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Issues in Product Management <ul><li>What is a product? </li></ul><ul><ul><li>5 Levels of a product (core, actual, and aug...
Five Levels of a Product <ul><li>Core Product  </li></ul><ul><ul><ul><li>fundamental benefit that the customer is buying <...
Stages in a Product life cycle Marketing objective Gain Awareness Stress differentiation Maintain brand loyalty Harvesting...
? The Boston Consulting Group Matrix Relative Competitive Position/Market Share Business Growth Rate
Basic Product Portfolio Strategies <ul><li>Build </li></ul><ul><ul><li>Expand marketing effort to increase market share, p...
Issues in Product Management <ul><li>Product Line Decisions </li></ul><ul><ul><li>Line Stretching (upward, downward, 2-way...
Product Mix Width : number of different product lines Length : total number of items within lines Depth : number of versio...
Issues in Product Management <ul><li>Branding Decisions </li></ul><ul><ul><li>Brand Equity, Branding Strategies </li></ul>...
What is Brand Loyalty? No brand loyalty (customer will change) Satisfied customer (no reason to change) Satisfied and swit...
Brand Equity BRAND EQUITY . . . . The added value a given brand provides a product beyond the functional benefits provided.
Brand Equity <ul><li>Name Awareness </li></ul><ul><li>Perceived Quality </li></ul><ul><li>Brand Associations </li></ul><ul...
Good Brand Names: Suggest product benefits Become distinctive Are free from poor foreign language meanings Suggest product...
Four criteria for picking a good brand name Describe product benefits Be memorable, distinctive, and positive Fit the comp...
Alternative branding strategies <ul><li>Family/Blanket branding strategy </li></ul><ul><li>Sunbeam makes: </li></ul><ul><u...
Line and brand extension Line extension . . . . The use of a current brand to enter a new market segment in its product cl...
Issues in Brand Extensions <ul><li>Existence of Negative/Undesirable Associations </li></ul><ul><li>Fit  </li></ul><ul><ul...
What is a New Product? <ul><li>New-to-the-world Products (Inventions) </li></ul><ul><li>New-to-the-market Products </li></...
New Product Generation Commercialization Concept development and testing Idea screening Idea Generation Marketing strategy...
New Product Development & Management <ul><li>Opportunity Identification </li></ul><ul><li>Product Design </li></ul><ul><li...
The Consumer Adoption Process Awareness Interest Evaluation Adoption Trial
Diffusion of Innovation <ul><li>Laggards: </li></ul><ul><ul><li>Fear of debt, neighbors and friends are information source...
Factors that Influence Rate of Adoption <ul><li>The following characteristics influence the rate of adoption: </li></ul><u...
New Product Strategies <ul><li>Proactive VS Reactive </li></ul><ul><li>Pionnering VS Second But Better </li></ul><ul><ul><...
Advantages of Being a Pioneer <ul><li>Brand Association & Preference Formation </li></ul><ul><li>Economies of Scale Benefi...
Dis-Advantages of Being a Pioneer <ul><li>Uncertainity </li></ul><ul><ul><li>Consumer wants & needs </li></ul></ul><ul><ul...
Product Bundling <ul><li>Perception of Value </li></ul><ul><li>Ease of Information Processing </li></ul><ul><li>Reduction ...
Product-Service continuum Teaching Nursing The theatre Advertising agency Air travel Television Fast-food restaurant Tailo...
The Four I’s of Service <ul><li>Intangibility Services cannot be held, touched, or seen before the purchase decision. </li...
Factors Influencing Pricing Decisions <ul><li>Economic Factors </li></ul><ul><ul><li>Total Income; Discretionary Income; B...
Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competito...
Selecting the Price Objective Survival  Maximum market skimming Product-quality leadership Maximum current profit Maximum ...
Determining Demand <ul><li>Demand curve  -  illustrates relation between alternate prices and current demand </li></ul><ul...
Price Elasticity <ul><li>Price Elasticity, or the elasticity of demand with respect to price, relates price to quantity so...
Price Elasticity <ul><li>Price Elasticity is defined as the ratio of the percentage change in quantity demanded for a give...
Points to Note Regarding Elasticity <ul><li>Ceteris  is never  paribus </li></ul><ul><ul><li>Other factors do not remain c...
<ul><li>P.E. in the upward direction may not be the same as the P.E. in the downward direction -- particularly for low-end...
Estimating Costs <ul><li>Define each of the following: </li></ul><ul><li>Fixed costs </li></ul><ul><li>Variable costs </li...
Selecting a Pricing Method Costs Competitors’ prices and prices of substitutes Customers’ assessment of unique product fea...
Selecting a Pricing Method <ul><li>markup  pricing  and  target-return  pricing </li></ul><ul><li>perceived-value  pricing...
Selecting the Final Price <ul><li>Psychological pricing   </li></ul><ul><ul><li>Sometimes price is equated to quality </li...
Factors Influencing Pricing Decisions <ul><li>Psychological Factors </li></ul><ul><ul><li>“ Winning a Good Deal” </li></ul...
Pricing Issues & Strategies <ul><li>Setting Price Levels – Demand; Cost; Competition </li></ul><ul><li>New Product Pricing...
Conditions Favorable for Incremental Pricing <ul><li>Excess capacity </li></ul><ul><li>Heavy fixed costs </li></ul><ul><li...
Initiating Price Changes Initiating price cuts Low quality trap Shallow-pockets trap Fragile-market-share trap
Initiating Price Changes Initiating price increases Reduction of discounts Escalator clauses Unbundling Delayed quotation ...
Responding to Competitors’ Price Changes Reduce price Increase price and improve quality Maintain price Launch a low-price...
Alternatives to Price Promotions <ul><li>Change Size and/or Content </li></ul><ul><li>Change Price & Product Features Simu...
Key Functions of Channel Members <ul><li>Gather information about customers, competitors, and other players  </li></ul><ul...
Market Channel Functions <ul><li>Transaction Functions </li></ul><ul><ul><li>Buying </li></ul></ul><ul><ul><li>Selling </l...
