This summary was written in the year 2013-2014.

A. Defining Marketing for the 21st Century

The new economy is based on the Digital Revolution and the management of information. It is characterized by the Information Age, with promises of more accurate levels of production, more targeted communications, and more relevant pricing.

The old economy, on the other hand, was based on the Industrial Revolution, manufacturing industries, and standardization of products to achieve economies of scale. It is characterized by the Industrial Age, which focused on mass-production and mass-consumption with promises of efficiency.

The new economy has allowed for more capabilities for consumers and companies;

Consumers can now:

• Find lowest prices as a consequence of their increase in buying power.

• Access a greater variety of available goods and services. (e.g. through Amazon.com)

• Access large amounts of information about anything

• Interact, place and receive orders easily, 24/7 and from any location.

• Compare notes on products and services.

Companies can now:

• Operate powerful new information and sales channels to inform and promote their businesses and products.

  • e.g. Using Web sites.

• Collect fuller and richer information about markets, customers, prospects, and competitors.

• Speed up and facilitate internal Communication among employees.

  • e.g. Intranet

  • e.g. Extranets with suppliers

• Communicate with customers and prospects in a “two-way” manner, and have more efficient transactions.

• Send ads, coupons, samples, and information to those customers that requested it.

  • e.g. Internet, allows for the comparison of prices  improving purchasing

• Customize offerings and services to individual customers.

• Improve purchasing, recruiting, training, and internal and external communications.

• Improve logistics and operations, saving costs and improving accuracy and quality.

These capabilities of consumers and customers create new forces, the question and focus is on how these new forces will change marketing.

Marketing deals with identifying and meeting human social needs; “meeting needs profitably”. Companies are motivated to turn a private or social need into a profitable business opportunity, e.g. Ikea identified the need for good furniture and lower prices.

Companies at greatest risk are those that fail to monitor their customers and competitors and to continuously improve their value offerings.

Marketing Tasks

Radical Marketing is a new way of marketing in which firms focus on delivering high product quality and winning long term customer loyalty (Harley Davidson). The ten rules of “radical marketing” are guidelines including CEO direct involvement, being close to the customer, rethinking the marketing mix, and focusing on brand integrity.

The three stages of marketing practice are as follows:

Entrepreneurial marketing  formulated marketing  intrepreneurial marketing

Effective marketing can take many forms. Marketing is the task of creating, promoting, and delivering goods and services to consumers and businesses.

The scope of marketing involves a broadened view of marketing (including goods, services, and ideas). Marketing entities have broadened to include marketing of goods, services, experiences, events, properties, people, places, organizations, ideas, and information. Responsibility of market managers has broadened to include demand management in which they seek to influence the level, timing and composition of demand. There are eight different states of demand that they can find and influence; each with corresponding marketing tasks:

1. Negative demand – market dislikes product.

2. No demand – unaware or uninterested customers.

3. Latent demand – a demand for which a product doesn’t exist (e.g. healthy cigarettes)

4. Declining demand – Task: Reverse it through creative remarketing.

5. Irregular demand – demand varies; e.g. seasonal. Task: Synchromarketing: altering the pattern of demand through flexible pricing, promotion, and other incentives.

6. Full demand – Volume of business is adequate. Task: improve quality, continually measure consumer satisfaction.

7. Overfull demand – Demand too high. Task: Demarketing (general or selective): finding ways to reduce demand temporarily or permanently.

8. Unwholesome demand – Demand for discouragement of consumption e.g. against cigarettes. Task: Use fear messages, price hikes, reduce availability.

Marketing tasks has earned a broadened view to include more decisions that vary in importance depending on the marketplaces they operate in: consumer, business, global, and nonprofit markets. For example, tools to better understand the customer are more important in consumer and business markets than in nonprofit and governmental markets where limited purchasing power is present.

Marketing Concepts and Tools

Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others.

Marketing Management refers to the art and science of choosing target markets and locking in and retaining customers, through creating, delivering, and communicating superior customer value.

Segmentation means dividing up the market and identifying market segments by examining demographic, psychographic, and behavioral differences among buyers.

Target Markets are the segments that provide the greatest opportunity.

A Marketplace is physical while a marketspace is digital (e.g. internet shopping).

A Metamarket is a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries.

A marketer is someone actively seeking one or more prospects for an exchange of values. A prospector has been identified as willing and able to engage in the exchange.

A need is a state of felt deprivation of some basic satisfaction. Wants are desires for specific satisfiers of needs. Demands are wants for specific products that are backed by an ability and willingness to buy them.

A value proposition is a set of benefits a company offers to customers to satisfy their needs. An offering is the intangible value proposition. A brand is an offering from a known source.

A customer value triad is the combination of quality, service, and price. Value is the consumer’s estimate of the product’s overall capacity to satisfy his or her needs.

Value = Benefits / Costs = (Functional benefits + Emotional benefits) ,

(Monetary costs + Time costs + Energy costs + Psychic costs)

Exchange refers to the process of obtaining desired product from someone by offering something in return. Conditions when making exchange include that it is important to analyze the wants of both parties. If there is a sufficient match or overlap in the want lists, a basis for a transaction exists. A transaction is a trade of values between two or more parties. A barter transaction involves trading goods or services for other goods or services. Transfer (different from transaction) is the passing of a product without necessarily receiving anything tangible in return.

Behavioral response refers to a reaction sought by marketers. Marketing consists of actions undertaken to elicit desired responses from a target audience. Relationship marketing seeks long-term, “win-win” transactions between marketers and key parties (suppliers, customers, distributors), building mutually satisfying long-term relations with key parties, cutting down transaction costs and time.

The ultimate outcome of relationship marketing is a unique company asset called a marketing network of mutually profitable business relationships. Competition is increasing between marketing networks; success depends on the better network.

Marketing channels are means used to reach a target market; these are critical.

There are three channels for marketing offerings:

1. Communication (e-mail, toll free numbers).

2. Distribution (distributors, wholesalers, retailers, and agents).

3. Service channels (warehouses, transportation companies, banks, insurance companies that facilitate transactions).

A supply chain refers to the long channel process that reaches from the raw materials and components to the final product/buyers, represents a value delivery system

Competition - Includes actual and potential rival offerings and substitutes. A broad view of competition assists the marketer to recognize the levels of competition, based on substitutability: brand, industry, form, and generic competition.

The marketing environment consists of:

• The task environment (immediate actors in the production, distribution, and promotional environments).

• The broad environment (demographic, economic, natural, technological, political/legal, and social/cultural).

Marketing mix is the set of marketing tools (classified into the following groups which represent the sellers view of the marketing tools available for influencing buyers: product, price, place, promotion) the firm uses to pursue marketing objectives with the target market. The 4 P’s correspond with to the customer’s four C’s (customer solution, customer cost, convenience, communication).

Company Orientations toward the Marketplace

Six competing concepts under which organizations conduct marketing activities include:

1. Production concept: assumes consumers will favor those products that are widely available and low in cost.

2. Product concept: assumes consumers will favor those products that offer the best combination of quality, performance, or innovative features. It can have a negative effect due to little or no customer input or competitor research. It can lead to Leavitt’s marketing myopia: “customers do not buy drill bits-they buy ways to make holes”.

3. Selling concept: assumes organizations must undertake aggressive selling and promotion efforts to enact exchanges with otherwise passive consumers, consumers must be “coaxed” into buying.

It is practiced mainly with unsought goods (insurance, encyclopedias), in non-profit areas (charity), and when a firm has overcapacity. High risks are involved since an unsatisfied customer can easily spread complaints to others.

4. Marketing concept: assumes that the key to achieving organizational goals consists of being more effective than competitors in integrating marketing activities toward determining and satisfying the needs and wants of target markets. E.g. “The job is not to find the right customers, but the right products for your customers”.

Companies must carefully chose their target market, understand customer needs, engage in integrated marketing (having all departments of company work together to serve the customers interests) and finally produce profits by satisfying customers. Hurdles to adopting the marketing concept include organized resistance, slow learning, and fast forgetting.

5. Customer concept: shaping separate offers, services, and messages to individual customers, relying on the building of high customer loyalty and lifetime value. It requires large investments in order to gather the information, hardware and software.

6. Societal marketing concept: The organization’s task is to determine the needs, wants, and interests of target markets, requiring marketers to build social and ethical considerations into their marketing practices in a way that preserves or enhances the consumer’s and the society’s well-being. It calls upon marketers to balance company profits, consumer want satisfaction, and public interest. Cause-Related Marketing is a form of this concept, in which a company with an image, product, or service to market builds a relationship or partnership with a “cause” for mutual benefit; e.g. Patagonia sells sweaters made from recycled plastic bottles.

Business and marketing are changing because of major new forces of globalization, deregulation, and technological advances.

• Customers expect more and better, rising brand competition leads to rising promotion costs and shrinking profit margins, and store-based retailers suffering because of the many new channels allowing for more competition.

• Company responses and adjustments include re-engineering the firm, outsourcing goods and services, e-commerce, benchmarking, alliances (networking), partner-suppliers, market-centered, local and global marketing (versus only local), decentralization to encourage innovative thinking and marketing (more entrepreneurial).

• Marketer responses and adjustments include customer relationship marketing, customer lifetime value, customer share, target marketing, customization, customer database, integrated marketing communications to deliver consistent brand image, consideration of channel members as partners, recognizing every employer as a marketer, and basing decisions on models and facts.

B. Developing Marketing Strategies and Plans

Strategic planning occurs when a firm reexamines which business it should grow in, maintain, harvest, or terminate and which new businesses it should enter. Strategic planning deals with the adaptability of the firm to rapidly changing environment. The aim of strategic planning is to shape the company’s businesses, products, services, ad messages so that they achieve targeted profits and growth. It should be based on the recognition that companies succeed by providing superior customer value. The three key areas of strategic planning are:

1. Managing company’s businesses as an investment portfolio.

2. Assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in the market.

3. Establishing a strategy.

The four organizational levels of companies at which strategic planning takes place are:

1. Corporate (decides on resources to divisions),

2. Division (covert allocation of funds),

3. Business unit (develop strategic plan future),

4. Product (develop a marketing plan).

1. Corporate and Division Strategic Planning:

Corporate strategic planning is the start of strategic planning which establishes the framework within which the divisions and business unites prepare their plans.

Their activities include:

i. Defining Corporate Mission Statement – 3 characteristics of good mission statements are: limited number of goals, stress major policies and company values, defining the major competitive scope within which the company will operate, including the industry scope, products and applications scope, competence scope, market-segment scope, vertical scope, geographical scope.

ii. Establishing and identifying SBU’s (Strategic Business Units) – SBU’s are business units that can benefit from separate planning, face specific competitors, and be managed as profit centers. Extending to new customer groups, customer needs, and technology allows for strategic business units. Companies that define their business in ‘market definition’/strategic market definition include broader views of their competition, opportunities, and business as opposed to focusing on the products. E.g. IBM redefined itself from a ‘hardware and software manufacturer’ to a ‘builder of networks’.

iii. Allocation of Resources to each SBU – a decision that is based on their market attractiveness and business strength.

Portfolio models help determine which SBU’s to build, maintain, harvest, or divest (separate from the rest). Example of these models include:

• The Boston Consulting Group Approach,

• The General Electric Model.

iv. Planning new businesses, downsizing, or terminating older businesses – Often the project sales for a firm are less than what is achieved. When project sales are less than actual sales, there is a Strategic Planning Gap. A Strategic Planning Gap provides management with the opportunity to develop business strategies to fill the gap. There are three options available to fill the gap. Opt for:

• Intensive growth (strategies: market penetration, market development, and product development, diversification).

• Integrative growth (strategies: backward, forward, and/or horizontal).

• Diversification growth (diversification strategies: concentric, horizontal, and conglomerate).

2. Business Unit Strategic Planning

The Business Planning Strategic Planning Process consists of eight steps:

1. Defining the business’s missions.

2. Analyzing external environment.

3. Analyzing internal environment (=SWOT).

4. Choosing business objectives and goals.

5. Developing business strategies.

6. Preparing programs.

7. Implementing programs.

8. Gathering feedback.

9. Exercising control.

A marketing opportunity is an area of buyer need or potential interest in which a company can perform profitably. It is found through the conducting of the SWOT Analysis (2^nd step).

