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This summary of Marketing Management by Kotler and Keller is written in 2013-2014.
Nowadays economy is based on the Digital Revolution and information management. It promises more accurate levels of production, more targeted communications, and more relevant pricing, and is therefore characterized by the so-called Information Age.
The new economy differs a lot from the old economy, which was based on the Industrial Revolution, manufacturing industries, and standardization of products to achieve economies of scale. The old economy is characterized by the Industrial Age, which focused on mass-production and mass-consumption with a focus on efficiency.
The new economy has provided more capabilities to both consumers and businesses. Consumers can now:
Compare notes on products and services.
Companies can now operate powerful new information and sales channels to inform the consumer and promote their businesses and products.
e.g. Using Web sites:
e.g. Extranets with suppliers:
e.g. Internet, allows organizations for the comparison of prices, improving purchasing, logistics and operations, saving costs and improving accuracy and quality.
These new capabilities of consumers and customers create new forces, which raise the question and focus on how these new forces will change marketing.
Marketing deals with identifying and meeting human social needs; it is about meeting peoples’ needs profitably. Companies are motivated to take a private or social need and turn it 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.
There is a new way of marketing in which firms focus on delivering high product quality and winning long term customer loyalty (Harley Davidson). This way of marketing is calld Radical Marketing. 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:
There are many ways in which effective marketing can take place. Whatever way one uses, 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. Market managers nowadays are also responsible for 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:
Task: Synchromarketing: Use flexible pricing, promotion, and other incentives to alter the pattern of demand.
Marketing tasks have gained a broadened view to include more decisions, which 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 less important in nonprofit and governmental markets than in consumer and business markets, where more purchasing power is present.
Marketing Concepts and Tools
Marketing is an organizational function and a set of processes for creating, communicating , and delivering value to customers and for managing customer relationships in ways that are beneficial for the organization and its stakeholders.
Marketing Management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior value to the customer.
Segmentation means dividing up the market and identifying market segments by examining demographic, psychographic, and behavioral differences among consumers.
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 services and products, which are closely related in the minds of consumers but are spread across a diverse set of industries.
A marketeer 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 an exchange.
A need consist of basic human requirements. 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.
There are five different kinds of needs:
Stated needs (The customer wants an inexpensive car.)
Real needs (The customer wants a car whose operating cost, not its initial price, is low.)
Unstated needs (The customer expects good service from the dealer.)
Delight needs (The customer would like the dealer to include an onboard navigation system.)
Secret needs (The customer wants friends to see him as a savvy consumer.)
Marketing is becoming more and more involved in key general management activities. There are five key functions for a Chief Marketing Officer (CMO) in leading marketing within the organization:
Strengthening the brands
Measuring marketing effectiveness
Driving new product development based on customer needs
Gathering meaningful customer insights
Utilizing new marketing technology
A value proposition is a set of benefits and values 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.
The process of obtaining desired product from someone by offering something in return is called an Exchange. When making an exchange it is important to analyze the wants of both parties. A basis for a transaction exists if there is a sufficient match or overlap in the want lists. A transaction is a trade of values between two or more parties. Trading goods or services for other goods or services is called a barter transaction. Transfer (different from transaction) is the passing of a product without necessarily receiving anything tangible in return.
The Holistic Marketing Concept is an approach that tries to recognize and reconcile the scope and complexities of marketing activities. If one would apply the holistic marketing concept, internal marketing, integrated marketing, performance marketing and relationship marketing all have to be included.
Relationship marketing: aims to build a mutually satisfying long-term relationship with customers and business partners.
Integrated marketing: there are many marketing activities that can create value for customers but they all have to be coordinated well in order to maximize their joint effects. Marketers should always conduct one marketing activity with all other activities in mind.
Internal marketing is done by hiring, training and motivating employees who want to serve customers well
Performance Marketing: understanding returns to the business from marketing activities and programs.
A reaction sought by marketers is called the Behavioral response. Marketing includes actions undertaken to elicit desired responses from a target audience. Relationship marketing tries to build long-term, “win-win” transactions between marketers and key parties (suppliers, customers, distributors), building a mutually satisfying long-term relation with key parties, cutting down transaction costs and time.
The ultimate desired outcome of relationship marketing is an unique company asset called a marketing network of mutually profitable business relationships. Competition is increasing between marketing networks; which indicates that success depends on the better network.
Marketing channels are means used to reach a target market and are critical for successful marketing.
There are three channels for marketing offerings:
Communication (e-mail, toll free numbers).
Distribution (distributors, wholesalers, retailers, and agents).
Service channels (warehouses, transportation companies, banks, insurance companies that facilitate transactions).
A supply chain refers to the long channel process which reaches from the raw materials and components to the final product/buyers. It represents a value delivery system
Competition - Includes actual and potential rival offerings and substitutes. A broad view of competition is need for 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 firm uses to pursue marketing objectives with the target market. These tools can be classified into the following groups which represent the sellers view of the marketing tools available for influencing buyers: product, price, place, promotion. The 4 P’s correspond with the customer’s four C’s (customer solution, customer cost, convenience, communication).
Company Orientations toward the Marketplace
There are six competing concepts under which organizations conduct marketing activities, they include:
1. Production concept: assumes consumers will prefer those products that are widely available and low in cost.
2. Product concept: assumes consumers will prefer those products that offer the best combination of quality, performance, or innovative features. This concept has little or no customer input or competitor research and can therefore have a negative effect. It can lead to Leavitt’s marketing myopia: “customers do not buy drill bits; they buy ways to make holes”.
3. Selling concept: This concept assumes that in order to enact exchanges with consumers, organizations must undertake aggressive selling and promotion efforts because of consumers’ passiveness. 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 being more effective than competitors in integrating marketing activities toward determining and satisfying the needs and wants of target markets is the key to achieving organizational goals consists. 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 their customers. Hurdles to adopting the marketing concept include organized resistance, slow learning, and fast forgetting.
5. Customer concept: this concept is about 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 task of the organization is to determine the needs, wants, and interests of target markets, which requires marketers to build social and ethical considerations into their marketing practices in such a way that preserves or enhances the consumer’s and the society’s well-being. It calls upon marketers to find a balance between company profits, consumer want satisfaction, and public interest. Cause-Related Marketing is one form of this concept, in which a business 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.
Because of major new forces of globalization, deregulation, and technological advances, business and marketing are changing.
Customers are expecting more and better products and services, increasing brand competition leads to increasing promotion costs and decreasing 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 are responding and adjusting through 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.
The value delivery process (to customers) involves choosing and superior value.
The value chain is a tool for identifying key activities that are responsible for creating value and costs in a specific business. Michael Porter of harvard has proposed the value chain as a tool for identifying ways to create more customer value.
The value chain consists of:
Primary activities: inbound logistics, operations,sales, service
Support activities: procurement, technology development, HRM and infrastructure
Supply chain: the partnering together of companies with specific suppliers and distributors in order to create a superior value delivery network.
It is a source of competitive advantage that contributes significantly to the perceived customer benefits.
It is widely applicable in different markets.
It is hard to imitate for competitors.
One view suggests that holistic marketing maximizes the exploration of value by understanding the relationships between the customer’s cognitive space, the company’s competence space, and the collaborator’s resource space.
The marketing plan: the central instrument for coordinating the marketing activities. It operates at two levels:
Strategic marketing plan: lays out the target markets and the value proposition the firm will offer.
Tactical marketing plan: specifies the marketing tactics. For example: product features, promotion, merchandising, pricing, sales, channels and service.
All corporate headquarters undertake four planning activities:
Defining the corporate mission
Establishing the strategic business units
Characteristics of a Strategic Business Unit (SBU):
It is a single or related business, which can be planned separately from the rest of the company.
It has its own competitors and customers.
It has a manager who controls most of the factors affecting profit and is responsible for strategic planning and profit performance.
Assigning Resources to each SBU
For example the Ansoff’s product-Market Expansion Grid was developed to help with the assessment of growth opportunities
1. Market-penetration strategy
3. Product-development strategy
2. Market-development strategy
(4. Diversification strategy)
Integrative growth: a company can achieve an increase in sales by integration within its industry. For example by buying suppliers.
Diversification growth: increasing sales by making use of good opportunities outside the present businesses.
If all these opportunities don’t exist there is the opportunity of downsizing and divesting older businesses.
A company’s organization: it structures policies and corporate culture.
A corporate culture: the shared experiences, stories, beliefs and norms that characterize an organization.
Strategic planning occurs when a firm reconsiders in which businesses or markets it should grow, maintain, harvest, or terminate and which new markets it should enter. Strategic planning deals with the adaptability of the firm to the rapidly changing environment. The aim of strategic planning is to shape the company’s businesses, products, services, ad messages in such a way that they achieve the 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:
Managing company’s businesses as an investment portfolio.
Assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in the market.
Establishing a strategy.
There are four organizational levels of companies at which strategic planning takes place, which are:
Corporate (decides on resources to divisions),
Division (covert allocation of funds),
Business unit (develop strategic plan future),
Product (develop a marketing plan).
Corporate and Division Strategic Planning
Corporate strategic planning: the start of strategic planning which establishes the framework within which the divisions and business units prepare their plans.
Their activities include:
I. Defining Corporate Mission Statement – There are 3 characteristics of good mission statements, which are: The number of goals are limited, it stresses major policies and values of the company, defining the major competitive scope within which the company will operate, including the scope of the industry, the scope of the products and applications, the scope of the competence, market-segment scope, vertical scope, and geographical scope.
II. Establishing and identifying SBU’s (Strategic Business Units) – SBU’s are business units for which it can be beneficial to plan separate, to face specific competitors, and to be managed as profit centers. Extending to new customer groups, customer needs, and technology allows for strategic business units. Organizations that define their business in ‘market definition’/strategic market definition include broader views of their opportunities, competition, 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. The allocation of Resources to each SBU – This decision is based on their market attractiveness and business strength. In order to determine which SBU’s to build, maintain, harvest, or divest (separate from the rest) organizations can use portfolio models help, Example of these models include:
The Boston Consulting Group Approach, The General Electric Model.
IV. Planning new businesses, downsizing, or terminating older businesses – Not rarely the project sales for an organization are not as much as 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 fill the gap through the development of business strategies. In order to fill the gap, there are three options available to. 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).
Business unit strategic-planning process consists of these steps:
SWOT analysis: this is an evaluation of company’s strengths, weaknesses, opportunities, and threats.
Goals must be arranged hierarchically, from the most to the least important.
Objectives should be quantitative whenever possible
Goals should be realistic
Objectives must be consistent
4. Strategy formulation:
Michael Porter has proposed a model which holds three generic strategies that provide organizations with a good starting point for strategic thinking:
Overall cost leadership
5.Program formulation and implementation: implementation of the strategy is one of the most crucial things to make a strategy work.
6. Feedback and control: A firm always has to keep focussed and willing to adjust to a changing environment.
Even for giant company’s, alliances can be important to achieve leadership. There are forms of strategic alliances:
Product of service alliances: one company gives another company the license to produce its’ product; or two organizations jointly market their complementary product of a new product.
Promotional alliances: one firm promotes for another firm’s product or service.
Logistics alliances: One company offers logistical services for another company’s product.
Pricing collaborations: companies work together in a special pricing collaboration.
Partner relationship management (PRM): the ability to form and manage partnerships as core skills.
Sales Information Systems
Marketing managers have a need for accurate and timely updates on current sales. To accomplish this they can use sales information systems, which give up to date information. Companies must carefully interpret the sales data to make sure they won’t draw the wrong conclusions.
The order-to-payment cycle is the heart of the internal records system. It is the cycle which starts at the moment where sales representatives, dealers, and customers send order to the firm. The sales department prepares invoices, transmits copies to various departments, and back-orders items that are out of stock. The cycle ends when the invoices are paid.
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 mathematical and statistical and techniques to extract useful and valuable 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
There are also disadvantages of database marketing, which include:
A large investment is required in computer hardware, database software, analytical programs, communication links, and skilled personnel.
It may not always be worthwile building a customer database: 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 not want to be customer-oriented or use the available information. Customers may not want to give and allow for the use of personal information, and may not want a relationship with the company.