Reducing the Number of Channel Transactions Number of contacts without a distributor:  M x C = 3 X 3 = 9 1 3 2 4 5 6 7 8 9...
Reducing the Number of Channel Transactions Number of contacts with a distributor  M x C = 3 + 3 = 6 1 3 2 4 6 5 Manufactu...
Consumer Marketing Channels Consmr Mfgr. 0-level channel 2-level channel 3-level channel 1-level channel Whlslr Jobber Ret...
Channel-Design Decisions Analyzing customers’  desired service output levels Establishing objectives and constraints Ident...
Channel-Design Decisions:  Service Output Channels Spatial convenience Product variety Lot size Service backup Waiting time
Distribution Coverage <ul><li>Intensive Distribution </li></ul><ul><ul><li>Large number of middlemen </li></ul></ul><ul><l...
Major Distribution Issues <ul><li>Control </li></ul><ul><li>Coverage </li></ul><ul><li>Cost </li></ul>
Channel Conflict <ul><li>Horizontal </li></ul><ul><li>Vertical </li></ul><ul><li>Multichannel </li></ul>
Gray Market <ul><li>Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and...
Conventional Distribution vs. Vertical Marketing Systems Vertical marketing channel Manufacturer Retailer Conventional mar...
Types of Vertical Marketing Systems Contractual Contractual Agreement Among Channel Members Corporate Common ownership at ...
Types of Retailers Specialty stores Narrow product line, deep assortment Department stores Wide variety of product lines S...
Types of Retailers Discount stores   Broad product line, low margin, high volume Off-price retailer Inexpensive, overruns,...
Retailing Trends <ul><li>Shorter retail life cycles </li></ul><ul><li>Polarity of retailing </li></ul><ul><li>Nonstore ret...
Marketing Decisions Promotion decision Target market Price decision Product assortment and procurement Services and store ...
How Many Outlets Do You Need? <ul><li>How many retail outlets will your production capacity support? </li></ul><ul><li>How...
<ul><li>How many outlets will your production capacity support? </li></ul><ul><ul><li>Number of outlets =  </li></ul></ul>...
Integrated Marketing  Communications <ul><li>The concept of designing marketing activities – advertising, personal selling...
Overview of Eight Steps to Effective Communication <ul><li>Identify target audience </li></ul><ul><li>Determine objectives...
Determining Communication Objectives <ul><li>Models of consumer-response stages are  </li></ul><ul><ul><li>AIDA model </li...
Designing the Message ction nterest esire ttention
Deciding on Communications Mix Advertising Public, pervasive, expressive, impersonal Sales promotion Communication, incent...
Deciding on Communications Mix Personal Selling Personal confrontation,  cultivation, response Direct Marketing Nonpublic,...
Promotional Mix <ul><li>Personal Selling </li></ul><ul><li>Telemarketing </li></ul><ul><li>Advertising </li></ul><ul><li>P...
Evaluating Promotional Activities <ul><li>Reach (Coverage) </li></ul><ul><ul><li>How much of the intended audience do you ...
Appropriate Use of Each Type <ul><li>Personal Selling </li></ul><ul><ul><li>Most effective form of communication </li></ul...
Telemarketing <ul><li>Telemarketing </li></ul><ul><ul><li>Less effective than PS -- less personal </li></ul></ul><ul><ul><...
Advertising <ul><li>Advertising </li></ul><ul><ul><li>Less effective than PS or TM </li></ul></ul><ul><ul><li>But, Cheaper...
Publicity <ul><li>Publicity </li></ul><ul><ul><li>Less effective than advertising because it offers limited control of the...
Sales Promotions <ul><li>Sales Promotions </li></ul><ul><ul><li>Good short term competitive tactic </li></ul></ul><ul><ul>...
Push vs. Pull Strategies <ul><li>Push Strategy </li></ul><ul><ul><li>Spending major part of promotional expenses on distri...
A comparison of push and pull promotional strategies Manufacturer Wholesaler Retailer Consumer Flow of promotion; mainly p...
Promotion Objectives <ul><li>Communication Objectives </li></ul><ul><ul><li>To inform </li></ul></ul><ul><ul><li>To remind...
Setting Advertising Budgets <ul><li>Percent of Sales </li></ul><ul><ul><li>What is the percent of present or forecasted sa...
Message Decisions <ul><li>Message Execution </li></ul><ul><ul><li>Theme and types of messages </li></ul></ul><ul><li>Messa...
The language of the media buyer <ul><li>Term What It Means </li></ul><ul><li>Reach The number of different people or  hous...
Scheduling the Advertising <ul><li>Steady (“drip”) Schedule </li></ul><ul><li>--  Steady schedule throughout the year. </l...
Advertising’s Role in Industrial Marketing <ul><li>Create favorable climate for salespeople </li></ul><ul><li>Stimulate de...
Functions of Salespeople Prospecting Servicing Gathering information Allocating Targeting Communicating Selling
Steps in Selling Process <ul><li>Prospecting and Qualifying </li></ul><ul><li>Approach </li></ul><ul><li>Presentation </li...
Prospecting Stage <ul><li>Lead </li></ul><ul><ul><li>Prospect with need for your product </li></ul></ul><ul><li>Qualified ...
Approach Stage <ul><li>Preapproach </li></ul><ul><li>Action before calling on prospect </li></ul><ul><ul><li>Buyer needs <...
Sales Presentations <ul><li>Stimulus-response </li></ul><ul><li>Need-satisfaction </li></ul>
Handling Objections <ul><li>Acknowledge and convert </li></ul><ul><li>Postpone </li></ul><ul><li>Agree and neutralize </li...
Closing the Sale <ul><li>Trial close </li></ul><ul><ul><li>Would you prefer blue or green? </li></ul></ul><ul><li>Assumpti...
Follow-Up Stage <ul><li>Phone call </li></ul><ul><li>Letter or card </li></ul><ul><li>Questionnaire </li></ul><ul><li>Pers...
Sales Promotion Activities <ul><li>Aimed at consumers </li></ul><ul><li>Aimed at trade </li></ul><ul><li>Aimed at company’...
