Overview of Marketing Principles and Strategies

BUSI 406 – Principles of Marketing (final exam) CHAPTER 8 Product: the need-satisfying offering of a firm Most consumers think about a product in terms of the total satisfaction it provides Can be more than the product and also customer service, warranty, etc. Quality: a product’s ability to satisfy a customer’s needs or requirements Relative quality – how good your product is compared to competitors A product can be a blend of a good and service, such as a restaurant meal or cell phone Services are tricky because you cant actually see or feel them beforehand To reduce this risk, service customers will seek referrals from friends or online sources Cues such as physical evidence of quality (ex: lawyer with diploma on wall) Hard to utilize economies of scale for services Service quality isn’t always consistent because it varies who is providing the quality Services are perishable which makes it hard to balance supply and demand Product Assortment: the set of all product lines and individual products that a firm sells Product Line: a set of individual products that are closely related May be produced or operate in a similar way, sold to the same market, or sold through the same types of outlets Individual Product: a particular product within a product line Branding: the use of a name, term, symbol or design – or a combination of these to identify a product Brand Name: a word, letter or a group of words or letters Trademark: includes only those words, symbols or marks that are legally registered for use by a single company Service Mark: the same as a trademark except that it refers to a service offering A good brand reduces the marketer’s selling time and effort Brand names connect a product with the benefits a customer can expect Following conditions are favorable to successful branding: 1. The product is easy to label and identify by brand or trademark 2. The product quality is easy to maintain and the best value for the price 3. Dependable and widespread availability is possible. When customers start using a brand, they want to be able to continue using it 4. Demand is strong enough that the market price can be high enough to make the branding effort profitable 5. There are economies of scale. If the branding is really successful, costs should drop and profits should increase 6. Favorable shelf locations or display space in stores will help. This is something retailers can control when they brand their own products Brand Familiarity: how well customers recognize and accept a company’s brand Degree of brand familiarity will affect the marketing mix especially where product should be offered and what promotion is needed Five levels of brand familiarity are useful for strategy planning: rejection, non-recognition, recognition, preference and insistence Brand Rejection: customers won’t buy a brand unless its image is changed Brand Nonrecognition: final consumers don’t recognize a brand at all – even though intermediaries may use the brand name for identification and inventory control (school supplies, inexpensive dinnerwear, hardware store products) Brand Recognition: means that a customer remembers the brand Brand Preference: means that target customers usually choose the brand over other brands, perhaps because of habit or favorable past experience Brand Insistence: customers insist on a firm’s branded product and are willing to search for it Brand is likely to have target customers at each level, marketing encourage movement to higher levels A good brand name can help build familiarity: can be hard in international markets Brand Equity: the value of a brand’s overall strength in the market Lanham Act: spells out what kinds of marks (including brand names) can be protected and the exact method of protecting them Registering under the Lanham Act is good for selling in international markets Brand is a huge asset to a company Counterfeiting can ruin a brand name Family Brand: the same brand name for several products (sears Kenmore appliances) Benefit is that goodwill of one product will be attached to others Money spent to promote the brand name will help many products and not just one Licensed Brand: a well known brand that sellers pay a fee to use Individual Brands: separate brand names for each product Use when its important for the products to each have a separate identity Generic Products: products that have no brand at all other than identification of their contents and the manufacturer or intermediary Offered in plain packages at a lower price, common in less-developed nations Manufacturer Brands: brands created by producers or national brands Dealer or Private Brands: brands created by intermediaries (Ex: Craftsman and Kenmore for Sears) Battle of the Brands: competition between dealer bands and manufacturer brands Intermediary can get a better margin on the sale of a dealer brand Packaging: involves promoting, protecting and enhancing the product Can make a product more convenient to use or prevent spoiling or damage Packaging can tie the product to the rest of the marketing strategy Good packaging can give a firm more promotional effect than it could get with advertising Universal Product Code: identifies each product with marks readable by electronic scanners Federal Fair Packaging and Label Act: requires that consumer goods be clearly labeled in easy to understand terms to give consumers more information Nutrition Labeling and Education Act requires the same format for nutritional info Warranty: explains what the seller promises about the product Magnson-Moss Act; says that producers must provide a clearly written warranty if they choose to offer any warranty All products fit into two broad groups: consumer and business Consumer Products: products meant for the final consumer Business Products: products meant for use in producing other products Selling the same product to final and business customers requires at least two different strategies Consumer product classes are based on how consumers think about and shop for products Business product classes are based on how buyers think about products and how they’ll be used Consumer product classes divide into four groups: convenience, shopping, specialty and unsought Each class is based on the way people buy products Convenience Products: are products that a consumer needs but isn’t willing to spend much time or effort shopping for (bought often, require little service, bought by habit) Staples: products that are bought often, routinely, and without much thought like soup or cereal Impulse Products: products that are bought quickly, as unplanned purchases, because of a strongly felt need Emergency Products: products that are purchased immediately when the need is great (umbrella in rainstorm) Shopping Products: products that a customer feels are worth the time and effort to compare with competing products two types, homogeneous or heterogeneous Homogeneous Shopping Products: shopping products that the customer sees as basically the same and wants the lowest price Heterogeneous Shopping Products: shopping products the customer sees as different and wants to inspect for quality and suitability Quality and style matter more than price Specialty Products: consumer products that the customer really wants and makes a special effort to find Any branded product that consumers insist on by name is a specialty product Unsought Products: products that potential customers don’t yet want or know they can buy Don’t search for these at all unless promotion can show their value New Unsought products: products offering really new ideas that potential customers don’t know about yet Regularly Unsought Products: products, like gravestones, life insurance that are always unsought Personal selling is VERY important Derived Demand: biggest difference between consumer and business products market, demand for business products derives from the demand for final consumer products Total industry demand is pretty inelastic but individual sellers demand could be elastic Expense Item: a product whose total cost is treated as a business expense in the year its purchased Capital item: long-lasting product that can be used and depreciated for many years Business product classes are based on how buyers think about products and how the products will be used Classes of business products include installations, accessories, raw materials, components, supplies and professional services Installations: such as buildings land rights and major equipment are important capital items Installations are a boom or bust business (during growth periods will invest in capital) Can offer special services with an installation such as tutorial Accessories: short lived capital items such as tools and equipment used in production or office services (cabinets, copy machines) Raw Materials: unprocessed expense items such as logs, iron ore and wheat that are moved to the next production process with a little handling Become part of a physical good and are expense items Two types of raw materials: farm products and natural products Farm Products: grown by farmers (food) Natural Products: products that occur in nature (timber, ore) Need for grading is important difference between raw materials and other business products Components: processed expense items that become part of a finished product Components are things like wire or plastic that will be processed further Supplies: expense items that do not become part of a finished product Three types: maintenance, repair and operating supplies (MRO supplies) Maintenance and small operating supplies are like convenience products Professional Services: specialized services that support a firm’s operations, usually expense items ITS can maintain a companies websites CHAPTER 9 Product Life Cycle: describes the stages a really new product idea goes through from beginning to end Divided into four major stages: 1. Market introduction 2. Market growth 3. Market maturity 4. Sales decline The product life cycle is concerned with new types (or categories) of products in the market, not just what happens to an individual brand A firm’s marketing mix usually must change during the product life cycle Nature of competition over time moves towards pure competition or oligopoly Industry profits decline while industry sales are still rising Market Introduction: sales are low as a new idea is first introduced to a market, customers aren’t looking for the product Most companies experience losses during the introduction stage Market Growth: industry sales grow fast – but industry profits rise and then start falling Innovator begins to make big profits as more and more customers buy but then competitors start to replicate product Some monopolistic competition with down sloping demand curves is typical of the market growth stage This is the time of the biggest profits for the industry, towards end of this stage when industry profit begins to decline as competition and consumer price sensitivity increase Market Maturity: occurs when industry sales level off and competition gets tougher Industry profits go down throughout the market maturity stage because promotion costs rise and some competitors cut prices to attract business Example of market maturity: carbonated soft drinks Sales Decline: new products replace the old and price competition from dying products becomes vigorous Product lifecycle describes industry sales and profits for a product idea within a particular product-market Sales and profits of an individual brand do not follow this cycle If a market is defined broadly, there may be many competitors and the market may appear to be in maturity If we focus on a narrow submarket we may see much shorter product life cycles as improved product ideas come along to replace the old Competitive advantage, easy to use and easy to communicate will lead to fast sales Fashion: the currently accepted or popular style Fashion-related products tend to have short life cycles Fad: idea that is fashionable only to certain groups who are enthusiastic about it Where a product is in its life cycle should affect marketing strategy planning New Product: one that is new in any way for the company concerned These can be refinements of old rpdoucts Federal Trade Commission (FTC): the federal government agency that polices antimonopoly laws To move quickly and avoid expensive new-product failures, companies should follow an organized new-product development process 1. Idea Generation 2. Screening 3. Idea Evaluation 4. Development (of product and marketing mix) 5. Commercialization Similar for both consumer and business markets, and for both goods and services Hypothesis that is tested is that the new idea will not be profitable Idea generation involves brainstorming any potential ideas the company may pursue Screening involves evaluating the new ideas with the type of SWOT analysis described in Chapter 2 – this step will tell us whether the idea is presently a good or bad one Criteria include the combined output of a resources analysis (strengths and weaknesses) a long run trends analysis and a thorough understanding of the company’s objectives A good idea will lead to a product and marketing mix that gives the company a competitive advantage Sometimes we screen new products on the basis of how safe they are due to the Consumer Product Safety Act of 1972 Product Liability: means the legal obligation of sellers to pay damages to individuals who are injured by defective or unsafe products We also want to look at the expected Return on Investment for the new idea The Idea evaluation stage involves getting more reactions from customers even though the product hasn’t yet been developed Can use focus groups to get consumer opinion about certain products Concept Testing: getting reactions from customers about how well a new-product idea fits their needs Uses market research ranging from focus groups to surveys of potential customers Can run concept tests online to save money and speed up feedback Marketing research can also help identify the size of potential markets and that helps companies to estimate likely costs, revenue and profitability Helps marketing managers decide whether there is an opportunity, whether it fits the firms resources and whether there is a basis for developing a competitive advantage Next step is development if a product survives the screening and idea evaluation stages Usually this step involves some R&D and engineering to design and develop the physical parts of the product In the case of service, the firm will work out details of what training equipment and staff will be needed to deliver the service The last step is commercialization which requires putting the product on the market This is expensive and requires the cooperation of the entire company Introductory promotion is costly, especially if the company is entering a very competitive market Rollouts, introducing something city by city can also be a good tester to the product Key trait of companies that develop new goods and services that are successful is enthusiastic top-management support for new-product development A culture that supports innovation can generate more ideas Put someone specifically in charge for developing new products Marketing and research and development teams need to work together towards the company’s goals Product Managers or Brand Managers: manage specific products – often taking over the jobs formerly handled by an advertising manager Product managers are in charge for full promotion of their product – a job previously done by advertising managers Total Quality Management: the philosophy that everyone in the organization is concerned about quality, throughout all of the firm’s activities, to better serve customer needs Most of the early attention focused on reducing defects in goods produced in factories TQM finds a problem and addresses whether the problem concerns poor customer service, flimsy packaging, or salespeople who can’t answer customers questions Continuous Improvement: a commitment to constantly making things better one step at a time Concerns of managing service quality include inconsistency with attitudes of different service providers which can be fixed through training and empowerment Empowerment: giving employees the authority to correct a problem without first checking with management CHAPTER 10 Place: making goods and services available in the right quantities and locations, when customers want them When different target markets have different needs, a number of Place variations may be required Channel of Distribution: any series of firms or individuals who participate in the flow of products from producer to final user or consumer There needs to be many different place strategies depending on needs, not just one best one Pay attention to product life cycle because a place is harder to change than promotion, etc. Most basic place decisions is to handle the whole process themselves or use retailers Many firms prefer direct distribution because they think its cheaper and can allow a firm to maintain control of the marketing mix Retailers may have several competing products and will not give any one item good placing or promotion in their stores FedEX and UPS have allowed small firms to establish direct service If a firm is in direct contact with its customers, it is more aware of changes in customer attitudes and is in a better position to adjust its marketing mix quickly Many products fail because the producer cant find willing distributors and doesn’t have the resources to handle direct distribution Many business products are sold direct to customer Once these relationships are formed, ecommerce can handle orders and restocks Accounting firms deal directly with clients for services but things like appliance companies will rely on the intermediary to solve any problems with repairs Some companies rely on outside salespeople that don’t actually work with their company, such as dealers, distributors and agents, so this is not really direct producer to consumer distribution Direct Marketing: direct communication between a seller and an individual customer using a promotion method other than face to face personal selling Direct marketing is concerned with the promotion area, not place decisions If consumers have specific buying patterns, like buying all their products at a one-stop location, the producer might have no option but to sell through wholesalers Most important reason for using an indirect channel of distribution is that an intermediary can often help producers serve customer needs better at a lower cost Intermediaries that are close to their customers are able to anticipate customer needs and forecast demand more accurately This information can help reduce inventory costs in the whole channel and help the producer smooth out production Wholesalers and retailers can fix the problems of discrepancy of quantity and discrepancy of assortment Regrouping Activities: adjust the quantities or