Marketing intelligence system: in order to obtain everyday information about developments in the marketing environment, manager use a set of procedures and sources.
Several steps to improve the quality of the marketing intelligence:
Motivate distributors, retailers, and other intermediaries to pass along important intelligence.
Train and motivate the sales force to spot and report new developments.
Hire external experts to collect intelligence.
Network externally and internally.
Set up a customer advisory panel.
Take advantage of government-related data resources.
Purchase information from outside research firms and suppliers.
Use online customer feedback systems to collect competitive intelligence.
The boosting success of internet have provided marketers with more ways of seeking information about the consumer and the competition. There are five main ways in which this is done:
Independent customer goods and service review forums.
Combo sites which offer customer reviews and the opinions of experts.
Sites with feedback from distributors or sales agents.
Sites where customers can complain.
Analyzing the Macro environment
Successful companies recognize and respond profitably to unmet needs and trends.
A fad is unpredictable, short lived and without social, economic and political significance. A trend is a sequence of events that has some momentum and durability. A Megatrend has more durability and can be described as large social, economic, political and technological changes that are slow to form, and long in place, they influence us for some time between seven and ten years (or longer).
Because of the dynamic world and its’ changes, fast marketers must monitor six major environmental forces: demographic, economic, social-cultural, natural, technological and political-legal.
(population growth, population age mix – age concentrations of people differ per country, ethnic and other markets differ in needs, wants and habits, educational groups (implications for e.g. demand on books), patters of household , geographical shifts in population.) The effect of these changes is fragmentation of the mass market into number micro-markets differentiated by age, sex, ethnic background, etc. These trends are reliable for short and intermediate run.
Purchasing power is a requirement of a market, and relies on income distribution and savings, debt and credit availability. These changes have implications for tailoring of products and business.
The natural environment shows potential shortages of raw materials, increases in pollution levels, unstable costs of energy, and the changing role of governments in environmental protection.
Every new and innovative technology is a force for “creative destruction”, the introduction of one innovation may hurt another industry. (TV’s newspapers)
Trends in technology which should be monitored and taken into consideration:
Accelerating pace of change: this may cause market, technological, and regulatory uncertainty, which are the 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 causes the arise of safety concerns.
Political-Legal Environment: This 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, and thereby put constraints on marketers.
Consumerist movement: an organized movement of citizens and government to strengthen the powers and rights of buyers in relation to sellers.
Social-Cultural Environment refers to beliefs, values and norms. People vary in views of: others, themselves, organizations, nature, society, 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 of the forces in the macro-environment may lead to new opportunities and threats. A change in one environment may have implications for all others.
The Marketing Research Process consists of six steps:
Define the research objectives and problems
Develop the plan for your research
Collect the information
Analyze the information
Present the findings
Make the decision
These steps will be further explained in this chapter.
Step 1: Define the problem, the alternative decisions, and the research objectives.
Step 2: Develop the research plan. In this step the most efficient plan for acquiring the needed information will be developed. In order to design a research plan there has to be made decisions about the data sources and the research approaches, sampling, and contact methods.
The researcher can gather primary data, secondary data, or both.
Primary data: new information gathered by the researcher self.
Secondary data: data collected for another purpose and already existing.
There are six ways that a researcher can collect primary data:
Observational Research: observing the relevant actors and settings and gather the data.
Focus Group Research: a gathering of 6 to 10 people carefully selected based on certain demographic, psycho-graphic, or other considerations. They will be brought together to discuss various of topics and are usually paid a small sum for attending.
Ethnographic Research: a particular observational research approach with the goal to penetrate the researcher into consumers lives to uncover unarticulated desires that might not surface in another form of research.
Behavioral Data: actual behavior usually gives a more accurate image.
Experimental Research: This is the most scientifically valid research, designed to capture cause-and-effect relationships by eliminating competing explanations of the observed findings.
Survey Research: researchers can undertake surveys to learn about people’s knowledge, beliefs, preferences and satisfaction.
There are two main instruments in collecting primary data:
Questionnaires: a set of questions presented to correspondents
Qualitative Measures: relative unstructured questions that permit a range of possible answers. The advantage over questionnaires is that more answers are possible.
There is however an increasing interest in qualitative methods. It is interesting to get into consumers mind and find out what they feel and think. This can be done with the following measures:
Word associations: what comes to mind when subjects hear a brand’s name.
Projective techniques: People get a incomplete stimulus and are asked to complete it.
Visualization: people are required to make a collage from pictures to represent their perceptions.
Brand personification: ask respondents what kind of person they feel the brand is like.
Laddering: ask the respondent a series of “why” questions to reveal deeper, more abstract goals of the customer.
Sampling plan: When the research approach and instruments are chosen, the researcher must design a sampling plan. This calls for three decisions:
Sampling unit: Who should we survey?
Sample size: How many people should we survey?
Sampling procedure: How should we choose the respondents?
There are several contact methods how a researcher can contact the subjects: by mail, by telephone, in person, or online.
Online research has the advantage that it is inexpensive, fast, versatile and respondents tend to be very honest because of the feeling of anonymity.
Step 3: Collect the Information
Step 4: Analyze the Information
Step 5: Present the Findings
Step 6: Make the Decision
More and more organizations are using a market decision support system to help their marketing managers make better decisions. MDSS Marketing Decision Support Analysis (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.
Measuring Marketing Productivity
A wide variety of measures to assess marketing effects are employed by marketers. Marketing metrics is the set of measures that helps them quantify, compare and interpret marketing performance.
In order to estimate more precisely the effects of different marketing investments, Marketing-mix models can be used to analyze data from a wide variety of sources.
Firms can also make use of Marketing Dashboards. These are visually displays of the information. There are two key marked-based scorecards that reflect performance and provide possible early warning signals:
A customer-performance scorecard: shows how well customer think the company is doing.
Stakeholder-performance scorecard: shows the satisfaction of various stakeholders.
Market demand: the total amount 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 potential demand level to the current level of market -demand . A high index means an increase in price competition and lower margins.
Share penetration index: the comparison between the potential market share to the current 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. In order to find this organizations 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 defined time period.
Company sales forecast: the level of company sales expected based on chosen marketing plan and an assumed marketing environment; this 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 volume of sales expected. It is primarily used for making current purchasing, production, and cash flow decisions.
Company sales potential: the sales limit approached by organization demand as organization marketing effort increases relative to that of competitors. It is often less than market potential.
Estimating current demand requires the determination of four factors: (1) total market potential, (2) area market potential, and (3) industry sales and (4) market shares.
Total market potential – the maximum amount of sales that might be available in a given time period to all firms in an industry, 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: The 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.
Customer perceived value (CPV) is The worth that a product or service has in the mind of the consumer. The consumer’s perceived value of a good or service affects the price that he or she is willing to pay for it. It 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 collection 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 collection 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 focused on maximizing value. 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).
In order to know how his or her offer rates in the buyer’s mind, the seller must assess the total customer value and total customer cost associated with each competitors offer. When the seller is at a customer perceived value disadvantage, it can decrease total customer cost or increase total customer value.
Customer Satisfaction refers to an individual’s perceived 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 loyalty and customer satisfaction isn’t proportional. To generate customer satisfaction, companies must match the delivering performances with customer expectations. Companies must deliver high customer value in order to generate high customer loyalty.
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 buyer will have on the way to obtaining and using the offering, for a company to keep promise they must manage this.
Methods to measure customer satisfaction include: complaint and suggestion systems, mystery shopping (hiring people to act as potential buyers and report feedback), customer satisfaction surveys, last customer analysis (through contacting former/ex-customers).
High performance businesses are organizations that reach their customer value and satisfaction goals. These companies set strategies to satisfy their key stakeholders, by improving business processes, and align resources and organization. “Build to Last” Commonalities of high performance businesses include:
Distinctive set of values, with no deviation.
Purpose is expressed in enlightened terms (e.g. “Help end Hunger”).
Vision of the future has been developed, company acts to implement it.
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) means building stronger relationships with customers. The CRM goal 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:
Value equity (the subdrivers are quality, price, and convenience),
Brand equity (the subdrivers are customer brand awareness, customer attitude, customer perception of brand ethics),
Relationship equity (the subdrivers are loyalty programs, special recognition and treatment programs, community and knowledge building programs).
The different 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 firm would have accomplished if the customer had not defected prematurely. In order to measure CLV: Subtract from the expected revenues the expected costs of attracting, selling, and servicing that customer.
Attracting customers requires a lot of 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 has to 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. Retaining current customers is cheaper than attracting new customers. Ways to strengthen customer retention include: delivering high customer satisfaction or erecting high switching barriers.
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 reduce service support or raise fees.
To analyze profitability, you can use: Customer Profitability Analysis (CPA), which can best be done through Activity Based Costing (ABC). To make company profitability higher, companies should build sustainable competitive advantage or competitive advantages it can leverage. The key to value creation and customer satisfaction is total product and service quality; organizations 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 products, serices, and process.
One-to-one marketing four step framework:
Identify your prospects and customers (focus, don’t try to reach everyone).
Differentiate customers in terms of (1) their value to your company and (2) their needs (Spend proportionately more effort on the most valuable customers (MVC’s).
Interact with individual customers to build stronger relationships and to improve your knowledge about their individual needs.
Customize services, products, and messages to each customer.
Reducing defection (customers leaving) is crucial. Just adding new customer is not enough. To reduce retention rate, a company must:
Define and measure its retention rate.
Determine the causes of defection.
Compare the lost profit equal to the customer’s lifetime value from a lost customer to the costs to reduce the defection rate.
Customers can develop from potentials (who haven’t bought the product yet but might purchase it) to partners (customers who enthusiastically recommend the company and its products and services to others)
The Customer-Development Process describes this process:
potentials > prospects > first-time customers > repeat customers > clients > members > advocates > partners. This process reflects the perfect situation, from the point where customers are first-time customers to the point where they become partners they can always become inactive of ex-customers if they decide not to further purchase the product or service.
Companies can create tight connections to customers by increasing their loyalty. This can be done by:
Developing loyalty programs (like Frequency program; FP’s).
Interacting with customers.
Creating institutional ties.
A customer database is an organized collection of comprehensive information about prospects or individual customers 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: 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 organization. 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 needs a high investment in computer hardware, database software, analytical programs, communication links, and skilled personnel.
It may not always be worthwhile building a customer database: 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 not want to be customer-oriented or use the available information.
Customers may not want to give and allow for the use of personal information, and may not want a relationship with the company.
When analyzing consumer markets and buyer behavior, different questions should be asked, 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:
Culture – perceptions, values, preferences, and behaviors that are the most fundamental determinant of a person’s wants, needs and behavior.
Subculture – nationalities, religions, racial groups, and geographic regions.
Social Classes – relatively homogeneous and enduring divisions within a society, that are ordered hierarchically and 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.
Reference groups – all groups that have an impact on behavior or attitudes. Major influences are exerted by membership groups, especially members such as family, friends co-workers, and other members of primary groups. 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, but wished she/he were in, so called aspirational groups, and groups that oppose the persons values, called dissociative groups.
Marketers can try to understand groups using Opinion Leaders, who give information on products or brands.
There are some important aspects for marketers, such as the 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 an individual is expected to perform, each carry a certain status.
In marketing, the status-symbol of the product is an important consideration.
Age and Stage in the Life Cycle: People buy different products over their lifetime.
1. Bachelor stage:
Young, single, not living at home
Only a few financial burdens. Fashion opinion leaders. Recreation oriented. Buy: furniture, cars, basic home equipment, equipment for the mating game; vacations.
2. Newly married couples:
Young, no children
Highest purchase rate and highest average purchase of durables: appliances, cars, vacations, furniture.
3. Full nest I:
Youngest child under six
Home purchasing at peak. Liquid assets low. Interested in new products, advertised products. Buy: dryers, washers, TV, chest rubs and cough medicines, vitamins, baby food, dolls, wagons, sleds, skates.
4. Full nest II:
Youngest child six or over
Financial position better. Less influenced by advertising. Buy larger-size packages, multiple-unit deals. Buy: many foods, bicycles, music lessons, cleaning materials, pianos.
