (MSP): choosing multiple attributes to promote
Full positioning called value proposition (full mix of benefits)
Possible Value Propositions:
1.
2.
3.
4.
5.

More for More ex. apple


More for the Same comparable quality, lower price ex. Nokia
Same for Less ex. Wal-Mart
Less for Much Less bare essential ex. Southwest Airlines
More for Less winning value prop, not always sustainable long-term

4. Develop Positioning Statement


To (target segment / need), (brand) is (concept) that (point of difference)

Chapter 6: Understanding Consumer and Business Buyer Behaviour


Characteristics Affecting Consumer Behaviour
1. Cultural
Culture: values, perceptions, wants, behaviours learned
Subculture: shared values based on common life experiences
Ex. nationalities, religions, racial groups, geographic regions
Ascribed: automatically included (ex. Hispanic, Jewish)
Achieved: choose to belong(ex. Queens Student)
Social Class: not just income combo of income, occupation, education, wealth
2. Social
1. Groups and Social Networks
Reference Groups: direct or indirect points of comparison
ex. young hockey player hopes to emulate Sidney Crosby and play in NHL
Opinion leader: person within reference group with social influence

Marketers target to serve as brand ambassadors, use buzz marketing


2. Family
Husband / wife roles merging women shopping for more than groceries
Children have strong influence
3. Roles and Status
Ex. family, club, organization mother, brand manager, avid sports fan
3. Personal
1.
2.
3.
4.
5.

Age and Life-cycle Stage


Occupation
Economic situation: trends in personal income, savings, interest rate
Lifestyle: interest, activities, opinions
Personality and Self-concept: possessions reflect identities
Brand personality traits:
1. Sincerity: down-to-earth, wholesome, cheerful
2. Excitement: daring, imaginative, up-to-date
3. Competence: reliable, intelligent, successful
4. Sophistication: upper class, charming
5. Ruggedness: outdoorsy, tough

4. Psychological
1. Motivation
Needs become motive when sufficiently pressing / must seek satisfaction
1. Freud people unconscious to real psychological forces shaping behaviour
2. Maslows hierarchy of needs
1. Physiological: hunger, thirst
2. Safety: security, protection
3. Social: love, belonging
4. Esteem: recognition, status
5. Self-actualization: self-development, realization
*** Critics ex. buy $400 jean instead of paying rent
2. Perception
Selective attention: tendency to screen out information
Selective distortion: interpret information in way that supports existing beliefs
Selective retention: remember good point about favoured brand, forget good
point about competing brand
3. Learning
Changes in behaviour arising from experience
Drive: strong internal stimulus that calls for action
Drive become motives when directed at particular stimulus object
Cues: minor stimuli when, where, how person responds
ex. hearing about sale

Build demand by associating product with strong drives, use motivating cues,
and provide positive reinforcement

4. Beliefs and Attitudes


Belief: descriptive thought
Attitude: consistently favourable or unfavourable feelings toward object / idea
The Buyer Decision Process
1. Need Recognition triggered by internal or external stimulus (ex. social, physiological)
2. Information Search
Internal / Experiential Source (memory, past experience) looks to schema
Personal Sources
Commercial Sources (advertising, salespeople, packaging, displays)
Public Sources (mass media, internet search, consumer rating organizations)
3. Evaluation of Alternatives
4. Purchase Decision from whom? And when?
Two factors can come between purchase intention and purchase decision
1. Attitudes of others
2. Unexpected situational factors (ex. economy down, competitor drops price)
5. Post-purchase Behaviour compare actual with expectations
Cognitive dissonance: buyer discomfort caused by post purchase conflict
The Buyer Decision Process for NEW Products
1.
2.
3.
4.
5.

Awareness
Interest
Evaluation
Trial
Adoption

Five Characteristics Influencing Adoption Rate

Relative advantage: superior to existing products?


Compatibility (with values and experiences of consumers)
Complexity
Divisibility
Communicability

Business Markets
Market Structure and Demand

Fewer but larger buyers than consumer markets


Derived demand: business demand derives from demand for consumer goods
Inelastic demand total demand not affected much by price changes
Fluctuating demand small consumer demand increase causes HUGE business demand

Nature of Buying Unit

More decision participants + professional purchasing effort

Types of Decisions and the Decision Process

More complex
More formalized
Buyer and seller are more dependent on each other

Business Buyer Behaviour


Types of Buying Situations
1. Straight rebuy: routinely reorders without any modifications
2. Modified rebuy: modify product specifications, prices, terms, or suppliers
3. New Task: purchasing for first time
Systems (solutions) selling: many prefer to buy packaged solution from single seller
Influences on Business Buyer Behaviour
1.
2.
3.
4.