Consumer Sales Promotion <ul><li>Point-of-purchase materials </li></ul><ul><li>Mfrs’ coupons </li></ul><ul><li>Free sample...
Trade Sales Promotion <ul><li>Trade shows </li></ul><ul><li>Sales contests </li></ul><ul><li>Display allowances </li></ul>...
Internal Sales Promotion <ul><li>Contests </li></ul><ul><li>Sales aids </li></ul><ul><li>Training material </li></ul><ul><...
Benefits of Direct Marketing to Consumers Fun, convenient, hassle-free Saves time Larger merchandise selection Comparison ...
Benefits of Direct Marketing to Companies Mailing lists for any market Can achieve higher readership Alternative media and...
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4P Decisions (including Product Decisions)

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  • Transcript of "4P Decisions (including Product Decisions)"

    1. 1. Issues in Product Management <ul><li>What is a product? </li></ul><ul><ul><li>5 Levels of a product (core, actual, and augmented) </li></ul></ul><ul><ul><li>Product Classification (goods vs services, durable vs nondurable, consumer vs industrial, etc.) </li></ul></ul><ul><li>PLC and Managing the product through its Life Cycle </li></ul><ul><li>Product Portfolio Analysis & Basic Growth Strategies </li></ul>
    2. 2. Five Levels of a Product <ul><li>Core Product </li></ul><ul><ul><ul><li>fundamental benefit that the customer is buying </li></ul></ul></ul><ul><li>Basic Product </li></ul><ul><ul><ul><li>Form in which the core benefit is offered </li></ul></ul></ul><ul><li>Expected Product </li></ul><ul><ul><ul><li>Set of attributes that buyers normally expect </li></ul></ul></ul><ul><li>Augmented Product </li></ul><ul><ul><ul><li>Product attributed/features that exceeds expectations </li></ul></ul></ul><ul><li>Potential Product </li></ul><ul><ul><ul><li>Future augmentations/transformations </li></ul></ul></ul>
    3. 3. Stages in a Product life cycle Marketing objective Gain Awareness Stress differentiation Maintain brand loyalty Harvesting, deletion Product One More versions Full product line Best sellers Price Skimming or penetration Gain share, deal Defend share, profit Stay profitable Place (distribution) Limited More outlets Maximum outlets Fewer outlets Competition None Growing Many Reduced Promotion Inform, educate Stress competitive differences Reminder oriented Minimal promotion Stage of the product life cycle Sales revenue or profit Introduction Growth Maturity Decline + 0 – Total industry sales revenue Total industry profit
    4. 4. ? The Boston Consulting Group Matrix Relative Competitive Position/Market Share Business Growth Rate
    5. 5. Basic Product Portfolio Strategies <ul><li>Build </li></ul><ul><ul><li>Expand marketing effort to increase market share, particularly question marks. </li></ul></ul><ul><li>Hold </li></ul><ul><ul><li>Preserve existing market share, especially strong cash cows. </li></ul></ul><ul><li>Harvest </li></ul><ul><ul><li>Increase short-term cash flow, especially weak cash cows. </li></ul></ul><ul><li>Divest </li></ul><ul><ul><li>Sell or liquidate product, appropriate for dogs. </li></ul></ul>
    6. 6. Issues in Product Management <ul><li>Product Line Decisions </li></ul><ul><ul><li>Line Stretching (upward, downward, 2-way, etc.) </li></ul></ul><ul><ul><li>Line Filling (JND) </li></ul></ul><ul><ul><li>Line Pruning, etc. </li></ul></ul><ul><li>Product Mix Decisions </li></ul><ul><ul><li>Width, Length, Depth & Consistency </li></ul></ul><ul><li>Product Design, Packaging, Labeling & Warranty Decisions </li></ul>
    7. 7. Product Mix Width : number of different product lines Length : total number of items within lines Depth : number of versions of each product Product Mix : all product lines offered Consistency
    8. 8. Issues in Product Management <ul><li>Branding Decisions </li></ul><ul><ul><li>Brand Equity, Branding Strategies </li></ul></ul><ul><ul><li>Brand Extensions </li></ul></ul><ul><li>New Product Development </li></ul><ul><ul><li>Diffusion of Innovations </li></ul></ul><ul><li>Pioneering Advantage </li></ul><ul><li>Product Bundling & Co-Branding </li></ul>
    9. 9. What is Brand Loyalty? No brand loyalty (customer will change) Satisfied customer (no reason to change) Satisfied and switching cost Values the brand Devoted to brand
    10. 10. Brand Equity BRAND EQUITY . . . . The added value a given brand provides a product beyond the functional benefits provided.
    11. 11. Brand Equity <ul><li>Name Awareness </li></ul><ul><li>Perceived Quality </li></ul><ul><li>Brand Associations </li></ul><ul><li>Other Brand Assets (logo, slogan, etc.) </li></ul><ul><li>Brand Loyalty </li></ul>
    12. 12. Good Brand Names: Suggest product benefits Become distinctive Are free from poor foreign language meanings Suggest product qualities Are easy to pronounce, recognize, remember
    13. 13. Four criteria for picking a good brand name Describe product benefits Be memorable, distinctive, and positive Fit the company or product image Have no legal restrictions A good brand name should . . . .