assortments of products handled at each level in a channel of distribution Four regrouping activities: accumulating, bulk-breaking, sorting and assorting Adjusting quantity discrepancies by accumulating and bulk-breaking: Accumulating: involves collecting products from many small producers Accumulating is especially important in less developed countries and in agricultural markets where there are many small producers Also important for professional services that require combined work of many individuals Bulk-breaking: involves dividing larger quantities into smaller quantities as products get closer to the final market May involve several levels in the channel including wholesalers selling smaller quantities to other wholesalers or directly to retailers Retailers will then continue breaking bulk as they sell individual items to their customers Adjusting assortment discrepancies by sorting and assorting: Sorting: means separating products into grades and qualities desired by different target markets Assorting: putting together a variety of products to give a target market what it wants Usually done by the closest to the final consumer or user – retailers or wholesalers who try to supply a wide assortment of products for the convenience of their customers TV viewers face discrepancies of quantity – there are millions of hours of tv programing but they are only looking for a few hours of that programming at a time Viewers also face discrepancies of assortment, for example, a viewer may enjoy watching some type of program but many channels have that type of program Marketing managers need to put together a reliable channel that works well together All members of a channel system should ideally share the same product market commitment with an ideal target market at the end of the channel Traditional Channel Systems: the various channel members make little or no effort to cooperate with each other Buy and sell from one another and that is the extent of the relationship Each channel member does only what it considers to be in its own best interest Vertical conflicts occur between firms at different levels in the channel of distribution May occur if a producer and a retailer disagree about how much promotion effort the retailers should give the producer’s product Horizontal conflicts occur between firms at the same level in the channel of distribution Need to treat channel partners fairly Channel Captain: manager who helps direct the activities of a whole channel and tries to avoid or solve channel conflicts Usually the producer will take the lead in heading a channel of distribution Vertical Marketing Systems: channel systems in which he whole channel focuses on the same target market at the end of the channel Three types of vertical marketing systems – corporate, administered and contractual Corporate Channel Systems: corporate ownership all along the channel – we might say the firm is going “direct” because it may buy out retailers Vertical Integration: acquiring firms at different levels of channel activity Advantages include stable sources of suppliers, better control over the distribution and quality This can be very hard to be good at, good to focus on what you can specialize in Administered Channel Systems: the channel members informally agree to cooperate with each other Can agree to routinize ordering, share inventory and sales information, coordinate promotions Contractual Channel Systems: the channel members agree by contract to cooperate with each other With both of these systems, the members retain some of the flexibility of a traditional channel system Ideal Market Exposure: makes a product available widely enough to satisfy customers needs but not to exceed them Too much exposure increases the total cost of marketing Intensive Distribution: selling a product through all responsible or suitable wholesalers or retailers that will sell or stock the product Selective Distribution: selling through only those intermediaries who will give the product special attention Exclusive Distribution: selling through only one intermediary in a particular geographic area As we move from intensive to exclusive we give up exposure in return for lower costs Convenience products require intensive distribution Narrowing down from intensive may require a policy that avoids wholesalers or retailers that place orders too small to justify making calls, make too many returns or request too much service, have a poor credit rating, or are not in a satisfactory position to do the job Selective distribution is becoming more popular now that marketers see they don’t need full exposure Selective distribution can lead to greater profits for all channel members through larger orders and more commitment to a store promotion Many different channels need to be established to get exposure, which can cause competition between channels Multichannel distribution: occurs when a producer uses several competing channels to reach the same target market – perhaps using several intermediaries in addition to directly selling If competition changes or customers’ place requirements shift, the current channel system may not be effective Must make an ethical decision about changes to the channel Reverse Channels: channels used to retrieve products that customers no longer want May arise if there is a recall because of safety Common recall with online orders Take back laws require producers to recycle hazardous materials at no cost to consumer Reverse channels can save the producer money by recycling or give someone a green alternative Exporting: selling some of what the firm produces to foreign markets Can explore to get rid of surplus inventory and see how it goes Licensing: selling the right to use some process, trademark, patent or other right for a fee or royalty Licensee in foreign market takes most of the risk Management Contracting: the seller provides only management and marketing skills – others own the production and distribution facilities Joint Venture: domestic firm enters into a partnership with a foreign firm Direct Investment: a parent firm has a division or owns a separate subsidiary firm in a foreing market Gives the parent firm complete control of marketing strategy planning Midterm Review: Discrepancy of quantity: discrepancy between quantity that the customer wants and quantity that the company produces CHAPTER 11 Logistics: the transporting, storing and handling of goods in a way that matches target customer’s needs with a firm’s marketing mix (also called physical distribution) Customer Service Level: how rapidly and dependably a firm can deliver what they, the customers want Physical Distribution Concept: says that all transporting, storing and product-handling activities of a business as a whole channel system should be coordinated as one system that seeks to minimize the cost of distribution for a given customer service level Good distribution may be a competitive advantage when you have a hard time differentiating your product Total Cost Approach: involves evaluating each possible PD system and identifying all of the costs of each alternative Supply Chain: the complete set of firms and facilities and logistics activities that are involved in procuring materials, transforming them into intermediate or finished products, and distributing them to customers Computer systems are helping make communication between channels of distribution easier Electronic Data Interchange: an approach that puts information in a standardized format easily shared between different computer systems Transporting: the marketing function of moving goods Railroad is cheap and can handle heavy goods but is slow and can’t transport perishables Trucks can deliver small items very quickly Water transportation is low cost but very slow Containerization: grouping individual items into an economical shipping quantity and sealing them in protective containers for transit to the final destination Piggyback service: loading truck trailers or flatbed trailers carrying containers onto railcars to provide both speed and flexibility Storing: the marketing function of holding goods so they’re available when needed Inventory: the amount of goods being stored Storing allows companies to achieve economies of scale Private Warehouses: storing facilities owned or leased by companies for their own use Use when storing a large volume of goods regularly Can be expensive and hard to rent to others if extra space Public Warehouses: independent storing facilities Use if don’t need a regular need for space Distribution Center: a special kind of warehouse designed to speed the flow of goods and avoid unnecessary storing costs CHAPTER 12 Retailing: covers all of the activities involved in the sale of products to final consumers General Stores: carry anything they could sell in reasonable volume Single-line or Limited-line stores: stores that specialize in certain lines of related products rather than a wide assortment Specialty Shop: a type of conventional limited-line store that is usually small and has a distinct “personality” Department Stores: larger stores that are organized into many separate departments and offer many product lines Mass-merchandising concept: says that retailers should offer low prices to get faster turnover and greater sales volumes by appealing to larger markets Supermarkets: large stores specializing in groceries with self-service and wide assortments Discount houses: offer “hard goods” at substantial price cuts to consumers who would go and pay cash and take care of any repairs themselves Mass-merchandisers: large self-service stores with many departments that emphasize “soft goods” and staples Supercenters (hypermarkets): very large stores that try to carry not only food and drug items but all goods and services that consumers purchase routinely Automatic Vending: selling and delivering products through vending machines Wheel of Retailing Theory: says that new types of retailers enter the market as low-status, low-margin, low-price operators and then evolve into more conventional retailers offering more services with higher operating costs and higher prices Scrambled Merchandising: carrying any product lines they think they can sell profitably Corporate Chain: a firm that owns and manages more than one store – and often its may Cooperative Chains: are retailer-sponsored groups – formed by independent retailers – that run their own buying organization and conduct join promotion efforts Voluntary Chains: wholesaler sponsored groups that work with “independent” retailers Franchise Operation: franchisor develops a good marketing strategy and retail franchise holders carry out the strategy in their own units Wholesailing: concerned with the activities of those persons or establishments that sell to retailers and other merchants, or to industrial, institutional and commercial users but that do not sell in large amounts to final consumers Wholesalers: firms whose main function is providing wholesaling activities Manufacturers’ Sales Branches: warehouses that producers set up at separate locations away from their factories Merchant Wholesalers: own (take title to) the products they sell Service Wholesalers: merchant wholesalers that provide all the wholesaling functions – three basic groups (1) general merchandise (2) sinle-line and (3) specialty General Merchandise Wholesalers: service wholesalers that carry a wide variety of nonperishable items such as hardware, electrical supplies, furniture, drugs, cosmetics and automobile equipment Single-line wholesalers: service wholesalers that carry a narrower line of merchandise than general wholesalers (ex: food, apparel) Specialty Wholesalers: service wholesalers that carry a very narrow range of products and offer more information and service than other service wholesalers Limited-function wholesalers: provide only some wholesaling functions Cash and Carry Wholesalers: operate like service wholesalers – except that the customer must pay cash Drop Shippers: owns the products they sell but do not actually handle, stock or deliver them Truck Wholesalers: specialize in delivering products that they stock in their own trucks Rack Jobbers: specialize in hard to handle assortments of products that a retailer doesn’t want to manage Catalog wholesalers: sell out of catalogs that may be distributed widely to smaller industrial consumers or retailers that might not be called on by other wholesalers CHAPTER 13 Promotion: communicating information between the seller and potential buyer or others in the channel to influence attitudes and behavior Can choose from personal selling, mass selling and advertising Personal Selling: involves direct spoken communication between sellers and potential customers Get immediate feedback but can be very expensive Should combine personal selling with mass selling and sales promotions Mass Selling: communicating with large numbers of potential customers at the same time Less flexible but less expensive Advertising: the main form of mass selling – any paid form of nonpersonal presentation of ideas, goods or services by an identified sponsor Publicity: any unpaid form of nonpersonal presentation of ideas, goods or services Tries to attract attention to the firm and its offerings without having to pay media costs Sales Promotion: refers to promotion activities – other than advertising, publicity and personal selling – that stimulate interest, trial, or purchase by final consumers or others in channel Examples include contests, coupons, aisle displays etc. Can be implemented quickly and get results quickly Designed to produce immediate results Sales Managers: concerned with managing personal selling and responsible for building good distribution channels and implementing place policies Advertising Manager: manage their company’s mass-selling effort in television, newspapers, magazines and other media. Job is to choose the right media and develop the ads Public Relations: communication with noncustomers, including labor, public interest groups, stockholders and the government Sales Promotion Manager: manage their company’s sales promotion effort Determining the blend of promotions and strategy decision is the responsibility of the marketing manager Integrated Marketing Communications: the intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message Three basic promotion objectives: informing, persuading and reminding Informing shows that it meets consumer needs better than other products Persuading objective means the firm will try to develop a favorable set of attitudes so customers will buy and keep buying its product Demonstrates how one brand is better than the others Reminding objective is appropriate when target customers already have positive attitudes about a firm’s marketing mix – or a good relationship with the firm The AIDA model consists of four promotion jobs: 1 get attention, 2 hold interest, 3 arouse desire, 4 obtain action Communication Process: a source trying to reach a receiver with a message Advantage of personal selling is immediate feedback from the receiver Noise: any distraction that reduces the effectiveness of the communication process Encoding: the source deciding what it wants to say and translating it into words or symbols that will have the same meaning to the receiver Decoding: the receiver translating the message Message Channel: the carrier of the message Most direct marketing communications are designed to prompt immediate feedback – a direct response – by customers This is called direct – response promotion Moved from mail to email recently Customer can initiate communication through a search on the internet, etc. Pushing: means using normal promotion effort – personal selling, advertising, and sales promotion – to help sell the whole marketing mix to possible channel members Producers take on much of responsibility for this Emphasizes the importance of all the channel members working together Pulling: getting customers to ask intermediaries for the product Adoption Curve: shows when different groups accept ideas Emphasizes the relationships among groups and shows that individuals in some groups act as leaders in accepting new ideas Innovators: are the first to adopt Eager and willing to take risks and have many contacts outside their local social group or community Rely on information from internet, other sources rather than salespeople Early Adopters: well respected by their peers and often are opinion leaders Younger, more mobile and more creative than later adopters Have fewer outside contacts than innovators Most contact with salespeople – important for word of mouth Early Majority: avoids risk and waits to consider a new idea after many early adopters have tried it – and liked it Great deal of contact with mass media, salespeople and early adopters Late Majority: cautious about new ideas, older and more set in their ways Laggards or Non-adopters: prefer to do things the way they’ve been done in the past and are very suspicious of new ideas Older and less well educated, main source of info is other laggards Primary Demand: demand for the general product idea – not just for the company’s own brand Selective Demand: demand for a company’s own brand – main job is to persuade customers to buy, and keep buying, the company’s product Task Method: basing the budget on the job to be done CHAPTER 14 Personal selling is essential in the promotion blends of some firms Often a company’s largest operating expense Bad sales decisions can be extremely costly Good salespeople don’t sell the customer but help the customer buy the product Salespeople provide information about other products, explain company policies and can negotiate prices or diagnose technical problems The salesperson represents the customer back within the business Three basic sales tasks are order-getting, order-taking and supporting Order Getters: concerned with establishing relationships with new customers and developing new business Means seeking possible buyers with a well-organized sales presentation designed to sell a good, service or idea Help bring products help bring products out of the introduction stage into the market growth stage Order-takers: sell to regular or established customers, complete most sales transactions and maintain relationships with their customers Order takers answer any final questions about a sale Order taking: the routine completion of sales made regularly to target customers Requires ongoing follow-up to make certain that the customer is totally satisfied Supporting salespeople: help the order-oriented salespeople, but don’t try to get order themselves Activities are aimed at enhancing the relationship with the customer and getting sales in the long run Short run they are ambassadors of goodwill who provide specialized services and information Missionary Salespeople: supporting salespeople who work for producers – calling on intermediaries and their customers Try to develop goodwill and stimulate demand, help intermediaries train