Market opportunity analysis is used to determine the attractiveness and success probability of the opportunity when such arises (like for example, introducing a new capability such as Apple’s “iMovies”). The result of the analysis is a decision depending on a combination high/low in opportunities and threats respectively. The opportunity is then: an ideal business (is high in major business opportunities and low in major threats), a speculative business (high; high), a mature business (low; low), or a troubled business (low; high).

Porter’s generic strategies include cost leadership, differentiation, and focus.

Strategic alliances take the form of marketing alliances, of which there are four major categories:

1. Product or service alliances: One company licenses another to product its product, or two companies jointly market their complementary products or a new product.

2. Promotional alliances: One company agrees to carry a promotion for another company’s product or service.

3. Logistic alliances: One company offers logistical services for another company’s product.

4. Pricing collaborations: One or more companies join in a special pricing collaboration.

The Marketing Process

Marketing plans focus on a product/market and consists of the detailed marketing strategies and programs for achieving the product’s objectives in a target market.

A firm’s task is to deliver value at profit. This can be illustrated through the Value-Delivery Process, which has at least 2 views.

1. One is of the “Traditional View” in which production and selling is stressed.

2. The other view is one of “Value Creation and Delivery Sequence”, in which the firm is involved in strategic marketing: choosing the value (segment the market, select the target market, conduct value positioning), and is also involved tactical marketing: providing the value (develop the product, service development, pricing, sourcing, manufacturing, distribute, service), and communicating it (sales force, sales promotion, advertising).

The strategic level deals with target markets and value proposition. The tactical level deals with actual product features, promotion, pricing, service, sales channels, merchandising).

The marketing planning process consists of five steps:

1. Analyzing market opportunities – Important to measure market potential and forecasting future demand, analyze buyers and competitors.

2. Researching and select target markets.

3. Developing market strategies – Decide on product positioning (quality, price, and advertising), initiate product development, testing, launching, modifications as product grows and environment changes.

4. Planning marketing programs – Decide on allocation of budget, marketing expenditure, marketing mix (product, place, price, promotion).

5. Organizing, implementing, and controlling the marketing effort – 3 types of marketing control: annual-plan, profitability control, strategic control.

Product Planning – A Marketing Plan

Each product level (product line, brand) must develop a marketing plan for achieving its goals in product planning. (It is sometimes called a business plan). Marketing planning results in a marketing plan document that consists of the following sections: executive summary, current market situation, opportunity and issue analysis, objectives, marketing strategy, action programs, financial projections, and implementation controls.

Opportunities can be found by identifying the following:

• Fad – “unpredictable, short-lived, and without social, economic, and political significance”.

• Trend – a direction or sequence of events that has some momentum and durability.

• Megatrend – “large social, economic, political and technological changes that are slow to form, and once in place, they influence us for some time-between seven and ten years, or longer (e.g. global lifestyles, cultural nationalism)

These are also needed to be identified to characterize the current macroenvironment.

Identifying and responding to the major macroenvironment forces

The macroenvironment consists of six major forces:

1. Demographic Environment

(population growth, population age mix – age concentrations of people differ per country, ethnic and other markets differ in wants and habits, educational groups (implications for e.g. demand on books), household patterns, geographical shifts in population.) The effect of these changes is fragmentation of the mass market into number micromarkets differentiated by age, sex, ethnic background, etc.

These trends are reliable for short and intermediate run.

2. Economic Environment

Purchasing power is a requirement of a market, and depends on income distribution and savings, debt and credit availability. These changes have implications for tailoring of products and business.

3. Natural Environment

Shows potential shortages of raw materials, unstable costs of energy, increases in pollution levels, and the changing role of governments in environmental protection.

4. Technological Environment

Every new technology is a force for “creative desctruction”, the introduction of one innovation may hurt another industry. (TV’s  newspapers)

Trends in technology to monitor and take into consideration:

• Accelerating page of change: this may cause market, technological, and regulatory uncertainty, which are reason for marketing research to focus on certainty and government/public relations.

• Unlimited opportunities for innovation

• Varying R&D budgets

• Increased regulation of technological change, complex products cause safety concerns to arise.

• Political-Legal Environment

Is composed of:

• Legislation – laws protecting competition, consumers and society.

• Special interest groups (e.g. political action committees) have grown in strength and number putting constraints on marketers.

Consumerist movement: an organized movement of citizens and government to strengthen the rights and powers of buyers in relation to sellers.

6. Social-Cultural Environment

7. Refers to beliefs, values and norms

8. people vary in views of: themselves, others, organizations, society, nature, and of the universe. Marketers must understand this, and market products that correspond to society’s core and secondary values, and address the needs of different subcultures within a society.

The interactions in the macroenvironment forces may lead to new opportunities and threats. A change in one environment may have implications for all others.

C. Conducting Marketing Research and Forecasting Demand

A Modern Marketing Information System consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. Marketing information is critical in effective marketing. The four subsystems of the marketing information system (from which it is developed) include: internal records system, marketing intelligence activities, marketing research, and marketing decision support analysis.

1. Internal Records System

Internal reports providing current data on sales, costs, inventories, cash flows, and accounts receivable and payable through sales information systems, databases, data warehouses, and data-mining.

2. The Marketing Intelligence Activities

This supplies managers with information about developments in the external marketing environment.

“Happening data” can be found in newspapers, books, trade publications, talking to customers, suppliers, and distributors; and meeting with other company managers, mystery shoppers, specialists in marketing intelligence.

Collecting this information can be done through employees, distributors, retailers, through access to competitor’s information (reports, ads, news stories…), customers (e.g. advisory panels), and commercial data (e.g. Nielsen Company).

3. Marketing Research

Marketing research involves collecting information that is relevant to specific marketing problems facing the company.

It consists of 5 steps: defining the problem and research objectives; developing the research plan; collecting information; analyzing the information; and presenting the findings.

When developing the research plan (step 2), the following decisions need to be made:

• Which data sources? (Secondary, primary, or both?)

• How should the primary data be collected? (Observational research, focus-group research, surveys, behavior data, and/or experiments?)

• Which research instruments should be used to the collect primary data? (Questionnaires, psychological tools, mechanical devices i.e. eye movement cameras, qualitative measures like pagers, videos, informal interviewing?)

• When designing the sampling plan, who is to be surveyed? How many people? And how should the respondents be chosen?

• How should the subject be contacted? (Mail questionnaire, personal interviewing, arranged interviews, intercept interviews, online methods?)

A good marketing research: uses scientific method, research creativity, multiple methods, interdependence of models and data, value vs. cost of information, healthy skepticism, and ethical marketing.

4. Marketing Decision Support Analysis (MDSS)

An MDSS is a coordinated collection of data, systems, tools, and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action. It helps managers interpret relevant information and turn it into a basis for marketing action. Quantitative tools used in marketing decision support systems include:

• Statistical Tools

• Multiple regression

• Discriminant analysis

• Factor analysis

• Cluster analysis

• Conjoint analysis

• Multidimensional scaling

  • Models

• Markov-process model

• Queuing model

• New-product pretest models

• sales response model

  • Optimization routines

• Differential calculus

• Mathematical programming

• Statistical decision theory

• Game theory

• Heuristics

Forecasting and Demand Measurement (what’s the link?)

Measures can be measured for six different product levels (all, industry, company, product line, product form, product item sales), five different space levels (world, USA, region, territory, customer), and three different time levels (short, medium, long run).

A market is the set of all actual and potential buyers of a market offer.

A potential market is the set of consumers who profess a sufficient level of interest in a market offer.

An available market is the set of consumers who have interest, income, and access to a particular offer.

A qualified available market is the set of consumers who have interest, income, access, and qualifications for the particular market offer.

A target market (served market) is the part of the qualified available market the company decides to pursue.

A penetrated market is the set of consumers who are buying the company’s product.

Examples of reactions to dissatisfaction of current sales include: attracting more buyers from target market, lower qualifications of potential buyers, expanding available market.

Measuring Demand

Market demand is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.

• Market penetration index – the comparison between the current level of market -demand to the potential demand level. High index means increase in price competition and lower margins.

• Share penetration index – the comparison between current market share to potential market share. (When low, underlying factors e.g.: lows bran awareness, low brand availability, benefit deficiencies, too high price.)

• Market forecast – the market demand that corresponds to the (one) level of industry marketing expenditure that will actually occur.

• Market potential – the limit approached by market demand as industry marketing expenditures approach infinitely for a given marketing environment. To find this, companies may use the product penetration percentage figures.

Company demand is the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period.

• Company sales forecast – the expected level of company sales based on chosen marketing plan and an assumed marketing environment; results from an assumed marketing expenditure plan.

• Sales quota – the sales goal set for a product line, company division, or sales representative. (good to stimulate sales effort)

• Sales budget – a conservative estimate of the expected volume of sales. It is used primarily for making current purchasing, production, and cashflow decisions.

• Company sales potential – the sales limit approached by company demand as company marketing effort increases relative to that of competitors. It is often less than market potential.

Estimating current demand requires the determination of: total market potential, area market potential, and industry sales and market shares.

• Total market potential – the maximum amount of sales that might be available to all firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. Total demand can be estimated through the chain ration method, which involves multiplying a base number by several adjusting percentages.

• Area market potential – market potential in certain territories and the allocation of budget among the territories.

  • Market-Buildup Method – for business marketers.

  • Multiple-Factor Index Method – for consumer marketers.

Forecasting methods for future demand include: buying expert opinions, market tests, time-series analysis, and statistical demand analysis.

Four types of marketing control needed by companies

1. Annual Plan Control – To examine whether the planned results are being achieved in sales, profits, and other goals established in its annual plan.

1. Sales analysis

Sales variance analysis: measures the relative contribution of different factors to a gap in sales performance.

Microsales analysis: looks at specific products, territories, and so forth that failed to produce expected results.

2. Market-share analysis

Ways of measuring market share:

• Overall market share – company’s sales expressed as percentage of total market sales.

•  

Overall Market Share

Customer Penetration

Customer Loyalty

Customer Selectivity

Price Selectivity

=

X

X

X

-Served market share – its sales expressed as a percentage of the total --- sales to its served market.

• Served market – all the buyers who are able and willing to buy its product.

Relative market share – market share in relation to largest competitor.

3. Expense-to-sales ratio – Ensuring no overspending to achieve sales goals.

4. Financial analysis – Is used by management to identify factors that affect the company’s rate of return on net worth.

   • Return on assets = the product of the profit margin ratio and the asset turnover ratio.

   • Return on marketing investment=New marketing contribution divided by marketing expenditures.

   • How to improve performance:

1. Increase the profit margin by increasing sales or cutting costs.

2. Increase the asset turnover by increasing sales or reducing assets.

5. Market-based scorecard analysis – To reflect performance and provide early warning signals using Customer-performance scorecard and Stakeholder-performance scorecards.

2. Profitability Control – To examine where the company is making and losing money.

    1) identify functional expenses
    2) assign functional expenses to marketing entities
    3) profit/loss statement for each marketing entity

3. Efficiency Control – To evaluate and improve the sending efficiency and impact of marketing expenditures. Focuses on finding ways to increase the efficiency of the sales force, advertising, sales promotion, and distribution.

4. Strategic Control – entails a periodic reassessment of the company and its strategic approach to the marketplace, using the tools of the marketing effectiveness review and the marketing audit. Companies should also undertake marketing excellence reviews and ethical/social responsibility views.

Tools:

• Marketing Effectiveness Review - relates to 5 major attributes of a marketing orientation
      1.customer philosophy
      2.integrated marketing organization
      3.adequate marketing information
      4.strategic orientation
      5.operational efficiency

• Marketing audit – a comprehensive, systematic, independent, and periodic examination of a company’s or business unit’s marketing environment, objectives, strategies, and activities with a view to determining problem areas and opportunities and recommending a plan of action to improve the company’ s marketing performance.

Components of a Marketing audit - environment - macro, task, strategy, organization, systems, productivity, and function audits.