Environmental technological change, supply conditions, culture and customs


Organizational objectives, policies, procedures, systems
Interpersonal authority, empathy, persuasiveness
Individual job position, personality, risk attitudes

Business Buying Process


1. Problem Recognition
2. General Need Description
3. Product Specification
Value analysis: cost reduction, can product redesign make it more efficient?
4. Supplier Search
5. Proposal Solicitation
6. Supplier Selection
7. Order-routine specification
final order with chosen supplier (lists technical specifications, quantity, expected
time of delivery, return policies, warranties)
8. Performance Review
E-Procurement: purchase through electronic connections, changed B-to-B marketing process
save time and cost, but less personal

Quantitative Analysis
1. Market Share: percent of total market the product controls measures market dominance
Limitation Not all brands sold at same price

Step-Down Approach Ex. given sales and total CANADIAN market, need find
market share of price sensitive segment in Toronto

Market Share = Focal Brand Sales / Total Brand Sales


2. Contribution and Profit Margin: measures profitability
Contribution Margin (in units) = Price Variable Cost divide by price for percentage
Profit Margin = Price Variable Cost Fixed Cost
3. Break-Even Analysis: measures loss vs. profit
Break-Even Point (in units) = Total Fixed Costs / Price Variable Cost
Break-Even Point (in dollars) = Total Fixed Costs / 1 (Variable Cost / Price)
4. Price Elasticity: demand and consumer characteristics\
Price Elasticity = Demand / Price
Calculate using: (New Old) / ((New + Old) / 2)
PE > 1 Elastic
PE = 1 Unit Elastic
PE < 1 Inelastic
*** Use absolute values
CrossPrice Elasticity = Demand Product A / Price Product B

CPE > 0 Substitute Product


CPE < 0 Complementary Product

5. Price Chains: profit distribution across channel members


% Markup = Price Variable Cost / Variable Cost
6. Marketing ROI: measures effectiveness of marketing campaign
ROI = Sales Spending / Spending

Chapter 5: Managing Marketing Information to Gain Customer Insight


Dont need more information Need better information and make better use
Marketing Information System
1. Assess information needs
2. Develop needed information
Internal database + marketing intelligence activities + marketing research

Competitive marketing intelligence: collection of public available info on consumers,


competitors, and developments in environment
3. Analyze / use information to develop customer insights, make marketing decisions

Marketing Research Process


1. Define Problem and Research Objectives
a. Exploratory research: gather preliminary info to help define problem and
hypothesis
b. Descriptive research: better describe problems and markets (ex. market potential)
c. Casual (cause-ual): test hypotheses about cause-and-effect relationship
Research Objectives
a.
b.
c.
d.

Explore
Describe
Establish Causality
Create Normative Implications

2. Develop Research Plan for Collecting Information


3. Implementing Research Plan Collecting / Analyzing Data

Secondary data should be:


1. Relevant
2. Accurate
3. Current
4. Impartial
Primary Data must decide on:
1. Research approaches
1. Observational
Ethnographic: send trained observers to watch and interact with
consumers in natural habitat
2. Survey used for descriptive info
3. Experimental used for casual
4. Contact
2. Contact methods ex. mail, online, personal (individual / group) interview
3. Sampling Plan
4. Mechanical Instruments ex. scanners, eye camera, neuromarketing
4. Interpreting and Reporting Findings

Chapter 8: Developing and Managing Products and Services

Levels of Products and Services


1. Core Customer Value what is customer really buying? (ex. not just lip color, selling
hope)
2. Actual Product features, design, brand name, quality, packaging
3. Augmented Product additional services + benefits (ex. after-sale service, warranty)
Product and Service Classifications
1. Consumer Products
a. Convenience frequent purchase, little comparison, low price
b. Shopping much planning and shopping effort, higher price, selective distribution
c. Specialty strong brand loyalty, little comparison, low price sensitivity, exclusive
d. Unsought aggressive advertising and personal selling needed
2. Industrial Products: for further processing or use in conducting business
a. Materials and Parts price / service major factor, branding less important
b. Capital Items installations and accessory equipment
c. Supplies and Services: operating supplies and repair items (ex. paint, broom,
paper)
New Product Development
Stages
1.
2.
3.
4.

Idea Generation
Idea Screening
Concept Development and Testing detailed version of idea, prototype
Marketing Strategy Development 3 parts:
a. Defines target market, planned value proposition, sales, market share, profit goals
b. Planned price distribution and marketing budget
c. Planned long-run sales, profit goals, marketing mix strategy

5.
6.
7.
8.

Business Analysis sale, cost, profit projections fit with company objectives?
Product Development
Test Marketing
Commercialization full scale introduction of new product to market

Product Life Cycle


1.
2.
3.
4.
5.

Product Development
Introduction
Growth
Maturity
Decline

Product class or product form can have long life cycles, but specific brands shorter
Style once invented, passes in and out of vogue
Fashion currently accepted / popular style

Fad temporary periods of unusually high sales and immediate product popularity
Product and Service Decisions
Marketers make decisions at three levels:
1. Individual Product and Service Decisions
a. Product attributes quality, features, style, design
Quality Consider both level (performance) + consistency (conformance)
Style appearance of product
Design usefulness
b. Branding
c. Packaging (protects, increases shelf life, informs, differentiate, promote)
d. Labelling
e. Product Support Services
2. Product lines
a. Product line length
Influenced by company objectives and resources
Ex. Upselling BMW from 3-series to 5 and 7 series models
Ex. Cross-selling HP sells printers and cartridges
Ex. Protect against economic swings cover different price points
Line Filling: adding more products within present price range
Line Stretching: adding more products higher or lower than existing price
3. Product Portfolio (Product Mix)
All product lines and items
a. Width: number of different product lines
b. Length: number of items within product lines
c. Depth: number of versions offered of each product in the line
d. Consistency: how closely related product lines are (ex. same distribution channel?)
Characteristics of a Service
1.
2.
3.
4.

Intangibility
Inseparability produced and consumed at same time, cant be separated from providers
Variability quality may vary depending on who when where why how
Perishability

Marketing Strategies for Service Firms


Service Profit Chain
1.
2.
3.
4.
5.