their salespeople, and often take orders for delivery by intermediaries Sometimes called merchandisers or detailers Technical Specialists: supporting salespeople who provide technical assistance to order-oriented salespeople Customer Service Reps: work with customers to resolve problems that arise with a purchase, usually after the purchase has been made Team-selling: when different people work together on a specific account Major Accounts Sales force: sells directly to large accounts Sales Territory: a geographic area that is the responsibility of one salesperson or several working together Job Description: a written statement of what a salesperson is expected to do Prepared Sales Presentation: uses a memorized presentation that is not adapted to each individual customer Close: the salesperson’s request for an order Consultative Selling Approach: involves developing a good understanding of the individual customer’s needs before trying to close the sale Selling Formula Approach: starts with a prepared presentation outline and leads the customer through some logical steps to a final close Steps are logical because we assume that we know something about the target customer’s needs and attitudes CHAPTER 15 Decisions that marketing managers have to make: advertising objectives and what they want to achieve, who the target audience is, what kind of advertising to use, which media to use to reach target customers, what to say and who will do the work Advertising objectives should be more specific than personal selling objectives Each ad must be effective for a huge range of people Advertising Allowances: price reductions to firms further along in the channel to encourage them to advertise or otherwise promote the firm’s products locally Cooperative Advertising: involves producers sharing in the cost of ads with wholesalers or retailers Helps intermediaries compete in their local markets Product Advertising: tries to sell a product Three categories – pioneering, competitive and reminder Institutional Advertising: promotes an organization’s image, reputation, or ideas rather than a specific product Pioneering Advertising: tries to develop demand for a product category rather than demand for a specific brand Usually done in the early stages of a product life cycle, informs potential customers about the new product and helps turn them into adopters Competitive Advertising: tries to develop selective demand for a specific brand Forced into competitive advertising as the product life cycle moves along to hold its own against competitors Can be direct or indirect Direct aims for immediate buying action Indirect points out product advantages to affect future buying decisions Comparative Advertising: making comparisons to specific brand comparisons using actual product names Reminder Advertising: tries to keep the product’s name before the public May be useful when the product has achieved brand preference or insistence (market maturity or sales decline) Institutional advertising focuses on the name and prestige of an organization or industry May seek to inform, persuade or remind Basic objective is to develop goodwill or improve an organization’s relations with various groups – not only customers but also current and prospective channel members, suppliers, shareholders, employees and the general public Try to reach your intended audience through media You pay for the whole audience not just your target market Banner ad – a small box on the internet used for advertising Behavioral targeting delivers ads to consumers based on previous websites the customer has visited Copy Thrust: what the words and illustrations should communicate Overall marketing strategy should determine what the message should say Use AIDA concept Getting the attention is the first job and holding interest is the more tricky part Arousing desire means convincing the customer that the product can meet their needs Getting action is the final requirement Advertising Agencies: specialists in planning and handling mass-selling details for advertisers Do the job more economically than a company’s own department Can develop the whole marketing strategy or can specialize to just produce internet ads, etc. Federal Trade Commission has the power to control unfair or deceptive business practices, including deceptive advertising FTC can use corrective advertising – ads to correct deceptive advertising Can also put health warnings on cigarettes (affirmative disclosures) Most trusted sources are forms of publicity and not advertising Webinars and white papers are useful publicity tools for business customers Sales promotion refers to those promotion activities other than advertising, publicity and personal selling that stimulate interest, trial or purchase by final customers Sales promotion aimed at intermediaries can be called trade promotion Sales promotion at own employees may be a competition for “best service” CHAPTER 16 Key pricing policies include how flexible prices will be, the level of prices over the product life cycle, to whom and when discounts will allowed to be given and how transportation costs will be handled Price: the amount of money that is charged for “something” of value List price is a price without discounts or allowances Target Return Objective: sets a specific level of profit as an objective Amount is often stated as a percentage of sales or of capital investment Performance can be measured against this target Satisfactory returns are for small businesses, non-profits just meeting the break-even point or for insurance companies and utilities that don’t set too high long run targets bc public is expecting them to set good prices Profit Maximization Objective: seeks to get as much profit as possible Might be a desire to earn a rapid ROI or charge as much as one can Very large profit could mean a low price so that a lot of purchases are made Sales Oriented Objective: seeks some level of unit sales, dollar sales, or share of market – without referring to profit More concerned about sales growth than profit Should usually pay more attention to profit and not sales but this can be useful in recessions, etc. Nonprofits will set prices low because they are focused on increasing market share Many firms want to have large market share to achieve economies of scale A large market share with a low price may lead to profitless success Status Quo Objectives: managers satisfied with current market share and profit, who want to stay on the same path Want to stabilize prices, or meet competition or even avoid it Most common thinking when the total market is not growing Nonprice Competition: aggressive action on one or more of the Ps other than Price – part of an aggressive overall marketing strategy Administered Prices: consciously set prices (usually from price policies) Set prices instead of letting daily market forces or auctions set prices Will want to set a price it receives from intermediaries and also final price because this matters One-price Policy: means offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities Majority use this to maintain goodwill and convenience Flexible-price Policy: means offering the same product and quantities to different customers at different prices Most common in channels, in B2B and at retail for expensive shopping products Flexible policies will often specify a range in which the price should fall When a new product enters the market there are few or no direct substitute marketing mixes so the price-level decision should focus on the nature of market demand Skimming Price Policy: tries to sell the top (skim the cream) of the market – the top of the demand curve – at a high price before aiming at more price-sensitive customers May maximize profits in the market introduction stage for an innovation if there are few substitutes and if some are not price sensitive Useful when you don’t know much about the shape of the demand curve Problems with setting a high price for life saving medicine Involves a slow reduction in price over time Followed by a series of changes in marketing strategy, not just a stepping down of prices Penetration Pricing Policy: tires to sell the whole market at one low price Is useful when the elite market (willing to pay high price) is small The case when the whole demand curve is fairly elastic More attractive if selling larger qualities can result in economies of scale Also attractive if firms expect strong direct competition Introductory Price Dealing: temporary price cuts to speed new products into a market and get customers to try them Temporary price cuts are different than low penetration prices Nation’s money also has a price level, or what it’s worth in different countries Basic List Prices: the prices final customers or users are normally asked to pay for products List price is equivalent to basic list price Discounts: reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves Quantity Discounts: discounts offered to encourage customers to buy in larger amounts Shifts some of the storing costs to buyer or reduces shipping and selling costs Two kinds of quantity discounts: cumulative and noncumulative Cumulative Quantity Discounts: apply to purchases over a given period such as a year and the discount usually increases as the amount purchased increases Encourages repeat buying Develops loyalty and ongoing relationships between buyers Attractive to business customers who don’t want to run up their inventory costs Noncumulative Quantity Discounts: apply only to individual orders Seasonal Discounts: discounts offered to encourage buyers to buy earlier than present demand requires Service firms that face irregular demand use seasonal discounts Ski resorts offer lower rates in the off-season Net: that payment for the face value of the invoice is due immediately Cash Discounts: reductions in price to encourage buyers to pay their bills quickly 2/10 net 30: means the buyer can take a two percent discount off the face value if the invoice is paid in 10 days, otherwise 30 days to pay Sale Price: temporary discount for the list price Customers give up the convenience of buying when they want and accept the sale price when the seller wants to sell Everyday Low Pricing: setting a low list price rather than relying on frequent sales, discounts or allowances Supermarkets use this approach Allowances: given to final consumers, business customers or channel members for doing something or accepting less of something Advertising Allowances: price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier’s products locally Stocking Allowances: sometimes called slotting allowances – are given to an intermediary to get shelf space for a product Supermarkets will give space to a new product if the company pays for handling costs and risks Push Money (or prize money) Allowances: sometimes called PMs or spiffs are given to retailers by manufacturers or wholesalers to pass on to the retailers’ salesclerks for aggressively selling certain items Used for new items, slower moving items or higher margin items Trade-In Allowance: a price reduction given for used products when similar new products are bought Give the marketing manager an easy way to lower the effective price without reducing the list price Rebates: refunds paid to consumers after a purchase To appeal to different groups of buyers firms can offer coupons, deals and rebates F.O.B.: means free on board some vehicle at some place FOB delivered or FOB buyer’s factory means title will not be transferred until the products are delivered Zone Pricing: means making an average freight charge to all buyers within specific geographic areas Seller pays actual freight charges and bills each customer for an average charge Simplifies transportation charges and reduces wide variation in FOB delivery prices Uniform Delivered Pricing: the average freight charge to all buyers Zone pricing of an entire country for example Used when transportation costs are low and seller wishes to sell in all geographic areas at one price, perhaps a nationally advertised price Value Pricing: means setting a fair price level for a marketing mix that really gives the target market superior customer value Unfair Trade Practice Acts: puts a lower limit on prices, especially at the wholesale and retail levels Selling below these costs is illegal Dumping: pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market Phony List Prices: prices customers are shown to suggest that the price has been discounted from list Wheeler Lea Amendment: bans “unfair or deceptive acts in commerce” Price Fixing: competitors getting together to raise, lower or stabilize prices Considered conspiracy under the Sherman Act Robinson-Patnam Act: makes illegal any price discrimination Price Discrimination: selling the same products to different buyers at different prices if it injures competition Permits price differences based on cost differences or the need to meet competition CHAPTER 17 Two basic approaches to setting prices – cost oriented and demand oriented Markup: a dollar amount added to the cost of products to get the selling price Selling price – cost price/selling price = markup Markup(percent): percentage of selling price that is added to the cost to get the selling price Many intermediaries set one markup price for all products Different companies in the same line of business usually use the same markup percentage because operating expenses are similar Standard markup is set close to the firm’s gross margin Markup Chain: the sequence of markups firms use at different levels in a channel Markup is figured at the selling price at each level of the channel Stockturn Rate: the number of times the average inventory is sold in a year Put low markups on fast selling items and high markups on items that sell slower Selling price = avg. production cost per unit X 3 Average Cost pricing: adding a reasonable markup to the average cost of a product Average cost per unit takes into account fixed overhead, etc. Basic problem with average cost approach is that it doesn’t consider cost variations at different levels of output Costs are high with low output and low with economies of scale and high output Average cost per unit drops as more units are produced and sold Six types of cost: Total Fixed Cost: sum of those costs that are fixed in total no matter how much is produced (rent, taxes, insurance etc.) Total Variable Cost: the sum of those changing expenses that are closely related to output – expenses for parts, wages, packaging, etc. Zero output, total variable cost is zero Total Cost: the sum of total fixed cost and total variable cost Average cost per unit: dividing the total cost by the related quantity Average fixed cost per unit: dividing total fixed cost by related quantity Average variable cost per unit: dividing total variable cost by related quantity Average cost pricing works well if the firm actually sells the quantity it used to set the average cost price Cost-oriented pricing requires an estimate of the total number of units to be sold Ignores competitors costs and prices Break-even Analysis: evaluates whether the firm will be able to break even or cover all costs Break-even Point: the quantity where the firm’s total cost will just equal its total revenue Fixed Cost Contribution per unit: assumed selling price minus the variable cost per unit Useful to calculate BEP for many different costs and then look at the likely demand for that price Can calculate how much you will make in different market environments Marginal Analysis: focuses on the changes in total revenue and total cost from selling one or more unit to find the most profitable price and quantity Shows how costs, revenue and profit change at different prices The price that maximizes profit is the one that results in the greatest difference between total revenue and total cost To compute demand curve, think of a price that is too high, and one that is too low A manager that knows what influences a customer’s price sensitivity can do a better job estimating the demand curve that the firm faces Ask if there is a substitute Customers are more price sensitive the greater the total expenditure Customers are less price sensitive the greater the significance of the end benefit of the purchase Customers are less price sensitive if there are switching costs – costs that a customer faces when buying a product that is different from what has been purchased or used in the past (i.e the cost to find a new hairstylist if the price of a hair dresser rises) Value in use pricing: means setting prices that will capture some of what customers will save by substituting the firm’s product for the one currently being used Auctions can show exactly how much a customer is willing to pay Auction approach is used by cruise lines Reference Price: the price they expect to pay (consumers) for many of the products they purchase Leader Pricing: setting some very low prices – real bargains – to get customers into retail stores Idea is to sell large quantities of the leader items and also to get customers into the store to buy other products Normally used with products for which consumers do have a specific reference price Don’t select leader items that are in direct competition with major lines Bait Pricing: setting some very low prices to attract customers but trying to sell more expensive models or brands once the customer is in the store The difference between leader pricing is that the seller DOESN’T try to sell this item Psychological Pricing: setting prices that have special appeal to target customers Setting the price just below what customers see as a fair or kind of high price, but not too low Odd-even pricing: setting prices that end in certain numbers Price Lining: setting a few price levels for a product line and then marketing all items at these prices Price lining can cause sales increase because they can offer a bigger variety in each price class Makes it easier for customers to make decisions within one price class Demand-backward Pricing: setting an acceptable final consumer price and working backward to what a producer can charge Prestige Pricing: setting a rather high price to suggest high quality or high status Full-line Pricing: setting prices for a whole line of products Depends on two scenarios: if all the products in the company’s line are aimed at the same general target market Complementary Product Pricing: setting prices on several products as a group May lead to one product being priced very low so that the profits from another product will increase Product Bundle Pricing: setting one price for a set of products Convinces customers to buy something they normally wouldn’t because the price of the add-on is cheaper than it would be normally Bid Pricing: offering a specific price for each possible job rather than setting a price that applies for all customers Negotiated Price: a price set based on bargaining between the buyer and seller Common in situations where the marketing mix is adjusted for each customer