D. Creating Customer Value, Satisfaction, and Loyalty

Differences between Mass Marketing and One-to-One Marketing

A customer database is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, or maintenance of customer relationships.

Database marketing is the process of building, maintaining, and using customer databases and other databases for the purpose of contacting, transacting, and building relationships.

Customer mailing lists simple holds the customer contact information, while the customer database holds more information.

A data warehouse collects, and enables personnel to capture, query and analyze data on contacts between the customer and the company. Inferences can be drawn about an individual customer’s needs and responses

Data mining involves the use of sophisticated statistical and mathematical techniques to extract useful information about individuals, trends, and segments from mass data.

Ways to use databases include: Identify prospects, decide which customers should receive a particular offer, to deepen customer loyalty, to reactivate customer purchases, to avoid serious customer mistakes

The disadvantages of database marketing include:

• It requires a large investment in computer hardware, database software, analytical programs, communication links, and skilled personnel.

• Sometimes building a customer database may not be worthwhile: e.g. with once in a-lifetime purchase products (e.g., a grand piano), with brand-loyal customers, small unit sale (e.g., a candy bar), high costs on gathering information.

• Employees may be unwilling to be customer-oriented or use the available information.

• Customers may be unwilling to give and allow for the use of personal information, and may not want a relationship with the company.

Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

• Total customer value is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering. Sources include product value, services value, personnel value, and image value.

• Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering. Sources include monetary cost, time cost, energy cost, psychic cost.

Customers are value maximizers. For a customer to decide which company delivers the highest perceived customer value, the buyer will evaluate and compare the total customer value (from its sources) to the total customer cost (also from its four sources).

The seller must assess the total customer value and total customer cost associated with each competitors offer in order to know how his or her offer rates in the buyer’s mind.

When the seller is at a customer perceived value disadvantage, it can increase total customer value or decrease total customer cost.

Customer Satisfaction refers to a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations. The link between customer satisfaction and customer loyalty is not proportional. To generate customer satisfaction, companies must match customer expectations with the delivering performances. To generate high customer loyalty, companies must deliver high customer value.

• Value proposition – consists of the whole cluster of benefits the company promises to deliver; a statement of resulting experience.

• Value delivery system – includes all the experiences the customer will have on the way to obtaining and using the offering, for a company to keep promise they must manage this.

Methods to track customer satisfaction include: complaint and suggestion systems, customer satisfaction surveys, ghost shopping (hiring people to act as potential buyers and report feedback), last customer analysis (through contacting former/ex-customers).

High performance businesses are companies that reach their customer value and satisfaction goals. These companies set strategies to satisfy key stakeholders, by improving business processes, and align resources and organization. “Build to Last” Commonalities of high performance businesses include:

1. Distinctive set of values, with no deviation.

2. Purpose is expressed in enlightened terms (e.g. “Help end Hunger”).

3. Vision of the future has been developed, company acts to implement it.

(e.g. Shell’s scenario analysis of possibilities of the future.)

The value chain is a tool for identifying ways to create more customer value. The value delivery system (supply chain) refers to working with partners to find competitive advantages beyond own operations. (E.g. Levi’s works with Sears to determine demand).

Customer Relationship Management (CRM) implies building stronger relationships with customers. The CRM aim is to produce high customer equity, which is the total of the discounted lifetime values of all of the firm’s customers. The drivers of CRM include:

1. Value equity (subdrivers are quality, price, and convenience),

2. Brand equity (subdrivers are customer brand awareness, customer attitude, customer perception of brand ethics),

3. Relationship equity (subdrivers are loyalty programs, special recognition and treatment programs, community and knowledge building programs).

The CRM levels of investment are: basic marketing, reactive marketing, accountable marketing, proactive marketing, partnership marketing.

To form strong customer bonds companies can:

• Add financial benefits, (e.g. with frequency programs, club membership programs),

• Add social benefits,

• Add structural ties through creating long-term contract, charge a lower price to consumers that buy larger supplies, or turn the product into a long-term service.

Customer lifetime value (CLV) refers to the present value of the profit stream that the company would have realized if the customer had not defected prematurely. To measure CLV: Subtract from the expected revenues the expected costs of attracting, selling, and servicing that customer.

Attracting/searching for customers requires considerable time and resources and can lead to expanded profits and sales. (Ways of attracting: mail, ad’s, salespeople).

Customer churn is high customer defection; the problem of attracting and retaining customers. (Defection: customers that leave, retention: customers that stay).To reduce the defection rate (churn), the company must define and measure the retention rate, distinguish the causes of customer attrition and identify those that can be managed better, estimate profits lost from losing customers, calculate cost of reducing defection rate, and listen to customers.

Companies must also focus on retaining customers. Ways to strengthen customer retention include: Erecting high switching barriers, or delivering high customer satisfaction.

A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting selling, and servicing that customer. Measuring individual customer profitability is important. To deal with unprofitable customers, companies must either raise fees or reduce service support.

To analyze profitability, you can use: Customer Profitability Analysis (CPA), which can best be done through Activity Based Costing (ABC). To increase company profitability, companies should build sustainable competitive advantage or leverageable competitive advantages. The key to value creation and customer satisfaction is total product and service quality; companies that wish to remain solvent and profitable implement.

Total Quality Management is an organization-wide approach to continuously improving the quality of all the organization’s process, products, and services.

Brand equity – refers to the degree of brand-name recognition, perceived brand quality, strong mental and emotional associations, and other assets such as patents, trademarks, and channel relationships.

Brand equity involves Brand awareness, Brand acceptability, and Brand preference.

Aaker’s five levels of customer attitude:

1. The customer will change brands, especially for price reasons. No brand loyalty.

2. Customer is satisfied. No reason to change brands.

3. Customer is satisfied and would incur cost by changing brand.

4. Customer values the brand and sees it as a friend.

5. Customer is devoted to the brand.

High brand equity (an important asset) yields the following competitive advantages:

1. trade leverage in channel bargaining

2. higher price

3. line extensions earlier

4. defense against price competition

Branding challenges: Brand poses several challenges/confrontations to marketers.

Among the challenges are

1. “To brand or not to brand” – whether to develop a brand name for the product.

2. brand-sponsor decision – the problem of launching the product as a manufacturer brand, a distributor brand, or a licensed brand name.

Brand-name decision – strategies for manufacturers who do brand their products in choosing brand names include: individual name strategy (General Mills Bisquik), blanket family name strategy (Heinz and GE), separate family names for all products (Sears Kenmore and Kraftsman), and company trade name combined with individual product names (Kellogg Rice Krispies).

Brand building tools – Tools that attract attention to their brands:

Public relations and press releases, sponsorships, clubs and consumer communities, factory visits, trade shows, event marketing, public facilities, social cause marketing, high value for the money, founder’s or a celebrity personality, and mobile phone marketing.

Brand-strategy decision – depends on whether the brand is functional brand (satisfies a functional need, e.g. to shave), image brand (difficult to differentiate between brands e.g. Mont Blanc pens), or experiential brand (consumer involvement e.g. Disneyland).

Developing brands can be done through:

Line extensions – additional items in the same product category.

Brand extensions – new brand names in a new product category.

Multibrands – Additional brand names in the same product category.

New brands – New brand names in a new product category.

Cobrands – Two well-known brand names combined in one product offering.

Brand asset management – involves many areas beyond advertising and public relations, e.g. training and encouraging distributors and dealers to serve customers well, training employees to be customer-centered.

Brand auditing and repositioning – companies need to periodically audit their brand’s strengths and weaknesses, through using, for example, a brand report card, which may cause a company to discover it can best reposition the brand.

E. Analyzing Consumer Markets

Analyzing consumer markets and buyer behavior includes questions such as: Why did the Wal-Mart design not succeed in Latin America? How do the buyers’ characteristics influence buying behavior?

Factors that influence buyer behavior include:

1. Cultural factors

   • Culture – values, perceptions, preferences, and behaviors that are the most fundamental determinant of a person’s wants and behavior.

   • Subculture – nationalities, religions, racial groups, and geographic regions.

   • Social Classes – relatively homogeneous and enduring divisions in a society that are hierarchically ordered in which the members share similar values, interests, and behaviors. The difference in, e.g. media preferences, program preferences, language use, product and brand preferences.

2. Social factors

3. Reference groups – all groups that have an influence on attitudes or behavior. Major influences are exerted by membership groups, especially primary groups such as family, friends, co-workers, etc. Family is the most influential reference group. Secondary groups, trade union, religious, exert less influence.

People are also influenced by groups they’re not in; aspirational groups (groups the person wishes he/she were in), dissociative groups (groups that oppose the persons values).

• Marketers can try to understand groups using Opinion Leaders, who give information on products or brands.

• Important aspects for marketers: roles of husband, wife, and children in purchases, direct influence from children and teens (“I want to go to McDonalds), and indirect influence (parent’s trust in McDonalds leads to the purchase without requests from children/teens).

• Roles are the activities a person is expected to perform, each carry a certain status.

• In marketing, the status-symbol of the product is an important consideration.

3. Personal factors

Age and Stage in the Life Cycle – People buy different products over their lifetime.

Product choice also depends on economic circumstance, and occupation. E.g. Company president travels, buy cars, suits, golf club memberships.

Lifestyle refers to a person’s pattern of living in the world as expressed in activities, interests, and opinion.

Psychographics is the science of using psychology and demographics to better understand consumers.

Personality is the set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli. Brand personality refers to the specific mix of human traits that may be attributed to a particular brand.

Marketers try to develop brand personalities that will attract consumers from the same self-concept (how they view themselves). There are five traits of brand personality: sincerity (down-to-earth), excitement (daring, spirited, up-to-date), competence (reliable, intelligent, successful), sophistication (upper class and charming) and ruggedness (outdoorsy and tough).

4. Psychological factors

A motive is a need that is sufficiently pressing to drive the person to act. Theories of human motivation include:

1. Freud’s Theory

   • Unconscious psychological forces shape people’s behavior.

   • A person with also react to less conscious clues like shape, weight, material, color, when seeing an advertisement.

   • Laddering – a technique that is used to trace a person’s motivations from the stated instrumental ones to the more terminal ones.

   • Projective Techniques – e.g. word association, sentence completion, picture interpretation. These techniques are used by motivation researchers to uncover motives.

2. Abraham Maslow’s Theory

3. Aim: To explain why people are driven by particular needs at particular times.

4. Maslow’s Hierarchy of Needs is a triangle that shows the order of needs from most pressing to least pressing:

5. Physiological needs: food, water, shelter

6. Safety needs: security, protection

7. Social needs: sense of belonging, love

8. Esteem needs: self-esteem, recognition, status

9. Self-actualization needs: self-development and realization

3. Frederick Herzberg’s Theory

4. Dissatisfiers – factors that cause dissatisfaction; e.g. no warranty

5. Satisfiers – factors that cause satisfaction

6. Two-factor theory, in which there must be satisfiers for a motivation to purchase. Absence dissatisfiers with satisfiers, (e.g. having a warranty), would not be enough to motivate the purchase.

Perception is the process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world.

Selective attention is the process through which a person unconsciously screens out certain stimuli, (e.g. when seeing 500 adds in 1 day, you will not be able to remember/notice all 500).

Marketers need to work on getting their stimuli be the one noticed.

1. People are more likely to notice stimuli that relate to a current need.

2. People are more likely to notice stimuli that they anticipate.

3. People are more likely to notice stimuli whose deviations are large in relation to the normal size of the stimuli.

Selective distortion is the tendency to twist information into personal meaning. Selective retention is the tendency to remember information that supports attitudes and beliefs.

Learning involves changes in an individual’s behavior arising from experience.

Drive refers to a strong internal stimulus impelling action. Cues minor stimuli that determine when, where, and how a person responds. An example of generalization is “Compaq gave me a good monitor so the computer must be good too.” Discrimination means recognizing sets of similar stimuli. Marketers can build up demand for a product by associating it with strong drives, using motivating cues, and providing positive reinforcement.

A belief is a descriptive thought that a person holds about something. An attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea.