5. Full nest III:
Married with children. Advertising becomes more difficult. Purchases become durables like boats, tasteful furniture, and magazines.
6. Empty Nest I:
Old married couples without children near-by. Focus becomes on travel, gifts, luxuries, recreation, and self-education, home improvements.
7. Empty Nest II:
Older married, retired. Buy: medical appliances, medical-care products.
8. Solicitary survivor:
In labor force, income still good but likely to sell home.
9. Solitary survivor
Retired, less income. Need of medical supplies.
Besides age and Life cycle stage, 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 interests, opinion, and activities.
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: excitement (daring, spirited, up-to-date), sincerity (down-to-earth), sophistication (upper class and charming), competence (reliable, intelligent, successful), and ruggedness (outdoorsy and tough).
A motive is a need that is to such an extent pressing that it drives the person to act. Theories of human motivation include:
Unconscious psychological forces shape people’s behavior. A person will also react to less conscious clues like shape, weight, material, color, when seeing an advertisement.
Laddering: a technique that is used in order 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.
Abraham Maslow’s Theory
The aim of this theory is to explain why people are driven by particular needs at particular times.
Maslow’s Hierarchy of Needs is a triangle, that shows the order of needs from most pressing to least pressing:
Physiological needs: food, water, shelter
Safety needs: security, protection
Social needs: sense of belonging, love
Esteem needs: self-esteem, recognition, status
Self-actualization needs: self-development and realization
Frederick Herzberg’s Theory
Dissatisfiers: factors that cause dissatisfaction; e.g. no toilet paper
Satisfiers: factors that cause satisfaction, e.g. an exceptional clean toilet
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 a person selects, organizes, and interprets information inputs to create a meaningful picture of the world.
Selective attention is the process through which an individual 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 make sure their stimuli is being the one noticed. People are more likely to notice stimuli that they anticipate. People are more likely to notice stimuli whose deviations are large in relation to the normal size of the stimuli. People are more likely to notice stimuli that relate to a current need.
Selective distortion is the tendency an individual may have to twist information into personal meaning. Selective retention is the tendency to remember information that supports attitudes and beliefs.
Selective retention is the tendency to remember the information that support our current attitudes and believes.
Subliminal perception refers to subliminal messages marketers use in their promotion, off which consumers are unaware but yet they unconsciously are affected by it.
By learning an individual changes his or her behavior arising from experience.
Drive refers to a strong internal stimulus leading to action. Cues minor stimuli that determine when, where, and how a person responds. One 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 are able to 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 an individual holds about something. An attitude is an individual’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea.
Current beliefs of consumers may impact the success of a product. E.g. the country of origin for leather jackets is “believed” to be off better quality 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 consumer’s buying decision is important for managers to understand. There are different roles consumers can 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 - four types:
Significant Differences between Brands
Complex buying behavior
Variety-seeking buying behavior
Few Differences between Brands
Dissonance-reducing buying behavior
Habitual buying behavior
Different Strategies Marketers can take for each behavior:
Complex Buying Behavior: (e.g. buying risky, high self-expressive, infrequent products)
Find ways to assist and inform 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). The marketer helps customers feel good about the choice of brand they have made
Habitual buying behavior: (e.g. low cost, frequent purchases buying matches, salt)
Use sales and price promotion
Television advertising (rather than print advertising)
Link an involving issue to the product
Link an involving personal issue to the product
Design advertising to trigger strong emotions related to personal values or ego defense
Add important features to the product(plain drink + vitamins)
Variety Seeking buying behavior. As a market leader you should encourage habitual buying behavior by dominating shelf space and avoid out of stock conditions; use reminder advertising. As a follower company, offer lower prices, deals, coupons, free samples, advertising promoting and try new things.
Stages of the buying decision process
Marketers can try to understand the customer’s behavior in connection with a product through the mapping of the customer’s consumption system
How to learn about the stages in the buying process of a company’s product:
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
Problem recognition: this occurs when there is a difference between desired and actual state (e.g. admiring your friends car).
Marketer can try and trigger consumer interest.
Information search: In this stage, people have a heightened attention (openness to more information) or engage in more active information search (look to learn more about the product).
Consumers’ information sources categories: personal sources (friends & family) commercial sources (advertising, salespersons, dealers), public sources (mass media, consumer ratings-organizations), experiential sources (handling, examining, using the product)
Marketer can try to get its brand in prospect’s awareness set, consideration set, and choice set. Evaluate customer’s information sources.
Evaluation of alternatives: this stage involves weighing product attributes (by importance), and the individual’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.
Purchase decision: The actual purchasing decision can be influenced by attitudes of other people, and unanticipated situational factors. Perceived risk (which varies with amount of money involved), can strongly influence a consumer’s decision to postpone, modify, or avoid a purchase decision. There are different kinds of risk:
Functional risk: the product does not perform to the customer’s expectations
Physical risk: using the product poses a threat to the well-being of the self or others.
Financial risk: the price paid is too high for the product’s worth
Psychological risk: the mental well-being of the user is affected
Time risk: a failing product causes opportunity costs because the consumer has to search for a new product.
Infomediaries: publish evaluations of products (consumer reports), is an example of influences by other people on the decision to purchase a product.
Subdecisions when purchasing: Brand decision, Vendor decision, Quantity decision, Timing decision. Payment-method decision
Post purchase behavior
A consumer feels dissatisfaction or satisfaction after the purchase.
Post purchase satisfaction: understanding the differences between the buyer’s expectations and the product’s perceived performance. The marketer’s goal is to minimize this gap.
Post purchase actions: Dissatisfied customers may return or abandon the product, warn friends, or stop buying the product. Satisfied customers will talk good about the product and have a higher probability of returning. Marketers should ensure post purchase communication which has been shown to result in less product returns and order cancellations.
Post purchase 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:
Elaboration likelihood model: consumers make decisions in both high- and low-involvement circumstances. Information in the elaboration likelihood theory has two routes; the central route, where consumers have spend significant consideration to the most crucial product information; and the peripheral route where attitude formation or change results from the association of a brand with either positive or negative peripheral cues.
Consumers don’t always make decisions in a rational manner. According to behavioral decision theorists many different heuristics and biases in everyday consumer decision making occur:
The availability heuristic: consumers evaluate a product based on earlier experiences with a product. They overestimate the chance that this will happen again.
The representatives heuristic: consumers base their predictions on how representative or similar the outcome is to other examples.
The anchoring and adjustment heuristic: consumers make an initial judgment and then adjust it based on additional information.
Mental accounting: the way that consumers categorize, code, and evaluate financial outcomes of choices. People do this based on a set of key core principles:
Consumers tend to segregate gains. When a consumer likes more than one dimension of your product it is important to let them evaluate each dimension separately. It makes the sum of the parts seem greater than the whole.
Consumers tend to integrate losses. It is easier to sell something that can be added to another large purchase like a house.
Consumers tend to integrate smaller losses with larger gains.
Business Market characteristics vs. Consumer Market
Business market: Fewer buyers, larger buyers, geographically concentrated buyers, close supplier-customer relationship, inelastic demand, derived demand, fluctuating demand, several buying influences, professional purchasing, multiple sales calls (takes long to finalize a sale), direct purchasing (as opposed to through intermediaries), leasing, reciprocity.
Three buying situations:
Straight rebuy: when a consumer buys routinely.
Modified rebuy: when the consumer wants to modify product specifications, prices.
New Task: when the purchaser buys a product/service for the first time.
Participants in the Business Buying Process
The buying center – consists of all those people and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions. There are seven roles group members can play in an buying decision:
Initiators, users, influencers, deciders, approvers, buyers, and gatekeepers.
The Purchasing/Procurement Process
Companies have different purchasing orientations than individuals:
Buying Orientation: Focus on lowest price at a given quality level. The buyer’s Tactics can be of commodization: where the product is viewed as a commodity thus only price matters, or of multisourcing: where the suppliers are allowed to compete for their purchases.
Procurement Orientation: Focus on cost reductions, quality improvements, improved relations with supplier. (e.g. through longer term contracts, MRP)
Supply Chain Management: Focus on improving the entire value chain.
Routine products: products with low prices and low value. Suppliers can offer blanket offers and facilities management.
Leverage products: products with high cost, high value and whith many sources for supply. Supplier can show own product as total cost minimizer.
Strategic products: products with high cost, high value and they involves risk. Supplier can work on strategic alliances co-development programs, co-investment.
Bottleneck products: low cost, low value, involves risk. Supplier can decrease uncertainty by offering help desk, offer tracking system, deliver-demand.
Stages in the Buying Process:
Stage1: problem recognition, 2: the general need description and product specification, 3: search for supplier, 4: proposal solicitation, 5: selection of the supplier, 6: order routine specification, and finally the 7: performance review.
Product value analysis, PVA, can help determine the required quantity and the general characteristics of the needed item(Step 2), since it is an approach to cost reduction in which components are studied to determine if they can be standardized or redesigned or made by cheaper methods of production.
Vertical Hubs and Functional Hubs – these are e-hubs that help search for customers. (Step 3)
E-procurement ways: 1. Direct extranet links to major suppliers, 2: Buying alliances, 3: Company buying sites.
Customer value assessment, CVA – these are methods to assess customer value.
Blanket contract (a.k.a stockless purchase plans)– bind a long term buyer-supplier relationship to: resupply buyer as needed, at agreed upon prices, over a specified period of time.
Buy flow map – helps the marketer that specifies which buying company personnel is involved at which stage of the purchasing process.
The Procurement Process from the Suppliers Point of View (Job of Marketers):
Stimulate problem recognition; direct mail, telemarketing, calling on prospects.
Use PVA as a tool to make themselves more attractive.
Get listed in major online catalogs or services, strong ad. And promotion program, build a reputation.
Describe value and benefits in customer terms in marketing documents, work on oral presentations.
Maintain satisfaction high.
Monitor the same variables that are monitored by the product’s buyers and end users.
Institutional and Government Markets
Major buyers of goods and services:
A. Institutional market – consists of hospitals, nursing homes, schools, prisons, and other institutions that are obligated provide goods and services to people in their care.
Companies produce, package, and price their products depending to meet these institutions’ particular requirements, because they can generate large income.
B. Government organizations – are also major buyers.
Much paperwork is involved, favor domestic suppliers.
Must prepare bids carefully, since open bids are preferred by governments
The feature of certainty motivates suppliers to try and sell to government organizations (no check bounces, loyalty (repeated business)).
Market orientation is generally not used for selling to governments. Advertising and personal are not very effective, because government focuses on lower costs.
Mass marketing: the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers.
Homogeneous preferences – consumers have the same preferences, existing brands are similar.
Diffused preferences – consumer’s preference may vary greatly. Brands that enter first have an advantage, or brands differ greatly if there are several in the market.
Clustered preferences – natural market segments, in which customers are clustered in distinct preferences. A firm can try to appeal to all clusters, set up many brands to appeal to each cluster, or position itself in the biggest segment which is called concentrated marketing
Niche: is a narrowly defined group of customers seeking a distinctive mix of benefits.
For market segments to be effective, they must be: substantial, accessible, measurable, differentiable, and actionable.
Segmenting Consumer and Business Markets
Consumer Markets – bases for segmenting, segmentation variables:
Demographic Segmentation – dividing the market into, e.g. age, life-cycle state, life stage (divorce, married), gender, income, generation, or social class.
Geographic Segmentation – dividing the market into, e.g. nations, states, regions, etc.
Behavioral Segmentation – dividing customers into e.g. occasions for buying, benefits (convenience, low price, quality service), user status (non-user, ex-user, potential users.), usage rate (light, medium, heavy), loyalty status, buyer-readiness stage, or attitude.
Psychographic Segmentation – dividing the market into, e.g. life-style (attitudes, activities interests), personality (e.g. exciting NIKE, competent HP, rugged Timberland…), and values.
Criteria for market segments:
Substantial (segments are large and profitable enough)
Michael Porter has identified five forces that together determine the intrinsic long-run attractiveness of the industry that is being analysed. These threats are:
Threat of intense segment competition
Threat of new entrants
Threat of substitute products
Threat of suppliers’ bargaining power that is growing
Threat of buyers’ bargaining power that is growing.
