Introductory Marketing Concepts

What is marketing? Marketing is an integral part of every organization. Marketing helps facilitate profitable, mutually beneficial, voluntary exchanges between and organization and its customers. Marketing allows organizations to operate effectively by meeting the needs of their customers. Marketing also allows organizations to use its resources efficiently to meet its long- and short-term objectives. What conditions must exist for an exchange to occur? Voluntary participation by all parties Two or more parties involved Each party must have something of value to exchange Parties must communicate with each other The exchange must be profitable Who is the customer? The process of identifying who to target as the customer in an exchange as easy as it may seem. The real customer may take on one or all of the following roles that exist in an exchange. Initiator the one that initiates the decision process. This may be a commercial source such as a Wendys ad. Influencer the one that provides information to be used in a decision. For example, a travel agent may provide information on alternative destinations. Decider- the one that makes the decision. The decision may be made by more than one person. For example, a two-person dyad may make a decision to purchase a house. Buyer- the one that actually makes the purchase. User- the one that uses the product Where can marketing be applied? All exchange situations - private, public, business-to-business, not for profit, may benefit from a well executed marketing plan. Churches are using marketing research in the form of secret worshipers (instead of shoppers) to determine what needs to target. Green cemeteries are using the concepts of pricing to grow their business. The Internal Revenue Service engages in public relations during tax season to minimize the number of errors that individuals make in preparing their taxes.

Evolution of marketing Marketing within an industry or organization evolves over time. Three stages of marketing evolution have been identified. These stages are the Production-orientation, Sales-orientation, and Marketing-orientation. During the Production-orientation stage the focus of marketing is on engineering a better product. Think of this as building a better mousetrap and people will beat a path to your door. Blueray disk players are relatively new and models are available with only a few features. Over time, newer models will be launched with more features as manufacturers focus on meeting more needs of the customer. The Sales-orientation is characterized by a realization that organizations must sell their product to a customer to generate a profit. The focus on selling is on persuading the customer that the organizations product is what the customer needs. The Marketing-orientation focuses on identifying unsatisfied customer needs first, and then building a product to meet the unsatisfied needs at an acceptable level of profit. An organization that adopts the marketing-orientation utilizes the full marketing toolbox. What is the marketing concept? The marketing concept is a coordinated customer-orientation to achieve organizational performance objectives. Performance objectives include cost control to maintain financial margins, achieving a set market share, and weathering an economic downturn. The marketing concept stresses the importance of using marketing tools to determine customer needs, and then design a marketing plan to satisfy these needs. What is the societal marketing concept? The societal marketing concept is a coordinated customer-orientation to achieve organizational performance objectives while considering concerns that exist in society. The societal marketing concept includes the broader issue of social responsibility and sustainability. Going Green or green marketing (carbon footprint), recycling of ewaste and organic food products are examples of concerns of some segments of society. What is the difference between a need and a want? A need is a necessity. For example, we all have a need for food, drink and shelter. A want is a luxury. For example, we need food but we want to eat at Chevys. We need shelter (Motel 6) while traveling but we want to stay at the Four Seasons. What is relationship marketing? Relationship marketing involves a personal, long-term bond with customers so that exchanges are more like a partnership than a transaction. Relationship marketing means an organization wants to have a customer for life. A frequent purchase program

(for example Hilton Reward Points, Safeway Card pricing, Southwest Airlines frequent flyer program) is an example of relationship marketing. What is ethical behavior? Ethics is an important input into making decisions. Several theories exist that explain ethical behavior. These include the golden rule (treat others and you would like to be treated, Kants Imperative (greatest good for the greatest number of people), relativism (make a decision based on the unique facts at hand), and the Banner Headline (what would the people that are closest to you think about a decision that you made if it was published as the headline in tomorrows newspaper).

What is quality? Quality means different things to different people. For example, quality may be defined by how long a product lasts. It may defined by a brand name. There are four dimensions that help define quality Performance, Time saving, Perceived quality, and Durability. More than one of these dimensions may contribute to defining quality but one dimension will dominate the other dimensions. What is value? Value means different things to different people. The value of a product involves associations that a consumer has with perceptions of the product and its price. For example, one person may assign a higher value if a restaurant provides a large amount of food whereas another person may assign a higher value if less food is served but it tastes better. Value can change depending on the consumers mood and situation. For example, on a hot summer day you may value paying more for a 30 minute guarantee of auto service if your car breaks down on the freeway than if the weather is cooler.
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What is utility? Utility is the something in the product that satisfies needs is utility. Marketing helps create utility. There are three types of utility - Time utility (when something is available), Place utility (where something is available), and Possession utility (the ability to use something). What is positioning? Product positioning is the product's image in relationship to direct competitors products. Many attributes may be used to position a product including the price of the product, product design, and the products location.

What is a differential advantage? Any feature of an organization or brand perceived by customers to be desirable and different from those of the competition. Differential advantages must be sustainable (not easily copied) and last a long time. What is a target market? A target market is a group of consumers or organizations which a firm directs its marketing program. Members of a target market have similar needs or wants. What is the marketing mix? The marketing mix is the marketers toolbox that is used to position a product or organization in the mind of the target market with the intent to satisfy the need or want of the target market at an acceptable level of profit. The marketing mix is composed of product, place, price, and promotion. Each of these marketing mix elements will be explored in more detail later in the course. What is a SBU? A SBU is a unit of analysis involved in planning. A SBU in marketing typically is a major market or a product.