Current beliefs of consumers may impede the success of a product. E.g. the country of origin for leather jackets is “believed” to be better when they are from Italy than from Korea. Ways companies can deal with this is by engaging in co-production (production in Korea and finishing in Italy) and/or adapting a strategy to achieve world class quality.

Companies can best fit products to existing attitudes. Acting in the contrary can (rarely) work: e.g. “Got Milk?” ad’s to change attitudes towards milk.

Deciding to Buy

The buying decision is important for managers to understand.

Roles of the consumers that play in the buying decision. A person can be an/a:

• initiator suggests the idea of buying the product

• influencer whose view or advice influences the decision

• decider decides on any component of the decision process

• buyer makes the actual person

• user who consumes or uses the product/service

Buying Behavior – 4 types:

Strategies Marketer can take for each behavior:

• Complex Buying Behavior: (e.g. buying risky, high self-expressive, infrequent products)

• find ways to assist buyer in learning about the product

• differentiate the brand’s features

• describe the brand’s benefits, motivate sales personnel to influence buyer’s brand choice.

• Dissonance-reducing buying behavior (buying expensive, infrequent, risky products)

• Help customers feel good about the choice of brand they have made

• Habitual buying behavior: (e.g. low cost, frequent purchases buying matches, salt)

• Use price and sales promotion

• Television advertising (rather than print advertising)

• Link the product to an involving issue

• Link the product to an involving personal issue

• Design advertising to trigger strong emotions related to personal values or ego defense

• Add an important features (plain drink + vitamins)

• Variety Seeking buying behavior

• As a market leader, encourage habitual buying behavior by dominating shelf space, avoid out of stock conditions, reminder advertising.

• As a follower company, offer lower prices, deals, coupons, free samples, advertising promoting trying new things.

Stages of the buying decision process

Mapping the customer’s consumption system – trying to understand the customer’s behavior in connection with a product.

How to learn about the stages in the buying process of a company’s product:

• introspective method

• retrospective method

• prospective method

• prescriptive method

Metamarket – activities that together constitute the purchasing of a product (e.g. choosing the purchase, financing the purchase, buying insurance, accessories)

Metamediaries –firms that help customers navigate through these activities.

Five-Stage Model of the Consumer Buying Process:

1. Problem recognition – occurs when there’s a difference between actual and desired state (e.g. admiring your friends car).

2. Marketer can try and trigger consumer interest.

2. Information search – People have heightened attention (openness to more information) or engage in active information search (look to learn more about the product).

3. Consumer information sources categories: personal sources (family, friends,..), commercial sources (advertising, salespersons, dealers), public sources (mass media, consumer ratings-organizations), experiential sources (handling, examinig, using the product)

4. Marketer can try to get its brand in prospect’s awareness set, consideration set, and choice set. Evaluate customer’s information sources.

3. Evaluation of alternatives – involves weighing product attributes (by importance), and the person’s beliefs about each computer’s (brand) attribute (in other words, their ability to deliver benefits). These two factors yield perceived value for each computer.

4. Purchase decision – Actual purchasing decision can be influenced by attitudes of others, and unanticipated situational factors. Perceived risk (which varies with amount of money involved), can strongly influence a consumer’s decision to modify, postpone, or avoid a purchase decision.

Infomediaries – publish evaluations of products (consumer reports), is an example of influences by others on the decision to purchase a product.

Subdecisions when purchasing - Brand decision, Vendor decision, Quantity decision, Timing decision. Payment-method decision.

5. Postpurchase behavior - A consumer feels dissatisfaction or satisfaction after the purchase.

6. Postpurchase satisfaction – understanding the differences between buyer expectations and the product’s perceived performance. The goal of the marketer is to minimize this gap.

7. Postpurchase actions – Dissatisfied customers may abandon or return product, warn friends, stop buying the product. Satisfied customers will talk good about the product, have a higher probability of returning. Marketers should ensure postpurchase communication which has been shown to result in less product returns and order cancellations.

8. Postpurchase use and disposal – Information that helps marketers determine whether the product was satisfying and to enhance ecological awareness.

Other models of the buying decision process:

• Health model – moving people to develop healthful behaviors (diet, exercise)

Stages of Change:

• Precontemplation: not recognizing the problem or need of change.

• Contemplation: considering the problem

• Preparation: making a commitment to change, taking steps to prepare

• Action: Successful modification of behavior

• Maintenance: continuation of change

Marketer’s Job: Provide tools to help the people pass from one stage to the next.

• Customer activity cycle model – Here the process is split into three phases; pre, during and post phases of behavior towards a particular task.

Fout: Bron van verwijzing niet gevonden

K. Designing and Managing Services

Services

Types of service industries:

1. Government sector.

2. Private nonprofit sector.

3. Business sector.

4. Manufacturing sector.

A service – is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product.

Manufacturers and distributors can use a service strategy to differentiate themselves.

Categories of Service Mix

1. Pure tangible good - where no services accompanying the product. E.g. soap, toothpaste.

2. Tangible good with accompanying services: Tangible good accompanied by one or more services. E.g. computers, cars.

3. Hybrid (blendings-): Equal parts of goods and services. E.g. restaurants.

4. Major service with accompanying minor goods and services: Major service along with additional services or supporting goods. E.g. airplane ticket where food is included.

5. Pure service: Consist primarily of a service. E.g. massage.

Generalizations: Services can be generalized as being either equipment based or people based, requiring either client’s presence or not, meet either a personal need or a business need, and differ in their objectives and ownership.

Four major characteristics of services:

1. Intangibility:

2. Services are intangible. Buyers will look for signs or evidence of the service quality.

3. There are a number of marketing tools: Place, People, Equipment, Communication material, Symbols, Price.

4. Service marketers must be able to transform intangible services into concrete benefits.

2. Inseparability:

3. Services are typically produced and consumed simultaneously.

4. Because the client is also present as the service is produced, provider-client interaction is a special feature of services marketing. Both provider and client affect the outcome.

3. Variability:

4. Because consumers depend on who provides them and when and where they are provided, services are highly variable.

5. Three step toward quality control:

6. Investing in good hiring and training procedures.

7. Standardizing the service-performance process throughout the organization. Helped by preparing a blueprint that depicts events and process in a flowchart.

8. Monitoring customer satisfaction.

4. Perishability:

5. The perishability of services is not a problem when demand is steady.

6. Several strategies for producing a better match between demand and supply in a service business:

7. Demand:

Differential pricing: Shift some demand from peak to off-peak periods. E.g. low early-evening movie prices.

Nonpeak demand: E.g. McDonald’s opened a breakfast service.

Complementary services: Developed during peak time to provide alternatives to waiting customers. E.g. automatic teller machines in banks.

Reservation systems: Created to manage the demand.

• Supply:

Part-time employees: Can be hired to serve peak demand.

Peak-time efficiency routines: Employees perform only essential task during peak periods. E.g. paramedics assist physicians during busy periods.

Increased consumer participation: E.g. consumers bag their own groceries.

Shared services: E.g. several hospitals can share medical-equipment purchases.

Facilities for future expansion: E.g. an amusement park buys surrounding land for later development.

Managing Product Support Services

Product support service is becoming a major battleground for competitive advantage.

Specific worries of customers:

• Reliability and failure frequency.

• Downtime duration and service dependability

• Out-of-pocket costs of maintenance and repair.

Life-cycle cost – Calculated by the buyer: Product’s purchase cost plus the discounted cost of maintenance and repair less the discounted salvage value.

Offering and charging for product support services: E.g. providing a standard offering plus a basic level of services, anything additional costs more, or offering service contracts allowing customers to choose their desired service level.

Postsale (postpurchase) service strategy: A strategy created in order to satisfy customers after they have already bought the product/service.

These services include customer service departments, repair, and maintenance services.

Major trends in customer service:

• More reliable and more easily fixable equipment.

• More sophisticated customers in buying product support services.

• Tendency to dislike multitude of service providers with different types of equipment.

• Service contracts (extended warranties) may diminish in importance.

• Customer service choices are increasing rapidly; prices and profits are kept down.

• Increasing quality of call centers and customer service representatives.

L. Developing Pricing Strategies and Programs

Service companies face three tasks: increasing competitive differentiation, service quality, and productivity.

1. Managing differentiation:

The offering:

• primary service package - what the customer expects, and to this can be added secondary service features.

• Most service innovations are easily copied. The company that regularly introduces innovations will gain a succession of temporary advantages over the competitors. Through earning a reputation for innovation, it may retain customers who want the best.

Delivery:

• Differentiating can be done by hiring and training better people to deliver its service, developing a more attractive physical environment in which to deliver the service, and designing a superior delivery process.

Image:

• Image can be differentiated through symbols and branding.

2. Managing service quality:

Delivering consistently higher-quality service than competitors and exceeding customers’ expectations.

The following five gaps can cause unsuccessful delivery:

1. Gap between consumer expectation and management perception:

2. Management does not always perceive correctly what customers want.

2. Gap between management perception and service-quality specification:

3. Management might correctly perceive the customers’ wants but not set a specified performance standard.

3. Gap between service-quality specifications and service delivery:

4. The personnel might be poorly trained or incapable or unwilling to meet the standard.

5. They may be held to conflicting standards, such as taking time to listen to customers and serving them fast.

4. Gap between service delivery and external communications:

5. Consumer expectations are affected by statements made by company representatives and ads.

5. Gap between perceived service and expected service:

6. This gap occurs when the consumer misperceives the service quality.

Five determinants of service quality:

1. Reliability – the ability to perform the promised service dependably and accurately.

2. Responsiveness – the willingness to help customers and to provide prompt service.

3. Assurance – the knowledge and courtesy of employees and their ability to convey trust and confidence.

4. Empathy – the provision of caring, individualized attention to customers.

5. Tangibles – the appearance of physical facilities, equipment, personnel and communication materials.

Excellently managed service companies share the following common practices:

Strategic concept (clear sense of their target customers and their needs, developed a distinctive strategy for satisfying these needs), Top-management commitment, High standards, self-service technologies, monitoring systems (e.g. using comparison-shopping, ghost shopping, customer surveys, suggestion and complaint forms, etc), satisfy customer complaints, and satisfy employees as well as customers.

3. Managing productivity:

Seven approaches to improving service productivity:

1. Have service providers work more skillfully.

2. Increase the quantity of service by surrendering some quality.

3. “Industrialize the service” by adding equipment and standardizing production.

4. Reduce or make obsolete the need for a service by inventing a product solution.

5. Design a more effective service.

6. Present customers with incentives to substitute their own labor for company labor.

7. Harness the power of technology.

Price - is the amount of money customers have to pay to obtain a product or service.

Attributes of Price: it is the marketing-mix element that produces revenue, the easiest marketing-mix element to adjust, and communicates to the market the company’s intended value positioning of its product or brand.

Setting the Price

A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographic area, and when it enters bids on new contract work.

Factors (and steps) to consider in setting pricing policy are explained below: Pricing objectives, demand, costs, competitor’s costs, prices, and offers, pricing method, final price determination:

1. Pricing Objectives

• Survival.

• Maximum current profit.

• Maximum market share.

• Maximum market skimming (by e.g. new technology for higher prices).

• Product-quality leadership.

The following conditions favor setting a low price to maximize market share (market-penetration pricing):

• When the market is highly price sensitive and a low price stimulates market growth.

• When production and distribution costs fall with accumulated production experience.

• When a low price discourages actual and potential competition.

2. Determining Demand

- Demand - largely sets a ceiling to the price that a company can charge for its product on a free market.

In general, demand and price are inversely related: the higher the price, the lower the demand.

- Price Sensitivity: The demand curve assumes that people have different price sensitivities. It is important for understand this in order to make the demand curve.

People’s price sensitivity depends on cost of product, frequency of purchases. (Low cost and less frequent purchases usually indicates a low price sensitivity, as well as product distinctiveness, substitute unawareness and inability to compare them, expenditure makes up a small part of their income, small expenditure.)

- Demand curve – shows the relationship between alternative prices and the resulting current demand. Ways of estimating the demand curve:

1. Statistically analyzing past prices, quantities sold, and other factors to estimate their relationships.

2. Conduct price experiments.

3. Ask buyers how many units they would buy at different proposed prices.

Price Elasticity of Demand – Responsiveness of demand to price changes.