    14. 14. Alternative branding strategies <ul><li>Family/Blanket branding strategy </li></ul><ul><li>Sunbeam makes: </li></ul><ul><ul><li>Sunbeam irons </li></ul></ul><ul><ul><li>Sunbeam toasters </li></ul></ul><ul><ul><li>Sunbeam crockware </li></ul></ul><ul><li>GE makes: </li></ul><ul><ul><li>TV </li></ul></ul><ul><ul><li>VCR </li></ul></ul><ul><ul><li>Microwave </li></ul></ul><ul><ul><li>Washer/Dryer </li></ul></ul><ul><li>Individual/ Multi-brand strategy </li></ul><ul><li>Anheuser-Busch makes: </li></ul><ul><ul><li>Budweiser </li></ul></ul><ul><ul><li>Busch </li></ul></ul><ul><ul><li>Michelob </li></ul></ul><ul><ul><li>Wurtburger </li></ul></ul><ul><ul><li>Hofbrau </li></ul></ul><ul><li>Procter & Gamble makes: </li></ul><ul><ul><li>Tide </li></ul></ul><ul><ul><li>Cheer </li></ul></ul><ul><ul><li>Ivory Snow </li></ul></ul><ul><ul><li>Oxydol </li></ul></ul><ul><li>Private branding/separate family strategy </li></ul><ul><li>A&P has: </li></ul><ul><ul><li>Ann Page </li></ul></ul><ul><ul><li>canned goods </li></ul></ul><ul><ul><li>Eight O’Clock coffee </li></ul></ul><ul><li>Sears has: </li></ul><ul><ul><li>Kenmore appliances </li></ul></ul><ul><ul><li>Craftsman tools </li></ul></ul><ul><li>Mixed branding strategy </li></ul><ul><li>Honda makes: </li></ul><ul><ul><li>Accord </li></ul></ul><ul><ul><li>Civic </li></ul></ul><ul><ul><li>Prelude </li></ul></ul><ul><ul><li>S-2000 </li></ul></ul><ul><ul><li>Odyssey </li></ul></ul><ul><li>Kellogg’s makes: </li></ul><ul><ul><li>Rice Krispies </li></ul></ul><ul><ul><li>Raisin Bran </li></ul></ul><ul><ul><li>Corn Flakes </li></ul></ul>Generic branding strategy Dog food Peanut butter Green beans Paper towels Aspirin Cola Branding strategy Manufacturer branding strategy
    15. 15. Line and brand extension Line extension . . . . The use of a current brand to enter a new market segment in its product class Brand extension . . . . The use of a current brand name to enter a completely different product class
    16. 16. Issues in Brand Extensions <ul><li>Existence of Negative/Undesirable Associations </li></ul><ul><li>Fit </li></ul><ul><ul><ul><li>Complement, Substitute, Transfer </li></ul></ul></ul><ul><li>Common Consumer Franchise </li></ul><ul><li>Market Conditions </li></ul><ul><ul><ul><li>Stage in the PLC </li></ul></ul></ul><ul><ul><ul><li>Competition </li></ul></ul></ul>
    17. 17. What is a New Product? <ul><li>New-to-the-world Products (Inventions) </li></ul><ul><li>New-to-the-market Products </li></ul><ul><li>New-to-the-firm Products (New Category Entries) </li></ul><ul><li>Product Improvements & Line Extensions </li></ul><ul><li>Repositionings </li></ul>
    18. 18. New Product Generation Commercialization Concept development and testing Idea screening Idea Generation Marketing strategy development Business analysis Product development Market testing
    19. 19. New Product Development & Management <ul><li>Opportunity Identification </li></ul><ul><li>Product Design </li></ul><ul><li>Product Testing </li></ul><ul><li>Product Introduction </li></ul><ul><li>Life-cycle Management </li></ul>
    20. 20. The Consumer Adoption Process Awareness Interest Evaluation Adoption Trial
    21. 21. Diffusion of Innovation <ul><li>Laggards: </li></ul><ul><ul><li>Fear of debt, neighbors and friends are information sources </li></ul></ul><ul><li>Early adopters: </li></ul><ul><ul><li>Leaders in social setting, slightly above average education </li></ul></ul><ul><li>Late majority: </li></ul><ul><ul><li>Skeptical, below average social status </li></ul></ul><ul><li>Innovators: </li></ul><ul><ul><li>Venturesome, higher educated, use multiple information sources </li></ul></ul><ul><li>Early majority: </li></ul><ul><ul><li>Deliberate, many informal social contacts </li></ul></ul>Innovators 2.5% Early adopters 13.5% Early majority 34% Late majority 34% Laggards 16% Time
    22. 22. Factors that Influence Rate of Adoption <ul><li>The following characteristics influence the rate of adoption: </li></ul><ul><ul><li>Relative advantage </li></ul></ul><ul><ul><li>Compatibility </li></ul></ul><ul><ul><li>Complexity </li></ul></ul><ul><ul><li>Divisibility </li></ul></ul><ul><ul><li>Communicability </li></ul></ul>
    23. 23. New Product Strategies <ul><li>Proactive VS Reactive </li></ul><ul><li>Pionnering VS Second But Better </li></ul><ul><ul><li>VCR - Ampex (1956) </li></ul></ul><ul><ul><li>Microwave Ovens - Raytheon (1946) /Amana (1966) </li></ul></ul><ul><ul><li>Dishwasher - Crescent Washing Machine Co. (1900) </li></ul></ul><ul><ul><li>Fax - Xerox (1964) </li></ul></ul><ul><ul><li>PCs - MITS (1975) </li></ul></ul><ul><ul><li>Disposable Diapers - Chux (1950) </li></ul></ul><ul><ul><li>Diet Cola - Kirsch’s No-cal Cola (1952) </li></ul></ul>
    24. 24. Advantages of Being a Pioneer <ul><li>Brand Association & Preference Formation </li></ul><ul><li>Economies of Scale Benefits </li></ul><ul><li>Learning Curve Benefits </li></ul><ul><li>Barriers to Entry </li></ul><ul><li>Switching Costs </li></ul>
    25. 25. Dis-Advantages of Being a Pioneer <ul><li>Uncertainity </li></ul><ul><ul><li>Consumer wants & needs </li></ul></ul><ul><ul><li>Channel Reaction </li></ul></ul><ul><ul><li>Potential Competitors Moves </li></ul></ul><ul><li>Free Rider Problem </li></ul><ul><li>Shifts in Technology & Consumer Needs </li></ul><ul><li>Incumbent Inertia (e.g., early sunk costs) </li></ul>
    26. 26. Product Bundling <ul><li>Perception of Value </li></ul><ul><li>Ease of Information Processing </li></ul><ul><li>Reduction in Perceived Risk </li></ul><ul><li>Ability to control & smoothen demand </li></ul>
    27. 27. Product-Service continuum Teaching Nursing The theatre Advertising agency Air travel Television Fast-food restaurant Tailored suit Automobile House Dog food Necktie Salt Balanced item equally weighed between goods and services Service-dominated item (intangible) Good-dominated item (tangible) Balanced