What is the product/market growth matrix? The product/growth matrix is a planning tool that presents alternative strategies that the organization may implement. Present Markets New Market Penetration Market Development Present Products Product Development Diversification

New

What is strategic planning? Strategic planning occurs when managers match an organization's resources with its market opportunities over the long-run (3 to 5 years). What is a strategic window? A strategic window is a limited amount of time that a firm's resources coincide with a particular market opportunity. It is difficult to predict when a strategic window will open. Judgment is a key to knowing if a window opens and if an organization might take advantage of it. What are key planning concepts/operations? Planning involves making a sequence set of decisions. For example, a strategic plant involves the following steps. 1. 2. 3. 4. Where are we? Situation analysis Where do we want to go? Mission/objectives How do we get there? Strategies/tactics and budgeting How do we know whether we got to where we want to go? Assessment or evaluation

When it comes to planning remember - KISS - keep it simple stupid What is the difference between a strategy and a tactic? A strategy is a broad plan of action. A tactic is the way a strategy is implemented.
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What is the process of strategic marketing planning? Situation analysis Set marketing objectives Determine position & differential advantage Select target markets & measure market demand Design a marketing mix Budget and Implement the marketing mix Determine if objectives have been achieved Marketing Opportunity Analysis A marketing opportunity analysis is a process that analyzes the effectiveness and efficiency of the marketing plan and identifies opportunities that may be explored. It involves several components. 1. 2. 3. Benchmark performance standards to assess effectiveness of marketing plans Customer satisfaction research Marketing Cost Analysis cost efficiency of the marketing plan (accounting traces results of account/market costs and MIS generates usable information for marketing decision-makers) Sales Analysis Marketing Audit a systematic, critical and impartial review of the marketing effort including the marketing mix and the marketing environments.

4. 5.

What is an Integrated Marketing Plan? The integrated marketing plan requires a clear statement of organizational mission organizations commitment to a type of business and place in the market; long-term competitive advantages Can be at the company, product or marketing level but must be defendable over time; and defined target markets. Its benefits include compatible long-, moderate-, and short-term subplans; coordination among SBUs; coordination of the marketing mix; and stability over time.

Organizing the Marketing Effort Marketing within an organization may be organized in several ways. It may be organized by function (marketing, finance, accounting, operations), geography (Northeast, Southwest, Midwest), product (Diet Coke, Coca Cola Classic, Sprite), or

product/market (Diet Coke in Europe; Sprite in Asia). Each method of organizing the marketing effort has its advantages and disadvantages. Criticisms of Marketing Marketing activities have faced their share of criticism. Marketing has been criticized as exploitation (low wages paid in third world counties to assemble Nike shoes), promoting inefficiency (do we really need all of those electronic gizmos?), stimulating unwholesome demand (gambling on the state lottery or drinking more beer), and planned obsolesce (a laptop should last more than three years). Consumerism Consumerism is activism expressed by consumers. For example, there have been new calls for consumer protection in the U.S. regarding lead paint used on toys imported from China, food and drug recalls, and subprime mortgage lending.

The Marketing Environment The business environments must be considered before writing a strategic marketing plan. The environments may be classified as the External Environment (alternatively the macroenvironment) or the Internal Environment (alternatively the microenvironment). Management must establish a system that continually monitors these environments for changes that need to be included in future planning. One method of monitoring is environmental scanning. Environmental Scanning Environmental scanning is the process that an organization uses to gather information on external environment. Environmental scanning analyzes the external environment for trends that may impact the strategic marketing plan. Management must forecast the impact on whatever trends exist in the external environment and modify the strategic plan accordingly. External Environments Demographics - Baby Boomers (One person in the U.S. turns 50 every 7 seconds), Generation X, Echo Boomers, Tweens. All of these potentially impact the marketing plan of an organization. For example, the need for health care will increase in the next few decades as baby boomers enter their 60s, 70s, and 80s. Economic conditions unemployment rate, interest rates, inflation. Economic conditions may impact an organization in a radical way. For example, it is difficult to sell cars if credit isnt available. Some products are somewhat recession proof. For example, beer consumption has increased during past recessions. Social & Cultural forces - green marketing, gender roles, health and fitness, Investment clubs for women. Social and cultural forces change at a slower speed than some of the other environments. A marketing plan my change at a microlevel rather than a macro-level. For example, supermarkets in areas of a city where there is more culturally diverse may stock food items preferred by their cliental. Shifts in taste preferences in China, India and Europe have led to a surge in the sales of Scotch. Home Depot has launched a Spanish version of its web site to reach Hispanics who shop online and prefer Spanish.

Political Legal forces - Antitrust, Product Liability, Trademarks, Patents, Contracts. Political forces may shift quickly and have a significant impact on a marketing plan. For example, in 2007 the U.S. Supreme Court made a decision in a price fixing case that allows manufacturers to enforce a suggested retail price. This decision overrode almost 100 years of enforcement against manufacturers fixing the retail price for their products. The FDA recently called on Coca-Cola to revise the label of Diet Coke Plus that contains vitamins and minerals because it is an inappropriate nutritional claim. Technology - Chrysler plastic car, Blue ray versus HD players, IPods. Technology is constantly changing what products consumers want, the packaging of products, and the promotion of products. For example, advertising dollars are being shifted from network TV to social networking sites on the internet in an effort to specifically target a smaller but very significant consumer market. HP launched a touch screen laptop to increase demand for its products. Market - needs to be satisfied, money to spend willingness to spend. Shifts in the tastes and preferences of the market may be quick or slow depending on the industry. For example, the demand for public transportation increased in the spring of 2008 as the price of gas increased to over $4.50 per gallon. As the price dropped to below $2 a gallon more people went back to commuting to work in their car.