A brand is ‘a name, sign, term, symbol, or design, or combination of them, with the intention to identify the services or goods of one seller of group of sellers and to differentiate them from those of competitors’.
Branding is endowing services and products with the power of a brand.
Brand equity is the added value endowed on services and products. It can be reflected in the way consumers feel about a brand.
Customer-based brand equity: the effect that brand knowledge has on consumer behavior and attitude to the marketing of that brand.
Brand knowledge: consists of all the feelings, thoughts, experiences, images, beliefs etc that become associated with the brand.
Building brand equity depends on three main factors:
The initial choices for the brand identities or elements making up the brand.
The way the brand is integrated into the supporting marketing program.
The associations indirectly transferred to the brand by linking the brand to some other entity.
A brand audit: assesses the health of the brand and assesses the sources of brand equity and suggests ways to improve its brand equity.
Brand valuation: should not be mistaken for brand equity. Brand valuation is the estimated financial value of the brand.
Companies must always keep track of shifts and changes in the environment that can cause a brand to lose popularity or marketshare. If a firm wants to revitalize a brand it should first begin with going back to the sources of brand equity from the beginning of the brand.
When a firm introduces a new product it has three main choices:
It can apply some of its existing brand elements.
It can develop new brand elements for the new product.
It can use a combination of new and existing brand elements.
When an organization uses an established brand to introduce a new product the product is called a brand extension.
A sub brand: a combination of a new brand with an existing brand.
The parent brand: the existing brand that ’gives birth’ to a brand extension.
In a line extension the parent brand covers a new product within a product category it currently serves.
In a category extension the parent brand is used to enter a different product category from the one it currently serves.
A brand line consists of all of the products that are sold under a particular brand.
A brand mix: is the set of all brand lines that a particular firm makes available to buyers.
A licensed product: one whose brand name has been licensed to other manufacturers that actually make the product.
Advantages of brand extensions: they can enhance the acceptance of the new product by customers; they can provide positive feedback to the parent brand and company.
Disadvantage of brand extension: because of line extensions the strength of the brand name can decrease and get less strongly identified to one product.
This is called brand dilution.
Brands can play a number of different roles within a brand portfolio. Each brand must have a well-defined position in the portfolio.
Cash cows: low growth opportunities but they still are profitable enough for management to keep around.
Flankers: are positioned with respect to the competitors brands so that more important ‘flagship’ brands can retain their desired position.
Low-end entry level: relatively low-priced brand in the portfolio often may be to attract customers to other (more expensive) brands.
High-end prestige: relatively high priced brand to add prestige to the entire portfolio.
Customer equity: the sum of lifetime values of all customers
Positioning: designing the company’s offering and image in order to occupy a distinctive place in the minds of the target market.
Category membership: the products or sets of products with which a brand competes and which function as close substitutes.
Points-of-difference (POD’s): attributes or benefits can help consumers strongly associate with a brand, especially when they believe they cannot find this in a competitive brand.
Points-of-parity (POP’s): attributes shared with other brands.
Category point-of-parity associations are associations consumers view as being necessary to a credible product offering within a certain category. Competitive point-of-parity associations are those associations designed to negate competitors points-of-difference.
Dimensions through which a company can differentiate its market offering to gain a strong competitive advantage:
Service Differentiation – Service differentiators: ordering ease, delivery, installation, customer training, customer consulting, maintenance and repair, and miscellaneous services (e.g. product warranty/maintenance contract).
Product Differentiation – Products can be differentiated in many ways: Form, Features, Conformance quality (degree to which all the produced units are identical and meet the promised specifications), Performance quality, Reliability, Durability, Reparability, Style, Design.
Channel Differentiation – Refers differentiating in ways of design of distribution channels’ coverage, expertise, and performance.
Personnel Differentiation – Gaining a competitive advantage through better-trained people; whose characteristics are: competence, reliability, courtesy, responsiveness, credibility, and communication.
Image – the way the public perceives the company or its products.
Identity – comprises the way that a company aims to identify or position itself or its product.
Image and identity can be differentiated through using symbols, colours, slogans, generate image through their physical plant space, special attributes, engaging in events and sponsorships, and using multiple image-building techniques.
Product Life-Cycle Marketing Strategies
Because the product, market, and competitors change over time, firm’s positioning and differentiation strategy should change as well.
Stages of the Product life cycle: introduction, growth, maturity, decline > bell shaped.
Other products, those without bell shaped PLC, exhibit alternative patterns:
growth-slump-maturity pattern – e.g. Kitchen knives, purchased a lot until reaching a petrified level, later sustained by late adopters.
Cycle-Recycle pattern – e.g. drugs temporarily promoted that remain on the market.
Style – a basic and distinctive mode of expression appearing in a field of human endeavour.
Scalloped Patter – e.g. Velcro
Fads – temporary fashions, that come on strong, then decline quickly.
Fashion – a currently accepted or popular style in a given field.
Tendencies: Costs: high; Prices high, highest promotional expenditures, focus on high-earners.
The time of entering a market is important: too early is risky but can be highly rewarding. Most studies indicate that the market pioneer gains the most advantage.
Pioneer advantage (Golder and Tellis): inventor (first in developing the patents), product pioneer (being first to develop the product), market pioneer (selling first in new product category).
Tendencies: prices: remain unchanged or slightly fall, sales rise faster than promotional expenditures, profits increase, costs fall faster than price declines.
By spending money on product promotion, improvement, and distribution, the firm can capture a dominant position.
To strengthen competitive position the firm should engage in market expansion strategies:
- lower prices, attract next layer of price sensitive buyers.
- enter new market segments
- add new models and flanker products
- improve product quality and add new product features and improved styling.
- increase distribution coverage, enter new distribution channels
- shifts from product awareness advertising to product-preference adv.
Stages of the Maturity stage– Tendencies: Growth – Declining sales growth, no new distribution channels. Stable – Sales flatten (market saturation).
Decaying maturity – Absolute level of sales starts to decline, customers switch
Intensified competition leads to companies that are:
niching: reactions: advertising, promotion, increase R&D budgets.
- or market leaders: low cost, high volume
Market modification – and attempt to expand the market for its mature brand using:
Volume = Number of Brand Users X Usage rate per user
To expand number of brand users:
Enter new market segments
Convert non users
Win competitors’ customers
To increase volume (usage rate):
Use more of the product on each occasion.
Use the product in new ways.
Use the product on more occasions.
Product modification – Attempting to stimulate sales by modifying the product’s characteristics through feature improvement, style improvement (e.g. new car models), or quality improvement.
Marketing-mix modification – Attempting to stimulate sales by modifying other marketing mix elements: distribution, prices, sales promotion, advertising, personal selling, services.
A firms’ task is to identify the truly weak products; to develop a strategy for each one; and finally to phase out weak products in a way that minimizes the hardship to company profits, employees, and customers.
Harvesting – calls for gradually decreasing a product or business’s costs while trying to maintain its sales. This is done by cutting R&D costs and plant and equipment investment, and reducing product quality, sales force size, marginal services, and advertising expenditures.
Divesting – deciding to stop producing a product. Possibilities include selling the product, liquidating slowly or quickly.
In order to have a more market-oriented picture, one should follow the evolution of the market to focus also on what is happening to the overall market.
When making decisions, strategies considered include single-niche strategy, multiple-niche strategy, or a mass-market strategy.
Diffused Preference market – Buyer preferences scatter evenly.
Emergence begins when launching the product after the strategy is chosen for designing an optimal product for the market.
Growth stage happens when second firms start to enter the market.
The maturity stage is entered when competitors cover and serve all the major market segments.
Market fragmentation - when the market splits into multiple finer segments as market growth slows down.
Market consolidation – Caused by the emergence of a new attribute that has a strong appeal.
iv. Decline – Demand for the product begins to decrease.
Four ways of dealing with attribute anticipation and discovering: Attribute Competition
Customer-survey process: Discover customers’ desired benefits, and costs of developing each new attribute.
An intuitive process: goes without using much marketing research.
A dialectical process: unidirectional movement
A needs-hierarchy process – Maslows Theory (see chapter 7).
Porter’s 5 Competitive Forces: (1) threat of intense segment competition, (2) threat of new entrants, (3) threat of substitute products, (4) threat of buyers’ growing bargaining power, (5) threat of supplier’s growing bargaining power.
A company is more likely to be hurt by an emerging competitor than a current competitor. E.g. Barnes & Noble amazon.com
Competition can be seen from different perspectives:
a. Industries – Competitors are characterized by similarities in:
(1) Degree of differentiation and number of sellers .
(leads to: pure monopoly, oligopoly, monopolistic competition, pure competition)
(2) Mobility, entry, and exit barriers (high capital requirements, economies of scale, patents, creditors, government restrictions, high vertical integration…).
(3) Cost Structure.
(4) Degree of Vertical Integration.
(5) Degree of Globalization - local vs. global industries.
b. Market – Competitors are firms that satisfy the same customer need. This view specifies both an indirect and a direct view on competitors, and therefore has a broader range.
It is not enough to only identify competitors, companies must also understand their:
Strategies: by identifying their strategic group (determined by levels of quality and vertical integration, firms following same strategy in a given target market).
Objectives: these could be to increase market share, maximize profits, cash flow, service leadership, or technological leadership. Expansion plans are also important to monitor.
Strengths and Weaknesses
Competitive positions: favorable, tenable, dominant, strong, weak, or nonviable. Monitor share of market, share of mind (most recognizable), and share of heart (preferred company) variables of competitor companies. The goal is to make stead gains in mind share and heart share for gains in market share and profitability.
Reaction Patterns: these may depend on the industry.
Designing the Competitive Intelligence System
Actionable recommendations for decision making arising from a systematic process, involving gathering,planning, analysing and disseminating information on the external environment (about potential competitors), for opportunities or developments that have the potential to affect a company or country’s competitive situation
Leads to easier formulation of competitive strategies.
The information gathered through the competitive intelligence system allows for the creation of better strategies.
In order to identify a company’s strengths and weaknesses relative to competitors, companies engage in Customer Value Analysis
Where customer Value = Customer Benefits – Customer Costs
Where customer costs = price, acquisition costs, usage costs, maintenance costs, ownership costs, disposal costs.
Where customer benefits include service benefits, product benefits, personnel benefits, and image benefits.
They should also recognize the importance of competing in all different classes of competitors for their strategy: Strong vs. weak, close vs. distant, good vs. bad.
Designing Competitive Strategies
Market-leader strategies – Firms with largest market share. They must:
1. Expand the Total Market
The dominant company will get the most gains and benefits through: finding new users, promoting new uses, convincing people to use more per use.
Searching for new users:
Market-penetration strategy; (those who might but not (yet) use the product),
new-market segment strategy, (those who have never used it);
geographical-expansion strategy, (those who live elsewhere).
2. Defend Market Share
Through continuous innovation (– low costs, developing new product and customer services, distribution effectiveness.), increases in competitive strength and value to customer, defensive strategies which include:
Position Defence – building on superior (and impregnable) brand power.
Flank Defence -
Preemptive Defence – anticipating and acting before the competitor.
Counteroffensive Defences -
Mobile Defence – stretching over new territories, through market broadness (focus shift from product to generic need) and market diversification into unrelated industries.
Contraction Defence – giving up weaker territories and reassigning resources to stronger territories.
3. Expand Market Share
Increasing your market share does not necessarily lead to increased profits.
of the possibility of provoking anti-trust action
of economic costs involved.
not to pursue the wrong marketing-mix strategy (e.g. lowering prices too much)
Runner-up firms can use market follower or market challenger (attacking) strategies:
Market-challenger strategies, firms must:
Decide on a strategic objective, and on who to attack should they attack the market leader, firms of an equal size, or small local and regional firms?
2. Choose a general attack strategy:
a. Frontal attack – Match/ Copy opponent’s product, advertising, price, and distribution.
b. Flank attack – find gaps and fill them; Strategic Dimensions: geographic (entering cities where opponent is weak), and/or segmental (serve uncovered market needs)
c. Encirclement attack – Quickly try to conquer a part of enemy’s territory
d. Bypass attack – Ignore leader’s market position. Develop brands in related markets, attack undeveloped or undefended territories, leapfrog current technology.
e. Guerilla attack – By launching small, intermittent hit-and-run attacks to destabilize and harass the leader. These attacks include price cuts, intense promotional blitzes, and occasional legal actions.
