CHAPTER 5: Marketing: Product and Price

MARKETING is the process of planning and executing the

conception, pricing, promotion, and distribution of goods and
services to facilitate exchanges that satisfy individual and
.organizational objectives

THE EIGHT FUNCTIONS OF MARKET-ING

Eight marketing functions are involved in finding an unmet need in
the market and then providing that product or service to
.consumers

Exchange

Buying: investing and developing or procuring products to fill .1

.customer needs (determined through market re-search)
Selling is involved when customers are informed of a product .2
.(packaging and advertising)

Physical Distribution
Transportation: goods must be trans-ported from the factory to .3
.the place where they will be sold
.Storage for products until ready for customers .4

Facilitating
Quality and quantity: providing the right quantity of product of .5
.the right quality
:Financial, including .6
;a. the methods and procedures for payment
;b. the price that supplier and wholesalers charge
.C. the companys pricing of their products to consumers
Risks are involved in buying, transporting, and selling products .7
.Potential competitors also introduce risk

:Marketing information
:Tasks needed to sell products include
;i. setting prices
ii. determining how sales of the product will help companies meet
;their financial objectives
iii. Reviewing market research and competitors marketing in-
formation. b. A marketer must be prepared to change the message
.and the product or service accordingly

.Marketing begins with determining who your customers are

MARKET SEGMENTATION

Consumer groups differ greatly in age, education level, income,

.and taste
.Marketers cannot fill the needs of everyone .1
They must first decide which group to serve and then develop .2
products and services specially tailored to their needs (as
.Campbell Soup does)
MARKET SEGMENTATION is the process of dividing the total .3
market in-to groups whose members have similar characteristics.
4. TARGET MARKETING is choosing the market segment for a
.marketer to focus its efforts on

Segmenting the Consumer Market

:Methods of dividing the market

a. GEOGRAPHIC SEGMENTATION is dividing the market by

.geographic area (cities, counties, states, regions, etc.)
b. DEMOGRAPHIC SEGMENTA-TION is segmenting by age,
.income, and education level, race, profession, or religion
c. PSYCHOGRAPHIC SEGMEN-TATION is segmenting by life-
.style, values, attitudes, and interests
d. BENEFIT SEGMENTATION is determining which benefits are
.preferred and using those benefits to promote a product
e. VOLUME (USAGE) SEGMENTATION is separating the market
.by usage (volume of product used) or how often a product is used

The best segmentation strategy is to use all the variables to come

.up with a consumer profile thats sizable, reachable, and profitable

Reaching smaller market segments

a. NICHE MARKETING is the process of finding small but profit-
able market segments and de-signing custom-made products for
.them
b. RELATIONSHIP MARKETING is a marketing strategy with the
goal of keeping individual customers over time by offering them
.new products that exactly meet their requirements
c. The latest in technology enables sellers to work with buyers to
determine their individual wants and needs and to develop goods
. and services specifically designed for

CONSUMER BEHAVIOR

:The consumer purchase decision process involves

;a. problem recognition
;b. information search
;c. evaluate alternatives
;d. make purchase decision
.e. post purchase evaluation

Consumer behavior researchers also study the influences that

.impact consumer behavior
a. marketing mix variables (the four Ps)
b. psychological influences such as perception and attitudes
c. situational influences such as the type of purchase and physical
surroundings
.d. socio cultural influences such as reference groups and culture

:Consumer behavior is also influenced by other factors

a. Learning involves changes in an individuals behavior resulting
.from previous experiences and in-formation
b. A reference group is the group that an individual uses as a
reference point for his or her beliefs, attitudes, values, or behavior.
c. Culture is the set of values, attitudes, and ways of doing things
that are transmitted from one generation to another in a given
.society
d. Subculture is the set of values, attitudes, and ways of doing
things that results from belonging to a certain group with which one
.closely identifies
e. Cognitive dissonance is the type of psychological conflict that
can occur after a purchasesuch as the purchasers doubts about
.whether they got the best product at the best price
The Business-to-Business Markets
Marketers of goods and services to manufacturers, institutions,
commercial operations, and the government are called B2B
.marketers
Because business buyers have their own decision-making
.process, marketing strategies are different

.Several factors make business-to-business marketing different

a. Number: There are relatively few customers compared to the
.consumer market
b. Size: Though few in number, industrial customers are relatively
.large
c. Geographically concentrated: B2B markets tend to be
.concentrated in certain areas of the country
d. Rational: Business buyers are generally more rational than
.consumers in their purchase decisions
.e. Direct: B2B sales tend to be direct
f. Personal selling: There is more emphasis on personal selling
.than in the consumer market
.g. Packaging tends to be more functional in B2B

THE 4Ps OF MARKETING: PRODUCT

MARKETING MANAGEMENT is the process of overseeing all the

aspects of marketing a particular product or service for the
.purpose of attracting and retaining customers

TOTAL PRODUCT OFFER consists of everything that consumers

.evaluate when deciding whether to buy some-thing

MARKETING RESEARCH is the analysis of markets to determine

opportunities and challenges, and to find the information needed to
.make good decisions