Suppliers- vendors that supply everything from raw materials to office supplies to component parts. Price increases and the ability to deliver supplies when needed are important considerations for an organization trying to maintain their margins. Intermediaries- retailers, wholesalers, transportation firms. The shakeout in retailing has a profound impact on manufacturers that are trying to reach their target markets. Internal Environment The internal environment includes all of the functions of an organization; Marketing, Finance, Human Resources, Information Technology, Accounting, Operations, and Legal. Something that impacts one of these will have some impact on marketing. For example, if an organization is unable to secure financing to purchase inventory to serve the needs of their target market.

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Global Marketing Organization of global marketing effort There are many ways to organize the global marketing effort. Exporting (products produced in the U.S. and shipped to another country) is the easiest to organize, start, and end. It is the least risky in terms of resources that are expended. Contract manufacturing involves contracting with a manufacturer to produce a product in a foreign country and the U.S. marketer retaining the right to market the product in the foreign country. Contract manufacturing involves a little more risk because the U.S. marketer must pay for the product that is produced but not be able to sell. Licensing is similar to contract manufacturing but the U.S. organization that owns the brand being licensed doesnt contract for a specific amount of product to be produced. Marketing in the foreign country is generally retained by the owner of the brand. For example, Mattel is remaking the Barbie brand to market the doll in China. International sales of the Barbie doll are already twice the sales in the U.S. The makeover is designed to appeal to children and adults in China. Direct investment (complete ownership) - joint venture involves the greatest investment and risk. The U.S. organizations partners with a foreign organization to produce, distribute and/or market a product in a foreign country. Each partner invests a certain amount of capital, technology, or valued skills into the venture. A limitation of a joint venture is that conflict may arise over responsibility, management, or resources even though there is a contract. Social and cultural forces Just as in the U.S. market a marketer must be aware of different social customs, education levels and literacy rates, and language differences. A classic example is the failure of General Motors attempt to market the Chevy Nova in Latin America. Nova translated into stalled car. Sometimes marketers use pictures instead of words to communicate how to use a product. However, not everyone in the world reads left to right as Americans do. Economies Different countries have different kinds of economies. Some countries have relatively free markets. These economies are called market driven. Other countries tightly control their economy. These economies are called a command economy. Countries also differ in their level of economic development (banking and legal system) and infrastructure (roads, bridges, ports, airports). Political Global marketing is heavily influence by the political environment in various countries. One area involves trade barriers - tariffs, import quota, local content law. Trade agreements - GATT 120 countries 40% decrease in tariffs, NAFTA, European Union,
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WTO (World Trade Organization), are treaties designed to encourage free trade between countries.

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Understanding Consumer Market Behavior What are the different markets? The three markets are the consumer market, the government market and the businessto-business market. The buying process is the same in each market but the marketing mix differs in each market. What is the buying process? The buying process consists of five stages. These stages are present in each purchase. However, the customer may spend more or less time in each stage depending on the significance of the purchase, the frequency of the purchase, level of satisfaction with previous purchases, mood, involvement, perceived risk, and motivation for a purchase. Various models will present how they impact the buying process. The purchase process includes: Need recognition Identification of alternatives Evaluation of alternatives Decision Postpurchase behavior - cognitive dissonance Involvement Level of involvement affects consumer decision-making. The more the consumer is involved in the process, the longer the purchase process. Involvement is the amount of time and effort the consumer puts into the purchase process. Factors that influence the amount of involvement include experience, interest, perceived risk, social visibility, and situation. Low involvement is a characteristic of impulse buying. The buyer moves through the buying process quickly. High involvement is a characteristic of a shopping or specialty purchase. The buyer moves through the buying process more slowly. Influences of buying behavior A number of models have been advanced to explain why consumers buy what they buy.

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Social Influences Culture - set of symbols and artifacts created by society and handed down from generation to generation as determinants of behavior. Tattoos are generally accepted today whereas they were not generally accepted 20-30 years ago. In some cases culture is subdivided into smaller groups. For example, the Hispanic market may be subdivided into groups from South America, Central America, Cuba, Philippines and Mexico. Social class are groups of consumers that they belong to or aspire to belong to. Upper class 2% - executives, Fortune 400 Upper middle class 12% - professional Lower middle class 32% - small business owners, teachers Upper lower class 38% - blue collar Lower lower class 16% - unskilled Reference Groups a small group that develops its own standards of behavior (clothes, shampoo). Aspiration reference groups are influenced by opinion leaders. You may be a member of a club and that is your reference group. Marketers are now targeting MySpace and Facebook social networking sites to reach reference groups. Families and households structure influences the buying process. In some cases a dyad may make a purchase. Consider the purchase of a house by a family of four on the buying process and the buying roles (initiator, influencer, decider, user, buyer). Families and households are categorized as the Family Life Cycle. Family Life Cycle Bachelor (male or female) Newly married Full nest I (children < 10) Full nest II (children 10-13) Full nest III (children 14-22) Empty nest Sole Survivor I (remaining spouse is active) Sole Survivor II (remaining spouse is inactive)