    28. 28. The Four I’s of Service <ul><li>Intangibility Services cannot be held, touched, or seen before the purchase decision. </li></ul><ul><li>Inconsistency Service quality varies with the (Variability) capabilities of the people who provide the service. </li></ul><ul><li>Inseparability The consumer cannot separate the deliverer of the service from the service itself. </li></ul><ul><li>Inventory The inventory cost of a service is (Perishability) the cost of paying the person used to provide the service along with the cost of any needed equipment, and issues associated with perishability. </li></ul>
    29. 29. Factors Influencing Pricing Decisions <ul><li>Economic Factors </li></ul><ul><ul><li>Total Income; Discretionary Income; Budgeted Income </li></ul></ul><ul><ul><li>Buyer Spending Power (Financing, Type of product -- e.g., Value Meal, Target Market Selection) </li></ul></ul><ul><li>Channel Factors </li></ul><ul><ul><li>Markups & Margins </li></ul></ul><ul><ul><li>Price Increases & Price Cuts </li></ul></ul><ul><li>Psychological Factors </li></ul>
    30. 30. Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price
    31. 31. Selecting the Price Objective Survival Maximum market skimming Product-quality leadership Maximum current profit Maximum market share
    32. 32. Determining Demand <ul><li>Demand curve - illustrates relation between alternate prices and current demand </li></ul><ul><li>Price sensitivity </li></ul><ul><li>Price elasticity of demand </li></ul>
    33. 33. Price Elasticity <ul><li>Price Elasticity, or the elasticity of demand with respect to price, relates price to quantity sold and hence to revenues </li></ul><ul><ul><li>If the percentage change in demand is greater than the percentage change in price, the demand is said to be elastic </li></ul></ul><ul><ul><li>If the percentage change in demand is less than the percentage change in price, the demand is said to be inelastic </li></ul></ul><ul><ul><li>When demand is Elastic, Price & Revenue are inversely related </li></ul></ul><ul><ul><li>When demand is inealstic, Price & Revenue are directly related </li></ul></ul>
    34. 34. Price Elasticity <ul><li>Price Elasticity is defined as the ratio of the percentage change in quantity demanded for a given percentage change in price. </li></ul><ul><li>Elasticity can be calculated using the formula: </li></ul><ul><ul><li>Num = {Q 2 - Q 1 }/{Q 1 } </li></ul></ul><ul><ul><li>Den = -{P 2 - P 1 }/{P 1 } </li></ul></ul><ul><ul><li>Elasticity E = [Num]/[Den] </li></ul></ul><ul><li>If E> 1, then the demand is said to be elastic. If E<1, it is inelastic </li></ul>
    35. 35. Points to Note Regarding Elasticity <ul><li>Ceteris is never paribus </li></ul><ul><ul><li>Other factors do not remain constant as assumed </li></ul></ul><ul><li>Long-run elasticity may differ from measured value </li></ul><ul><li>Demand curve aren’t smooth in real life </li></ul><ul><ul><li>Indifference Zone </li></ul></ul><ul><ul><li>Breakthrough price -- below which the market just takes off (Video Movies) </li></ul></ul><ul><ul><li>Price Ceiling -- above which the demand just dies (Del Monte Green Beans VS Kroger green beans) </li></ul></ul>
    36. 36. <ul><li>P.E. in the upward direction may not be the same as the P.E. in the downward direction -- particularly for low-end products with poor equity </li></ul><ul><li>Asymmetry in Price Effects -- do not provoke the market leader into a price war </li></ul><ul><li>Indifference zones are wider for costlier items </li></ul><ul><li>Elasticity may vary across time (seasons) </li></ul><ul><li>Brand Elasticity need not be the same as product-level elasticity </li></ul><ul><li>Cross-Price Elasticity </li></ul>
    37. 37. Estimating Costs <ul><li>Define each of the following: </li></ul><ul><li>Fixed costs </li></ul><ul><li>Variable costs </li></ul><ul><li>Total costs </li></ul><ul><li>Average cost </li></ul><ul><li>Accumulated production </li></ul><ul><li>Differentiated marketing offers </li></ul><ul><li>Target costing </li></ul>
    38. 38. Selecting a Pricing Method Costs Competitors’ prices and prices of substitutes Customers’ assessment of unique product features The Three Cs Pricing Model Low Price No possible profit at this price High Price No possible demand at this price
    39. 39. Selecting a Pricing Method <ul><li>markup pricing and target-return pricing </li></ul><ul><li>perceived-value pricing </li></ul><ul><li>value pricing; Going rate pricing; </li></ul><ul><li>Sealed-Bid pricing ? </li></ul>
    40. 40. Selecting the Final Price <ul><li>Psychological pricing </li></ul><ul><ul><li>Sometimes price is equated to quality </li></ul></ul><ul><li>Influencing of other marketing-mix elements </li></ul><ul><ul><li>The brand’s quality and advertising relative to competition must be considered </li></ul></ul><ul><li>Company pricing policies </li></ul><ul><ul><li>Must be consistent with company goals </li></ul></ul><ul><li>Impact of price on other parties such as dealers and distributors </li></ul>
    41. 41. Factors Influencing Pricing Decisions <ul><li>Psychological Factors </li></ul><ul><ul><li>“ Winning a Good Deal” </li></ul></ul><ul><ul><li>Reference Price (price establishes value) </li></ul></ul><ul><ul><li>Limited attention and information retention </li></ul></ul><ul><ul><li>Image & Expectation (pricing hamburger in different settings) </li></ul></ul><ul><ul><li>Price as a cue to quality </li></ul></ul><ul><ul><li>“ Throw-ins” vs Price-cuts </li></ul></ul><ul><ul><li>Buying Situation (for self, gift, on vacation) </li></ul></ul>