Internal service quality (ex. quality work environment, superior selection and training)
Satisfied and productive service employees (more loyal, hard-working)
Greater service value (effective + efficient customer value creation and delivery)
Satisfied and loyal customers (who remain loyal, repeat purchase, refer others)
Healthy service profits and growth

Internal Marketing: orienting and motivating customer-contact employees, work as team

Interactive Marketing: training employees in fine art of interacting with customers to satisfy
3 Major Marketing Tasks
1. Service differentiation
2. Service Quality
3. Service Productivity be careful not to give up too much quality

Chapter 9: Brand Strategy and Management


Name, term, sign, symbol, or design (or combination) that identifies and differentiates product
Brand Advocacy

Begins with trust build trust with potential advocates by nurturing their opinions
Starts close to home brands must start by creating advocates in world around them
Make customers and employees part of the brand story (ex. Zappos)
Deliver an experience that gets them talking loyalty is not enough (ex. pc vs. mac users)
Outperform where they care the most understand and solve problems
Brand Characteristics
1. Personality (ex. Google doodle innovative and creative personality)
2. Status do not confuse with popularity or value, rather high status brands are exclusive
3. Value (brand equity) dollar amount attributed to value of brand
Brand Strength
Young & Rubicams Brand Asset Valuator measures brand strength:
1.
2.
3.
4.

Differentiation what makes brand stand out


Relevance how consumers feel it meets needs
Knowledge how much consumers know about brand
Esteem how highly consumers regard and respect brand

Brands with strong brand equity rate high on all dimensions


Brand equity: dollar amount attributed to differential effect brand has
Customer equity: value of customer relationships the brand creates
From Slides:
1. Customer-Focused
2. Centered on Needs
3. Managed Well
Branding Strategy

1. Brand Name Selection


Suggest benefits or qualities about product (ex. Beautyrest, Snuggle)
Easy to pronounce, recognize, and remember (ex. Tide, Crest)
Distinctive (ex. Google, BlackBerry)
Extendable (to different products)
Translate well into diff. languages (ex. Nova in Spanish = no go, not good for
car!)
Can be registered and legally protected as trademark (cannot infringe on existing)
No negative associations
Fit with desired positioning strategy
2. Brand Positioning
1. Product attribute least effective, easy to copy (ex. Dove cream soup)
2. Benefit associates name with desirable benefit (ex. Dove younger, silkier)
3. Belief and values engage emotionally (ex. Dove real beauty workshops)
Creating Lovemarks

3. Brand Sponsorship (Ownership and Usage Rights)


1.
2.
3.
4.

Manufacturer (National) Brands: share same name as manufacturer (ex. Kellogs)


Private (Store) Brands: established by retailers (ex. Loblaws Presidents Choice)
Licensed Brands: selling rights to use brand on product (ex. Mickey mouse)
Co-Branding: two brands on one product (ex. CIBC Aeroplan Visa card)

Brand Management
Brand Development

1. Line Extension: new forms, colours, sizes, ingredients, or flavours of existing product
Low cost, low-risk way to introduce new products
Or want to meet consumer desires for variety
WARNING: overextended brand can lose specific meaning (ex. 7 Jeep models)
Best when take sales from competing brands, not cannibalizing companys own
2. Brand Extension: use successful brand to launch new product
Ex. Mr. Clean household cleaner Magic Eraser (cleaning pads), Magic Reach
3. Multi-brands: same manufacturer produces many brands in same product category
Ex. P&G sells 5 brands of shampoo Pantene, Head & Shoulders, Aussie, Herbal
Essences, and Infusium 23)
Major drawback each brand might obtain small market share, not very profitable,
but company spreads resources over many, instead of building few highly profitable
4. New brands: replace existing brand name or when entering new product category
Ex. Sobeys FreshCo. high quality, low price, with focus on multicultural foods
Brand Communications
Touchpoints: Any / all points of contact consumer has with brand (ex. word of mouth, website)
Branded Entertainment: usually video, created with co-operation / financial support of marketer
Ex. Lady Gagas Telephone music video heavy product placements

Chapter 11: Marketing Channels Retailing and Wholesaling


Supply chain consists of:
Upstream partners: set of firms that supply raw materials, components, parts,
information, finances, and expertise to create product / service
Downstream partners: Marketing (or distribution) channels that look toward
customer wholesalers and retailers

Term supply chain takes make-and-sell view


Better term would be demand chain, suggests sense-and-respond view
Planning starts with needs of target customers

Still too limited Value delivery network: made of company, suppliers, distributors and
ultimately customers who partner to improve performance of entire system

Marketing Channels
Set of interdependent organizations that help make product or service available for use

Use intermediaries to bring products to market


Offer contacts, experience, specialization, scale of operation and greater efficiency
Reduces number of channel transactions
Number of contacts without distributer = Manufacturers x Customers
Number of contacts with distributer = Manufacturers + Customers

Producers make narrow assortments of products in large quantities


Consumers want broad assortments of products in small quantities
Marketing intermediaries buy in bulk, then break down into smaller quantities
Match supply and demand

Role of Intermediaries:
1. Logistics
2. Customer Contact
3. Collect and Disseminate Info
4. Promotion
5. Financial and Risk-Taking

Often involve long-term commitments must design with future selling enviro. in mind