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Psychological models A number of psychological models have been suggested to explain why consumer buy what they buy. Motivation - motive is a need sufficiently stimulated to move to action (satisfaction). Maslow's hierarchy of needs is an example of a motivation model. Self actualization self fulfillment Esteem Belonging and love - social Safety Physiological Perception is another psychological model that marketers use to explain why consumers buy what they buy. Perception involves receiving, organizing and assigning meaning to information gathered by the five senses. Perception begins with attending to information. There are three levels of attention. Selective attention - Selective distortion - Selective retention Learning is another psychological model of consumer behavior. It is the most basic model and we use it every day. Stimulus - response model Example, power off at airport yet people were queued up The consumers personality can influence the buying process. Confidence, dominance, friendliness are personality types that can be used to predict what a consumer will buy. The psychoanalytic model, id (basic desires), ego (rationality), superego (moral standards), is used in many advertisements. The suggestion that Sex Sells is tied to the id. Perceived risk suggests a purchase decision is a function of a perception of the amount and type of risk that is associated with a purchase Types of risk: financial, social, physical, performance, time

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Self concept relates to how the consumer sees him or herself. Self image (they way that you see yourself) Ideal self concept (the way you would like to be seen) Social self concept (the way you are actually seen by others) Attitudes are predispositions to respond to an object in the same way. Beliefs (evaluation of beliefs) = attitudes Aact = bi ei Attitudes are learned Attitudes are based on an object Attitudes have direction and intensity Situational influences that influence purchase behavior Various situational factors may influence the buying process. These factors include; Time - when Physical and social surroundings - where Terms of purchase - How Temporary state - moods Buying motives for purchasing Buying motives tend to be emotional. Here is a comparison of rational and emotional motives for making a purchase. Rational Economy of purchase Durability Ease of Repair Availability Economy of use Emotional Pride of appearance Fear Safety Desire to create Desire for security

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Analyzing purchase behavior One way to analyze the purchase of a product is to use the 6 Os of consumer buying behavior. These Os are: Origins of purchase Objectives of purchase Occasions of purchase Outlets of purchase Operations of purchase Objects of purchase Do consumers buy features or benefits? Consumers buy benefits, not features of a product. Benefits are directly tied to the core need or want that is being satisfied. Features Performance ratings Reputation ratings Colors Size Service levels Workmanship Benefits Time saved Prestige Increased sales Greater convenience Economy of use Long life Who buys? Why do they buy? When do they buy? Where do they buy? How do they buy? (What is the process used to make a purchase) What do they buy?

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Understanding Business-to-Business and Government Markets Types of Markets Business-to-business and government markets are categorized in the following way. Agriculture market $190 billion Reseller market 500k wholesalers, 2.7 mil retailers Government market 86k Fed, State and Local units Services market Nonprofit market International market 40% of earnings from outside the U.S. What is derived demand? Demand in the business-to-business and government markets is derived from the end user (consumer). Derived demand is inelastic. What is an SIC The Standard Industrial Classification System is used to categorize the business-tobusiness market based on primary business. For example, apparel is subdivided into mens, womens and childrens apparel. What are the various buying situations? Buying situations influence the buying process in the business-to-business and government markets. Rebuy involves a frequently purchase. A rebuy moves through the buying process quickly. A modified rebuy involves a search for information and a longer buying process. A new task is an infrequent purchase and involves a considerable search for information and evaluation of alternatives before a purchase. What is the buying process? Need recognition Identification of alternatives Evaluation of alternatives Purchase decision Postpurchase behavior What is the buying center? The customer in the business-to-business and government market is known as the buying center. The buying center is an individual or a group of people involved in the decision making process regarding what to purchase.
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Characteristics of purchase Purchases in the business-to-business and government markets tend to be infrequent, involve larger order size than consumer market, usually involve a short supply chain and involve a direct purchase, involve a longer negotiation period, and demand higher service requirements.

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Market Segmentation Energy Drink Market 2007 consumption of carbonated soft drinks = 14.7 billion gallons 8.7 billion gallons of bottled water 313 million gallons of energy drinks, 3.5 billion cans or about $10 billion There are about 250 energy drink brands. Some of these are: Vegas Fuel targeting brighter moods Cokes Enviga targeting weight management Tab Energy targeting fuel for the fabulous 5 Hour Energy targeting more energy without the crash Go Girl targeting women Pro Player targeting poker lovers Kabbalah targeting spiritualists Red Bull Rockstar Monster What is market segmentation, market segment, target market? Market segmentation involves the breaking of a mass market into smaller groups of buyers with similar needs or wants. A market segment is a group of buyers with similar needs or wants. A target market is an organizations decision regarding what market segment to try to satisfy with a unique marketing mix. It only makes sense to talk about one target market for a product. How to segment a market? Market segmentation may involve several methods. These methods are: Demographic gender, age, income level, education level, ethnicity Geographic - urban, rural, southeast, northeast Psychographic - personality, lifestyle, attitude Behavioral - usage rate, usage occasions Benefits Sought well being, economy A viable market segment must be measurable, accessible, have data available, and be a certain size to be profitable.

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What are the different segmentation strategies? There are three segmentation strategy that an organization may pursue. Undifferentiated or market aggregation treat the market as if no market segments exist. Concentrated or single segment see that the market is composed of several market segments and select only one to target. Multisegment or multiple segment see that the market is composed of several market segments and select two or more to target each with an unique marketing mix. Process of selecting a target market The process of selecting a target market involves five steps. 1. 2. 3. 4. 5. Select a market Divide market into segments using one of the methods of segmentation Profile and analyze segments Select target market Design marketing mix

Evaluating viability of market segments The following questions must be answered before a market segment may be considered viable. 1. 2. 3. 4. Can the segment be identified? Can the segment be measured? Is the segment large enough to support the marketing effort? Can the segment be reached with a marketing mix?