    42. 42. Pricing Issues & Strategies <ul><li>Setting Price Levels – Demand; Cost; Competition </li></ul><ul><li>New Product Pricing </li></ul><ul><li>Product Line Pricing – Price Points </li></ul><ul><li>Reference Price; Price Ceiling & Floor Price </li></ul><ul><li>Optional - Feature Pricing </li></ul><ul><ul><li>Base Product + Accessories </li></ul></ul><ul><li>Captive - Product pricing </li></ul><ul><li>2-Part Pricing </li></ul><ul><li>By-Product Pricing </li></ul><ul><li>Pricing a Product Bundle </li></ul><ul><li>Incremental/Discriminatory Pricing </li></ul>
    43. 43. Conditions Favorable for Incremental Pricing <ul><li>Excess capacity </li></ul><ul><li>Heavy fixed costs </li></ul><ul><li>Price-sensitive segment </li></ul><ul><li>Ability to isolate from core market </li></ul>
    44. 44. Initiating Price Changes Initiating price cuts Low quality trap Shallow-pockets trap Fragile-market-share trap
    45. 45. Initiating Price Changes Initiating price increases Reduction of discounts Escalator clauses Unbundling Delayed quotation pricing
    46. 46. Responding to Competitors’ Price Changes Reduce price Increase price and improve quality Maintain price Launch a low-price fighter line Maintain price and add value $ $
    47. 47. Alternatives to Price Promotions <ul><li>Change Size and/or Content </li></ul><ul><li>Change Price & Product Features Simultaneously </li></ul><ul><ul><li>Automobile Yearly Model Change </li></ul></ul><ul><li>Change Payment Terms & Financing Terms </li></ul><ul><li>Increase/Decrease availability of “Economy Models” </li></ul><ul><ul><li>Toyota Tercel EZ </li></ul></ul><ul><li>Move Excess Inventory through alternate channels </li></ul>
    48. 48. Key Functions of Channel Members <ul><li>Gather information about customers, competitors, and other players </li></ul><ul><li>Develop and disseminate communications </li></ul><ul><li>Reach agreement on price and terms </li></ul><ul><li>Place orders with manufacturers </li></ul><ul><li>Acquire funds to finance inventories </li></ul><ul><li>Assume risks </li></ul><ul><li>Provide for product storage and movement </li></ul><ul><li>Provide for buyers’ bill payments </li></ul><ul><li>Oversee transfer of ownership </li></ul>
    49. 49. Market Channel Functions <ul><li>Transaction Functions </li></ul><ul><ul><li>Buying </li></ul></ul><ul><ul><li>Selling </li></ul></ul><ul><ul><li>Risk taking </li></ul></ul><ul><li>Logistical Functions </li></ul><ul><ul><li>Assorting </li></ul></ul><ul><ul><li>Storing </li></ul></ul><ul><ul><li>Sorting </li></ul></ul><ul><ul><li>Transporting </li></ul></ul><ul><li>Facilitating Functions </li></ul><ul><ul><li>Financing </li></ul></ul><ul><ul><li>Grading </li></ul></ul><ul><ul><li>Marketing Research </li></ul></ul>
    50. 50. Reducing the Number of Channel Transactions Number of contacts without a distributor: M x C = 3 X 3 = 9 1 3 2 4 5 6 7 8 9 Manufacturer Customers
    51. 51. Reducing the Number of Channel Transactions Number of contacts with a distributor M x C = 3 + 3 = 6 1 3 2 4 6 5 Manufacturer Customers Store
    52. 52. Consumer Marketing Channels Consmr Mfgr. 0-level channel 2-level channel 3-level channel 1-level channel Whlslr Jobber Retailer Consmr Mfgr. Retailer Consmr Mfgr. Whlslr Retailer Consmr Mfgr.
    53. 53. Channel-Design Decisions Analyzing customers’ desired service output levels Establishing objectives and constraints Identifying major channel alternatives Evaluating major alternatives
    54. 54. Channel-Design Decisions: Service Output Channels Spatial convenience Product variety Lot size Service backup Waiting time
    55. 55. Distribution Coverage <ul><li>Intensive Distribution </li></ul><ul><ul><li>Large number of middlemen </li></ul></ul><ul><li>Selective Distribution </li></ul><ul><ul><li>Moderate number of middlemen </li></ul></ul><ul><li>Exclusive Distribution </li></ul><ul><ul><li>One or two middlemen in a trading area </li></ul></ul>
    56. 56. Major Distribution Issues <ul><li>Control </li></ul><ul><li>Coverage </li></ul><ul><li>Cost </li></ul>
    57. 57. Channel Conflict <ul><li>Horizontal </li></ul><ul><li>Vertical </li></ul><ul><li>Multichannel </li></ul>
    58. 58. Gray Market <ul><li>Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in high-price markets </li></ul><ul><ul><li>Cameras </li></ul></ul><ul><ul><li>Watches </li></ul></ul>
    59. 59. Conventional Distribution vs. Vertical Marketing Systems Vertical marketing channel Manufacturer Retailer Conventional marketing channel Manufacturer Wholesaler Consumer Consumer Retailer Wholesaler
    60. 60. Types of Vertical Marketing Systems Contractual Contractual Agreement Among Channel Members Corporate Common ownership at different levels of the channel Administered Leadership is assumed by one or a few dominant members
    61. 61. Types of Retailers Specialty stores Narrow product line, deep assortment Department stores Wide variety of product lines Supermarkets Variety of food, laundry, household products Convenience stores Limited line of high-turnover convenience goods
    62. 62. Types of Retailers Discount stores Broad product line, low margin, high volume Off-price retailer Inexpensive, overruns, irregulars, leftovers Superstores Large assortment of routinely purchased food and nonfood products, plus services Catalog showroom Broad selection, fast turnover, discount prices
    63. 63. Retailing Trends <ul><li>Shorter retail life cycles </li></ul><ul><li>Polarity of retailing </li></ul><ul><li>Nonstore retailing </li></ul><ul><li>De-Malling & Open Malls </li></ul><ul><li>Retail Technology </li></ul>
    64. 64. Marketing Decisions Promotion decision Target market Price decision Product assortment and procurement Services and store atmosphere Place decision