Members of marketing channel perform many key functions


1. Some help complete transactions:
1. Information: gather and distribute marketing research
2. Promotion: develop and spread persuasive communications about offer
3. Contact: find and communicate with prospective buyers
4. Matching: fitting to buyer need (ex. manufacturing, assembling, packaging)
5. Negotiation: reaching agreement on price and other terms of offer

2. Some help fulfill completed transactions:


Physical distribution of goods
Financing: acquiring and using funds to cover costs of channel work
Risk taking: assuming risks of carrying out channel work
Channel Levels

Each layer of marketing intermediaries is a channel level


Number of intermediary levels indicates length of channel

Direct marketing channel: no intermediary levels producer sells directly to consumer


Indirect marketing channel: one or more intermediaries ex. wholesaler, retailer
More levels = less control, more complexity
All in channel connected by several types of flows:
1. Physical flow
2. Flow of ownership

3. Payment flow
4. Information flow
5. Promotion flow

Channel Behaviour and Organization

People and companies interact to accomplish individual, company, and channel goals
Success of individual dealers depend how well entire marketing channel competes

Channel Conflict
Disagreement among marketing channel members on goals, roles, rewards
Channel members tend to act on own short-run interests
1. Can occur on same level of channel ex. Honda dealer complain other dealers steal
sales by pricing low or advertising outside assigned territories
2. Can occur between different levels ex. Goodyear with its independent dealer channel
when began selling through mass-merchant retailers
Marketing Systems
Conventional Distribution System: independent producers, wholesalers, and retailers
Separate business, maximize own profits, even at expense of profits for whole system
Lacked leadership and power result in conflict and poor performance
Horizontal Marketing System: two or more companies at one level join together
Ex. Tim Hortons express version of their stores at Esso gas stations
Multichannel Distribution Systems (Hybrid Marketing Channel)
Single firm sets up two or more marketing channels to reach one or more segments
Target different customer segments
May generate conflict or cannibalization
Cross-channel Integration
Ex. browse catalogue, purchase online, return in-store
Vertical Marketing Systems: producers, wholesalers, and retailers act as unified system
One member owns others, has contracts, or so much power that all co-operate
Three Types of VMS:
1. Corporate VMS: successive stages of production / distribution under single ownership
Ex. eyewear maker Luxottica produces licensed Dolce & Gabbana, Prada,
Versace, etc. own and sell through LensCrafters and Sunglasses Hut
2. Contractual: independent firms at different levels of production / distribution join
together through contracts
More economies or sales impact

Ex. Franchise org: franchisor link stages in production / distribution process


1. Manufacturer Sponsored Retailer Franchise
Ex. Fords network of independent franchised dealers
2. Manufacturer Sponsored Wholesaler Franchise
Ex. Coca-Cola licences bottlers (wholesalers)
3. Service Firm Sponsored Retailer Franchise
Ex. Boston Pizza

3. Administered: leadership through size and power of one or few dominant members
Ex. P&G, Kraft, etc. can obtain strong co-operation from resellers
Ex. Large retailers, like Wal-Mart, can exert influence on manufacturers

Channel Design Decisions


Disintermediation: cutting out intermediaries or replacement of traditional resellers
Ex. Airlines sell tickets online cut out travel agents from marketing channels
1. Analyzing Customer Needs
Marketing channels part of overall customer-value delivery network
Designing channel starts with finding out what target market wants
Buy nearby VS. Willing to travel to more distant centralized locations?
Breadth of assortment VS. Specialization?
Buy in person, by phone, online?
Higher level of service = Higher cost for channel = Higher cost for customer
2. Setting Channel Objectives
Influenced by nature of company, products, marketing intermediaries, competitors
Company size and financials determine what marketing functions it can
handle and how much to give to intermediaries
Ex. Perishable products need direct marketing
Ex. Competitors Maytag want its appliances displayed alongside
competing brands to facilitate comparison shopping

Economic conditions
Ex. down economy use shorter channels to reduce price Some cases, may
want to compete in or near competitor products

3. Types and Number of Intermediaries


Intensive distribution: stocking product in as many outlets as possible
Ex. Toothpaste, candy max brand exposure and customer convenience
Exclusive distribution: purposely limit intermediaries, give dealers exclusive rights
Ex. Rolex watches stronger dealer support, more control price, promotion
Selective distribution: use more than one, but fewer than all intermediaries
Ex. Whirlpool sell appliances through dealer networks and select retailers
Good market coverage with more control and less cost than intensive
4. Evaluating Channel Alternatives: each evaluated against 3 criteria

1. Economic: compare sales, costs, profitability of diff. channel alternative


2. Control Issues
3. Adaptability: long-term commitment, but want to keep channel flexible
Channel Management Decisions
Marketing Channel Management: selecting, managing, motivating, and evaluating members
1. Selecting Channel Members evaluate years in business, other lines carried, growth
and profit record, cooperativeness, reputation
2. Managing Channel Members sell not only through intermediaries, but to and with
Partner Relationship Management