3. Develop more specific strategies and combine – lower priced goods, price discounts, product proliferation (larger product variety for more choice), offering prestige goods, product innovation, improved services, distribution innovation, manufacturing cost reduction, intensive advertising promotion.
Each follower tries to deliver distinctive advantages to its target market--location, services, financing.
Four broad follower strategies:
Counterfeiter (which is illegal, e.g. through black market)
Cloner e.g. the IBM PC clones
Imitator e.g. car manufacturers imitate the style of eachother
Adapter e.g. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders
Smaller firms can avoid competing with larger firms by targeting smaller markets or niches that are of little or no interest to the larger firms.
Nichers roles are to create niches, expand the niches and protect them e.g. Nike constantly created new niches--cycling, walking, hiking, cheerleading, etc.
Businesses that address the needs of niche markets are profitable because they know the target-customers very well, charging a substantial price over cost. E.g. Logitech’s mice for computers.
Specialization is important, in for e.g.: end-user, vertical-level, customer-size, specific-customer, geographic, product or product-line, product-feature, job-shop, quality-price, service, and channel specialization are all possible roles of nichers.
What is the major risk faced by nichers? The market may be attacked by larger firms once they notice the niches are successful
Multiple-niching – strengths in two or more niches, to avoid the problems of a weakened niche.
Balancing Customer and Competitor Orientations
A balance between being competitor-centred and customer-centred is important.
“Competitor centred companies”:
moves are determined based on competitor’s actions.
fighter orientation is developed.
promises to deliver long run profits.
it’s easier to identify opportunities.
Product levels: The Customer-Value Hierarchy
The fundamental level is the Core benefit
The marketer than turns the core benefit into a basic product
At the third level, the marketer prepares an expected product
At the fourth level the marketer prepares an augmented product which exceeds customer expectations.
At the fifth level stands the potential product
Marketers classify products into two groups according to durability and tangibility
Nondurable goods: tangible goods normally consumed in one or a few uses (a bread)
Durable goods: are tangible goods that normally survive many uses (a car)
In the consumer-goods category, products are convenience goods, shopping goods, specialty goods, or unsought goods. In the industrial-goods category, products fall into one or three categories: materials and parts, supplies and business services, and capital items.
A company can lengthening its products via line stretching in order to change the product component of its marketing mix. This can be done down-market, up-market, or both or by line filling, by modernizing its products, by featuring certain products, and by pruning its products to eliminate the least profitable.
Brands are not rarely sold together with other brands. Ingredient brands and co-brands can add value, assuming they have equity and are perceived as fitting appropriately.
The packaging can be quite important. Well designed packages can create promotional value for producers and convenience value for customers. They can act as five-second commercials.
Global Market Offering
Global industry – an industry in which the strategic positions of competing firms in major national or geographic markets are fundamentally influenced by overall global positions.
Global firm – an organization that operates in more than one country and captures R&D, logistical, marketing, production, and financial advantages in its costs and reputation that are unavailable to purely domestic competitors.
Advantages 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.
Threats when 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 has to face when going abroad:
How many markets should we enter? How fast should they expand?
Entering fewer markets is appropriate if: product and communication adaptation costs are high, population and income size and growth are high in the initial countries chosen, market entry and market control costs are high, and dominant foreign firms can establish high barriers to entry.
Expansion is regional, considering the intensification of regional economic integration shown by free trade zones or economic communities.
European Community – reduced barriers to allow free flow of products, finances, services, and labor among member countries. Disadvantages of the EC are threats for foreign companies since EU companies grow bigger and more competitive, low internal barriers create thicker outside walls for businesses outside the EC.
NAFTA – Free trade zone among the Canada, Mexico, and the United States.
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 activeness, barriers, possession of competitive advantage, low market risk.
Ways of entering the market:
Direct and Indirect export:
Exporting often helps companies better understand the place and use it as a market for testing for possible future building of a product overseas.
Indirect exporting – When companies work through independent intermediaries. Advantages: It involves less risk, and less investment.
Domestic-based export merchants – buy products and sell them abroad.
Domestic-based export agents – seek and negotiate with foreign purchases and are paid a commission. (e.g. trading companies)
Cooperative organizations – Do exporting activities on behalf of multiple producers and are partly under their administrative control.
Export-management companies – agrees to manage a firms export activities for a fee.
Direct Exporting – can be done through: overseas sales branch or subsidiary, domestic-based export department or division, traveling export sales representatives, or foreign-based distributors or agents.
Licensing – Licensing a foreign organization to use a manufacturing patent, process, trademark, trade secret, or other item of value for a fee or royalty.
Disadvantages – There is less control on the part of the licensor, and there is a risk of creating a new competitor.
Ways of licensing – contract manufacturing; management contracts; franchising.
Joint ventures – When foreign investors join with local investors to create a joint venture company in which they share control and ownership.
Disadvantages – Disagreements between the partners, and the difficulty for the multinational organization to carry out specific marketing and manufacturing 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 better adapt products to local environment, opportunity to strengthen company image, 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: 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 to the new market.
Product adaptation – introducing the product with changes (adapting it) but no promotion changes.
Communication adaptation – introducing the product without changing it but do make 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 promotion and the product.
Product invention – Creating something new. Forward invention – create a new product to meet the need in another country.
Adaptation problems in pricing when selling in foreign countries:
Price escalation – Added costs (such as transportation, importer margin, tariffs, etc) makes the regular price in the home country 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 firm charges another unit internal to the company. It is a problem if the firm charges too high a price to the subsidiary.
Dumping – When a firm 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 price for the end consumer to increase greatly. Also, the size and character of retail units abroad (e.g. small shops in India), can add major price differences between abroad and home.
Whole-channel view of distributing products to final buyers – a view that firms need to take in order to have a proper picture of the distribution process.
Managing International Marketing Activities:
Depending on the level of international involvement, this can be done through the following:
Generally occurs in early stage when company still exports and when international sales have just started to expand.
Generally occurs when company has moved into joint ventures or direct investment, since export departments will then be insufficient.
Generally occurs when the company has become a truly global organization.
1. Global strategy, treats the world as one single market
2. Multinational strategy, treats the world as a portfolio of national opportunities.
3. Local strategy, standardizes certain core elements and localizes other elements.
Product and Branding
Marketing Mix – the set of marketing tools the organization uses to pursue its marketing objectives in the target market. The most important element in the marketing mix is the product.
A product – is anything that can be offered to a market to meet a consumers’ want or need. (Includes services, experiences, physical goods, events, properties, persons, places, organizations, information, and ideas.)
Product Levels – Are the levels of the product through which the marketer needs to think when planning its market offering. There are 5 product levels:
The core benefit: The fundamental service or benefit that the customer is really buying (E.g. In a hotel, the quest buys “rest and sleep”).
The basic product: For a hotel, this includes a bed, bathroom, towels, dresser, desk, and a closet.
The expected product: The attributes and conditions buyers normally expect when they buy a product. (E.g. A hotel guest expects a clean bed, fresh towels, working lamps, etc.)
The augmented product: These are benefits that exceed the customer’s expectations. (E.g. A hotel service can include a remote-control television set, fresh flowers, rapid check-in, etc,).
The Potential product: This includes the possible augmentations and transformations the product might undergo in the future. That is, new ways to satisfy customers and differentiate the offer.
Product Hierarchy – The products position relative to other products. There are seven levels of the product hierarchy:
Need family: The core need that underlies the existence of a product family. E.g. security.
Product family: All the product classes that are able to satisfy a core need with reasonable effectiveness. E.g. savings and income.
Product class: A group of products within the product family recognized as having a certain functional coherence: E.g. financial instruments.
Product line: A group of products within a product class that are closely related because they perform a comparable function, are marketed through the same channels, are sold to the same customer groups, or fall within given price ranges. E.g. life insurance.
Product type: A group of items within a product line that share one of several possible forms of the product. E.g.: term life policy
Item (stock keeping unit or product variant): A distinct unit within product line or brand distinguishable by price, size, appearance, or some other attribute. E.g. Prudential renewable term life insurance.
Product System – e.g. Mobile now comes with camera, games, radio, etc. It is a group of related but diverse items all functioning in one compatible manner.
Product Classifications - There are many different ways of classifying products;
By durability and tangibility, as non-durable goods, durable goods, and services.
Consumer goods are classified on the basis of shopping habits as: shopping goods, specialty goods, convenience goods, or unsought goods.
Industrial-Goods Classification: Industrial goods are classified depending on how they enter the production process: materials and parts, capital items, supplies and business services.
The Product Mix:
A product mix – the set of all the products and items offered by a particular seller.
Dimensions of the Product Mix:
Width – Number of different product lines the firm carries
Length – total number of items in the mix
Depth – how many variants are offered of each product in the line.
E. g. If Crest comes in three sizes and two formulations (regular and mint) Crest has a depth of six.
Consistency - how closely related the various product lines are in production requirements, distribution channels, end use, or some other way. E. g. P & G product lines are consistent insofar as they are consumer goods that go through the same distribution channels.
Product Line Decisions
Product lines – make up the product mix, and must be periodically evaluated for growth potential and profitability.
Product items – items that make up the product lines.
Product-line analysis – Involves studying the profit and sales contributions of items to the product lines, as well as their ways of positioning against competitors items. The latter is done using a product map which shows which competitors’ items are competing against the company’s items and identifies market segments.
The product line analysis can help managers make various decisions on product line domain (line filling), length, modernization, featuring, and pruning (trimming) of the line:
Product-line length – Product-line managers have to decide on the length of the product line (the number of items). If profits can be increased by dropping items the product line may be too long. The line may be too short if profits can be increased by adding items.
Company objectives and how long the product line exists influence product-line length.
Ways of lengthening a product line:
Line Stretching – lengthening a product line beyond its current range through:
Down-market stretching – introducing a lower priced line.
Upmarket stretching – Introducing a higher priced line
Two-Way stretching – Stretching the line both upwards and downwards, e.g. Marriott Hotel group introduced JW Marriott line in the upper upscale segment, Courtyard in the upper mid-scale segment, and Fairfield Inn in the lower mid-scale segment.
Adding more items within the present range of the line. Here it is important to differentiate.
Product-line modernization – Modernizing the product line by giving it a new look and timing of the installation of the new look.
Product-line featuring – Featuring specific items in promoting the line.
Product-line pruning (trimming) – Detecting and removing weaker items from the line.
Branding – A major issue in product strategy.
A brand – is a name, sign, term, design, symbol, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from the products of competing firms.
Levels of meaning a product brand (symbol) can convey: benefits, attributes, values, personality, culture, user.
Researching the position of the brand in the mind of consumers can be done through: brand personification (with kinds of persons or animals), word association questions, and laddering up to find deeper motives of consumers.
Building brand identity – can be done through brand bonding, which happens when customers experience the company as delivering on its’ promised benefit.
Brands are built by brand experience, not by advertising
Everyone in the company lives the brand
Ways to carry on internal branding – Employees must understand, desire, and deliver on the brand promise
To build brands in the new economy – means to:
Clarify the firm’s basic values
Use brand managers to carry out tactical work
Create positive customer experiences by developing a more comprehensive brand-building plan.
Define the brand’s essence everywhere.
Use brand value as key to company strategy
Measure brand building by customer-perceived value, satisfaction, retention, share of wallet, and advocacy.
Brand equity – refers to the degree of brand-name recognition, strong mental and emotional associations, perceived brand quality, 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:
No brand loyalty; the customer will change brands, especially for price reasons.
Customer is satisfied. There is no reason to change brands.
Customer is satisfied and would incur cost by changing brand.
Customer values the brand and sees it as a friend.
Customer is fully devoted to the brand.
High brand equity (an important asset) yields the following competitive advantages:
Trade leverage in channel bargaining
Line extensions earlier
Defense against price competition
Branding challenges: The activity of branding poses several challenges/confrontations to marketers. Among the challenges are:
“To brand or not to brand” – whether to develop a brand name for the product.