BUSI 406 – Principles of Marketing (final exam)

CHAPTER 8
Product: the need-satisfying offering of a firm
Most consumers think about a product in terms of the total satisfaction it provides
Can be more than the product and also customer service, warranty, etc.
Quality: a product’s ability to satisfy a customer’s needs or requirements
Relative quality – how good your product is compared to competitors
A product can be a blend of a good and service, such as a restaurant meal or cell phone
Services are tricky because you cant actually see or feel them beforehand
To reduce this risk, service customers will seek referrals from friends or online sources
Cues such as physical evidence of quality (ex: lawyer with diploma on wall)
Hard to utilize economies of scale for services
Service quality isn’t always consistent because it varies who is providing the quality
Services are perishable which makes it hard to balance supply and demand
Product Assortment: the set of all product lines and individual products that a firm sells
Product Line: a set of individual products that are closely related
May be produced or operate in a similar way, sold to the same market, or sold through the same types of outlets
Individual Product: a particular product within a product line 
Branding: the use of a name, term, symbol or design – or a combination of these to identify a product
Brand Name: a word, letter or a group of words or letters
Trademark: includes only those words, symbols or marks that are legally registered for use by a single company
Service Mark: the same as a trademark except that it refers to a service offering
A good brand reduces the marketer’s selling time and effort
Brand names connect a product with the benefits a customer can expect
Following conditions are favorable to successful branding:
1. The product is easy to label and identify by brand or trademark
2. The product quality is easy to maintain and the best value for the price
3. Dependable and widespread availability is possible. When customers start using a brand, they want to be able to continue using it
4. Demand is strong enough that the market price can be high enough to make the branding effort profitable
5. There are economies of scale. If the branding is really successful, costs should drop and profits should increase
6. Favorable shelf locations or display space in stores will help. This is something retailers can control when they brand their own products
Brand Familiarity: how well customers recognize and accept a company’s brand
Degree of brand familiarity will affect the marketing mix especially where product should be offered and what promotion is needed
Five levels of brand familiarity are useful for strategy planning: rejection, non-recognition, recognition, preference and insistence
Brand Rejection: customers won’t buy a brand unless its image is changed
Brand Nonrecognition: final consumers don’t recognize a brand at all – even though intermediaries may use the brand name for identification and inventory control (school supplies, inexpensive dinnerwear, hardware store products)
Brand Recognition: means that a customer remembers the brand
Brand Preference: means that target customers usually choose the brand over other brands, perhaps because of habit or favorable past experience
Brand Insistence: customers insist on a firm’s branded product and are willing to search for it
Brand is likely to have target customers at each level, marketing encourage movement to higher levels
A good brand name can help build familiarity: can be hard in international markets
Brand Equity: the value of a brand’s overall strength in the market
Lanham Act: spells out what kinds of marks (including brand names) can be protected and the exact method of protecting them
Registering under the Lanham Act is good for selling in international markets
Brand is a huge asset to a company
Counterfeiting can ruin a brand name
Family Brand: the same brand name for several products (sears Kenmore appliances)
Benefit is that goodwill of one product will be attached to others
Money spent to promote the brand name will help many products and not just one
Licensed Brand: a well known brand that sellers pay a fee to use
Individual Brands: separate brand names for each product 
Use when its important for the products to each have a separate identity
Generic Products: products that have no brand at all other than identification of their contents and the manufacturer or intermediary
Offered in plain packages at a lower price, common in less-developed nations
Manufacturer Brands: brands created by producers or national brands
Dealer or Private Brands: brands created by intermediaries (Ex: Craftsman and Kenmore for Sears)
Battle of the Brands: competition between dealer bands and manufacturer brands 
Intermediary can get a better margin on the sale of a dealer brand
Packaging: involves promoting, protecting and enhancing the product
Can make a product more convenient to use or prevent spoiling or damage
Packaging can tie the product to the rest of the marketing strategy
Good packaging can give a firm more promotional effect than it could get with advertising
Universal Product Code: identifies each product with marks readable by electronic scanners
Federal Fair Packaging and Label Act: requires that consumer goods be clearly labeled in easy to understand terms to give consumers more information
Nutrition Labeling and Education Act requires the same format for nutritional info
Warranty: explains what the seller promises about the product
Magnson-Moss Act; says that producers must provide a clearly written warranty if they choose to offer any warranty
All products fit into two broad groups: consumer and business
Consumer Products: products meant for the final consumer
Business Products: products meant for use in producing other products
Selling the same product to final and business customers requires at least two different strategies
Consumer product classes are based on how consumers think about and shop for products
Business product classes are based on how buyers think about products and how they’ll be used
Consumer product classes divide into four groups: convenience, shopping, specialty and unsought
Each class is based on the way people buy products
Convenience Products: are products that a consumer needs but isn’t willing to spend much time or effort shopping for (bought often, require little service, bought by habit)
Staples: products that are bought often, routinely, and without much thought like soup or cereal
Impulse Products: products that are bought quickly, as unplanned purchases, because of a strongly felt need 
Emergency Products: products that are purchased immediately when the need is great (umbrella in rainstorm)
Shopping Products: products that a customer feels are worth the time and effort to compare with competing products two types, homogeneous or heterogeneous
Homogeneous Shopping Products: shopping products that the customer sees as basically the same and wants the lowest price
Heterogeneous Shopping Products: shopping products the customer sees as different and wants to inspect for quality and suitability
Quality and style matter more than price
Specialty Products: consumer products that the customer really wants and makes a special effort to find
Any branded product that consumers insist on by name is a specialty product
Unsought Products: products that potential customers don’t yet want or know they can buy
Don’t search for these at all unless promotion can show their value
New Unsought products: products offering really new ideas that potential customers don’t know about yet
Regularly Unsought Products: products, like gravestones, life insurance that are always unsought
Personal selling is VERY important
Derived Demand: biggest difference between consumer and business products market, demand for business products derives from the demand for final consumer products
Total industry demand is pretty inelastic but individual sellers demand could be elastic
Expense Item: a product whose total cost is treated as a business expense in the year its purchased
Capital item: long-lasting product that can be used and depreciated for many years
Business product classes are based on how buyers think about products and how the products will be used
Classes of business products include installations, accessories, raw materials, components, supplies and professional services
Installations: such as buildings land rights and major equipment are important capital items
Installations are a boom or bust business (during growth periods will invest in capital)
Can offer special services with an installation such as tutorial
Accessories: short lived capital items such as tools and equipment used in production or office services (cabinets, copy machines)
Raw Materials: unprocessed expense items such as logs, iron ore and wheat that are moved to the next production process with a little handling
Become part of a physical good and are expense items
Two types of raw materials: farm products and natural products
Farm Products: grown by farmers (food)
Natural Products: products that occur in nature (timber, ore)
Need for grading is important difference between raw materials and other business products
Components: processed expense items that become part of a finished product
Components are things like wire or plastic that will be processed further
Supplies: expense items that do not become part of a finished product
Three types: maintenance, repair and operating supplies (MRO supplies)
Maintenance and small operating supplies are like convenience products
Professional Services: specialized services that support a firm’s operations, usually expense items
ITS can maintain a companies websites