Retailing
All activities involved in selling goods / services directly to final consumers
Retailer: sales come primarily from retailing
Types of Retailers
Classified by:
1. Amount of Service
1. Self-service (ex. fast-moving convenience goods)
2. Limited-service (ex. Home Depot more sales assistance, customers need info)
3. Full service (ex. Tiffany high-end specialty stores, more service = more cost)
2. Product Line
1. Specialty stores narrow product line, deep assortment within those lines
Category killers: very large specialty stores, carry thousands of product in
particular category (ex. Home Depot and Best Buy)
2. Department stores wide variety of product lines
3. Convenience Stores small stores, limited line high-turnover convenience goods
4. Superstores larger than regular supermarkets, large assortment of routinely
purchased food, etc.
5. Service retailers hotel, bank, airline, movie theatre, restaurant
3. Relative Prices
1. Discount stores sell standard merchandise at lower price by accepting lower
margin and selling higher volume
2. Off-price retailers buy end-of-season or overstock goods at less than regular
wholesale prices (ex. Winners)
3. Factory outlets manufacturer-owned and operated (ex. Gap, Levi Strauss)
4. Warehouse clubs offer few frills, but ultralow price on select brands (ex. Costco)
4. Organization
1. Corporate Chain: two + stores / retail outlets commonly owned and controlled
Purchasing, merchandising, advertising, inventory control done centrally
2. Voluntary Chains: wholesaler-sponsored group of independent retailers common
merchandising (ex. Independent Grocers Alliance)

3. Retailer co-operative: set up jointly owned central wholesale operation


4. Franchise organizations: difference between other contractual systems normally
based on unique product, service or method of doing business
Retailing Trends and Developments
Wheel of retailing: begin low margin & price eventually evolve to higher price, higher service
New retailer success leads to upgrade facilities and offer more services
Costs increase Price increase
Eventually become like conventional retailers they replace
Online Retailing shoppers devoting time and energy to find detailed info before they buy
How Do Retailers Compete?
1.
2.
3.
4.

Product Selection
Service and Atmosphere
Price / Quality / Quantity Levels
Location

Wholesaling
All activities involved in selling goods / services to those buying for resale or business use
Functions of Wholesalers
Add value to distribution channel
More local contact provide market information, sales and promotions
Save customers money by buying in carload lots and breaking bulk
Provide warehousing (storage) function
Absorb risk by taking title, bear cost of theft, damage, spoilage, and obsolescence
Closer to customers provide transportation and delivery
Financing and management services
Types of Wholesalers
1. Merchant: independently owned businesses, take title to merchandise they handle

Full-service: carry stock, maintain sales force to make deliveries, provide financing
Limited-service: offer fewer services to suppliers and customers
Drop shippers: dont carry inventory or handle product on receiving
order, select manufacturer who ships merchandise directly to customer
Assumes title and risk from time order is accepted to delivery
Operate in bulk industries (ex. coal, lumber, heavy equipment)

Rack jobbers: send delivery trucks to stores, set up displays, price goods,
keep them fresh, and keep inventory records
Serve grocery and drug retailers
Retain title to goods and bill retailer only for goods sold
2. Brokers and Agents: do not take title to goods, perform only few function
Specialize by product line or customer type
Broker: bring buyer and seller together, assist in negotiation
Does not take title or assume risk
Does not carry inventory
Does not get involved in financing
Agent: represents buyers or sellers on more permanent basis
Manufacturers agents: represent two or more manufactures of complementary
lines, operate under formal written agreement with each
Used in apparel, furniture, electrical goods
Hired by small manufacturers who cant afford own sales force or large
manufactures to open new territories

Wholesaler Marketing Decisions


Segmentation and Targeting choose by size of customer (only large retailers), type
(convenience stores only), need for service
Differentiation and Positioning
Marketing Mix
Product and Service Assortments most profitable
Price mark up cost of goods by standard percentage (less than 2% in grocery!)
Promotion
Distribution
Marketing Logistics and Supply Chain Management
Marketing logistics (physical distribution): planning, implementing, controlling flow of goods
Outbound distribution: move products from factory resellers customers
Inbound distribution: move products and materials from suppliers factory
Reverse distribution: move broken, unwanted, excess returned by resellers / cust.
Supply chain management: upstream and downstream flows of materials, final goods

Companies can gain comp. adv. by improving logistics better service or lower prices
Improved logistics can yield cost savings
Explosion in product variety has created need for improved logistics management

Goals and Functions of Logistics

Major logistics functions:


1. Warehousing how many, what types, where located
1. Storage warehouses
2. Distribution centres: designed to move goods rather than just store
2. Inventory Management maintain balance between carrying too little and too much
3. Transportation choice affects pricing, delivery performance and condition of good
Truck (flexible routing / time, faster service than railroads, short hauls of highvalue)
Railroads (most cost effective for large amounts of bulk, Ex. coal, sand)
Water (less expensive but slower, best for bulky low value, non-perishable)
Air (most expensive, used for perishables and high-value, low bulk, Ex. jewellery)

Intermodal transportation: combining two or more modes of transportation

4. Logistics Information Management Ex. customer transactions, billing, inventory levels

Integrated Logistics and Supply Chain Management: emphasize teamwork (inside company
and among marketing channels) to max. performance of entire distribution system
Third-Party logistics (3PL): independent logistics provider, performs functions required to get
product to market
more efficient, cost savings
free company to focus on core business
help to expand global market coverage with their contacts

Chapter 12: Communicating Customer Value Advertising and Public


Relations
The Promotion Mix (Marketing Communications Mix)
Specific blend of promotion tools used to communicate customer value and build relationships
Five Major Promotion Tools
1. Advertising: paid form of non-personal presentation and promotion of ideas, goods, service
Mass media Broadcast (TV, radio), Print (newspapers, magazines), Internet