What is product positioning? Product positioning involves assembling an unique marketing mix that will place a product in a target market. Perceptual mapping is the process of positioning a product. Positioning involves developing an image in relation to competitive products. Positioning may be relative to a competitor, a product class or attribute or a price and quality. Frequently brands are repositioned to stimulate growth at the end of its life. Beer products are sometimes repositioned when consumer preferences shift. What is market potential, sales potential, market share, sales forecast?

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Marketing Research What is marketing research? Marketing research involves discrete studies to assist in marketing decisions. What is marketing intelligence? Marketing intelligence involves the continuous flow of information into an organization. What is a customer database? Why is customer a database important? It helps an organization make efficient and effective marketing decisions. Sources of data for databases - Scanners Commercial sources Business cards Product registration cards Contests Marketing research process? The marketing research process involves seven steps. 1. Define objectives 2. Situation analysis - helps refine the research problem 3. Informal investigation - using available information, "Is a formal study needed?" 4. Formal study Types of Data

Secondary Cheaper Previously collected May not be in the exact form that is needed Question accuracy Question timeliness 5. Gather data 6. Analyze data 7. Prepare report
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Primary More expensive Must be gathered for the project Focus group Experiments - test markets Surveys and observation

Types of Studies Type of study Sample Exploratory Convenience Descriptive Convenience, random, systematic random, cluster, stratified Qualitative or Quantitative Mail, telephone, personal interview, web survey, email Predictive Random, systematic random, cluster, stratified Quantitative Experiment for example test market

Type of data Data collection method

Qualitative Observation, case studies, mall intercept, consumer panel

Data Collection Methods Type of Survey Mail Advantages Frequently used for social research Low cost (almost 75% less than personal interviews) Limits potential interviewer bias Disadvantages Recommendation May result in Target biased sample population is based on response highly literate rate or is in a group with specialized Time! Need to interests wait at least several weeks for responses Low response rate Limited to mostly closed-ended questions Sales calls often General pose as research population calls surveys Typical calling window interrupts respondents Call screening is common No observation of interviewee Limited mostly to closed-ended questions

Telephone

Reach 96% of all homes Computer software streamlines process Interviewers can ask for clarification on responses Very fast

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Web

Email

Very low cost Very fast Able to ask complex questions Anonymity of responses for sensitive topics Able to ask more open-ended questions Software simplifies compilation and analysis of data Similar to mail survey Low cost Fast

Do not reflect population as a whole (not everyone has Internet service) Respondent completion rates low for long surveys Random respondents may reply

Use when desired target population consists of Internet users (business-tobusiness research, employee attitude surveys)

Personal Interview

Frequently used to gauge attitudinal behavior Excellent response rates Longer interviews are tolerated

Mailing list required Spam filters prevent reception of survey Limited to length of questionnaire and closed-ended questions Very expensive Time consuming May produce nonrepresentative sample Higher chance of interviewer bias

Use when desired target population is connected to the Internet

Very specific target population that has interest in a particular service or product

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Product Concepts What is a product? A product is bundle of benefits that satisfies a human need or want. Classification of Products Products are classified in the following ways. Consumer market Business-to-business market

Convenience Shopping Specialty (strong Brand preference) Unsought (new product Consumer is unaware Or consumer is aware but doesn't want it right now.

Raw materials Fabricating materials and parts Assembled or undergo further processing

Installations Accessory Equipment Operating supplies

Importance of Product Development New products are very important to the long-term success of any organization accounting for 40% of sales and 60% of profits. Types of New Products New products are classified as; Imitative similar to a product that already exists in the market Really innovative significant modification to what exists in the market Significantly different new product that does not currently exist in the market

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Product Development Process The new product process involves the following steps; Generate New Product Ideas brainstorming, attribute listing, basic research, reverse engineering Screen Ideas Q sort, concept tests Business Analysis project sales, costs and revenue Prototype Development develop a prototype of the new product Market Tests assemble the marketing mix and test it in the market Commercialization Launch the new product regionally, nationally or internationally Criteria for New Products New products must have adequate market demand, meet financial standards and fit into the organizations marketing structure. Adoption process New products move through a process before they are adopted by the market. Awareness Interest Evaluation Trial Adoption Confirmation

The adoption process is composed of five groups that form a bell-shaped curve. Innovators 3% Venturesome Early adopters 13% Respected Early majority 34% Deliberate Late majority 34% Skeptical Laggards 16% Tradition-bound Factors Affecting Adoption Several factors influence the rate of that a new product is adopted. These factors include; Relative advantage of the new product over what is currently on the market Compatibility with what the consumers use now Complexity - difficulty in understanding Trialability - may be sampled Observability - demonstrated

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Differences between products and services Services differ from products in that they are; Intangible Perishable Inseparable Heterogeneous Word of mouth critical Greater customization Service quality is defined by the customer, not the producer Marketing mix for service marketing The marketing mix tries to make the service tangible to the consumer. This is done to reduce the perceived risk of switching service providers. For example, Super Cuts had the tagline nothing grows out slower than a bad haircut in an attempt to reduce consumer risk of going to Super Cuts to have their hair cut. Future challenges in services marketing The challenge for service providers is to translate a heterogeneous service to a homogeneous service so as to increase productivity gains. Nonprofit organizations Nonprofit organizations basically use the same marketing mix as for profit organizations with the exception of how to define price. Pricing is equated to volunteers a bility and interest in giving time