CHAPTER 9
Product Life Cycle: describes the stages a really new product idea goes through from beginning to end
Divided into four major stages:
1. Market introduction
2. Market growth
3. Market maturity
4. Sales decline
The product life cycle is concerned with new types (or categories) of products in the market, not just what happens to an individual brand
A firm’s marketing mix usually must change during the product life cycle
Nature of competition over time moves towards pure competition or oligopoly
Industry profits decline while industry sales are still rising
Market Introduction: sales are low as a new idea is first introduced to a market, customers aren’t looking for the product
Most companies experience losses during the introduction stage 
Market Growth: industry sales grow fast – but industry profits rise and then start falling
Innovator begins to make big profits as more and more customers buy but then competitors start to replicate product
Some monopolistic competition with down sloping demand curves is typical of the market growth stage
This is the time of the biggest profits for the industry, towards end of this stage when industry profit begins to decline as competition and consumer price sensitivity increase
Market Maturity: occurs when industry sales level off and competition gets tougher
Industry profits go down throughout the market maturity stage because promotion costs rise and some competitors cut prices to attract business
Example of market maturity: carbonated soft drinks
Sales Decline: new products replace the old and price competition from dying products becomes vigorous
Product lifecycle describes industry sales and profits for a product idea within a particular product-market
Sales and profits of an individual brand do not follow this cycle
If a market is defined broadly, there may be many competitors and the market may appear to be in maturity
If we focus on a narrow submarket we may see much shorter product life cycles as improved product ideas come along to replace the old
Competitive advantage, easy to use and easy to communicate will lead to fast sales
Fashion: the currently accepted or popular style
Fashion-related products tend to have short life cycles
Fad: idea that is fashionable only to certain groups who are enthusiastic about it
Where a product is in its life cycle should affect marketing strategy planning
New Product: one that is new in any way for the company concerned
These can be refinements of old rpdoucts 
Federal Trade Commission (FTC):  the federal government agency that polices antimonopoly laws
To move quickly and avoid expensive new-product failures, companies should follow an organized new-product development process
1. Idea Generation
2. Screening
3. Idea Evaluation
4. Development (of product and marketing mix)
5. Commercialization
Similar for both consumer and business markets, and for both goods and services
Hypothesis that is tested is that the new idea will not be profitable
Idea generation involves brainstorming any potential ideas the company may pursue
Screening involves evaluating the new ideas with the type of SWOT analysis described in Chapter 2 – this step will tell us whether the idea is presently a good or bad one
Criteria include the combined output of a resources analysis (strengths and weaknesses) a long run trends analysis and a thorough understanding of the company’s objectives
A good idea will lead to a product and marketing mix that gives the company a competitive advantage
Sometimes we screen new products on the basis of how safe they are due to the Consumer Product Safety Act of 1972
Product Liability: means the legal obligation of sellers to pay damages to individuals who are injured by defective or unsafe products
We also want to look at the expected Return on Investment for the new idea
The Idea evaluation stage involves getting more reactions from customers even though the product hasn’t yet been developed
Can use focus groups to get consumer opinion about certain products
Concept Testing: getting reactions from customers about how well a new-product idea fits their needs
Uses market research ranging from focus groups to surveys of potential customers
Can run concept tests online to save money and speed up feedback
Marketing research can also help identify the size of potential markets and that helps companies to estimate likely costs, revenue and profitability 
Helps marketing managers decide whether there is an opportunity, whether it fits the firms resources and whether there is a basis for developing a competitive advantage
Next step is development if a product survives the screening and idea evaluation stages
Usually this step involves some R&D and engineering to design and develop the physical parts of the product
In the case of service, the firm will work out details of what training equipment and staff will be needed to deliver the service
The last step is commercialization which requires putting the product on the market
This is expensive and requires the cooperation of the entire company
Introductory promotion is costly, especially if the company is entering a very competitive market
Rollouts, introducing something city by city can also be a good tester to the product
Key trait of companies that develop new goods and services that are successful is enthusiastic top-management support for new-product development
A culture that supports innovation can generate more ideas
Put someone specifically in charge for developing new products
Marketing and research and development teams need to work together towards the company’s goals
Product Managers or Brand Managers: manage specific products – often taking over the jobs formerly handled by an advertising manager
Product managers are in charge for full promotion of their product – a job previously done by advertising managers
Total Quality Management: the philosophy that everyone in the organization is concerned about quality, throughout all of the firm’s activities, to better serve customer needs
Most of the early attention focused on reducing defects in goods produced in factories
TQM finds a problem and addresses whether the problem concerns poor customer service, flimsy packaging, or salespeople who can’t answer customers questions
Continuous Improvement: a commitment to constantly making things better one step at a time
Concerns of managing service quality include inconsistency with attitudes of different service providers which can be fixed through training and empowerment
Empowerment: giving employees the authority to correct a problem without first checking with management