Reach masses of geographically dispersed buyers


Low cost per exposure (but can be very costly as a whole)
Enables seller to repeat message many times
Large-scale advertising may indicate sellers size, popularity, and success
Public nature of advertising advertised products viewed as more legitimate
Very expressive allows dramatizing of products through use of visuals & sound
Can be used to build long-term image for brand

Can also trigger quick sales


Impersonal cannot be as directly persuasive as salespeople
One-way communication
Audience does not feel have to pay attention or respond
2. Sales Promotion: short-term incentives to encourage purchase or sale of product
Discounts, rebates, coupons, contests, displays, demonstrations

Attract customer attention


Offer incentives to purchase, encourage trial
Dramatize product offers
Boost sagging sales
Invite and reward quick response
Often short-lived
Less effective than advertising or personal selling in building long-run brand
preference and customer relationship
3. Personal Selling: personal presentation by sales force make sales, build relationships
Sales presentations, trade shows, incentive programs

Most effective in building preferences


Most common in business-to-business
Involves long-term personal interaction (decision makers + sales representatives)
Focuses on developing relationships with customer
Buyer feel greater need to listen / respond (even if response is polite no thanks)
Sales force requires longer-term commitment
Most expensive
4. Public Relations: building good relations with various publics obtain favourable publicity,
build good corporate image, and head off unfavourable rumours
Press release, sponsorships, special events, websites
More believable / credible to readers than ads
Reach many that avoid salespeople and advertisements
Message presented as news rather than sales-directed
Can dramatize company or product
Effective and economical when combined with other promotion mix elements
5. Direct Marketing: carefully target individual immediate response, cultivate lasting
relation
Websites, catalogues, direct mail, direct response TV, mobile marketing

Less public (normally directed at individual)


Immediate (can be prepared quickly)
Customized (message can be tailored to specific consumers)

Interactive (messages can be altered depending on consumers response)


Well suited to highly targeted marketing efforts to build one-on-one relationship
Integrated Marketing Communications: coordinate companys communication channels to
deliver clear, consistent and compelling message about org. and products

New Marketing Communications Landscape

Consumers changing better informed, more communications empowered


Marketing strategies moving away from mass media, develop more focused marketing
Communications technology ex. on-demand TV, social networking, smartphone
Less broadcasting, more narrowcasting
Less interruptions, more interactive engagement

Promotion Mix Strategies


Push Strategy: personal selling sales force + trade promotion push product through channels
producer promotes product to channel members who promote to final consumers
Pull Strategy: advertising and consumer promotion create demand vacuum that pulls product
producer directs marketing to final consumers

Business-to-business use more push


Business-to-consumer use more pull

Advertising
1. Set Advertising Objectives

Specific communication task with specific target audience, during specific time
Purpose can be:
1. Inform use when introduce new product, communicate / demonstrate
2. Persuade build selective demand (convince better than competitors)
Comparative (attack) advertising direct or indirect comparison
3. Remind mature product, maintain relationship
Goal not always immediate sale Can be to build long-term relationship
2. Set Advertising Budget
1. Affordable Method: set at level management thinks company can afford
Often used by small businesses
Ignores effects of advertising on sales
Places promotion last among spending priorities (even if it is critical)
Leads to uncertain annual promotion budget difficult to plan long-term

2. Percentage of Sales Method: set at percentage of current or forecasted sales


Little justification views sales as cause of promotion, rather than result
Based on availability of funds, rather than opportunities
Budget varies with year-to-year sales difficult to plan long-term
No basis for choosing specific percentage
3. Competitive-Parity Method: set budget to match competitor outlays
Base on industry average
Arguments for: collective wisdom of industry, prevent promotion wars
However, no grounds for believing competition has better idea of how much
to spend and no evidence of preventing promotion wars
4. Objective and Task Method: based on what company wants to accomplish
Most difficult (hard to figure out which specific tasks will achieve objectives)
Forces management to spell out relationship of dollars spent vs. results
3. Develop Advertising Strategy

Break Through the Clutter more imaginative, entertaining, engaging


Merge Advertising and Entertainment ex. product placements in movies

Message Strategy
Meaningful Identify Benefits
Believable
Distinctive Differentiate from competitors

ACM Model:
Get Attention
Achieve Comprehension
Be Memorable

Message Execution Style


1. Slice-of-Life: shows typical people using product in normal setting
2. Lifestyle: shows how product fits with a lifestyle
3. Fantasy: creates fantasy around product or its use
4. Mood or image ex. beauty, love, intrigue, serenity
5. Musical: shows people or cartoon character singing about product
6. Personality symbol: character represents product ex. Mr. Clean
7. Technical Expertise ex. Boston Beer Company tells about its many years
of experience in brewing
8. Scientific Evidence ex. Crest toothpaste
9. Testimonial Evidence or Endorsement ex. Weight Watches
10. Consumer-Generated Messages?
*** Must also choose tone and format

Media Decisions
1. Decide Reach, Frequency, Impact

Gross Rating Points = Reach x Frequency

2. Choose Media Types


Traditional Media mass media
Digital Media delivered on a screen, operated by a computer
Alternative Media non-traditional, out-of-home (ex. in public washrooms,
on taxi cabs)
New Media third screen of personal mobile devices
3. Select Specific Media Vehicle
Ex. TV is media type, CTV and Hockey Night are vehicles
CPM cost per thousand impressions

4.