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 picking 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 the firm’s brands:
Sponsorships, public relations and press releases, clubs and consumer communities, trade shows, factory visits, public facilities, event marketing,high value for the money, social cause marketing, 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 – organizations 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 should reposition the brand.
Packaging and Labeling
Packaging – includes the activities of designing and producing the container of a product.
Factors that have contributed to packaging’s growing use as a marketing tool are:
Self-service: For this purpose, the package can perform many sales tasks including – attract attention, create customer confidence, describe the product’s features, and make a positive overall impression.
Consumer affluence: Consumers are willing to pay a little more for the appearance, convenience, prestige, and dependability of better packages.
Company and brand image: Packages contribute to instant recognition of the company or brand.
Innovation opportunity: Innovative packaging can bring large benefits to consumers and profits to producers.
Labeling: This may be an elaborately designed graphic that is part of the package or a simple tag attached to the product.
Functions performed by labeling:
A label identifies the product or brand.
A label might grade a product.
A label might describe a product: I.e. where it was made, who made it, what it contains, when it was made, how it is to be used, and how to use it safely.
The label might promote the product through its attractive graphics.
Types of service industries:
Private nonprofit sector.
A service – is any performance or act 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 differentiate themselves using a service strategy.
Categories of service mix:
Pure tangible good - where no services accompanying the product. E.g. soap, toothpaste.
Tangible good with accompanying services: Tangible good accompanied by one or more services. E.g. computers, cars.
Hybrid (blendings-): Equal parts of services and goods. E.g. restaurants.
Major service with accompanying minor goods and services:. E.g. airplane ticket where food is included.
Pure service: Consist primarily of a service. E.g. massage.
Generalizations: Services can be generalized as being either equipment based or people based, meet either a personal need or a business need, requiring either client’s presence or not, and differ in their objectives and ownership.
Four major characteristics of services:
Services are intangible. Buyers will look for evidence of the service quality. There are a number of marketing tools: People, Place, Communication material, Equipment, Symbols, Price.
Service marketers must be able to transform intangible services into concrete benefits.
Services are simultaneously produced and consumed.
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.
Because consumers depend on their providers and where and when they are provided, services are highly variable.
Three step toward quality control:
Investing in good selecting and training procedures.
Standardizing the service-performance process throughout the organization. Preparing a blueprint that depicts events and process in a flowchart can enhance this.
Monitoring customer satisfaction.
The perishability of services is no problem when demand is steady.
Several strategies for producing a better match between demand and supply in a service business:
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 waiting customers with alternatives. E.g. automatic teller machines in banks.
Reservation systems: Created to manage the demand.
Part-time employees: Can be hired as extra staff during peak demand.
Peak-time efficiency routines: Employees perform only the most essential tasks during peak periods. E.g. paramedics assist physicians during busy periods.
Increased consumer participation: Self-service. E.g. consumers bag their own groceries.
Shared services: E.g. several hospitals can share medical-equipment purchases.
Facilities for future expansion: E.g. For later development, an amusement park buys surrounding land.
Marketing Strategies for Service Firms
P’s Marketing Approaches: There are also three additional ones to the traditional 4Ps:
People – By whom the most services are provided.
Physical evidence and presentation - Companies try to demonstrate their service quality through them.
Processes to deliver services - Service companies can choose among different ones.
Service marketing requires internal, external, and interactive marketing:
Describes the work to train and motivate employees to serve customers well.
Describes the normal work to price, prepare, distribute and promote the service to customers.
Describes the employees’ skill in serving the client.
The customer judges service not only by its technical quality but also by its functional quality.
For some services, customers are unable to judge the technical quality even after they have received the service.
Goods provided can have the following qualities:
Search qualities: Characteristics the buyer is able to evaluate before purchase.
Experience qualities: Characteristics the buyer is unable to evaluate after purchase.
Credence qualities: Characteristics the buyer normally finds difficult to evaluate even after consumption.
The level of difficulty of evaluation increases when the good has more experience and credence qualities.
Service consumers tend to rely more on word of mouth rather than advertising.
Consumers rely heavily on personnel, price, and physical cues to judge quality.
Consumers are highly loyal to service providers who satisfy them.
The managers of service companies face three tasks: Increasing competitive differentiation, service quality, and productivity.
A. Managing differentiation:
Primary service package - what the customer expects;
to this can be added secondary service features.
Most service innovations are not hard to copy. Firms that regularly introduce innovations will achieve a temporary advantages over the competitors. Through earning a reputation for innovation, it may retain customers who want the best.
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 can help firms achieve differentiation.
A firm’s image can be differentiated through symbols and branding.
B. Managing service quality:
Delivering a service that is consistently of higher quality than competitors and exceeding customers’ expectations.
The following five gaps can cause unsuccessful delivery:
Gap between the consumer’s expectations and management perception:
Management does not always know correctly what customers want.
Gap between management perception and service-quality specification:
Management might have a good idea of what the customers’ wants but not set a specified performance standard.
Gap between service-quality specifications and service delivery:
The personnel might be poorly trained or unwilling or incapable to meet the standard.
They may be held to conflicting standards, such as serving customers fast and taking time to listen to them.
Gap between service delivery and external communications:
Statements made by company representatives and ads affect consumer expectations.
Gap between perceived service and expected service:
This gap occurs when the consumer misperceives the service quality.
Five determinants of service quality:
Responsiveness – the willingness to help customers and to provide prompt service.
Reliability – the ability to perform the promised service dependably and accurately.
Assurance – the courtesy and knowledge of employees and their ability to convey trust and confidence.
Tangibles – the appearance of physical facilities, equipment, personnel and communication materials.
Empathy – the provision of caring, individualized attention to customers.
Service companies that are excellently managed share the following common practices:
Strategic concept (clear sense of the need of their target customers, developed a distinctive strategy for satisfying these needs), High standards, Top-management commitment, monitoring systems (e.g. using comparison-shopping, self-service technologies, ghost shopping, customer surveys, suggestion and complaint forms, etc), satisfy customer complaints, and satisfy not only the customers but also employees.
C. Managing productivity:
Seven approaches to improving service productivity:
Increase the quantity of service by surrendering some quality.
Have more skillfully service providers.
“Industrialize the service” by adding equipment and standardizing production.
Design a more effective service.
Reduce or make obsolete the need for a service by inventing a product solution.
Harness the power of technology.
Present customers with incentives to substitute their own labor for company labor.
Managing Product Support Services
Product support service is becoming a major battleground for competitive advantage.
Specific worries of customers:
Downtime duration and service dependability
Out-of-pocket costs of maintenance and repair.
Reliability and failure frequency.
Life-cycle cost – A calculation the buyer makes: The cost of purchasing a product plus the discounted cost of repair and maintenance 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.
Post sale (post purchase) service strategy: A strategy that is created in order to satisfy customers after they have already purchased the good.
These services include repair, customer service departments, and maintenance services.
Major trends in customer service:
Customer service choices are increasing rapidly; profits and prices are kept down.
More sophisticated customers in buying product support services.
Increasing quality of call centers and customer service representatives.
Tendency to dislike multitude of service providers with different types of equipment
More reliable and more easily fixable equipment.
Service contracts (extended warranties) may diminish in importance.
Price Strategies and Programs
Price: the amount of money customers have to pay in order to obtain a product or service.
Attributes of Price: The marketing-mix element that produces revenue Price is the easiest marketing-mix element to adjust, and communicates to the consumer the firm’s intended value positioning of its brand or product.
Setting the Price
The first time a firm has to set a price is when it develops a new product, when it introduces its existing product into a new distribution channel or geographic area, and when it enters bids on new contract work.
The following factors and steps have to be considered in setting a pricing policy: Pricing objectives, costs, demand, competitor’s costs, prices, and offers, pricing method, final price determination:
1. Pricing Objectives:
Maximum market share;
Maximum current profit;
Maximum market skimming (by e.g. new technology for higher prices).
The following conditions favour setting a low price to maximize market share (market-penetration pricing):
When production and distribution costs fall with accumulated production experience.
When the market is highly price sensitive and a low price stimulates market growth.
When a low price discourages actual and potential competition.
2. Determining Demand:
Demand sets the ceiling to the price that a company can charge for its product on a free market. Normally 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 to understand this in order to make the demand curve. People’s price sensitivity depends on cost of product and frequency of purchases. (Low cost and less frequent purchases usually indicates a low price sensitivity, as well as substitute unawareness, product distinctiveness, and inability to compare them, expenditure makes up a small part of their income, small expenditure.).
The demand curve shows the relationship between alternative prices and the resulting current demand. There are three ways of estimating the demand curve:
Conduct price experiments.
Statistically analyse past prices, quantities sold, and other factors to estimate their relationships.
Ask customers how many units they would buy at different proposed prices.
Price Elasticity of Demand – Responsiveness of demand to price changes.
Price elasticity of demand = % Change in quantity demanded : % Change in price
Conditions for a less elastic demand are: buyers are slow to change their buying habits, few or no substitutes, buyers do not readily notice the higher price, 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 price elasticity indicates that the seller will not know the total effect of a price change until a certain amount of time passes).
3. Estimating Costs:
A firm’s costs set the floor to the price that an organization can charge for its products.
An organization usually charges a price that covers its’ cost of producing, distributing, and selling the product, including a fair return for its risk and effort.
Factors that affect a corporation’s product cost are:
Experience and learning curve;
Economies of scale;
Target costing: The manufacturer determines each cost element and the expected cost to the customer before the product is produced.
Activity-based costing Vs. standard costing.
The marketer should always analyze the prices, costs and offers of competitors.
Learning Curve – Also known as the experience curve: shows a decline in the average cost with accumulated production experience.
Activity Based Cost accounting (ABC) – an accounting method used to estimate the real profitability of dealing with different retailers, tagging back both overhead and variable costs to each customer.
Target Costing – A Japanese method of accounting, in which they use market research to establish a new product’s desired price, functions, target cost (from price –desired profit margin), bringing the final cost projections into the target cost range.
4. Analyzing Competitors prices, costs, and offers
Analyzing competitors’ prices, costs, and offers enables firms to decide whether it can change more, less, or the same as the competitor.
5. Selecting a Pricing Method
Mark-up pricing - This method requires a standard mark-up to be added to a product’s cost in order to determine the price of the product.
Advantages: 1. Sellers can determine costs more easily than they can estimate demand. 2. In a mark-up pricing market, competition is minimized. 3. It has a perceived fairness in the eyes of buyers and sellers.
Disadvantages: It ignores current perceived value, demand, and competition.
Target-return pricing – The company decides on the price that would yield its target return on investment. (ROI).
Disadvantage: This method of pricing tends to ignore considerations like price elasticity, and competitors prices.
Perceived-value pricing – Basing your product prices on the perceived value of your customers. Reaffirming value and constant innovation of new values is important to firms. It is crucial to deliver more value than the competitors and demonstrate this to prospective buyers. The value of its offering can be determined in ways like value of analogous products, managerial judgments within the company, analysis of historical data, surveys, focus groups, experimentation, and conjoint analysis.
Value pricing – this method entails firms to gain loyal customers by having fairly low price for a high-quality offering (Walmart, IKEA). This low price in however accompanied by restructuring the firm’s operations to become a low cost producer without sacrificing the quality, and decrease prices significantly to attract a large number of customers that are value-conscious .
Everyday low pricing (EDLP) – the pricing strategy a firm can have, in which it is the policy to always provide the lowest price.
High low pricing – a strategy in which the retailer has higher prices on a day-to-day basis but frequently runs promotions in which the prices are temporarily lower than 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. Starts with a set price and lets people bid up. The highest bid 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 submits one bid without knowing other bids.
Group pricing - Consumers and business join groups to buy at a lower price. Web-sites support this method (Groupon).
6. Selecting the Final Price
The above explained pricing methods are often followed by considerations of other factors. These as shown below:
Psychological pricing: Manipulating the price to account for people’s psychological traits. (e.g. odd numbers (99$ instead of 100$) gives a certain psychological difference; or since many customers use price as an indicator of quality, raising the prices a bit would increase perceived value .)
Risk and Gain Sharing pricing: Prices should also take into account a the perceived level of risk customers have in accepting a proposal.