CHAPTER 10
Place: making goods and services available in the right quantities and locations, when customers want them
When different target markets have different needs, a number of Place variations may be required
Channel of Distribution: any series of firms or individuals who participate in the flow of products from producer to final user or consumer
There needs to be many different place strategies depending on needs, not just one best one
Pay attention to product life cycle because a place is harder to change than promotion, etc.
Most basic place decisions is to handle the whole process themselves or use retailers
Many firms prefer direct distribution because they think its cheaper and can allow a firm to maintain control of the marketing mix
Retailers may have several competing products and will not give any one item good placing or promotion in their stores
FedEX and UPS have allowed small firms to establish direct service
If a firm is in direct contact with its customers, it is more aware of changes in customer attitudes and is in a better position to adjust its marketing mix quickly 
Many products fail because the producer cant find willing distributors and doesn’t have the resources to handle direct distribution
Many business products are sold direct to customer
Once these relationships are formed, ecommerce can handle orders and restocks
Accounting firms deal directly with clients for services but things like appliance companies will rely on the intermediary to solve any problems with repairs
Some companies rely on outside salespeople that don’t actually work with their company, such as dealers, distributors and agents, so this is not really direct producer to consumer distribution
Direct Marketing: direct communication between a seller and an individual customer using a promotion method other than face to face personal selling
Direct marketing is concerned with the promotion area, not place decisions
If consumers have specific buying patterns, like buying all their products at a one-stop location, the producer might have no option but to sell through wholesalers
Most important reason for using an indirect channel of distribution is that an intermediary can often help producers serve customer needs better at a lower cost
Intermediaries that are close to their customers are able to anticipate customer needs and forecast demand more accurately
This information can help reduce inventory costs in the whole channel and help the producer smooth out production
Wholesalers and retailers can fix the problems of discrepancy of quantity and discrepancy of assortment
Regrouping Activities: adjust the quantities or assortments of products handled at each level in a channel of distribution
Four regrouping activities: accumulating, bulk-breaking, sorting and assorting
Adjusting quantity discrepancies by accumulating and bulk-breaking:
Accumulating: involves collecting products from many small producers 
Accumulating is especially important in less developed countries and in agricultural markets where there are many small producers
Also important for professional services that require combined work of many individuals
Bulk-breaking: involves dividing larger quantities into smaller quantities as products get closer to the final market
May involve several levels in the channel including wholesalers selling smaller quantities to other wholesalers or directly to retailers
Retailers will then continue breaking bulk as they sell individual items to their customers
Adjusting assortment discrepancies by sorting and assorting:
Sorting: means separating products into grades and qualities desired by different target markets
Assorting: putting together a variety of products to give a target market what it wants
Usually done by the closest to the final consumer or user – retailers or wholesalers who try to supply a wide assortment of products for the convenience of their customers
TV viewers face discrepancies of quantity – there are millions of hours of tv programing but they are only looking for a few hours of that programming at a time
Viewers also face discrepancies of assortment, for example, a viewer may enjoy watching some type of program but many channels have that type of program
Marketing managers need to put together a reliable channel that works well together
All members of a channel system should ideally share the same product market commitment with an ideal target market at the end of the channel
Traditional Channel Systems: the various channel members make little or no effort to cooperate with each other
Buy and sell from one another and that is the extent of the relationship
Each channel member does only what it considers to be in its own best interest
Vertical conflicts occur between firms at different levels in the channel of distribution
May occur if a producer and a retailer disagree about how much promotion effort the retailers should give the producer’s product
Horizontal conflicts occur between firms at the same level in the channel of distribution
Need to treat channel partners fairly
Channel Captain: manager who helps direct the activities of a whole channel and tries to avoid or solve channel conflicts
Usually the producer will take the lead in heading a channel of distribution
Vertical Marketing Systems: channel systems in which he whole channel focuses on the same target market at the end of the channel
Three types of vertical marketing systems – corporate, administered and contractual
Corporate Channel Systems: corporate ownership all along the channel – we might say the firm is going “direct” because it may buy out retailers
Vertical Integration: acquiring firms at different levels of channel activity
Advantages include stable sources of suppliers, better control over the distribution and quality 
This can be very hard to be good at, good to focus on what you can specialize in
Administered Channel Systems: the channel members informally agree to cooperate with each other
Can agree to routinize ordering, share inventory and sales information, coordinate promotions 
Contractual Channel Systems: the channel members agree by contract to cooperate with each other
With both of these systems, the members retain some of the flexibility of a traditional channel system
Ideal Market Exposure: makes a product available widely enough to satisfy customers needs but not to exceed them
Too much exposure increases the total cost of marketing
Intensive Distribution: selling a product through all responsible or suitable wholesalers or retailers that will sell or stock the product
Selective Distribution:  selling through only those intermediaries who will give the product special attention
Exclusive Distribution: selling through only one intermediary in a particular geographic area
As we move from intensive to exclusive we give up exposure in return for lower costs
Convenience products require intensive distribution
Narrowing down from intensive may require a policy that avoids wholesalers or retailers that place orders too small to justify making calls, make too many returns or request too much service, have a poor credit rating, or are not in a satisfactory position to do the job
Selective distribution is becoming more popular now that marketers see they don’t need full exposure
Selective distribution can lead to greater profits for all channel members through larger orders and more commitment to a store promotion
Many different channels need to be established to get exposure, which can cause competition between channels
Multichannel distribution: occurs when a producer uses several competing channels to reach the same target market – perhaps using several intermediaries in addition to directly selling
If competition changes or customers’ place requirements shift, the current channel system may not be effective
Must make an ethical decision about changes to the channel
Reverse Channels: channels used to retrieve products that customers no longer want
May arise if there is a recall because of safety
Common recall with online orders
Take back laws require producers to recycle hazardous materials at no cost to consumer
Reverse channels can save the producer money by recycling or give someone a green alternative
Exporting: selling some of what the firm produces to foreign markets
Can explore to get rid of surplus inventory and see how it goes
Licensing: selling the right to use some process, trademark, patent or other right for a fee or royalty
Licensee in foreign market takes most of the risk 
Management Contracting: the seller provides only management and marketing skills – others own the production and distribution facilities
Joint Venture: domestic firm enters into a partnership with a foreign firm
Direct Investment: a parent firm has a division or owns a separate subsidiary firm in a foreing market
Gives the parent firm complete control of marketing strategy planning

Midterm Review:
Discrepancy of quantity: discrepancy between quantity that the customer wants and quantity that the company produces

CHAPTER 11
Logistics: the transporting, storing and handling of goods in a way that matches target customer’s needs with a firm’s marketing mix (also called physical distribution)
Customer Service Level: how rapidly and dependably a firm can deliver what they, the customers want
Physical Distribution Concept: says that all transporting, storing and product-handling activities of a business as a whole channel system should be coordinated as one system that seeks to minimize the cost of distribution for a given customer service level
Good distribution may be a competitive advantage when you have a hard time differentiating your product
Total Cost Approach: involves evaluating each possible PD system and identifying all of the costs of each alternative
Supply Chain: the complete set of firms and facilities and logistics activities that are involved in procuring materials, transforming them into intermediate or finished products, and distributing them to customers
Computer systems are helping make communication between channels of distribution easier
Electronic Data Interchange: an approach that puts information in a standardized format easily shared between different computer systems
Transporting: the marketing function of moving goods
Railroad is cheap and can handle heavy goods but is slow and can’t transport perishables
Trucks can deliver small items very quickly
Water transportation is low cost but very slow
Containerization: grouping individual items into an economical shipping quantity and sealing them in protective containers for transit to the final destination
Piggyback service: loading truck trailers or flatbed trailers carrying containers onto railcars to provide both speed and flexibility
Storing: the marketing function of holding goods so they’re available when needed
Inventory: the amount of goods being stored
Storing allows companies to achieve economies of scale
Private Warehouses: storing facilities owned or leased by companies for their own use
Use when storing a large volume of goods regularly
Can be expensive and hard to rent to others if extra space
Public Warehouses: independent storing facilities
Use if don’t need a regular need for space
Distribution Center: a special kind of warehouse designed to speed the flow of goods and avoid unnecessary storing costs

CHAPTER 12
Retailing: covers all of the activities involved in the sale of products to final consumers
General Stores: carry anything they could sell in reasonable volume
Single-line or Limited-line stores: stores that specialize in certain lines of related products rather than a wide assortment
Specialty Shop: a type of conventional limited-line store that is usually small and has a distinct “personality”
Department Stores: larger stores that are organized into many separate departments and offer many product lines
Mass-merchandising concept: says that retailers should offer low prices to get faster turnover and greater sales volumes by appealing to larger markets
Supermarkets: large stores specializing in groceries with self-service and wide assortments
Discount houses: offer “hard goods” at substantial price cuts to consumers who would go and pay cash and take care of any repairs themselves
Mass-merchandisers: large self-service stores with many departments that emphasize “soft goods” and staples
Supercenters (hypermarkets): very large stores that try to carry not only food and drug items but all goods and services that consumers purchase routinely
Automatic Vending: selling and delivering products through vending machines
Wheel of Retailing Theory: says that new types of retailers enter the market as low-status, low-margin, low-price operators and then evolve into more conventional retailers offering more services with higher operating costs and higher prices
Scrambled Merchandising: carrying any product lines they think they can sell profitably
Corporate Chain: a firm that owns and manages more than one store – and often its may
Cooperative Chains: are retailer-sponsored groups – formed by independent retailers – that run their own buying organization and conduct join promotion efforts
Voluntary Chains: wholesaler sponsored groups that work with “independent” retailers
Franchise Operation: franchisor develops a good marketing strategy and retail franchise holders carry out the strategy in their own units
Wholesailing: concerned with the activities of those persons or establishments that sell to retailers and other merchants, or to industrial, institutional and commercial users but that do not sell in large amounts to final consumers
Wholesalers: firms whose main function is providing wholesaling activities
Manufacturers’ Sales Branches: warehouses that producers set up at separate locations away from their factories
Merchant Wholesalers: own (take title to) the products they sell
Service Wholesalers: merchant wholesalers that provide all the wholesaling functions – three basic groups (1) general merchandise (2) sinle-line and (3) specialty
General Merchandise Wholesalers: service wholesalers that carry a wide variety of nonperishable items such as hardware, electrical supplies, furniture, drugs, cosmetics and automobile equipment
Single-line wholesalers: service wholesalers that carry a narrower line of merchandise than general wholesalers (ex: food, apparel)
Specialty Wholesalers: service wholesalers that carry a very narrow range of products and offer more information and service than other service wholesalers
Limited-function wholesalers: provide only some wholesaling functions
Cash and Carry Wholesalers: operate like service wholesalers – except that the customer must pay cash
Drop Shippers: owns the products they sell but do not actually handle, stock or deliver them
Truck Wholesalers: specialize in delivering products that they stock in their own trucks
Rack Jobbers: specialize in hard to handle assortments of products that a retailer doesn’t want to manage 
Catalog wholesalers: sell out of catalogs that may be distributed widely to smaller industrial consumers or retailers that might not be called on by other wholesalers