    65. 65. How Many Outlets Do You Need? <ul><li>How many retail outlets will your production capacity support? </li></ul><ul><li>How many RO will your market potential support? </li></ul><ul><li>How will an increase or decrease in the number of RO affect your profitability? </li></ul>That depends on: You need to get an estimate of the SALES VOLUME PER OUTLET
    66. 66. <ul><li>How many outlets will your production capacity support? </li></ul><ul><ul><li>Number of outlets = </li></ul></ul>(Capacity/Avg. sales per outlets) <ul><li>How many outlets will your market potential support? </li></ul><ul><li>Number of outlets = </li></ul><ul><li>(Market Potential / Avg. sales per outlet) </li></ul><ul><li>Turnover = </li></ul><ul><li>(Sales / Avg. inventory) </li></ul>
    67. 67. Integrated Marketing Communications <ul><li>The concept of designing marketing activities – advertising, personal selling, sales promotion, and public relations -- to provide a consistent message across all audiences is referred to as integrated marketing communications (IMC). </li></ul>Integrated Marketing Communications
    68. 68. Overview of Eight Steps to Effective Communication <ul><li>Identify target audience </li></ul><ul><li>Determine objectives </li></ul><ul><li>Select communication channels </li></ul><ul><li>Design the message </li></ul><ul><li>Effectively manage the process </li></ul><ul><li>Develop communications mix </li></ul><ul><li>Establish communications budget </li></ul><ul><li>Measure results </li></ul>
    69. 69. Determining Communication Objectives <ul><li>Models of consumer-response stages are </li></ul><ul><ul><li>AIDA model </li></ul></ul><ul><ul><li>Hierarchy-of-effects model </li></ul></ul><ul><ul><li>Innovation-adoption model </li></ul></ul><ul><ul><li>Communications model </li></ul></ul><ul><li>The models assume that buyers pass through these stages: </li></ul><ul><ul><li>Cognitive stage </li></ul></ul><ul><ul><li>Affective stage </li></ul></ul><ul><ul><li>Behavior stage </li></ul></ul>
    70. 70. Designing the Message ction nterest esire ttention
    71. 71. Deciding on Communications Mix Advertising Public, pervasive, expressive, impersonal Sales promotion Communication, incentive, invitation Public relations and publicity Credibility, surprise, dramatization
    72. 72. Deciding on Communications Mix Personal Selling Personal confrontation, cultivation, response Direct Marketing Nonpublic, customized, up-to-date, interactive
    73. 73. Promotional Mix <ul><li>Personal Selling </li></ul><ul><li>Telemarketing </li></ul><ul><li>Advertising </li></ul><ul><li>Publicity </li></ul><ul><li>Sales Promotions </li></ul>
    74. 74. Evaluating Promotional Activities <ul><li>Reach (Coverage) </li></ul><ul><ul><li>How much of the intended audience do you reach? </li></ul></ul><ul><li>Effectiveness </li></ul><ul><ul><li>How effectively do you communicate with the audience that you reach? </li></ul></ul><ul><ul><li>Frequency: How often do you reach audience members? </li></ul></ul><ul><ul><li>Impact: How effective is each message? </li></ul></ul><ul><li>Cost: What is the cost per message? </li></ul>
    75. 75. Appropriate Use of Each Type <ul><li>Personal Selling </li></ul><ul><ul><li>Most effective form of communication </li></ul></ul><ul><ul><li>Relatively very expensive </li></ul></ul><ul><ul><li>To be used as a primary means of promotion for customers who spend enough to justify the cost </li></ul></ul><ul><ul><li>Used extensively in industrial marketing situations </li></ul></ul>
    76. 76. Telemarketing <ul><li>Telemarketing </li></ul><ul><ul><li>Less effective than PS -- less personal </li></ul></ul><ul><ul><li>More effective than advertising -- interactive </li></ul></ul><ul><ul><li>Can be used to “qualify” prospects for personal sales calls </li></ul></ul><ul><ul><li>Can be used to handle in-bound, self-service orders for the delivery of goods </li></ul></ul><ul><ul><li>Cost falls in between PS and Advertising </li></ul></ul>
    77. 77. Advertising <ul><li>Advertising </li></ul><ul><ul><li>Less effective than PS or TM </li></ul></ul><ul><ul><li>But, Cheaper than either </li></ul></ul><ul><ul><li>Offers a way to reach a large number of potential customers in a very short period of time </li></ul></ul><ul><ul><li>Primary means of promoting to customers who do not spend enough to justify PS or TM </li></ul></ul><ul><ul><li>Should be used to create brand awareness and educate customers of product features/benefits </li></ul></ul>
    78. 78. Publicity <ul><li>Publicity </li></ul><ul><ul><li>Less effective than advertising because it offers limited control of the message, timing and the media </li></ul></ul><ul><ul><li>cannot be used to send a repetitive message </li></ul></ul><ul><ul><li>But, Cheaper than advertising </li></ul></ul><ul><ul><li>Often more credible to buyers </li></ul></ul><ul><ul><li>Most useful in establishing credibility for providers of professional services </li></ul></ul><ul><ul><li>Can be used as a low cost alternative to advertising </li></ul></ul>
    79. 79. Sales Promotions <ul><li>Sales Promotions </li></ul><ul><ul><li>Good short term competitive tactic </li></ul></ul><ul><ul><li>Help clear slow-moving or seasonal inventory </li></ul></ul><ul><ul><li>Help generate quick cash flow, if required </li></ul></ul><ul><ul><li>SP such as “Sweepstakes” or “Contests” can be used to add excitement to advertising </li></ul></ul><ul><ul><li>Not much value in terms of communication </li></ul></ul><ul><ul><li>Do not build a long term image for the brand </li></ul></ul>
    80. 80. Push vs. Pull Strategies <ul><li>Push Strategy </li></ul><ul><ul><li>Spending major part of promotional expenses on distributors and retailers </li></ul></ul><ul><li>Pull Strategy </li></ul><ul><ul><li>Spending major part of promotional expenses on the consumer </li></ul></ul>