Other marketing-mix elements also have an influence on price: The final price must take into account the the quality of the brand and advertising relative to competition.
Company pricing policies: Price must be consistent with the pricing policies of the firm.
Management must also consider the reactions of other channel participants to product price.
Price Adaptation Strategies
Firms develop a pricing structure which reflects variations in geographical demand and costs, purchase timing, market-segment requirements, service contracts, delivery frequency, order levels, guarantees, and other factors.
1. Geographical pricing:
Involves variations in pricing of a firm’s products to different customers in different geographical areas (locations and countries).
Countertrade, which accounts for 15 to 25 percent of world trade, takes the following forms:
2. Price Discounts and Allowances:
Cash discounts, functional discounts, quantity discounts, allowances, seasonal discounts.
3. Promotional pricing:
Loss-leader pricing, Cash rebates, Special-event pricing, Low-interest financing, Warranties and service contract, Longer payment terms, Psychological discounting. If these strategies work, competitors copy them and soon 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. These strategies can only bring a short-term competitive advantage.
4. Discriminatory pricing:
Occurs when a firm sells a good (product or service) at two or more prices that do not reflect a proportional difference in costs. Image pricing, Customer-segment pricing, Location pricing, Product-form pricing, Time pricing.
5. Product-mix Pricing Situations:
Optimal-feature pricing: offering optional feathers, products, and services along with the main product.
Product-line pricing: firms normally develop product lines rather than single products and introduce prime steps.
Two-part pricing: a fixed fee plus a variable usage fee.
Captive-product pricing: pricing the captive product (e.g. free mobile phone) low, and setting high mark-ups on, e.g. the fixed amount of calling minutes.
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.
By-product pricing: by-products are often good sources of revenue, and give a possibility of charging less for the main product.
Initiating and Responding to Price Changes
Initiating price cuts: Circumstances that might lead an organization to cut its’ prices are declining market share, excess plant capacity, 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 (expecting further inflation or government actions), and over-demand.
Reactions to Price Changes:
Competitors’ Reactions to Price Changes: Competitors are most likely to react to price changes when the numbers of competitors in the market are few, buyers are highly informed, and the product is homogeneous.
Customers’ Reactions to Price Changes: A price increase, would normally lower sales, or may elicit customers’ perception that “the product is hot.”
Responding to Competitors’ Price Changes:
Brand leaders can respond to price changes in several ways: Maintain price, reduce price, increase price and improve quality, maintain price and add value, launch a low-price fighter line.
Value Networks and Marketing Channels
Value Network System – a system of alliances and partnerships used by an organization to source, augment, and deliver its service or product offerings.
Marketing-Channel System –Intermediaries enhance the process of getting the product from the manufacturer to the end user.
Examples of hybrid channels:
Charles Schwab enables its customers to do transactions in branch offices, via the Internet or over the phone
Staples markets through traditional retail, direct-response Internet site, virtual malls, and 30,000 linked affiliated sites
Channel Integration Characteristics:
Ability to return a product that was ordered online to a nearby store;
Ability pick up an online-ordered product at a convenient retail location;
Right to receive discounts based on total of online and off-line purchases
Reasons for establishing marketing channels:
Direct marketing is not feasible for many offerings (e.g chewing gum);
Producers lack financial resources necessary for direct marketing;
Intermediaries can be more efficient;
Using channels frees money for investment in main business.
Functions of channels:
Forward flow functions: Develop / disseminate communication, oversee transfer of ownership, store and move the physical products;
Backward flow functions: Place orders with manufacturers, facilitate payment of bills;
Forward and backward flow functions: Negotiate price and transfer of ownership, gather information, finance inventories, and assume risk connected with carrying out channel work.
The important question is who should perform the various channel functions.
Channel levels vary according to the amount 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): Manufacturer sells 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 locations and agencies in order to access the population to be served.
Decisions in Designing a Channel Structure:
Push or pull strategy?
Steps in designing a channel:
Analyzing the service output levels desired by consumers
(Lot size, product variety, waiting time, service backup, spatial convenience)
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:
Types of Intermediaries:
Merchants: buy, take title, and resell merchandise.
Agents: find customers, negotiate, and do not take title to merchandise.
Facilitators: aid in distribution, do not negotiate or take title to merchandise
Number of Intermediaries:
Exclusive distribution: severely limited distribution.
Selective distribution: some intermediaries willing to carry selected goods.
Intensive distribution: offering is placed in as many outlets as possible.
Determine Terms and Responsibilities of Channel Members through:
Conditions of sale: payment terms and guarantees;
Territorial rights: define distributor’s territory / terms;
Price policies: price list and schedule of discounts.
Evaluating major channel alternatives. Evaluation Criteria:
Control criteria: is there enough control over the agency and commitment?
Adaptive criteria: do the channel structures provide high adaptability?
Economic criteria: sales and costs vs. added value.
Channel Management Decisions
The channel development process – consists of selecting, motivating, training, and periodically evaluating the members of the channel. The final part consists of periodically modifying channel arrangements.
Cooperation between intermediaries can be a major problem. In particular, to motivate channel members, the company should provide market research programs, training programs, and other capability-building programs to improve the intermediaries’ performance. Producers can use reward, coercive, expert, legitimate, or referent power to enkindle 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). This increase individual profit maximization, there is 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:
Contractual VMS: consists of independent organizations at different levels of production and distribution. They integrate their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.
Administered VMS: coordinates successive stages of production and distribution through the size and power of one of the members.
Corporate VMS: combines successive stages of production and distribution under single ownership.
The new competition in the retailing industry is no longer between independent business units but between whole systems of centrally programmed networks (corporate, administered, and contractual). These networks compete against one another to achieve the best cost economies and customer response.
Horizontal Marketing Systems – A channel development in which two or more unrelated firms put together resources or programs to exploit an emerging marketing opportunity.
Multichannel Marketing Systems
Multichannel marketing – occurs when a single organization uses two or more marketing channels to reach one or more customer segments. Advantages: lower channel cost, increased market coverage, and more customized selling.
Conflicts in Channels
Types of conflict: vertical, horizontal, and multichannel.
Causes of conflict: unclear roles and rights; goal incompatibility
Mechanisms for managing channel conflict:
Exchange people between channel levels.
Subordinate goal adoption between channel members.
Actual conflict may cause parties to resort to diplomacy, mediation and arbitration.
Legal and Ethical Issues in Channel Relations
Exclusive dealing and tying agreements are two common distribution practices that are legal as long as they don’t substantially lessen competition.
Retailing, Wholesaling, and Market Logistics
Retail: retail-store types pass through the retail life-cycle.
The wheel-of-retailing describes how new store types emerge.
The 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. catalogues);
Automatic vending (e.g. for cigarettes);
Buying service (retailers with no store).
Types of retail organizations: voluntary chain, corporate chain store, consumer cooperative, retailer cooperative, merchandising conglomerate, franchise organization.
Retailers marketing decisions include: defining target market, prices, product assortment and placement, promotion, services mix and store atmosphere, place (general business district, regional shopping centre, community shopping centre, shopping strip, or location within a larger store or operation)
Trends in Retailing: new retail forms, growth of giant retailers, intertype competition (different types of stores competing for the same customers), growth in investment in technology, selling experiences, global expansion, competition between store-based and non-store-based retailing.
Wholesaling excludes manufacturers and retailers, and include all the activities involved in selling goods or services to those who buy for resale or business use.
Wholesalers versus. retailers:
Transactions are usually larger.
Government terms of legal regulations and taxes differ for wholesalers.
They pay less attention to promotion, atmosphere, and location.
Wholesalers handle many functions more efficiently than do manufacturers, e.g. selling and promoting, transportation, bulk breaking, and financing.
Major wholesaler types: merchant wholesalers, full-service wholesalers, limited-service wholesalers, agents, brokers, manufacturers’ and retailers’ branches and offices, miscellaneous wholesalers
Wholesalers marketing decisions include: defining target market, price decision, product assortment and services, 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:
Strengthening relationships with manufacturers.
Interrelated Aspects Associated with Market Logistics:
Value network – a view of the company in the center;
Supply chain management (SCM);
Integrated logistics systems (ILS)- involves materials management, material flow systems, and physical distribution;
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 Objectives:
Designing a system that will minimize the cost of achieving objectives should be the outcome;
Logistics involve trade-offs between costs and customer service;
A total system basis should be considered;
Maximizing profits, not sales, is key;
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, and 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.
Integrated Marketing Communications
The Communications Process: the decisions made about communicating are aimed at finding out what to say, how to say it, to whom, and how often.
Marketing Communication Mix – communication can be done through 5 major modes (or platforms): advertising, public relations, sales, promotion, direct marketing.
Elements in the Communication Process: receiver, sender, encoding, decoding, response, feedback, and noise.
Reasons why the message doesn’t always reach the intended target:
Steps for developing Effective Communications:
1. Identify your target audience:
Includes assessing the public’s perceptions of the product, company, and competitors’ company/product image
2. Determine the objectives of your communication:
Objectives: Cognitive, affective, and behavioural
3. Design the message:
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 determined if a type of appeals is chosen: either emotional, rational, or moral appeals.
How to say it logically, Structure, decisions: one-sided versus two-sided presentations, (two-sided: e.g. Listerine tastes bad twice a day), and order of presentation of arguments – present strongest arguments first.
How to say it symbolically, format: These decisions vary with the type of media, but may include: visuals, Graphics, copy or script, Headline, voice qualities, Sound effects, scent, shape, texture of package.
Who should say it? Message source decisions: Factors underlying perceptions of source credibility: trustworthiness, expertise, likeability.
4. Select a channel of communication: You can choose either Personal (advocate, social channels) or Non personal (media, atmosphere, events) communication channels. Personal: Methods for stimulating personal communication: developing word-of-mouth referral channels, creating opinion leaders, and devoting extra effort to influential individuals or organizations.
5. Establish the budget:
Affordability method – Budget based on what the company thinks it can afford.
Percentage-of-sales method – Using a specified percentage of the sales price or of sales to determine what can be spend on promotion.
Competitive-parity method – Setting the budget for promotion to achieve share-of-voice parity with competitors.
Objective-and-task method – This is the most desirable method. It calls upon marketers to develop their budgets by defining specific objectives.
5. Decide on the marketing communications mix: is about the allocation of a promotion budget over promotional tools (means) with the following characteristics:
Sales promotion benefits: Communication in gaining attention, incentive, invitation.
Advertising qualities: Public presentation, pervasiveness, amplified expressiveness, impersonality.
Direct marketing: nonpublic, customization, up-to-date, interactiveness.
Personal selling qualities: personal confrontation, cultivation, response.
Public relations and publicity qualities: high credibility, ability to catch buyers off guard, and dramatization.
Selection factors of the mix depend on consumer readiness to make a purchase,the type of product market, and the company’s market rank as well as the stage in the product life cycle.
Consumer vs. business market – consumer marketers spend on promotion, personal selling, sales advertising, and public relations while business marketers spend on sales promotion, personal selling, advertising, and public relations.
7. Measure results: communication results do not only rely on expenses and outputs, but more on the recognition and recall scores, persuasion changes, and behavioural responses.
IMC, Integrated Marketing Communications – a concept of marketing communications planning that evaluates strategic roles of a variety of communications disciplines, recognizes the added value of a comprehensive plan, 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.
Advertising – any paid form of not personal presentation and promotion of goods, ideas, 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.
The 5 M’s of Advertising: These are the 5 decisions required in developing an advertising program: Money, Mission, Media, Message, and Measurement.
Steps in Developing an advertising program:
1. Setting advertising objectives (mission) – Objectives can be classified by aim: To persuade, inform, reinforce, remind .
2. Deciding on the advertising budget (money) – Which factors to consider when budget-setting:
Market share and consumer base;
Stage of product life cycle;
Competition and clutter
3. Choosing the advertising message (message) – Which factors to consider when choosing the advertising message:
Message generation – How to create an effective message.
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?
Message evaluation and selection – How to rate messages, e.g. according to desirability, exclusiveness, and believability.
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.
Social responsibility review – How to best adhere to e.g. US laws of avoiding deceptive or false advertising, bait-and-switch advertising, while not offending ethnic groups, racial minorities, or special-interest groups.