% Change in quantity demanded

Price elasticity of demand = ----------------------------------------

% Change in price

Conditions for a less elastic Demand – few or no substitutes, buyers do not readily notice the higher price, buyers are slow to change their buying habits, buyers think the higher prices are justified.

There is a distinction between the magnitude and direction of the contemplated price change, and whether elasticity is long term or short term (long term indicates that seller will not know the total effect of a price change until time passes).

3. Estimating Costs

A company’s cost sets the floor to the price that a company can charge for its product.

A company usually charges a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk.

Factors that affect a firm’s product cost are:

• Economies of scale

• Experience and learning curve

• Activity-based costing Vs. standard costing

• Target costing: The manufacturer determines each cost element and the expected cost to the customer before the product is produced.

The marketer should always analyze competitors’ costs, prices and offers.

Learning Curve – a.k.a. Experience curve, shows a decline in the average cost with accumulated production experience.

Activity Based Cost accounting ABC – a method used to estimate the real profitability of dealing with different retailers, tagging back both variable and overhead costs to each customer.

Target Costing – A Japanese method in which they use market research to establish a new product’s desired functions, price, target cost (from price –desired profit margin), bringing the final cost projections into the target cost range.

4. Analyzing Competitors costs, prices, and offers

Analyzing competitor costs, prices, and offers allows companies to decide whether it can change more, the same, or less than the competitor.

5. Selecting a Pricing Method

Markup pricing - This method requires a standard markup to be added to a product’s cost in order to determine the price of the product.

• Disadvantages: It ignores current demand, perceived value, and competition.

• Advantages: 1. Sellers can determine costs more easily than they can estimate demand. 2. In a markup pricing market, competition is minimized. 3. It has a perceived fairness in the eyes of buyers and sellers.

Target-return pricing – The firm determines the price that would yield its target return on investment. (ROI).

Disadvantage: Tends to ignore considerations like price elasticity, competitors prices.

Perceived-value pricing – Basing prices on customer’s perceived value. Reaffirming value and constant innovation of new values in important to companies. The key is to deliver more value than the competitor and demonstrate this to prospective buyers. The value of its offering can be determined in ways like managerial judgments within the company, value of analogous products, focus groups, surveys, experimentation, analysis of historical data, and conjoint analysis.

Value pricing – the method entails companies to win loyal customers by charging fairly low price for high-quality offering (Walmart, IKEA). This low price in nevertheless accompanied by reengineering the company’s operations to become low cost producer without sacrificing quality, and lowering prices significantly to attract a large number of value-conscious customers.

• Everyday low pricing EDLP – a type of value pricing in which it is the policy of the company to always provide the lowest prices

• High low pricing – retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level.

Going-rate pricing - Basing prices on competitors’ prices.

Auction-type pricing - There are 3 major type so of auctions:

• English auctions (ascending bids), one seller many buyers, highest price by buyers is taken.

• Dutch auctions (descending bids), one seller, many buyers, or one buyer and many sellers. Price starts high and descends until buyer accepts.

• Sealed bid auctions: Suppliers submit one bid without knowing other bids.

Group pricing - Consumers and business join groups to buy at a lower price. Web-sites support this method.

6. Selecting the Final Price

The pricing methods explained above are often followed by considerations on other factors. These as shown below:

Psychological pricing: Manipulating the price to account for psychological traits of people. (e.g. since many customers use price as an indicator of quality, raising the prices a bit would increase perceived value, or since odd numbers (99$ instead of 100$) gives a certain psychological difference.)

Gain and Risk Sharing pricing: Prices should also take into account a customer’s perceived level of risk in accepting a proposal.

The influence of other marketing-mix elements on price: the final price must take into account the brand’s quality and advertising relative to competition.

Company pricing policies: Price must be consistent with company pricing policies.

Impact of price on other parties: Management must also consider the reactions of other channel participants to product price.

Price Adaptation Strategies

Companies develop a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors.

a. Geographical pricing

Involves variations in pricing of a company’s products to different customers in different locations and countries.

Countertrade, which accounts for 15 to 25 percent of world trade, takes the following forms:

• Barter

• Compensation deal

• Buyback arrangement

• Offset

b. Price Discounts and Allowances

Cash discounts, quantity discounts, functional discounts, seasonal discounts, allowances.

c. Promotional pricing:

Loss-leader pricing, Special-event pricing, Cash rebates, Low-interest financing, Longer payment terms, Warranties and service contract, Psychological discounting. If these strategies work, competitors copy them and they lose their effectiveness. If they don’t work, money has been wasted on a useless strategy. In other words, it can often be a zero-sum game.

d. Discriminatory pricing:

Occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. Customer-segment pricing, Product-form pricing, Image pricing, Location pricing, Time pricing.

e. Product-mix Pricing Situations:

Product-line pricing – Companies normally develop product lines rather than single products and introduce prime steps.

Optimal-feature pricing – Offering optional products, feathers, and services along with the main product.

Captive-product pricing – Pricing the captive product (e.g. free mobile phone) low, and setting high markups on, e.g. the fixed amount of calling minutes.

Two-part pricing – A fixed fee plus a variable usage fee.

By-product pricing – By products are often good sources of revenue, and give a

possibility of charging less for the main product.

Product-bundling pricing – Bundling products and features

Pure Bundling – Offering your own products only in a bundle.

Mixed Bundling – Offering goods both individually and in bundles.

Initiating and Responding to Price Changes

Initiating price cuts: Circumstances that might lead a firm to cut its price are – excess plant capacity, declining market share, and drive to dominate the market through lower costs.

Initiating price increases: A successful price increase can raise profits considerably.

Major circumstances that can provoke price increases include – cost inflation, anticipatory pricing (anticipation of further inflation or government actions), and over-demand.

Reactions to Price Changes:

- Customers’ Reactions to Price Changes: A price increase, would normally deter sales, or may elicit customers’ perception that “the product is hot.”

- Competitors’ Reactions to Price Changes: Competitors are most likely to react to price changes where the numbers of firms are few, the product is homogeneous, and buyers are highly informed.

Responding to Competitors’ Price Changes:

Brand leaders can respond to price changes in several ways: Maintain price, maintain price and add value, reduce price, increase price and improve quality, launch a low-price fighter line.

M. Designing and Managing Value Networks and Channels

Value Networks and Marketing Channels

Value Network System – a system of partnerships and alliances used by a firm to source, augment, and deliver its product or service offerings.

Marketing-Channel System –Intermediaries that help get the product from manufacturer to consumer or end users.

Examples of hybrid channels:

1. Charles Schwab enables its customers to do transactions in branch offices, over the phone, or via the Internet

2. Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000 linked affiliated sites

Channel Integration Characteristics

- Ability to order a product online, and pick it up at a convenient retail location

- Ability to return an online-ordered product to a nearby store

- Right to receive discounts based on total of online and off-line purchases

Reasons for establishing marketing channels:

- Producers lack financial resources necessary for direct marketing

- Direct marketing is not feasible for many offerings (e.g chewing gum)

- Using channels frees money for investment in main business

- Intermediaries can be more efficient

Functions of channels:

• Forward flow functions: Develop / disseminate communication, store and move the physical products, oversee transfer of ownership.

• Backward flow functions: Place orders with manufacturers, facilitate payment of bills.

• Forward and backward flow functions: Gather information, negotiate price and transfer of ownership, finance inventories, assume risk connected with carrying out channel work.

The important question is who is to perform the various channel functions.

Channel levels vary according to the number of intermediaries, making a channel longer the more intermediaries involved:

• Zero-level (direct marketing) channel:

Manufacturer sells directly to final customer.

• One, two, and three-level channels (intermediaries):

E.g. through retailers, wholesalers, etc.

• Reverse flow channels

Movement from user to source (as opposed to factory to final customer)

e.g. in recycling, refurbishing products.

Service sector channels use agencies and locations to access the population to be served.

Decisions in Designing a Channel Structure

- Push or pull strategy?

- Steps in designing a channel:

• Analyzing consumers’ desired service output levels

(Lot size, waiting time, product variety, spatial convenience, service backup)

• Establishing objectives / constraints

(objectives, e.g. minimize shipping distance, vary per product e.g. bulky products as opposed to perishable ones)

• Identifying major channel alternatives, described by the following:

  1. Types of Intermediaries:

• Merchants: Buy, take title, and resell merchandise

• Agents: Find customers, negotiate, do not take title to merchandise

• Facilitators: Aid in distribution, do not negotiate or take title to merchandise

  1. Number of Intermediaries:

• Exclusive distribution: Severely limited distribution

• Selective distribution: Some intermediaries willing to carry good are selected

• Intensive distribution: Offering is placed in as many outlets as possible.

  1. Determine Terms and Responsibilities of Channel Members through:

• Price policies: Price list and schedule of discounts

• Conditions of sale: Payment terms and guarantees

• Territorial rights: Define distributor’s territory / terms

D. Evaluating major channel alternatives. Evaluation Criteria:

• Economic criteria: Sales and costs vs. added value

• Control criteria: Is there enough control over the agency and commitment

• Adaptive criteria: Do the channel structures provide high adaptability?

Channel Management Decisions

The channel development process – consists of selecting, training, motivating, and periodically evaluating channel members. The final part consists of periodically modifying channel arrangements.

Cooperation from intermediaries can be a major problem. In particular, to motivate channel members, the company should provide training programs, market research programs, and other capability-building programs to improve intermediaries’ performance. Producers can use coercive, reward, legitimate, expert, or referent power to elicit cooperation.

Distribution programming the most advanced supply-distributor arrangement in which a planned, professionally managed, vertical marketing system that meets the needs of both manufacturer and distributors is built.

Channel Dynamics – Marketing Systems

Conventional marketing channel – comprises an independent producer, wholesaler(s), and retailer(s). Individual profit maximization, little control over members.

The following are marketing systems that show growth trends:

Vertical Marketing Systems – Comprises the producer, wholesaler(s), and retailer(s) acting as a unified system.

- Corporate VMS: combines successive stages of production and distribution under single ownership.

- Administered VMS: Coordinates successive stages of production and distribution through the size and power of one of the members.

- Contractual VMS: Consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.

The new competition in retailing is no longer between independent business units but

between whole systems of centrally programmed networks (corporate, administered, and contractual) competing against one another to achieve the best cost economies and customer response.

Horizontal Marketing Systems – A channel development in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.

Multichannel Marketing Systems – occurs when a single firm uses two or more marketing channels to reach one or more customer segments. Advantages: increased market coverage, lower channel cost, and more customized selling.

Conflicts in Channels

Types of conflict: Vertical, horizontal, and multichannel

Causes of conflict Goal incompatibility; unclear roles and rights

Mechanisms for managing channel conflict

- Subordinate goal adoption between channel members.

- Exchange people between channel levels

- Cooptation

Actual conflict may cause parties to resort to diplomacy, mediation and arbitration.

Legal and Ethical Issues in Channel Relations

(i) Exclusive dealing and (ii) Tying agreements are two common distribution practices that are legal as long as they don’t substantially lessen competition.

Drivers that highlight the new economy include:

• Digitization and connectivity – e.g. internet, extranet, intranet.

• Disintermediation and reintermediation – e.g. Dell’s growth due to selling online; disintermediating retailers. Reintermediation is occurring through new online middlemen; brokers, buy.com.

• Customization and customerization – e.g. Dell’s option buy custom built computers. Disadvantages: Difficult to implement for complex products, raise costs of goods sold, inflexibility in order cancels.

• Industry Convergence – e.g. Kodak moving into electronics.

The following chart summarizes the differences between the old economy and the new economy with the focus on business practices.

Changes in Marketing Practices in the New Economy

1. Through E-Business

The New Economy has been accompanied by E-business and E-commerce:

• E-business: describes the use of electronic means and platforms to conduct a company’s business. E.g. through internet, extranet, web-sites, intranet.

• E-commerce: the addition to providing information to visitors about the company, its history, policies, products, and job opportunities, the company or site offers to transact or facilitate the selling of products and services online. This has led to:

  • E-purchasing: means companies decide to purchase goods, services, and information from various online suppliers.