: The marketing research process

Step 1. Defining the problem and determining the present

situation
Step 2. Collecting research data
i. PRIMARY RESEARCH is re-search that a marketer creates and
.implements, including focus groups
ii. A FOCUS GROUP is of a small group of people who meet
under the direction of a discussion leader who tries to discover
.their opinion about a product

iii. SECONDARY RESEARCH is data already available to the

.marketer, such as in government publications and journal articles

The disadvantage of secondary research is the information is not

.developed for one marketers purpose
It is, however, much more inexpensive to conduct and faster to
.gather than primary research

Step 3. Analyzing the research data

.i. The data collected must be turned into useful information
ii. Careful, honest interpretation of the data can reveal specific
.marketing challenges
.Step 4. Choosing and implementing the best solution

A PRODUCT LINE is a group of products that are physically

.similar or in-tended for a similar market

PRODUCT DIFFERENTIATION is the creation of real or perceived

.product differences

Actual product differences are sometimes quite small, so

marketers must create a unique, attractive image (examples:
various brands of bottled water). Customers develop strong loyal-
.ties over perceived differences

Classifying consumer goods and ser-vices

a. Convenience goods and services are products that the

consumer wants to purchase frequently and with a minimum of
effort. Examples: candy, milk

b. Shopping goods and services are those products that the

consumer buys only after comparing value, quality, price, and style
.from a variety of sellers

c. Specialty goods and services are consumer products with

.unique characteristics and brand identity
d. Unsought goods and services are products that consumers are
unaware of, havent thought of buying, or find that they need to
.solve an unexpected problem

An INDUSTRIAL GOOD is a product which is used to produce or

as a component of, other products; sometimes called business
.goods or B2B goods

Packaging

Packaging plays an important role in customers evaluation of the

.value package
:Packaging must do the following
a. Protect the goods inside, stand up under handling and storage,
;be tamperproof, deter theft, and be easy to open
;b. Attract the buyers attention
c. Describe the contents and give information about the contents;
;d. Explain the benefits of the goods inside
e. Provide information on warranties, warnings, and other matters;
.f. Give some indication of price, value, and uses

Branding

BRAND is a name and symbol that identify the product of one

.seller over another
BRAND EQUITY is a combination of factors that people associate
.with a given brand name, such as image and perceived quality

BRAND LOYALTY is the extent to which a customer will choose

.one product over another on a continual basis

Product Development Process

The new product develop process includes six steps: a. idea
generation; b. product screening; c. product analysis; e.
.development; f. testing; g. commercialization
THE 4Ps OF MARKETING: PRICE

The firm may have several objectives in mind when setting a

.pricing strategy
:Pricing objectives include
a. Achieving a target return on investment or profit. Most first seek
.to maximize profit
b. Building traffic. Low prices on certain products (lost-leaders)
can bring customers into your store. LOSS LEADERS: When a
store advertises certain products at or below cost to attract people
to the store
C, Achieving greater market share . Price can be used to capture
.and hold market share
d. Creating an image. A high price may present an image of status.
e. Furthering social objectives. A product may be priced low so
.more people can afford to buy it

Pricing objectives are influenced by product design, packaging,

.branding, distribution, and promotion

The PRODUCT LIFE CYCLE is a theoretical model of what

.happens to sales and profits for a product class over time
Most products go though four stages: introduction, growth,
maturity, and decline

The life cycle affects pricing, because the longer a product stays in
.the life cycle, the more profit will be made

Cost-Based Pricing
.Producers often use cost as a primary basis for setting price

Demand-Based Pricing
.TARGET COSTING means to price based upon demand
A product is designed so it satisfies needs and meets the profit
margins desired by the company. Marketers estimate the selling
price that people are willing to pay, then subtract the desired profit
.margin

Competition-Based Pricing
Competition-based pricing is a strategy based on what other
competitors are doing; the price can be set at, above, or below
.competitors prices
PRICE LEADERSHIP is the procedure by which one or more
dominant firms set the pricing practices that all competitors in an
.industry follow

Break-Even Analysis
Break-even analysis is the process used to determine profitability
at various levels of sales. The break-even point (BEP) is the point
:where revenues from sales equal all costs. BEP is calculated
. Total fixed cost (FC)

Price of 1 unit Variable cost of 1 unit

You dont make a profit until you sell more than the breakeven
sales Volume; beyond that you make a profit

Other Pricing Strategies

A SKIMMING PRICE STRATEGY is a pricing strategy in which a

new product is priced high to make optimum profit while there is
.little competition; however, it invites competitors

A PENETRATION STRATEGY is a pricing strategy in which a

product is priced low to attract more customers and discourage
.competitors

EVERYDAY LOW PRICING (EDLP) is a pricing strategy where

prices are set lower than other stores and there are no special
sales
The HIGH-LOW PRICING STRATEGY has regular prices that are
higher than at stores using EDLP, but they have many special
. sales in which the prices are lower

BUNDLING, grouping two or more products together and pricing

.them as a unit
PSYCHOLOGICAL PRICING (ODD PRICING) is pricing goods
and services at price points that make them appear less expensive
.than they are (example: gasoline priced at $2.99 instead of $3.00)