Evaluate Audience Quality ex. Huggies diapers high exposure value in


Parenting magazine, low in Maxim
Evaluate Audience Engagement ex. Vogue readers pay more attention
to ads than Newsweek readers might

Decide Media Timing


Might be seasonal
Continuity: scheduling ads evenly within given period
Pulsing: advertise heavily for short period to build awareness that carries to
next advertising period

4. Evaluate Effectiveness

Very difficult to measure return on advertising investment


Measure communication effects ex. customer recall, product knowledge / aware
Measure sales and profit effects ex. compare past sales vs. current experiment
Other Advertising Considerations
1. Use of advertising agencies?
2. How to adapt advertising to complexities of international markets?

Public Relations
Functions
1.
2.
3.
4.
5.
6.

Press Relations or Press Agency creating / placing newsworthy info in new media
Product Publicity
Public Affairs building / maintaining national or local community relations
Lobbying
Investor Relations
Development use relation with donor or non-profit org. gain financial / volunteer support

Use news, special events (ex. press conference, grand opening), speeches, written
material (ex. annual reports, brochures), audiovisual (ex. online videos), corporate identity
materials (ex. logos, stationery, signs), public service activities
Buzz marketing use social media, consumers themselves spread info about product
Crisis communications can be seen as opportunity

Chapter 13: Personal Selling and Sales Promotion


Personal Selling
Role of the Sales Force

Sales force represents the company to customers, and customers to the company
Must Coordinate Marketing and Sales

Often treated as separate functions

Marketers blame sales force for poor execution of otherwise great strategy

Sales team blames marketers for being out of touch with customers

Can increase communications by creating joint assignments

Salespeople should help develop marketing plan

Brand managers and researchers should go on sales calls

Can also create joint objectives and reward systems


Appoint marketing-sales liaisons
Appoint chief revenue officer high level exec oversee both marketing and sales

Sales Promotion
Consumer (Consumer Promotions)
Objective increase short-term sales
Avoid quick fix, price-only promotions build brand equity (ex. loyalty programs)
Develop relationship ex. Chevrolet promotion tie brand to hockey in consumer minds
If used long-term, customers may get used to effect, and wait for promotions
Too much promotion can damage brand image (ex. Starbucks premium coffee)
1.
2.
3.
4.
5.
6.
7.
8.

Samples most effective, but expense; can be combined into sample packs
Coupons narrow targeting; increase in mobile coupons
Rebates cash refunds; retailers can feature lower price than manufacturers can
Price Packs two for one, or two related products banded together
Premiums goods offered free or low cost (ex. McDonalds Happy Meal toys)
Point of Purchase displays and demonstrations
Contests and Sweepstakes
Event Marketing - ex. Comiccon

Retailers and Wholesales (Trade Promotions)

Objective: get retailers to carry more or new inventory, promote products, shelf space
Can use many consumer promotion tools, as well as:
1. Discount off list price on each case purchased during particular time
2. Allowance some amount off per case in return for agreement to feature products
3. Free Goods if buy certain quantity or feature certain flavour/size
4. Push money cash or gifts to dealers to push manufacturers goods
5. Specialty Advertising Items that carry company name (ex. pens, calendars, t-shirt)
Business Customers (Business Promotions)
Conventions and Trade Shows
Sales Contests ex. trips, cash prizes, gifts for high sales performance
Developing the Sales Promotion Program
1.
2.
3.
4.
5.

Decide Size of Incentive


Set Conditions for Participation
How to Promote and Distribute Promotion ex. coupon can be mailed, given at store, etc.
Length of promotion too short (many will miss it) vs. too long (lose act now force)
Evaluate work to measure return on sales promotion investments

Chapter 10: Pricing Understanding and Capturing Customer Value


Narrow Definition: amount of money charged for product / service
Broad Definition: sum of all values consumers exchange for benefits of having or using product

Pricing Strategies

Customer perceptions of product value set price ceiling


Product costs set price floor

1. Customer Value-Based Pricing

Uses buyers perceptions of value, not sellers cost


Consider customer needs set target price to match needs THEN make product
Targeted value and price drive cost decisions and product design

1. Good-value Pricing offering just right combo of quality and service at fair price
Redesign existing brand to offer more quality, or same quality for less
Ex. car company offer small, inexpensive models
1. Everyday Low Pricing (EDLP): charge constant low price, no discount
2. High-Low Pricing: charge high on everyday basis, run frequent promotion

2. Value-added Pricing
Add features to differentiate and support higher prices (instead of price-cutting)
Ex. Stag Umbrella add funky designs / colors

2. Cost-Based Pricing

Company designs product set price that covers cost + target profit convince
worth
Sellers more certain about costs than demand
Ignore demand and competition

1. Cost-Plus Pricing (Markup Pricing): add standard markup to cost of product


2. Break-even or Target Return Pricing: set price to break even or make target profit
However, fails to consider customer value and price / demand relationship
Price , Demand market may not even buy volume needed to break-even

3. Competition-Based Pricing

Set price based on competitors strategies, prices, costs, and market offering
Ex. Market dominated by large, low-price competitors company target un-served
market niche value-added products at higher price