Involves deciding on Reach (number of people exposed), frequency of exposure, and impact (qualitative value).
The relationship between frequency, reach, 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 (television, newspapers, Radio, direct mail, Magazines, yellow pages, outdoor, brochures, newsletters, telephone) and vehicles.
Involves determining media timing like seasons and business cycles
Models which are developed on timing can be focused on macro scheduling (like the time lag model), involving scheduling the advertising in relation to the business cycle and season, or micro scheduling based, calling for allocating advertising expenditures within a short period to obtain maximum impact.
The most effective pattern, however, depends on the objectives of the communication in relation to the nature of the target customers, product, 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 behaviour: indicates how many brand holdovers occur independent of the level of advertising.
Concentration, continuity, pulsing, and flight, and different timing strategies:
Concentration: calls for spending all the advertising dollars in a single period.
Continuity: is achieved by scheduling exposures evenly throughout a given period.
Pulsing: continuous advertising at low-weight levels reinforced periodically by waves of heavier activity.
Flight: calls for advertising for some period, followed by an interruption of no advertising, followed by a second period of advertising activity.
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.
4. Measuring Effectiveness (measurement):
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.
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 Promotion: are short-term incentives designed to stimulate purchase among consumers or trade.
Purpose of sales promotion:
Reward loyal customers;
Increase repurchase rates;
Attract new triers or brand switchers
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. Pre-test the program, and finally implement and evaluate the program.
Examples of major consumer promotion tools – Coupons, samples, cash refunds (rebates), prizes (contests, sweepstakes, games), premiums, free trials, patronage awards, tie-in promotions, product warranties, point-of-purchase displays, cross-promotions and demonstrations
Major trade promotion tools – Price-off, free goods, allowance, sales contests, trade shows and conventions, and specialty advertising.
Public relations activities protect or promote the image of a firm or product
Functions of public relations:
Marketing Public Relations (MPR) plays an important role in:
Repositioning of mature brand;
New product launches;
Influencing specific target groups;
Building interest in product category;
Building the corporate image;
Defending products with public problems.
Major MPR decisions:
Establishing the market objectives.
Choose the PR vehicles and messages .
Implement the plan with care and evaluate the results:
Measures of MPR effectiveness:
The change in product awareness, comprehension, or attitude resulting from the MPR campaign;
Sales-and-profit impact through finding the return on MPR investment (most satisfactory measure).
Number of exposures carried by the media;
Major Tools in Marketing PR: events, publication, news, sponsorships, public-service activities, speeches, identity media.
Direct Marketing – the use of consumer-direct (CD) channels to reach and deliver services and goods to customers without using a marketing middlemen.
Major Direct Marketing Tools:
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.
Face to face selling, direct selling (insurance agents, stockbrokers…);
Stages of Direct Marketing:
Database marketing: using a database to find prospects to aim at;
Carpet bombing: mass mailing to large number of people;
Real-time personalized marketing: customizing messages ;
Lifetime value marketing: developing a plan for lifetime marketing to each valuable customer.
Interactive marketing: telephone numbers, internet sites to promote interaction;
Steps in Developing a Direct-Mail Campaign:
Identify the target markets.
Define the offer.
Test the elements.
Measure the results.
Catalogue Marketing: companies send full-line merchandise catalogues, business catalogues, and specialty consumer catalogues, usually in print form but also sometimes as CDs, videos, or online.
Telemarketing: involves the use of the telephone and call centres to attract prospects, sell to existing customers, and provide service by answering questions and taking orders. Types of Telemarketing: telecoverage (calling customers), telesales (taking order), teleprospecting (generating new leads), and customer service and technical support.
Direct Response TV Marketing: using the television to promote direct sales with at-home shopping channels, direct-response advertising, 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, service, or sale contracts as an independent profession and in a permanent way in the name and for the count of industrialists, tradesman, manufacturers or other sales representatives.
Types of sales representatives: Order taker, Deliverer, Technician, Missionary, Solution vendor, or Demand creator,.
Steps in Designing the Sales Force:
Objectives and Strategy:
Firms should define specific objectives and strategies they want their sales force to achieve. Generally, salespeople target, prospect, sell, communicate information, gather information, provide services, and allocate scare products to certain customers.
Type of sales force: Direct (company) sales force are the employees working exclusively for the firm, or contractual who are paid a commission based on sales.
Types of sales force structures:
Structures can only be determined after the strategies have been formulated. Most common sales force structures are: Product, focusing on sales force expertise on its products; territorial, assigning representatives exclusive territories; market, specializing sales forces along customer or industry lines; and complex, combining several structures to account for the large variety of products, customers, and geographical areas.
Workload approach to put together a sales-force size which is done by grouping customers by volume, establishing frequencies of calls, calculating total yearly sales call workload, calculating average number of calls per year, and finally calculating number of sales representatives.
Four components of compensation:
Managing the Sales Force
Steps in Sale-force Management
1. Recruitment and selection - begins with the development of the selection criteria:
Sometimes it is difficult to know what kind of personality traits the company is looking for in a sales rep. Considering Customer desired traits (often honesty, helpfulness, and reliability), and looking for Traits common to successful sales representatives derived from studies help this process.
Training topics include: Company background, Customer characteristics, products, Sales presentation techniques, Competitors’ products, Procedures and responsibilities.
Successful organizations have procedures to aid in evaluating the sales force: norms for prospect calls, norms for customer calls, and using sales time efficiently
Tools used include time-and-duty analysis, configuration software, greater emphasis on phone and Internet usage, greater reliance on inside sales force.
4. Motivating the Sales Force:
Rewards help to motivate them. Least valued rewards: Liking and respect, security, recognition;
Most valued rewards: promotion, pay, personal growth, sense of accomplishment;
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 low or too high, and the possibility that the sales reps only focus on profitable customers;
Supplementary motivators: e.g. sales contests, periodic sales meetings.
Sources of information: personal observation, sales or call reports, customer surveys, customer letters and complaints, other representatives;
Formal evaluation: knowledge assessments, performance comparisons.
Personal Selling Principles
Three major aspects of selling: Negotiation, Professionalism, and Relationship Marketing.
Sales training approaches for Sales Professionalism- Approaches in ways for training salespeople to get them to become active order getters:
Customer-oriented approach - Stresses customer problem solving
Sales-oriented approach - Stresses high pressure techniques.
Sales Professionalism – The Seven Step Selling Process:
Prospecting and qualifying – Less salespeople are required in order to find leads and identify prospects. There are many other ways of doing this (e.g. asking customers to suggest names of prospects, dropping by offices unexpectedly, and using the mail, telephone, and internet to find leads).
Pre-approach – Making salespeople experts on the company and its buyers.
Approach – Appropriate greetings and relationship approaching, e.g. through wearing clothes which are similar to that of customers.
Presentation and demonstration – Through AIDA formula (Attention, Interest, Desire, Action), using FABV approach (Features, Advantages, Benefits, and Value), formulated approach (stimulus response), canned approach (memorized story), or the need-satisfaction approach (encouraging customer to talk most).
Overcoming objections – such as logical and psychological resistance.
Closing the Sale – requires confidence and practicing certain techniques.
Follow-up and maintenance (servicing) – To ensure the customer is satisfied and to ensure repeat business.
Negotiation Strategy: a commitment to an overall approach that has a good chance of achieving the negotiator’s objectives.
The salespeople need skills for effective negotiation. Negotiation is useful when certain factors characterize the sale
Relationship marketing: the focus is on developing mutually beneficial and long-term relationships between two parties. Building long-term supplier-customer relationships has grown in importance. Firms are shifting focus away from transaction marketing to relationship marketing.
Total Marketing Effort
Trends in Company Organization: business firms are responding to environment changes through outsourcing, re-engineering, supplier partnering, benchmarking, merging, customer partnering, flattening (of number of organizational levels), globalizing, empowering, and focusing.
Marketing departments have evolved through 6 stages: first there was the simple sales department, then a sales department with ancillary marketing functions arose, followed by the separate marketing department, than the modern marketing department/effective marketing company, and finally the process- and outcome-based company.
Ways of organizing the marketing department:
Geographic Organization – organizing sales force along geographic lines.
Functional Organization – functional marketing specialists report directly to the vice-president. The advantage is its administrative simplicity. A disadvantage is that the form loses effectiveness as products and markets increase.
Product or Brand Management Organization – The product manager leads product management organization in which a product manager supervises product category managers, who in turn supervise specific product and brand managers. 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.Advantages: product manager can concentrate on developing a cost-effective marketing mix for the product, and react quickly.
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.
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.
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 conflict creating and costly.
Marketing relations with other departments – Often clash of interests. The marketing department should drive the company to “think customer” and work together to satisfy customer expectations and needs.
Tasks of the marketing vice president: 1. To coordinate marketing with finance, operations, and other company functions to serve the customer; 2. To coordinate the company’s internal marketing activities.
Company Departments and their Conflicts with the Marketing Department:
R&D: there is a conflict in cultural differences. R&D and Markeeting should share responsibility for successful market oriented innovation.
Engineering and Purchasing: tend to disagree on the number of items per product lines desired, and level of quality.
Finance: clash lies in risk-taking levels and investment perceptions as expenses (finance) as opposed to investments (marketing).
Manufacturing and Operations: complain about inaccurate forecasts and unrealistic capacity, quality, delay, and customer demands for service from the Marketing Department.
Accounting and Credit: conflict on timing of credit standings and sales reports.
Building a companywide marketing orientation towards being market-and-customer driven requires a change in job and department definitions, incentives, responsibilities, and relationships. In addition, a capacity for strategic innovation through increased creativity needs to be built through approaches like e.g. listing observable trends, hiring new creative marketers, setting up rewards and prizes for new ideas.
Marketing implementation: the process that turns marketing plans into action. Marketing Implementation assigns and ensures that such assignments are executed in a manner that ensrues the plan’s stated objectives are accomplished.
Implementation addresses who, where, when, and how.
Four sets of skills for implementing marketing program (according to Thomas Bonoma): Diagnostic skills, implementation skills, identification of company level, and evaluation skills.
Implementation can be done through automating repetitive processes, software packages (that help companies better manage their marketing processes, assets, and resources exist like MRM, marketing resource management), desktop marketing (in which whatever information and decision structures can be found), and reducing waste in practices like meetings and approvals.
Evaluation and Control
Four types of marketing control needed by firms:
1. Annual Plan Control: to examine whether the results as planned are being achieved in sales, profits, and other goals established in its annual plan.
Sales variance analysis: measures the relative contribution of the different factors to a gap in sales performance.
Micro sales analysis: looks at specific products, territories, and so forth, previous referred to as the factors that contributed to the gap in sales performance, that failed to produce expected results.
Ways of measuring market share:
Served market share: a firms’ sales expressed as a percentage of the total sales to the firms’ served market.
Served market: all the customers who are able and willing to buy its product.
Relative market share: market share in relation to largest competitor.
Expense-to-sales ratio – Ensuring no overspending to achieve sales goals.
Financial analysis – used by management to identify factors that have an impact on 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:
Increase the asset turnover by increasing sales or reducing assets.
Increase the profit margin by increasing sales or cutting costs.
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 losing and making money.
identify functional expenses;
assign functional expenses to marketing entities;
profit/loss statement for each marketing entity.
3. Efficiency Control: evaluate and improve the sending efficiency and impact of marketing expenditures. Focuses on creating new ways to increase the efficiency of the advertising, sales force, distribution, and sales promotion.
4. Strategic Control – entails a periodic reassessment of the organization and its
strategic approach to the marketplace, using the tools of the marketing
effectiveness review and the marketing audit. Firms should also undertake
marketing excellence reviews and ethical/social responsibility views.
Marketing Effectiveness Review - relates to 5 major attributes of a marketing orientation:
customer philosophy ;
integrated marketing organization;
adequate marketing information.
Marketing audit: a independent, systematic, comprehensive, and periodic examination of a firms’ or business unit’s marketing environment, strategies, objectives, and activities with a view to identify problem areas and opportunities and recommending a plan of action to improve the company’ s marketing performance.
Components of a Marketing audit - environment - macro, strategy, task, systems, productivity, organization, and function audits.