  • E-marketing: describes company efforts to inform, communicate, promote, and sell its products and services over the Internet.

Four Internet domains over which E-business and E-commerce take place are as follows:

1. B2C (business to consumer) – B2C Internet sites are becoming more customer-initiated and customer-controlled.

2. B2B (business to business) – B2B Internet sites improve supplier-customer relationship and make markets more efficient since more information for buyer is available: supplier web sites, infomediaries, market makers, and customer communities.

3. C2C (consumer to consumers) – Online visitors (chatting room) create product information, with “word of mouth” acting as a buying influence.

4. C2B (consumer to business) – Company’s encouraging consumers to communicate with them (emails, questions, complaints).

Pure click companies are companies that launched a Web site without any previous existence as a firm. E.g. Search Engines, ISP’s, transaction sites (eBay.com), commerce sites (amazon.com), content sites (New York Times site providing information), and enabler sites (provide hardware/software).

Failure reasons of the Dot-coms include the following: no sound business models, no proper research and planning, too large investments on mass marketing and offline advertising, poorly designed web-sites, and under/over estimating costs.

Brick-and-click companies are existing companies that added an online site for information and/or e-commerce. A major problem was the difficulty of conducting online sales without cannibalizing their own stores, resellers, or agents.

2. Through Setting up Web Sites

When moving into e-marketing and e-purchasing, some important questions companies face are as follows:

• How to designing an attractive web site?

• 7 C’s: Context, content, community, customization, communication, connection, commerce.

  • How to advertise online?

• Banner adds – Small boxes containing text. Cost depends on size of audience.

• Sponsorships – sponsoring special content on news, information web sites.

• Microsites - a limited area on the web managed and paid for by an external advertiser/company.

• Interstitials – advertisements that pop up between changes on a Web site.

• Browser adds – pay a viewer to watch them

  • How to build a revenue and profit model?

• Alliances and affiliate programs – when companies advertise each other.

• Advertising income, sponsorship income, alliance income, membership and subscription income, profile income, product and service sales income, transaction commissions and fees, market research/information, referral income (charging for referring customers to others).

• The revenue and profit model specifies the main revenue sources, and the projected revenue, costs, and income the dot-com expects to achieve.

• Possible sources of the revenue:

3. Through Customer Relationship Marketing

Customer Relationship Marketing (CRM) enables companies to provide excellent real-time customer service by developing a relationship with each valued customer through the effective use of individual account information. Strategies to improve a company’s customer base include:

• Reducing the rate of customer defection.

• Increasing the longevity of the customer relationship.

• Enhancing the growth potential of each customer through “share-of-wallet,” corss-selling, and upselling.

• Making low-profit customers more profitable or terminating them.

• Focusing disproportionate effort on high value customers.

•  

N. Managing Retailing, Wholesaling, and Logistics

Retail-store types pass through the retail life cycle.

The wheel-of-retailing describes how new store types emerge.

Levels of service offered by retailers:

Self-service, self-selection, limited service, and full service

Non-store retailing - has been growing faster than store retailing. Categories:

Direct selling (e.g. home sales), direct marketing (e.g. catalogs), automatic vending (e.g. for cigarettes), buying service (storeless retailers).

Types of retail organizations: Corporate chain store, voluntary chain, retailer cooperative, consumer cooperative, franchise organization, merchandising conglomerate

Retailers marketing decisions include:

Defining Target market, product assortment and placement, services mix and store atmosphere, prices, promotion, place (general business district, regional shopping center, community shopping center, shopping strip, or location within a larger store or operation)

Trends in Retailing:

New retail forms, intertype competition (different types of stores competing for the same customers), growth of giant retailers, growth in investment in technology, global expansion, selling experiences, competition between store-based and non-store-based retailing.

Wholesaling excludes manufacturers, farmers, and retailers, and include all the activities involved in selling goods or services to those who buy for resale or business use.

Wholesalers vs. retailers:

1. They pay less attention to promotion, atmosphere, and location.

2. Transactions are usually larger.

3. Government terms of legal regulations and taxes differ for wholesalers.

Wholesalers handle many functions more efficiently than do manufacturers, e.g. selling and promoting, bulk breaking, transportation, and financing.

Major wholesaler types:

Merchant wholesalers, full-service wholesalers, limited-service wholesalers, Brokers, agents, manufacturers’ and retailers’ branches and offices, miscellaneous wholesalers

Wholesalers marketing decisions include:

Defining Target market, product assortment and services, price decision, promotion decision, and place decision (automated warehouses).

Trends in Wholesaling:

Trends towards vertical integration, fierce resistance to price increases.

Wholesalers have adapted to retailer and manufacturer strength by:

• Adding value

• Reducing costs

• Strengthening relationships with manufacturers

Market Logistics

Interrelated Aspects Associated with Market Logistics:

• Physical distribution

• Supply chain management (SCM)

• Value network – a view of the company in the center.

• Demand chain planning – a view in which the company should first think of the target market and then design the supply chain backward from that point

• Market logistics

• Integrated logistics systems (ILS)- involves materials management, material flow systems, and physical distribution.

Market Logistics Objectives:

• Logistics involve trade-offs between costs and customer service

• Maximizing profits, not sales, is key

• A total system basis should be considered

• Designing a system that will minimize the cost of achieving objectives should be the outcome

• Calculating the Cost of Market-Logistics Systems

M = T + FW + VW + S, where:

M = total market-logistics cost of proposed system;

T = total freight cost of proposed system;

FW = total fixed warehouse cost of proposed system;

VW = total variable warehouse cost of proposed system

S = total cost of lost sales due to average delivery delay

Market Logistics Decisions:

• Order processing How should orders be handled?

Shortening of the Order-to-payment cycle – the elapsed time between an order’s receipt, deliver, and payment. Preparing a criterion for the Perfect Order.

• Warehousing  Where should stock be located?

Decide on number of inventory stocking locations.

Storage warehouses – storing for moderate to long periods of time.

Distribution warehouses – moving goods out as soon as possible.

Automated warehouses – has advanced materials handling systems under the control of a central computer.

• Inventory  How much stock should be held?

Determine reorder point, relevant cost comparison, optimal order quantity

• Transportation  How should goods be shipped?

Containerization, and decide on private vs. contract carriers

Market Logistics Lessons:

A senior V.P. is needed as the single contact point for all logistical elements and must maintain close control

Software and systems are essential for competitively superior logistics performance.

O. Designing and Managing Integrated Marketing Communications

The Communications Process

The decisions made on communicating are aimed at finding out what to say, to whom, and how often.

Marketing Communication Mix – The different combinations of communicating are through 5 major modes (or platforms): Advertising, sales, promotion, public relations, direct marketing

Elements in the Communication Process: Sender, receiver, encoding, decoding, response, feedback, and noise.

Reasons why the message doesn’t always reach the intended target:

1. Selective Attention

2. Selective Distortion

3. Selective Retention

Steps in Developing Effective Communications

1. Identify target audience

Includes assessing the audience’s perceptions of the company, product, and competitors’ company/product image

2. Determine objectives of communication

Objectives: Cognitive, affective, and behavioral

3. Design the message

4. AIDA model (the guidelines that a message should gain attention, hold interest, arouse desire, and elicit action) guides message design.

Problems:

• What to say, message content, can be worked out if a type of appeals is chosen: either rational, emotional, or moral appeals.

• How to say it logically, Structure, decisions: one-sided vs. two-sided presentations, (two-sided: e.g. Listerine tastes bad twice a day), and order of argument presentation – present strongest arguments first.

• How to say it symbolically, format: These decisions vary with the type of media, but may include: Graphics, visuals, Headline, copy or script, Sound effects,
  voice qualities, shape, scent, texture of package.

• Who should say it? Message source decisions: Factors underlying perceptions of source credibility: expertise, trustworthiness, likeability.

4. Select communication channels:

Personal (advocate, social channels) vs. Non personal (media, atmosphere, events) communication channels. Personal  Methods for stimulating personal communication: creating opinion leaders, developing word-of-mouth referral channels, and devoting extra effort to influential individuals or companies.

Establish the budget

- Affordability method – Budget is determined according to what the company thinks it can afford.

- Percentage-of-sales method – Using a specified percentage of sales or of the sales price to determine the promotional expenditures.

- Competitive-parity method – Setting a promotional budget to achieve share-of-voice parity with competitors.

- Objective-and-task method – Calls upon marketers to develop their budgets by defining specific objectives and is the most desirable method

5. Decide on the marketing communications mix

Refers to the allocation of a promotion budget over promotional tools (means) with the following characteristics:

• Advertising qualities: Public presentation, pervasiveness, amplified expressiveness, impersonality.

• Sales promotion benefits: Communication in gaining attention, incentive, invitation.

• Public relations and publicity qualities: high credibility, ability to catch buyers off guard, and dramatization.

• Direct marketing: nonpublic, customization, up-to-date, interactiveness.

• Personal selling qualities: personal confrontation, cultivation, response.

Selection factors of the mix depend on the type of product market, consumer readiness to make a purchase, and stage in the product life cycle as well as the company’s market rank.

Consumer vs. business market – consumer marketers spend on sales promotion, advertising, personal selling, and public relations while business marketers spend on personal selling, sales promotion, advertising, and public relations.

6. Measure results

Communication results do not lie only outputs and expenses, but more on recall and recognition scores, persuasion changes, and behavioral responses.

IMC, Integrated Marketing Communications – a concept of marketing communications planning that recognizes that added value of a comprehensive plan, evaluates strategic roles of a variety of communications disciplines and combines these disciplines to provide clarity, consistency, and maximum impact through the seamless integration of discrete message. It is vital to managing and coordinating the entire communications process.

P. Managing Mass Communication: Advertising, Sales Promotions, Events,

and Public Relations

Managing Advertising

Advertising – any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

Communication companies – the broader term under which advertising agencies are redefining themselves, since they are assisting in overall communication effectiveness.

5M’s of Advertising: These are the 5 decisions required in developing an advertising program: Mission, Money, Message, Media, and Measurement.

Steps in Developing an advertising program:

1. Setting advertising objectives (mission)

Objectives can be classified by aim: To inform, persuade, remind, reinforce.

2. Deciding on the advertising budget (money)

Factors considered when budget-setting:

• Stage of product life cycle

• Market share and consumer base

• Competition and clutter

• Advertising frequency

• Product substitutability

3. Choosing the advertising message (message)

Factors considered when choosing the advertising message:

1. Message generation – How to create an effective message.

2. Message evaluation and selection – How to rate messages, e.g. according to desirability, exclusiveness, and believability.

3. Message execution – Deciding on how to say the message, e.g. present explicit features or appeal to emotions? What headings, tones, and words should be used?

Social responsibility review – How to best adhere to e.g. US laws of avoiding false or deceptive advertising, bait-and-switch advertising, while not offending ethnic groups, racial minorities, or special-interest groups.

4. Deciding on Media Strategies (media)

Media Selection – finding the most cost-effective media to deliver the desired number and type of exposures to the target audience.

1. Involves deciding on Reach (number of people exposed), Frequency of exposure, and Impact (qualitative value)

The relationship between reach, frequency, and impact is shown in total number of exposures (R x F), and weighted number of exposures (R x F x I)

Selecting media types (newspapers, television, direct mail, Radio, Magazines, outdoor, yellow pages, newsletters, brochures, telephone) and vehicles.

2. Involves determining media timing like seasons and business cycles

Models developed on timing can be macro scheduling focused (like the time lag model), involving scheduling the advertising in relation to season and the business cycle, or micro scheduling based, calling for allocating advertising expenditures within a short period to obtain maximum impact.

However, the most effective pattern depends on the communication objectives in relation to the nature of the product, target customers, distribution channels, and other marketing factors.

Carryover – the rate at which the effect of an advertising expenditure wears out with the passage of time.

Habitual behavior – indicates how many brand holdovers occur independent of the level of advertising.

Continuity, concentration, flighting, and pulsing and different timing strategies:

• Continuity – Is achieved by scheduling exposures evenly throughout a given period.