CHAPTER 13
Promotion: communicating information between the seller and potential buyer or others in the channel to influence attitudes and behavior
Can choose from personal selling, mass selling and advertising
Personal Selling: involves direct spoken communication between sellers and potential customers
Get immediate feedback but can be very expensive
Should combine personal selling with mass selling and sales promotions
Mass Selling: communicating with large numbers of potential customers at the same time
Less flexible but less expensive
Advertising: the main form of mass selling – any paid form of nonpersonal presentation of ideas, goods or services by an identified sponsor
Publicity: any unpaid form of nonpersonal presentation of ideas, goods or services
Tries to attract attention to the firm and its offerings without having to pay media costs
Sales Promotion: refers to promotion activities – other than advertising, publicity and personal selling – that stimulate interest, trial, or purchase by final consumers or others in channel
Examples include contests, coupons, aisle displays etc.
Can be implemented quickly and get results quickly
Designed to produce immediate results
Sales Managers: concerned with managing personal selling and responsible for building good distribution channels and implementing place policies
Advertising Manager: manage their company’s mass-selling effort in television, newspapers, magazines and other media. Job is to choose the right media and develop the ads
Public Relations: communication with noncustomers, including labor, public interest groups, stockholders and the government
Sales Promotion Manager: manage their company’s sales promotion effort
Determining the blend of promotions and strategy decision is the responsibility of the marketing manager
Integrated Marketing Communications: the intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message
Three basic promotion objectives: informing, persuading and reminding
Informing shows that it meets consumer needs better than other products
Persuading objective means the firm will try to develop a favorable set of attitudes so customers will buy and keep buying its product
Demonstrates how one brand is better than the others
Reminding objective is appropriate when target customers already have positive attitudes about a firm’s marketing mix – or a good relationship with the firm
The AIDA model consists of four promotion jobs: 1 get attention, 2 hold interest, 3 arouse desire, 4 obtain action
Communication Process: a source trying to reach a receiver with a message
Advantage of personal selling is immediate feedback from the receiver
Noise: any distraction that reduces the effectiveness of the communication process
Encoding: the source deciding what it wants to say and translating it into words or symbols that will have the same meaning to the receiver
Decoding: the receiver translating the message
Message Channel: the carrier of the message
Most direct marketing communications are designed to prompt immediate feedback – a direct response – by customers
This is called direct – response promotion
Moved from mail to email recently
Customer can initiate communication through a search on the internet, etc. 
Pushing: means using normal promotion effort – personal selling, advertising, and sales promotion – to help sell the whole marketing mix to possible channel members
Producers take on much of responsibility for this
Emphasizes the importance of all the channel members working together
Pulling: getting customers to ask intermediaries for the product
Adoption Curve: shows when different groups accept ideas
Emphasizes the relationships among groups and shows that individuals in some groups act as leaders in accepting new ideas
Innovators: are the first to adopt
Eager and willing to take risks and have many contacts outside their local social group or community
Rely on information from internet, other sources rather than salespeople
Early Adopters: well respected by their peers and often are opinion leaders 
Younger, more mobile and more creative than later adopters 
Have fewer outside contacts than innovators
Most contact with salespeople – important for word of mouth
Early Majority: avoids risk and waits to consider a new idea after many early adopters have tried it – and liked it
Great deal of contact with mass media, salespeople and early adopters
Late Majority: cautious about new ideas, older and more set in their ways
Laggards or Non-adopters: prefer to do things the way they’ve been done in the past and are very suspicious of new ideas
Older and less well educated, main source of info is other laggards
Primary Demand: demand for the general product idea – not just for the company’s own brand
Selective Demand: demand for a company’s own brand – main job is to persuade customers to buy, and keep buying, the company’s product
Task Method: basing the budget on the job to be done

CHAPTER 14
Personal selling is essential in the promotion blends of some firms
Often a company’s largest operating expense
Bad sales decisions can be extremely costly
Good salespeople don’t sell the customer but help the customer buy the product
Salespeople provide information about other products, explain company policies and can negotiate prices or diagnose technical problems
The salesperson represents the customer back within the business
Three basic sales tasks are order-getting, order-taking and supporting
Order Getters: concerned with establishing relationships with new customers and developing new business
Means seeking possible buyers with a well-organized sales presentation designed to sell a good, service or idea
Help bring products help bring products out of the introduction stage into the market growth stage
Order-takers: sell to regular or established customers, complete most sales transactions and maintain relationships with their customers
Order takers answer any final questions about a sale
Order taking: the routine completion of sales made regularly to target customers
Requires ongoing follow-up to make certain that the customer is totally satisfied
Supporting salespeople: help the order-oriented salespeople, but don’t try to get order themselves
Activities are aimed at enhancing the relationship with the customer and getting sales in the long run
Short run they are ambassadors of goodwill who provide specialized services and information
Missionary Salespeople: supporting salespeople who work for producers – calling on intermediaries and their customers 
Try to develop goodwill and stimulate demand, help intermediaries train their salespeople, and often take orders for delivery by intermediaries
Sometimes called merchandisers or detailers
Technical Specialists: supporting salespeople who provide technical assistance to order-oriented salespeople 
Customer Service Reps: work with customers to resolve problems that arise with a purchase, usually after the purchase has been made
Team-selling: when different people work together on a specific account
Major Accounts Sales force: sells directly to large accounts
Sales Territory: a geographic area that is the responsibility of one salesperson or several working together
Job Description: a written statement of what a salesperson is expected to do
Prepared Sales Presentation: uses a memorized presentation that is not adapted to each individual customer 
Close: the salesperson’s request for an order
Consultative Selling Approach: involves developing a good understanding of the individual customer’s needs before trying to close the sale
Selling Formula Approach: starts with a prepared presentation outline and leads the customer through some logical steps to a final close
Steps are logical because we assume that we know something about the target customer’s needs and attitudes

CHAPTER 15
Decisions that marketing managers have to make: advertising objectives and what they want to achieve, who the target audience is, what kind of advertising to use, which media to use to reach target customers, what to say and who will do the work
Advertising objectives should be more specific than personal selling objectives
Each ad must be effective for a huge range of people
Advertising Allowances: price reductions to firms further along in the channel to encourage them to advertise or otherwise promote the firm’s products locally
Cooperative Advertising: involves producers sharing in the cost of ads with wholesalers or retailers
Helps intermediaries compete in their local markets
Product Advertising: tries to sell a product
Three categories – pioneering, competitive and reminder
Institutional Advertising: promotes an organization’s image, reputation, or ideas rather than a specific product
Pioneering Advertising: tries to develop demand for a product category rather than demand for a specific brand
Usually done in the early stages of a product life cycle, informs potential customers about the new product and helps turn them into adopters
Competitive Advertising: tries to develop selective demand for a specific brand
Forced into competitive advertising as the product life cycle moves along to hold its own against competitors
Can be direct or indirect
Direct aims for immediate buying action
Indirect points out product advantages to affect future buying decisions
Comparative Advertising: making comparisons to specific brand comparisons using actual product names 
Reminder Advertising: tries to keep the product’s name before the public
May be useful when the product has achieved brand preference or insistence (market maturity or sales decline)
Institutional advertising focuses on the name and prestige of an organization or industry
May seek to inform, persuade or remind
Basic objective is to develop goodwill or improve an organization’s relations with various groups – not only customers but also current and prospective channel members, suppliers, shareholders, employees and the general public 
Try to reach your intended audience through media
You pay for the whole audience not just your target market
Banner ad – a small box on the internet used for advertising
Behavioral targeting delivers ads to consumers based on previous websites the customer has visited
Copy Thrust: what the words and illustrations should communicate
Overall marketing strategy should determine what the message should say
Use AIDA concept
Getting the attention is the first job and holding interest is the more tricky part
Arousing desire means convincing the customer that the product can meet their needs
Getting action is the final requirement
Advertising Agencies: specialists in planning and handling mass-selling details for advertisers
Do the job more economically than a company’s own department
Can develop the whole marketing strategy or can specialize to just produce internet ads, etc. 
Federal Trade Commission has the power to control unfair or deceptive business practices, including deceptive advertising
FTC can use corrective advertising – ads to correct deceptive advertising
Can also put health warnings on cigarettes (affirmative disclosures)
Most trusted sources are forms of publicity and not advertising
Webinars and white papers are useful publicity tools for business customers
Sales promotion refers to those promotion activities other than advertising, publicity and personal selling that stimulate interest, trial or purchase by final customers
Sales promotion aimed at intermediaries can be called trade promotion
Sales promotion at own employees may be a competition for “best service”