    81. 81. A comparison of push and pull promotional strategies Manufacturer Wholesaler Retailer Consumer Flow of promotion; mainly personal selling directed to intermediaries Flow of demand stimulation Manufacturer Wholesaler Retailer Consumer Flow of promotion; mainly advertising directed to consumers Flow of demand stimulation A. Push strategy B. Pull strategy
    82. 82. Promotion Objectives <ul><li>Communication Objectives </li></ul><ul><ul><li>To inform </li></ul></ul><ul><ul><li>To remind </li></ul></ul><ul><ul><li>To persuade </li></ul></ul><ul><li>Behavior Objectives </li></ul><ul><ul><li>To sell </li></ul></ul><ul><ul><li>To take some action </li></ul></ul>
    83. 83. Setting Advertising Budgets <ul><li>Percent of Sales </li></ul><ul><ul><li>What is the percent of present or forecasted sales? </li></ul></ul><ul><li>Competitive Parity </li></ul><ul><ul><li>Are we in line with our competition? </li></ul></ul><ul><li>Affordable Method </li></ul><ul><ul><li>What can we afford to spend on advertising this year? </li></ul></ul><ul><li>Objective and Task </li></ul>
    84. 84. Message Decisions <ul><li>Message Execution </li></ul><ul><ul><li>Theme and types of messages </li></ul></ul><ul><li>Message Structure </li></ul><ul><ul><li>One-sided vs. two-sided, types of arguments </li></ul></ul><ul><li>Message Generation </li></ul><ul><ul><li>Creative process of developing different message ideas </li></ul></ul>
    85. 85. The language of the media buyer <ul><li>Term What It Means </li></ul><ul><li>Reach The number of different people or households exposed to an advertisement. </li></ul><ul><li>Rating The percentage of households in a market that are tuned to a particular TV show or radio station. </li></ul><ul><li>Frequency The average number of times an individual is exposed to an advertisement. </li></ul><ul><li>Gross rating points Reach (expressed as a percentage of the total </li></ul><ul><li>(GRPs) market) multiplied by frequency. </li></ul><ul><li>Cost per thousands The cost of advertising divided by the number (CPM) of thousands of individuals or households who are exposed. </li></ul>
    86. 86. Scheduling the Advertising <ul><li>Steady (“drip”) Schedule </li></ul><ul><li>-- Steady schedule throughout the year. </li></ul><ul><li>Flighting (“intermittent”) Schedule </li></ul><ul><li>-- Advertising reflects seasonal demand </li></ul><ul><li>Blitzing </li></ul><ul><li>Pulse (“burst”) Schedule </li></ul><ul><li>-- Steady and flighting schedules are combined </li></ul>
    87. 87. Advertising’s Role in Industrial Marketing <ul><li>Create favorable climate for salespeople </li></ul><ul><li>Stimulate derived demand </li></ul><ul><li>Project favorable corporate image </li></ul><ul><li>Reach inaccessible buyers </li></ul>
    88. 88. Functions of Salespeople Prospecting Servicing Gathering information Allocating Targeting Communicating Selling
    89. 89. Steps in Selling Process <ul><li>Prospecting and Qualifying </li></ul><ul><li>Approach </li></ul><ul><li>Presentation </li></ul><ul><li>Handling Objections </li></ul><ul><li>Closing the Sale </li></ul><ul><li>Follow-up </li></ul>
    90. 90. Prospecting Stage <ul><li>Lead </li></ul><ul><ul><li>Prospect with need for your product </li></ul></ul><ul><li>Qualified Lead </li></ul><ul><ul><li>Prospect with need and can afford your product </li></ul></ul>
    91. 91. Approach Stage <ul><li>Preapproach </li></ul><ul><li>Action before calling on prospect </li></ul><ul><ul><li>Buyer needs </li></ul></ul><ul><ul><li>Buying styles </li></ul></ul><ul><ul><li>Call objectives </li></ul></ul><ul><li>Approach </li></ul><ul><li>Meeting and greeting the buyer </li></ul><ul><ul><li>Salesperson’s appearance </li></ul></ul><ul><ul><li>Opening lines </li></ul></ul><ul><ul><li>Key questions </li></ul></ul>
    92. 92. Sales Presentations <ul><li>Stimulus-response </li></ul><ul><li>Need-satisfaction </li></ul>
    93. 93. Handling Objections <ul><li>Acknowledge and convert </li></ul><ul><li>Postpone </li></ul><ul><li>Agree and neutralize </li></ul><ul><li>Ignore the objection </li></ul>
    94. 94. Closing the Sale <ul><li>Trial close </li></ul><ul><ul><li>Would you prefer blue or green? </li></ul></ul><ul><li>Assumptive close </li></ul><ul><ul><li>What type of finance do you want? </li></ul></ul><ul><li>Urgency close </li></ul><ul><ul><li>This is the last model we have in stock </li></ul></ul>
    95. 95. Follow-Up Stage <ul><li>Phone call </li></ul><ul><li>Letter or card </li></ul><ul><li>Questionnaire </li></ul><ul><li>Personal call </li></ul>
    96. 96. Sales Promotion Activities <ul><li>Aimed at consumers </li></ul><ul><li>Aimed at trade </li></ul><ul><li>Aimed at company’s own sales force </li></ul>
    97. 97. Consumer Sales Promotion <ul><li>Point-of-purchase materials </li></ul><ul><li>Mfrs’ coupons </li></ul><ul><li>Free samples </li></ul><ul><li>Sponsored events </li></ul><ul><li>Premiums </li></ul>
    98. 98. Trade Sales Promotion <ul><li>Trade shows </li></ul><ul><li>Sales contests </li></ul><ul><li>Display allowances </li></ul><ul><li>Bulk discounts </li></ul>
    99. 99. Internal Sales Promotion <ul><li>Contests </li></ul><ul><li>Sales aids </li></ul><ul><li>Training material </li></ul><ul><li>Bonuses </li></ul><ul><li>Displays </li></ul>
    100. 100. Benefits of Direct Marketing to Consumers Fun, convenient, hassle-free Saves time Larger merchandise selection Comparison shopping Ease of ordering products
    101. 101. Benefits of Direct Marketing to Companies Mailing lists for any market Can achieve higher readership Alternative media and message testing Privacy Measurable response Ongoing relationships with customers Customized offers
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