• Concentration – Calls for spending all the advertising dollars in a single period.

• Flighting – calls for advertising for some period, followed by an interruption of no advertising, followed by a second period of advertising activity.

• Pulsing – Continuous advertising at low-weight levels reinforced periodically by waves of heavier activity.

3. Involves deciding on geographical media allocation

Areas of Dominant Influence ADI’s – areas in which companies pursue “spot buys” for certain markets or in regional editions of magazines, or contiguous areas defined by media, cultural and economic forces.

5. Measuring Effectiveness (measurement)

Communication-effect research – seeks to determine whether an ad is communicating effectively.

Methods of advertising pretesting – consumer feedback method for their reactions, portfolio test of consumers, and laboratory tests to measure physiological reactions.

Sales-effect research – Seeks to determine effects on sales by an add that increases awareness. Can be found by analyzing historical data, historical approach, or analyzing experimental data in an experimental design.

Sales Promotion – are short-term incentives designed to stimulate purchase among consumers or trade

Purpose of sales promotion

• Attract new triers or brand switchers.

• Reward loyal customers.

• Increase repurchase rates.

Steps in sales promotion program development: Establish objectives, select consumer-promotion tools, select trade-promotion tools, select business- and sales force promotion tools, develop the program. pretest the program, and finally implement and evaluate the program.

Examples of major consumer promotion tools – Samples, coupons, cash refunds (rebates), premiums, prizes (contests, sweepstakes, games), patronage awards,, free trials, product warranties, tie-in promotions, cross-promotions, point-of-purchase displays and demonstrations

Major trade promotion tools – Price-off, allowance, free goods, trade shows and conventions, sales contests, and specialty advertising.

Public relations

Public relations activities promote or protect the image of a firm or product

Functions of public relations:

• Press relations

• Product publicity

• Corporate communications

• Lobbying

• Counseling

Marketing Public Relations (MPR) plays an important role in

• New product launches

• Repositioning of mature brand

• Building interest in product category

• Influencing specific target groups

• Defending products with public problems

• Building the corporate image

Major MPR decisions:

1. Establishing the market objectives

2. Choose the PR messages and vehicles

3. Implement the plan carefully and evaluate the results

Measures of MPR effectiveness:

1. number of exposures carried by the media

2. the change in product awareness, comprehension, or attitude resulting from the MPR campaign.

3. Sales-and-profit impact through finding the return on MPR investment (most satisfactory measure)

Major Tools in Marketing PR: publication, events, sponsorships, news, speeches, public-service activities, identity media.

Q. Managing Personal Communication: Direct Marketing and Personal Selling

Direct Marketing – the use of consumer-direct (CD) channels to reach and deliver goods and services to customers without using marketing middlemen.

Major Direct Marketing Tools:

• Face to face selling, direct selling (insurance agents, stockbrokers…)

• Direct mail – involves sending an offer, announcement, reminder, or other item to a person. Advantage: permits target market selectivity, can be personalized, is flexible, and allows early testing and response measurement.

Stages of Direct Marketing:

• Carpet bombing – mass mailing to large number of people.

• Database marketing – using a database to find prospects to aim at.

• Interactive marketing – Telephone numbers, internet sites to promote interaction

• Real-time personalized marketing – Customizing messages

• Lifetime value marketing – Developing a plan for lifetime marketing to each valuable customer.

Steps in Developing a Direct-Mail Campaign:

Step 1: Set objectives

Step 2: Identify target markets

Step 3: Define the offer

Step 4: Test the elements

Step 5: Measure results

- Catalogue Marketing – companies send full-line merchandise catalogs, specialty consumer catalogs, and business catalogs, usually in print form but also sometimes as CDs, videos, or online.

- Telemarketing – involves the use of the telephone and call centers to attract prospects, sell to existing customers, and provide service by taking orders and answering questions.

Types of Telemarketing: telesales (taking order), telecoverage (calling customers), teleprospecting (generating new leads), and customer service and technical support.

- Direct Response TV Marketing – using the television to promote direct sales with direct-response advertising, at-home shopping channels, and videotext and interactive TV.

- Kiosk marketing – A small building or structure that might house a selling or information unit like newsstands and free-standing carts.

- E-marketing – an electronic channel for direct marketing.

Designing the Sales Force

Sales Representative – an agent who is in charge of negotiating and if required concluding purchase, lease, sale or services contracts as an independent profession and in a permanent way in the name and for the count of manufacturers, industrialists, tradesmen or other sales representatives.

Types of sales representatives: Deliverer, Order taker, Missionary, Technician, Demand creator, Solution vendor.

Steps in Designing the Sales Force

1. Objectives and Strategy

Companies should define specific objectives and strategies they want their sales force to achieve. Generally, salespeople prospect, target, communicate information, sell, provide services, gather information, and allocate scare products to certain customers.

Type of sales force: Direct (company) sales force are those employees working exclusively for the company, or contractual which are paid a commission based on sales.

2. Types of sales force structures:

Structures can only be determined after strategies have been formulated. Most common sales force structures are: Territorial, assigning representatives exclusive territories; product, focusing on sales force expertise on its products; market, specializing sales forces along industry or customer lines; and complex, combining several structures to account for the large variety of products, customers, and geographical areas.

3. Sales-force Size

Workload approach to establish a sales-force size which is done by grouping customers by volume, establishing call frequencies, calculating total yearly sales call workload, calculating average number of calls/year, and finally calculating number of sales representatives

4. Sales-force Compensation

Four components of compensation:

• Fixed amount

• Variable amount

• Expense allowances

• Benefits

Compensation plans

• Straight salary

• Straight commission

• Combination

Managing the Sales Force

Steps in Sale-force Management:

1. Recruitment and selection

- begins with the development of selection criteria.

- It is sometimes difficult to know what kind of traits the company is looking for in a sales rep. Considering Customer desired traits (often honesty, reliability, and helpfulness), and looking for Traits common to successful sales representatives derived from studies help this process.

2. Training

- Training topics include: Company background, products, Customer characteristics, Competitors’ products, Sales presentation techniques, Procedures and responsibilities

3. Supervising

- Successful firms have procedures to aid in evaluating the sales force:

Norms for customer calls, norms for prospect calls, and using sales time efficiently

4. Tools used include configurator software, time-and-duty analysis, greater emphasis on phone and Internet usage, greater reliance on inside sales force.

5. Motivating the Sales Force

Rewards help to motivate them. Most valued rewards: Pay, promotion, personal growth, sense of accomplishment.

Least valued rewards: Liking and respect, security, recognition.

Sales quotas as motivation tools (fulfilling a quota for a compensation), these need to be balanced because of the problems of setting the quota too high or too low, and the possibility that the sales reps only focus on profitable customers.

Supplementary motivators: e.g. periodic sales meetings, sales contests.

6. Evaluating

Sources of information: Sales or call reports, personal observation, customer letters and complaints, customer surveys, other representatives

Formal evaluation: Performance comparisons, knowledge assessments

Personal Selling Principles

Three Major Aspects of Selling: Professionalism, Negotiation, and Relationship Marketing.

Sales training approaches for Sales Professionalism

Approaches in training salespeople to get them to become active order getter:

a. Sales-oriented approach - Stresses high pressure techniques

b. Customer-oriented approach - Stresses customer problem solving

Sales Professionalism - Seven Step Selling Process

1. Prospecting and qualifying – It is required less of salespeople to find leads and identify prospects. There are many other ways of doing this (e.g. dropping by offices unexpectedly, asking customers to suggest names of prospects, and using the telephone, mail, and internet to find leads).

2. Preapproach – Getting salespeople to become experts on the company and its buyers.

3. Approach – Appropriate greetings and relationship approaching, e.g. through wearing clothes similar to that of customers.

4. Presentation and demonstration – Through AIDA formula (attention, interest, desire, action), using FABV approach (features, advantages, benefits, and value), canned approach (memorized story), formulated approach (stimulus response), or the need-satisfaction approach (encouraging customer to talk most).

5. Overcoming objections – such as psychological and logical resistance.

6. Closing the Sale – requires confidence and practicing certain techniques.

7. Follow-up and maintenance (servicing) – To ensure customer satisfaction and repeat business.

Negotiation Strategy – a commitment to an overall approach that has a good chance of achieving the negotiator’s objectives.

Reps need skills for effective negotiation.

Negotiation is useful when certain factors characterize the sale.

Relationship marketing

The focus is on developing long-term, mutually beneficial relationships between two parties. Building long-term suppler-customer relationships has grown in importance

Companies are shifting focus away from transaction marketing to relationship marketing.

Marketing Strategies for Service Firms

P’s Marketing Approaches: There are also three additional ones to the traditional 4Ps:

1. People - Most services are provided by them.

2. Physical evidence and presentation - Companies try to demonstrate their service quality through them.

3. Processes to deliver services - Service companies can choose among different ones.

Service marketing requires external, internal, and interactive marketing:

1. External marketing.

2. Describes the normal work to prepare, price, distribute and promote the service to customers.

2. Internal marketing.

3. Describes the work to train and motivate employees to serve customers well.

3. Interactive marketing.

4. Describes the employees’ skill in serving the client.

5. The client judges service not only by its technical quality but also by its functional quality.

For some services, customers cannot judge the technical quality even after they have received the service.

Goods provided can have the following qualities:

1. Search qualities: Characteristics the buyer can evaluate before purchase.

2. Experience qualities: Characteristics the buyer can evaluate after purchase.

3. Credence qualities: Characteristics the buyer normally finds hard to evaluate even after consumption.

The difficulty of evaluation increases the more experience and credence qualities.

Consequences:

1. Service consumers generally rely on word of mouth rather than advertising.

2. They rely heavily on price, personnel and physical cues to judge quality.

3. They are highly loyal to service providers who satisfy them.

R. Introducing New Market Offerings

New-Product Development - Challenges

Developing new products has a high failure rate: In the US 95%, Europe 90%

Products fail because of: overestimated market size, ignoring negative market research findings, no well product design, incorrectly positioned product, higher development costs than expected, competitors fight back harder than expected.

Factors that hinder new product development:

Shortage of important ideas, focus on fragmented markets, social and governmental constraints, cost of development, capital shortages, faster required development time, shorter product life cycles.

Managing the Development Process

The new-product development process starts with ideas, then these are refined into concepts (concept development and testing, marketing strategy and business analysis), and finally decision on whether the idea can become a technically and commercially feasible product is taken (through product development, market testing, and commercialization).

1. Ideas – interacting with others (e.g. intermediaries, sales representatives, customers, competitors, employees, channel members, and top management) can give ideas for new products.

Techniques through which the creativity of individuals and groups can be stimulated:

• Attribute listing

• Forced relationship

• Morphological analysis

• Reverse assumption analysis

• New contexts

• Mind mapping

Idea screening – encouraging employees to submit new ideas (with rewards) to an idea manager that will research promising ideas, in order to drop poor ideas as soon as possible.

Errors: DROP error – dismissing a good idea.

GO error – permitting development of a poor idea.

Weighted index method – rates surviving ideas.

Probability of success: found by:

Probability of Technical Completion

Probability of commercialization given technical completion

Probability of economic success given commercialization

Probability of Succes

X

X

=

Concept to Strategy

Product concept – an elaborated version of the idea expressed in meaningful consumer terms.

The product concept can be found by defining many category concepts that define the product’s competition (e.g. powder as breakfast, drink, or health supplement are 3 different concept categories).

From here one product concept is chosen, for which a product positioning map is used which shows where the product would stand in relation to other like products.

The brand concept can be found through a brand positioning map showing current positions of existing brands in same market.

a. Concept testing – involves presenting the product concept to appropriate target consumers and getting their reactions, which can be done through virtual reality programs, and customer-driven engineering (e.g. through the world wide web).

Development to Commercialization

Whether the product has a broad or strong consumer appeal, competing products, and best targets, can be found out through questioning consumers on different questions (e.g. on need levels, perceived values, purchase intentions, etc.)