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Product mix depth, width (breadth), product line Product mix is the composite all of the products that an organization offers. Product mix depth refers to the number of products within the product lines. Product mix width refers to the number of product lines. A product line is a group of products that are similar in some way such as in their use, production, pricing. Product Positioning Product positioning involves developing an image in relation to competitive products. - Position relative to a competitor - Position relative to a product class or attribute - Position relative to a price & quality Line Extensions New products introduced in an established product line are called line extensions. Line extensions are useful in getting the consumer to trade up or trade down. Product Life Cycle The product life cycle describes a sales curve and provides general insights into how marketing decisions change over the life of the product. Product life cycles may be short in the case of a novelty product (e.g., Pet Rock) or very long (e.g., Ovaltine). Characteristic Sales Profits Competition Introduction Slow to build Loss or slight profit Few or many depending on type of new product Growth Peak Peak Intense Maturity Level off Fall Intense Decline Fall off Stable but low margin Few competitors remain as resources directed at new markets Best selling model remains

Product

One model

Attributes added to basic model

Many models

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Promotion

High expenditure to build awareness (advertising)

Distribution

Price

Limited or intense depending on type of new product Skimming or penetration depending on type of product

Moderate expenditure to attract early majority (advertising and sales promotion) Intense

High expenditure to stabilize market share (sales promotion and advertising) Intense

Low expenditure to maintain distribution (trade promotion) Limited as channels drop low margin products Stable price to generate acceptable margins

Keep price in high part of price range to maintain margins and improve profitability

Competition forces price reductions

Brand, brand name, brand mark, trade mark, service mark A brand is something that distinguishes the product offering of one competitor from the product offering of another competitor. A brand name is the part of a brand that is spoken. A brand mark is the part of a brand that is visible and identifiable. A trade mark or service mark is a brand mark that is given legal protection. Generic versus branding Branding decisions include generic versus a brand, private label versus brand, family versus individual. Generic brands only state what the product is (e.g., Beer, Paper towels). Private label brands are available only at certain wholesalers or retailers (e.g., Raleys, Safeway, Save Mart all have their own brands). Family brand names use the same family name that identifies the marketer (e.g., Kelloggs cereals, Campbells soups). Family brands allow new products to be more readily identified but there is risk to the family name if the product fails. Individual brand names are viewed by the consumer as unique offerings without identifying the marketer (e.g., Procter and Gamble markets Tide, Bold, Cheer, Dash, Ivory Snow). A failure of a new product is not tied to the marketers other products but there is a greater investment required to establish the new brand. Often an organization that uses a family branding strategy will use an individual branding strategy if they launch a product in a new industry outside what the consumer associates the family brand. For example, Campbells entered the

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fast food market in the 1970s with the name Herfys. Their slogan was It is much more than a hamburger store, its a Herfys. Cobranding Cobranding occurs when two or more brands are used to make a product. Cobrands are categorized as; 1. 2. 3. Why brand? Benefits of branding include; product identification brand equity global brand brand loyalty What are the characteristics of a good brand name? A good brand name must be; 1. Identifiable 2. Understandable 3. Memorable 4. Able to protect 5. Supported by marketing mix 6. Supports product positioning How to deal with product counterfeiting? Federal law in 1984 allows brand name owners to collect civil damages from counterfeiters. Brand Equity Brand equity is the value a brand adds to the product -- e.g., Oreo cookies in ice cream Packaging Packaging performs the following purposes - convenience, protection, acceptance from the trade, promotion. Ingredient Cereal contains Sunmaid Raisins Cooperative Coach Leather and Lexus cars Complementary Segrams 7 and 7 Up

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Labeling There are three types of labels, a brand label, a descriptive label and a grade label. Labels may have to meet Federal or State requirements regarding contents within a package. For example, food labels must accurately reflect what is in the product and cant make unsubstantiated claims. Nutritional labeling Food products must stick to an established method for presenting nutritional components of the product. Design and Color - Bring in samples of labels, packages, brand names. What a Car Says About You Minivan nurturing and escape SUV adventure Hummer, or large SUV power and control; a warrior mentality Hybrid character, doing the right thing, fear of judgment Compact deficient in rationality and character Convertible freedom and independence Sports car youthful exuberance, rejuvenation Four-door sedan practically and nurturing Full-size truck power and control Four-door truck independence (women) Lexus status and rejuvenation Mercedes-Benz status and power BMW status and control Corvette immortality Source: The Right Brain People, a self-described consumer psychology consulting firm. What Color Means Silver elegant, loves futuristic looks, cool White fastidious Vibrant red sexy, speedy, high-energy and dynamic Deep blue-red some of the same qualities as red, but youre far less obvious about it Taupe or light brown timeless, basic and simple taste Black empowered, not easily manipulated, loves elegance, appreciates classics Neutral gray sober, corporate, practical, pragmatic
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Dark green traditional, trustworthy, well balanced Bright yellow-green trendy, whimsical, lively Yellow-gold intelligent, warm, loves comfort and will pay for it Sunshine yellow- a sunny disposition, joyful and young at heart Deep brown down to earth, no nonsense Orange fun loving, talkative, fickle and trendy Deep purple creative and individualistic Source: The Color Answer Book, Leatrice Eiseman