CHAPTER 16
Key pricing policies include how flexible prices will be, the level of prices over the product life cycle, to whom and when discounts will allowed to be given and how transportation costs will be handled
Price: the amount of money that is charged for “something” of value
List price is a price without discounts or allowances
Target Return Objective: sets a specific level of profit as an objective
Amount is often stated as a percentage of sales or of capital investment
Performance can be measured against this target
Satisfactory returns are for small businesses, non-profits just meeting the break-even point or for insurance companies and utilities that don’t set too high long run targets bc public is expecting them to set good prices
Profit Maximization Objective: seeks to get as much profit as possible
Might be a desire to earn a rapid ROI or charge as much as one can
Very large profit could mean a low price so that a lot of purchases are made
Sales Oriented Objective: seeks some level of unit sales, dollar sales, or share of market – without referring to profit
More concerned about sales growth than profit
Should usually pay more attention to profit and not sales but this can be useful in recessions, etc. 
Nonprofits will set prices low because they are focused on increasing market share
Many firms want to have large market share to achieve economies of scale
A large market share with a low price may lead to profitless success
Status Quo Objectives: managers satisfied with current market share and profit, who want to stay on the same path 
Want to stabilize prices, or meet competition or even avoid it
Most common thinking when the total market is not growing
Nonprice Competition: aggressive action on one or more of the Ps other than Price – part of an aggressive overall marketing strategy
Administered Prices: consciously set prices (usually from price policies)
Set prices instead of letting daily market forces or auctions set prices
Will want to set a price it receives from intermediaries and also final price because this matters
One-price Policy: means offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities
Majority use this to maintain goodwill and convenience
Flexible-price Policy: means offering the same product and quantities to different customers at different prices
Most common in channels, in B2B and at retail for expensive shopping products
Flexible policies will often specify a range in which the price should fall
When a new product enters the market there are few or no direct substitute marketing mixes so the price-level decision should focus on the nature of market demand
Skimming Price Policy: tries to sell the top (skim the cream) of the market – the top of the demand curve – at a high price before aiming at more price-sensitive customers
May maximize profits in the market introduction stage for an innovation if there are few substitutes and if some are not price sensitive
Useful when you don’t know much about the shape of the demand curve
Problems with setting a high price for life saving medicine
Involves a slow reduction in price over time
Followed by a series of changes in marketing strategy, not just a stepping down of prices
Penetration Pricing Policy: tires to sell the whole market at one low price
Is useful when the elite market (willing to pay high price) is small
The case when the whole demand curve is fairly elastic
More attractive if selling larger qualities can result in economies of scale
Also attractive if firms expect strong direct competition
Introductory Price Dealing: temporary price cuts to speed new products into a market and get customers to try them
Temporary price cuts are different than low penetration prices
Nation’s money also has a price level, or what it’s worth in different countries
Basic List Prices: the prices final customers or users are normally asked to pay for products
List price is equivalent to basic list price
Discounts: reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves
Quantity Discounts: discounts offered to encourage customers to buy in larger amounts
Shifts some of the storing costs to buyer or reduces shipping and selling costs
Two kinds of quantity discounts: cumulative and noncumulative
Cumulative Quantity Discounts: apply to purchases over a given period such as a year and the discount usually increases as the amount purchased increases
Encourages repeat buying 
Develops loyalty and ongoing relationships between buyers
Attractive to business customers who don’t want to run up their inventory costs
Noncumulative Quantity Discounts: apply only to individual orders
Seasonal Discounts: discounts offered to encourage buyers to buy earlier than present demand requires
Service firms that face irregular demand use seasonal discounts
Ski resorts offer lower rates in the off-season
Net: that payment for the face value of the invoice is due immediately
Cash Discounts: reductions in price to encourage buyers to pay their bills quickly
2/10 net 30: means the buyer can take a two percent discount off the face value if the invoice is paid in 10 days, otherwise 30 days to pay
Sale Price: temporary discount for the list price
Customers give up the convenience of buying when they want and accept the sale price when the seller wants to sell
Everyday Low Pricing: setting a low list price rather than relying on frequent sales, discounts or allowances
Supermarkets use this approach 
Allowances: given to final consumers, business customers or channel members for doing something or accepting less of something
Advertising Allowances: price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier’s products locally
Stocking Allowances: sometimes called slotting allowances – are given to an intermediary to get shelf space for a product
Supermarkets will give space to a new product if the company pays for handling costs and risks
Push Money (or prize money) Allowances: sometimes called PMs or spiffs are given to retailers by manufacturers or wholesalers to pass on to the retailers’ salesclerks for aggressively selling certain items
Used for new items, slower moving items or higher margin items
Trade-In Allowance: a price reduction given for used products when similar new products are bought
Give the marketing manager an easy way to lower the effective price without reducing the list price
Rebates: refunds paid to consumers after a purchase
To appeal to different groups of buyers firms can offer coupons, deals and rebates
F.O.B.: means free on board some vehicle at some place
FOB delivered or FOB buyer’s factory means title will not be transferred until the products are delivered
Zone Pricing: means making an average freight charge to all buyers within specific geographic areas
Seller pays actual freight charges and bills each customer for an average charge
Simplifies transportation charges and reduces wide variation in FOB delivery prices
Uniform Delivered Pricing: the average freight charge to all buyers
Zone pricing of an entire country for example
Used when transportation costs are low and seller wishes to sell in all geographic areas at one price, perhaps a nationally advertised price
Value Pricing: means setting a fair price level for a marketing mix that really gives the target market superior customer value
Unfair Trade Practice Acts: puts a lower limit on prices, especially at the wholesale and retail levels
Selling below these costs is illegal
Dumping: pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market
Phony List Prices: prices customers are shown to suggest that the price has been discounted from list
Wheeler Lea Amendment: bans “unfair or deceptive acts in commerce”
Price Fixing: competitors getting together to raise, lower or stabilize prices 
Considered conspiracy under the Sherman Act
Robinson-Patnam Act: makes illegal any price discrimination
Price Discrimination: selling the same products to different buyers at different prices if it injures competition
Permits price differences based on cost differences or the need to meet competition

CHAPTER 17
Two basic approaches to setting prices – cost oriented and demand oriented
Markup: a dollar amount added to the cost of products to get the selling price
Selling price – cost price/selling price = markup
Markup(percent): percentage of selling price that is added to the cost to get the selling price
Many intermediaries set one markup price for all products
Different companies in the same line of business usually use the same markup percentage because operating expenses are similar
Standard markup is set close to the firm’s gross margin
Markup Chain: the sequence of markups firms use at different levels in a channel
Markup is figured at the selling price at each level of the channel
Stockturn Rate: the number of times the average inventory is sold in a year
Put low markups on fast selling items and high markups on items that sell slower
Selling price = avg. production cost per unit X 3
Average Cost pricing: adding a reasonable markup to the average cost of a product
Average cost per unit takes into account fixed overhead, etc. 
Basic problem with average cost approach is that it doesn’t consider cost variations at different levels of output
Costs are high with low output and low with economies of scale and high output
Average cost per unit drops as more units are produced and sold
Six types of cost:
Total Fixed Cost: sum of those costs that are fixed in total no matter how much is produced (rent, taxes, insurance etc.)
Total Variable Cost: the sum of those changing expenses that are closely related to output – expenses for parts, wages, packaging, etc. 
Zero output, total variable cost is zero
Total Cost: the sum of total fixed cost and total variable cost
Average cost per unit: dividing the total cost by the related quantity
Average fixed cost per unit: dividing total fixed cost by related quantity
Average variable cost per unit: dividing total variable cost by related quantity
Average cost pricing works well if the firm actually sells the quantity it used to set the average cost price
Cost-oriented pricing requires an estimate of the total number of units to be sold
Ignores competitors costs and prices
Break-even Analysis: evaluates whether the firm will be able to break even or cover all costs
Break-even Point: the quantity where the firm’s total cost will just equal its total revenue
Fixed Cost Contribution per unit: assumed selling price minus the variable cost per unit
Useful to calculate BEP for many different costs and then look at the likely demand for that price
Can calculate how much you will make in different market environments
Marginal Analysis: focuses on the changes in total revenue and total cost from selling one or more unit to find the most profitable price and quantity 
Shows how costs, revenue and profit change at different prices 
The price that maximizes profit is the one that results in the greatest difference between total revenue and total cost
To compute demand curve, think of a price that is too high, and one that is too low
A manager that knows what influences a customer’s price sensitivity can do a better job estimating the demand curve that the firm faces
Ask if there is a substitute
Customers are more price sensitive the greater the total expenditure 
Customers are less price sensitive the greater the significance of the end benefit of the purchase
Customers are less price sensitive if there are switching costs – costs that a customer faces when buying a product that is different from what has been purchased or used in the past (i.e the cost to find a new hairstylist if the price of a hair dresser rises)
Value in use pricing: means setting prices that will capture some of what customers will save by substituting the firm’s product for the one currently being used
Auctions can show exactly how much a customer is willing to pay
Auction approach is used by cruise lines
Reference Price: the price they expect to pay (consumers) for many of the products they purchase
Leader Pricing: setting some very low prices – real bargains – to get customers into retail stores
Idea is to sell large quantities of the leader items and also to get customers into the store to buy other products
Normally used with products for which consumers do have a specific reference price
Don’t select leader items that are in direct competition with major lines
Bait Pricing: setting some very low prices to attract customers but trying to sell more expensive models or brands once the customer is in the store
The difference between leader pricing is that the seller DOESN’T try to sell this item
Psychological Pricing: setting prices that have special appeal to target customers 
Setting the price just below what customers see as a fair or kind of high price, but not too low
Odd-even pricing: setting prices that end in certain numbers 
Price Lining: setting a few price levels for a product line and then marketing all items at these prices
Price lining can cause sales increase because they can offer a bigger variety in each price class
Makes it easier for customers to make decisions within one price class
Demand-backward Pricing: setting an acceptable final consumer price and working backward to what a producer can charge 
Prestige Pricing: setting a rather high price to suggest high quality or high status
Full-line Pricing: setting prices for a whole line of products
Depends on two scenarios: if all the products in the company’s line are aimed at the same general target market 
Complementary Product Pricing: setting prices on several products as a group
May lead to one product being priced very low so that the profits from another product will increase
Product Bundle Pricing: setting one price for a set of products
Convinces customers to buy something they normally wouldn’t because the price of the add-on is cheaper than it would be normally
Bid Pricing: offering a specific price for each possible job rather than setting a price that applies for all customers
Negotiated Price: a price set based on bargaining between the buyer and seller
Common in situations where the marketing mix is adjusted for each customer

Transcript for:Overview of Marketing Principles and Strategies

Transcript for:
Overview of Marketing Principles and Strategies