Conjoint analysis – a concept developing tool. It is a measure for consumer preferences for alternative product concepts. Deriving the utility values that consumers attach to varying levels of a product’s attributes.

b. Preliminary Marketing Strategy Plan – made when concept test is successful, consists of 3 parts:

1. Describes target market size, structure, and behavior

2. Outlines the planned price, distribution strategy, and marketing budget for the first year.

3. Describes long-run sales and profit goals and marketing mix strategy.

c. Business Analysis - Evaluating the proposal’s business attractiveness through estimating total sales, costs, and profits.

- Estimated total sales = First-time sales + replacement sales + repeat sales

Survival age distribution indicates the replacement sales (because it shows the number of units that fail in year one)

- Estimating Costs and Profits can be done with a projected five year cash flow statement. Break-even analysis evaluates the worth (or merit) of a new-product proposal. Risk analysis estimates profit.

d. Developing the Product– through Market Testing and Commercialization

Product Development:

Quality function deployment – takes the list of desired customer attributes generated by market research and turns them into a list of engineering attributes that the engineers can use.

Prototypes are then developed by R&D departments, and then undergo function and customer tests.

• Alpha testing: testing the product within the firm

• Beta testing: testing the product within a set of targeted customers

How to measure consumer preference:

• Rank order: customers rank items in order of preference.

• Paired comparison: Customers compare pairs and show their preference.

• Monadic-rating: Deriving a customer’s preference from their ratings of likings on multiple products.

ii. Market testing

The amount of marketing tests is influenced by the investment cost and risk, and time and pressure and research cost.

Methods when testing in the consumer market

• Variables sought to estimate: Trial, first repeat, adoption, and purchase frequency of customers.

• Sales-Ware Research – Customers report their level of satisfaction after trying the product at no cost and are reoffered the products as reduced price. The trial rate variable is difficult to estimate here.

• Stimulated-Test Marketing – Inviting shoppers (for money) for a brief screening of both well-known and new commercials or print ads. Time of this method is short, and cost is lower than using real test markets.

• Controlled Test Marketing – Firms manage a panel of stores, controlling shelf positions, pricing, number of facings, displays, and point-of-purchase promotions. Allows for testing the impact of in-store factors and limited advertising on buying behavior.

• Test Markets – At few cities, arranging strong sales force, as well as employing major advertising and promotion campaign in similar markets to one that would be used in national marketing.

Methods when testing Business-Goods Market:

Alpha testing, beta testing, introducing products at trade shows, in display rooms.

iii. Commercialization

• Costs are large because of e.g. advertising and promotion.

• Critical decisions:

When to enter the market: there are three options a company can choose to be: First entry, parallel entry, or late entry

Where: local, region, several regions, national market, or international market? Depends on size of company. In choosing rollout markets (e.g. starting in half of U.S. with desires of “rolling out” east), the following are major criteria: market potential, company’s local reputation, cost of filling the pipeline, cost of communication media, influence of area on other areas, and competitive penetration.

Whom: Targeting initial distribution and promotion to the best prospect groups that will allow for the generating of strong sales that will then attract further prospects.

How: Introductory Market Strategy – refers to the developing of an action plan for the introduction of the new product into rollout markets.

Critical Planning Schedule – A network planning technique that coordinates the activities related to the launching of a new product.

The Consumer Adoption Process

The process by which customers learn about new products, try them, and adopt or reject them. They often target innovators and early adopters with production rollouts.

Innovation: any good, service, or idea that is perceived by someone as new.

Innovation diffusion process: the spread of a new idea from its source of invention or creation to its ultimate users and adopters.

Many factors influence the adoption (deciding to become a regular user) process, including one’s readiness to try new products and personal influence, characteristics of the innovation (relative advantage, compatibility, complexity, divisibility, communicability), and organizations readiness to adopt innovations.

S. Tapping into Global Markets

Global industry – an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by overall global positions.

Global firm – a firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

Pro’s of going abroad – include lower prices, better products (ability to counterattack competitors), seizure of profit opportunities available abroad, increase of customer base, less dependency on single markets, international services for customers abroad.

Risks of going abroad – Difficulty of understanding foreign customers and foreign culture or know how, underestimating foreign regulations, incurring unexpected costs, unstable foreign country.

Questions a firm must face in going abroad:

How many markets to enter? How fast should they expand?

Entering fewer markets is appropriate if: market entry and market control costs are high, product and communication adaptation costs are high, population and income size and growth are high in the initial countries chosen, and dominant foreign firms can establish high barriers to entry.

Expansion is recently regional, considering the intensification of regional economic integration shown by free trade zones or economic communities.

European Community – reduced barriers to the free flow of products, services, finances, and labor among member countries. Downsides of the EC are threats foreign companies since EU companies grow bigger and more competitive, low internal barriers create thicker outside walls for foreign businesses.

NAFTA – Free trade zone among the United States, Mexico, and Canada.

MERCOSUL – Free trade between Brazil, Argentina, Paraguay, and Uruguay.

APEC – anticipated pan-pacific free trade area under the support of the APEC, Asian Pacific Economic Cooperation forum.

Examples of determinants involved when choosing a market – psychic proximity, entry barriers, activeness, low market risk, possession of competitive advantage.

Ways of entering the market:

Indirect and direct export:

Exporting often allows for companies to better understand the place and use it as a test-base

for possible future building of a product overseas.

• Indirect exporting – When companies work through independent intermediaries. Advantages: It involves less investment, and less risk.

Domestic-based export merchants – buy products and sell them abroad.

Domestic-based export agents – seek and negotiate foreign purchases and are paid a

commission. (e.g. trading companies)

Cooperative organizations – carry on exporting activities on behalf of several producers

and are partly under their administrative control.

Export-management companies – agree to manage companies export activities for a fee.

• Direct Exporting – can be done through:

• Domestic-based export department or division, overseas sales branch or subsidiary, traveling export sales representatives, or foreign-based distributors or agents.

• Licensing – Licensing a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty.

Disadvantages – less control on the part of the licensor, and there is a risk of creating a competitor.

Ways of licensing – management contracts, contract manufacturing, franchising.

• Joint ventures – When foreign investors join with local investors to create a joint venture company in which they share ownership and control.

Disadvantages – Disagreements between the partners, and the difficulty for the multinational company to carry out specific manufacturing and marketing policies worldwide.

• Direct investment – Direct ownership of foreign-based assembly or manufacturing facilities.

Advantages – Cost economies through cheaper labor or raw materials, foreign-government investment incentives, and freight savings, opportunity to strengthen company image, opportunity to better adapt products to local environment, retention of control over investments, and the company can assure itself to the market locally.

Disadvantage – Risks, e.g. devalued currency, expropriation.

Ways of adapting to the local market:

a. standardized marketing: has lowest costs and assumes all markets are similar

b. adapted marketing mix: marketing mix elements are adjusted to each target market.

Adapting to the local market involves adjusting the product, promotion, price, and place.

Adaptation Strategies of product and promotion when entering the local market:

• Straight extension – introducing the product without any changes.

• Product adaptation – introducing with product changes (adapting it) but no promotion changes.

• Communication adaptation – introducing the product without changing the product and with changes in promotion, e.g. adapting slogans, changing commercial themes, or making pools of ads and distributing according to city.

• Dual adaptation – changing both the product and promotion.

• Product invention – Creating something new. Forward invention – creating a new product to meet the need in another country.

Adaptation problems in pricing when selling abroad:

• Price escalation – Added costs (transportation, importer margin, tariffs, etc) makes the regular price home escalate to a higher price when sold abroad.

Choices when setting prices:

• Set a uniform price everywhere

• Set a market-based price in each country

• Set a cost-based price in each country

• Transfer Price – The price the company charges another unit in the company. It is a problem if the company charges too high a price to the subsidiary.

• Dumping – When a company charges either less than its costs or less than it charges in its home market, in order to enter or win a market. (e.g. when charging a too low price to its subsidiary)

• Gray Market – When the same product sells at different prices geographically.

Dealing with Distribution Channels – Place, when selling abroad:

The problem: Distribution channels with many levels (e.g selling first to general wholesaler, who sells to a product wholesaler, who sells to product-specialty wholesales, who sells to...etc.), causes the end consumer price to increase greatly. Also, the size and character of retail units abroad (e.g. small shops in India), can add major price differences between home and abroad.

Whole-channel view of distributing products to final buyers – a view that companies need to take in order to have a proper view of the distribution process.

Managing International Marketing Activities:

Can be done through the following depending on the level of international involvement:

1. Export department

- generally in early stage when company still exports and when international sales have just expanded.

2. International Division

- generally when company has moved into joint ventures or direct investment, since export departments will then be insufficient.

3. Global Organization

- generally when the company has become a truly global organization.

- Organizational Strategies:

1. Global strategy, treats the world as a single market

2. Multinational strategy, treats the world as a portfolio of national opportunities.

3. Glocal strategy, standardizes certain core elements and localizes other elements.

T. Managing a Holistic Marketing Organization

Trends in Company Organization

Business firms are responding to environment changes through re-engineering, outsourcing, benchmarking, supplier partnering, customer partnering, merging, globalizing, flattening (of number of organizational levels), focusing, and empowering.

Marketing departments have evolved through 6 stages:

simple sales department, a sales department with ancillary marketing functions , separate marketing department, modern marketing department/effective marketing company, a process- and outcome-based company.

Ways of organizing the marketing department:

1. Functional Organization – functional marketing specialists report directly to the vice-president; advantage is its administrative simplicity; disadvantage form loses effectiveness as products and markets increase.

2. Geographic Organization – organizing sales force along geographic lines.

3. Product or Brand Management Organization – Product manager leads product management organization in which a product manager supervises product category managers, who in turn supervise specific product and brand managers. Advantages: product manager can concentrate on developing a cost-effective marketing mix for the product, and react quickly. Disadvantages: product managers and specifically brand managers are not given enough authority to carry out their responsibilities, functional expertise rarely achieved, and the product management system often turns out to be costly.

4. Market-Management/Customer Management Organization - Many companies sell their products to many different markets. A markets manager supervises several market managers, market managers are staff (not line) people.

5. Product-management/Market-management Organization – Companies that produce many products flowing into many markets may adopt a matrix organization as a solution. Disadvantage: can be costly and conflict creating.

6. Corporate-Divisional Organization – as multiproduct-multimarket companies grow, they often convert their larger product or market groups into separate divisions, that in turn set up their own departments and services. New problem: Which marketing services and activities to retain at headquarters?

Answer: 1. No corporate marketing, 2. Moderate corporate marketing, 3. or strong corporate marketing.

Marketing relations with other departments – Often clash in interests. The marketing department should drive the company to “think customer” and work together to satisfy customer needs and expectations.

Tasks of the marketing vice president: 1. To coordinate the company’s internal marketing activities and 2. To coordinate marketing with finance, operations, and other company functions to serve the customer.

Company Departments and their Conflicts with the Marketing Department:

R&D – conflict in cultural differences and should share responsibility for successful market oriented innovation.

Engineering and Purchasing – Disagree on the number of items per product lines desired, and level of quality.

Manufacturing and Operations – Complain about inaccurate forecasts and unrealistic capacity, delay, quality, and customer service demands from the Marketing Department.

Finance – Clash lies in risk-taking levels and investment perceptions as expenses (finance) as opposed to investments (marketing).

Accounting and Credit – Conflict on timing of sales reports and credit standings.

Building a companywide marketing orientation towards being market-and-customer driven will require a change in job and department definitions, responsibilities, incentives, and relationships. In addition, a capacity for strategic innovation through increased creativity needs to be built through approaches like e.g. hiring new creative marketers, listing observable trends, setting up rewards and prizes for new ideas.

Marketing implementation – the process that turns marketing plans into action assignments and ensures that such assignments are executed in a manner that accomplishes the plan’s stated objectives.

Implementation addresses who, where, when, and how.

Four sets of skills for implementing marketing program (according to Thomas Bonoma): Diagnostic skills, identification of company level, implementation skills, and evaluation skills.

Implementation can be done through software packages (that help companies better manage their marketing processes, assets, and resources exist like MRM, marketing resource management), automating repetitive processes, desktop marketing (in which whatever information and decision structures can be found), and reducing waste in practices like meetings and approvals.