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Place Decisions Place is known as supply chain management in other business courses. For a long time place was known as distribution. Hence, you will see all three terms used. Structure of Place Decisions Place Objectives

Channels Retailing Wholesaling Agents/brokers Power Conflict Direct/indirect

Physical Distribution/Logistics Transportation Order processing Warehousing Pallets

What is a channel of distribution? All organizations involved in the movement of products and services to the final customer defines a channel of distribution. Channels of distribution involve long-term relationships and may be presented in the following chart. Physical Flow/Support Flow C R W M Why are middlemen important? Middlemen perform many useful functions. These include; Reduce transaction costs Break bulk Bring buyer and seller together Insurance, financing, marketing research

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Merchant wholesalers - take title to products Agent wholesalers and brokers- don't take title to products, bring buyer and seller together. Factor Merchant Wholesalers Agents/Brokers

Nature of product Technicality of product Products gross margin Frequency of ordering Time between order and receipt of shipment Number of customers

Standard Complex

Nonstandard, custom Simple

High

Low

Frequent

Infrequent

Shorter lead time

Longer lead time

Many

Few

Concentration of customers

Dispersed

Concentrated

Factors in choosing a channel of distribution Many factors influence the selection of a channel of distribution. These include; Perishabililty of product Service level required Number of customers Geographic concentration Order size Degree of channel control What is a vertical marketing system?

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A vertical marketing system is an attempt to achieve a direct channel. This may be accomplished with an administered vertical marketing system where the channel captain uses power to secure cooperation from other channel members. The contractual vertical marketing system uses contracts or franchises to exert control over another business in the channel. A corporate vertical marketing system involves ownership of two or more levels within a channel. For example, Wal Mart owns its retail stores and its own distribution centers.

Factors to consider in selecting intensity of distribution The distribution of products is categorized in the following ways. Intensive distribution - convenience goods Selective distribution - shopping goods Exclusive distribution - dealership or distributorship

How does channel conflict equate to doing business Horizontal conflict = competition Main source is scrambled merchandising Vertical conflict = channel inefficiencies Manufactuer using the Internet to sell direct to the consumer

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Power is used to solve vertical conflict Coercive power Economic power Referent power Legitimate power Expert power Legal considerations Non price restraints are used by manufacturers gain control over another business in the channel of distribution. Interbrand vs. intrabrand competition Legality of exclusive dealing is decided by the rule of reason Legality of territorial restraints is decided by the rule of reason Legality of tying arrangements are per se illegal (one product vs. two) Legality of refusals to deal is decided by the rule of reason

Distribution of Services Services use a direct channel unless it involves a franchise arrangement. What is retailing? Where do you take your dog to get a new tail! 2.7 mil stores in the U.S. $2.2 trillion Operating costs are roughly 2.5 more than wholesaling Types of Retailers Dept store Discount Limited-line Specialty Off-price Category killer Supermarket Convenience store Warehouse store Breadth and depth of product mix Broad, deep Broad, shallow Narrow, deep Very narrow, deep Narrow, deep Narrow, very deep Broad, deep Narrow, shallow very broad, very shallow
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Scrambled merchandising Stores that stock nontraditional products. Food products located in Home Depot or hardware products sold in supermarkets. Nonstore retailing $200-250 billion 10% of all retailing Telemarketing - $50 billion Automatic vending - $25 billion (Cokes idea to price vending relative to outside temperature) Direct marketing - $150 billion (direct mail, catalog, online)

What is wholesaling? Resale, use in producing other goods or services, operating an organization $3.2 trillion in 1992 Category Merchant wholesalers - full service, truck jobbers, drop shippers (don't handle the product) Agent wholesalers - mfg reps, brokers (represent sellers) Manufacturer's sales facility Physical Distribution $1 saved in supermarket sales for supermarkets = $100 in sales The uses of physical distribution include; Improve customer service Reduce distribution costs Create time and place utilities Stabilize prices Control shipping costs Where to establish distribution centers? Hub and wheel Types of warehouses - private (no seasonality, special handling and storage requirements), public (variable cost)

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Materials handling Containerization Standard pallets Inventory control JIT Market response system - purchase by final consumer activates process to produce and replace EOQ (carrying costs, order processing costs) Order processing issues Database Insure correct delivery address VF computers in Penny's and Walmart link their computers to order replacements Transportation

Freight forwarders Ship less than a carload combined into a full shipment
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Promotion Concepts What is the promotional mix? The promotion mix includes the following; Personal selling - direct presentation of the product to the customer Advertising - impersonal communication, paid Sales promotion - demand stimulating supplements advertising and personal selling Public relations - no specific sales message (newsletters, annual reports) Publicity - nonpaid, news stories about products Integrated marketing communication is all of the elements of the promotional mix What is the communication process?

What is the purpose of promotion? Promotion informs, persuades and reminds the consumer of information that the marketer transmits.

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What factors influence selection of promotional mix? Target market 1. Readiness to buy - Hierarchy of Effects Model (AIDA)

2. 3. 4.

Type of customer Concentration of the market Geographic scope of market

Nature of product 1. Presale/postsale service, unit value (low=low risk)

Stage of Product Life Cycle

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What is the difference between a push and pull strategy? These are known as cost-push or demand-pull. A push means the majority of the promotional budget is aimed at the next business in the channel of distribution. Essentially, the marketer pushes the product through the channel. A pull means the majority of the promotional budget is aimed at the end-user. If the end-user is stimulated to purchase, the purchase will pull the product through the channel.