Other Considerations Affecting Pricing


1. Overall Marketing Strategy, Objectives, and Mix
2. Organizational Considerations
Small company prices set by top management rather than marketing dept.
Large company divisional or product line mangers
3. Market and Demand
Pricing in Different Types of Markets:
1. Pure Competition: no single buyer / seller has much effect on price
Ex. Commodities
2. Monopolistic Competition: many buyer / seller, range of price, differentiation
3. Oligopolistic Competition: few sellers, highly sensitive to each others
pricing
4. Pure Monopoly: one seller\
Also consider price elasticity of demand
4. The Economy
In economic downturn redefine value, rather than rely on short-term price cuts
5. Other External Factors
1. Resellers

2. Government
3. Social Concerns

New-Product Pricing
Market Skimming Pricing: high price for new product skim max. revenues layer by layer
from segments willing to pay high price, as lower price fewer, but more profitable sales
Ex. iPhone intial price $599 drop price $399 drop price again $199
Market Penetration Pricing: set low initial price to penetrate market, attract large market share
Product Mix Pricing
1. Product Line Pricing: set price steps between various products in product line
Ex. basic, standard, platinum versions of software
2. Optional Product Pricing: offering accessory products sold with main product
Ex. Refrigerators come with optional ice makers
3. Captive Product Pricing: pricing products that must be used with main product
Ex. Razor blade cartridges, video games, printer ink cartridges
4. By-Product Pricing: pricing low-value by-products to get rid of them
Ex. wood chips paper, shavings, bark turned to wood pellets
5. Product Bundle Pricing: combo
Ex. Bath & Body Works three for one
Price Adjustments
Loss-leader strategy: popular item priced below cost to attract customers to buy other items
1. Discount and Allowance Pricing

Cash discount: for paying bills promptly


Quantity discount
Seasonal discount: for buying out of season

Trade-in allowances: turning in old item when buying new (Ex. cars, video games)
Promotional allowances: reward dealers for participating in advertising / sales support

2. Segmented Pricing

Difference in price not based on differences in costs

1. Customer-segment Pricing: diff customer pay diff. price for same product / service
Ex. museums charge diff. admission for students vs. seniors
2. Product -form Pricing: diff. versions of product priced differently, but no diff. in cost

Ex. Bottled mineral water cost $1.29, but can of spray at salon cost $11.39
3. Location-Based Pricing: diff. price for diff. location
Ex. theatres vary seat prices b/c audience preferences for certain locations
4. Time-Based Pricing: varies by season, month, day
Ex. Theatres charge matinee pricing during daytime
3. Psychological Pricing
Consumers perceive higher-priced products have higher quality
Ex. $100 perfume vs. $20
Reference prices: prices buyers carry in minds
Ex. Shelve store brand bran flakes next to Kelloggs Raisin Bran
Odd pricing and number effects ex. pricing something $7.99 vs. $8
4. Promotional Pricing
Temporary price product below list price (sometimes below cost) to increase short-run sale

Ex. Discounts, Special-Event, Cash Rebates, Low-interest financing, Longer Warranty


Can have adverse effects deal prone customers that just wait for promotions, or
erode brand value
Used as quick fix must balance short-term incentives with long-term brand building
5. Geographical Pricing

FOB-Origin Pricing: customers pay for shipping from factory to customer location
Fair, but high-cost to distant customers

Uniform-Delivered Pricing: charge same price + freight to all, regardless of location


Set at average freight cost

Zone Pricing: set up two or more zones, all customers within zone pay single total price
Distant zone = high pricen for students vs. seniors

6. Dynamic Pricing
Internet consumers setting market price, can haggle price
7. International Pricing
Additional cost of product modification, shipping and insurance, import tariffs and taxes

Price Changes

Initiating Price Changes


Price Cuts excess capacity? Falling demand in strong price competition / weak economy?
Price Increase cost inflation (rising costs squeeze profit margins, pass cost to customers)
Should avoid being perceived as price gouger (excessive prices)
Maintain sense of fairness + support price increases with company communications
Buyer Reactions to Price Changes:
Increase more exclusive, Cut lower quality
Competitor Reactions to Price Changes:
More likely to react when number of firms involved is small, product is uniform, when
buyers are well-informed about products and prices

Responding to Price Changes


Options when competitor lowers price:

Hold current price and profit margin (do nothing)


Reduce Price
Raise Perceived Value
Improve quality and increase price
Launch low-price fighter brand price sensitive market will not respond to higher value
Public Policy and Pricing
Pricing within Channel Levels
Price-fixing: sellers must set prices without talking to competitors
Otherwise, price collusion is suspected illegal (considered conspiracy)
Predatory Pricing: selling below cost with intention of punishing competitor or putting
competitors out of business
Prohibited, but hard to prove intent
Pricing Across Channel Levels
Price-discrimination: sellers must offer same price terms to customers at given level of trade
Ex. every retailer is entitled to same price, regardless Sears or local bike shop
However, allowed If seller can prove costs differ when selling to diff. retailers
Functional discounts: retailers and wholesales considered competing customers must
receive proportionally equal promotional allowances

Allow price breaks for one-shot deals (ex. store-opening specials, stock clearance)
Laws prohibit retail (or resale) price maintenance

Deceptive pricing:

Bait and switch cannot advertise at low price, carry limited stock, then say they are
out of the product to entice consumers to switch to higher priced item (rain checks)
Seller stating price saving not actually available to customer
Seller sets artificially high regular prices, then announces sale
Scanner Fraud & Price Confusion (must charge lesser when not labelled properly)