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Methods of Budgeting promotion There are four ways to establish a promotional budget. % of sales available funds competitive parity objective/task Regulation of Promotion There are many regulations that influence how a product may be promoted. These include; FTC - misleading advertising Robinson-Patman - promotional allowances Lanham Act - 1988 Trademark Improvement Act What are the Characteristics of Personal Selling?

Types of salespeople? Inside order taker - retail sales Outside order taker - Pillsbury

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Missionary salesperson - doesnt close sale, builds goodwill, perform promotional activities Creative order getter - commission sales project oriented What is systems selling? Systems selling is a total package of goods and services that are purchased. What is relationship selling? Relationship selling involves build long-term relationship with a customer. Relationship selling is usually used in a personal selling context. What is the selling process? Prospecting Preapproach Presentation - AIDA Post sale services What are the characteristics of advertising?

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What are the types of advertising? Consumer, business-to-business Product, institutional (an organizations position on an issue) Social (Drug free America campaign) Primary demand - introductory period (pioneer advertising) [Primary demand is demand for a product category, e.g., milk. See Suzie Orman Got Milk ad] Selective demand - comparative advertising [Selective demand is demand for a specific brand of a product category, e.g., Horizon milk] What is cooperative advertising? Vertical coop advertising, advertising allowance Advertising Objectives Build awareness Reminder to use Change attitudes about use of a product Change perceptions of importance of brand attributes

Common Advertising Appeals

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Characteristics of various media Newspapers

Print

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Radio Low cost Immediacy of message Short notice okay No seasonal audience change Highly portable Short-term advertiser commitments Entertainment carryover

Television

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Outdoor

Internet

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How to evaluate ads? Direct tests - recognition, aided recall, unaided recall CPM = cost of an ad x 1,000/circulation Reach (percentage of target audience that could be exposed to the ad) Frequency (average number of times a member of the target audience is exposed to the ad) Gross Rating Points = reach x frequency What is the purpose of sales promotion? Short-term sales results Techniques Sampling Couponing Sponsorship and event marketing Trade shows Product placements Possible objectives Inquiries (free gifts, mail-in coupon for information, catalog offers, exhibits)
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Trial (coupons, free samples, contests, premiums, demonstrations) Inventory building (return allowances, slotting allowances) Promotional support (reusable display cases, sales contests, merchandise allowances) Repurchase (on-pack coupons, mail-in rebates) Traffic building (special sales, weekly sales, entertainment events, retailer coupons) Increase rate of purchase (multipacks, special price on twos)

Evaluation methods Redemption rates Acquisition rates Displacement rates Conversion rates Stock-up rates What are the characteristics of Sales Promotion?

What is the purpose of PR? Less than 1% of for profit organizations promotion budget Large part of nonprofit organizations promotion budget Viewed as a more creditable message compared to advertising
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Difficult to control What are the characteristics of PR?

How do you evaluate PR? Difficult to evaluate

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Pricing Concepts What is price? Price is the amount of money and/or other items with utility to acquire a product. Importance of Price Price is the only variable that generates revenue. In the economy, price determines the allocation of goods and services. What are pricing objectives? Profit-oriented Target return Maximize profits Sales-oriented Increase sales volume Maintain or increase market share Stabilize prices Meet the competition

Factors that Influence Price Several factors influence the setting of a price (demand, cost and competition). Estimate demand Determine competition reaction Look at the marketing mix Product positioning Distribution Promotion Cost of the product Don't worry about average fixed cost curve, average variable cost, average total cost, marginal cost curve. Computing Price Cost method (1 + markup %) cost = price Retail method Cost = price (1 - markup %)

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Breakeven Analysis Total Fixed Costs BEP = Contribution margin (sp-vc) Example of Pricing Through a Channel of Distribution Retail price = $40 Retail margin = 20% Wholesaler margin = 50% Manufacturer margin = 50% What is the maximum cost for the manufacturer to produce? Price Thresholds Price thresholds establish a range of prices that consumers will not purchase below or above. Keystone Pricing Not used as often as it once was. Doubling the cost paid for merchandise was once the rule of pricing products, but very few products these days allow a retailer to keystone the product price. Pricing Strategies Price competition versus non price competition - shift demand curve Value pricing - ratio of benefits to its price and related costs Market entry strategies Market skimming set the price at the higher end of the threshold to recoup investment quicker. Market penetration set the price at the lower end of the threshold to gain market share. Discounts Marketers use a variety of discounts as part of their pricing decisions. Quantity - cumulative, noncumulative Trade Cash
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Seasonal Promotional Allowance Robinson-Patman Act

Geographic Pricing Geographic pricing is how marketers charge for feight. Uniformed delivered pricing - postage stamp pricing FOB factory pricing - seller doesn't pay freight costs Zone delivered pricing - uniformed delivered pricing for each zone Freight-absorption pricing - absorb some or all freight costs One price strategy - charge same price to all buyers Flexible pricing strategy Flexible pricing allow different customers to pay different prices. Flexible pricing is normally used in bargaining situations. Price lining Establishing a limited number of prices at which a business will sell related products Odd pricing Psychological pricing is used to impart value. Prices are often set to end in 5 or 9 because the consumer doesnt round up the price. For example, the consumer will read $14.95 as $14 because we read from left to right and subconsciously will stop after the first few digits. Leader pricing Marketers will set leader items where price is cut in order to gain traffic and sell other products at full price/ Everyday low pricing High/low pricing - everyday low prices on some products and higher prices on other products Resale price maintenance and suggested list price

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