Chapter 11
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Chapter 11

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  • The American Marketing Association (AMA) defines marketing as planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. With respect to customers, marketing involves understanding customers’ needs and their buying behavior, creating consumer awareness, providing customer service — which is everything a company does to satisfy its customers—and maintaining relationships with customers long after the sales transaction is complete.
  • Most people, of course, think of marketing in connection with selling tangible goods for a profit (the term product refers to any “bundle of value” that can be exchanged in a marketing transaction). But marketing applies to services, nonprofit organizations, people, places, and causes too. Place marketing describes efforts to market geographical areas ranging from neighborhoods to entire countries. Cause-related marketing promotes a cause or a social issue — such as physical fitness, cancer awareness, recycling, or highway safety. Permission marketing asks customers for permission before sending them marketing messages.
  • Notice that marketing involves an exchange between two parties—the buyer and the selling organization—both of whom must obtain satisfaction from the transaction. This definition suggests that marketing plays an important role in society by helping people satisfy their needs and wants and by helping organizations determine what to produce. To survive, people need food, water, air, shelter, and clothing. A need represents a difference between your actual state and your ideal state. Your wants are based on your needs but are more specific. Producers do not create needs, but they do shape your wants by exposing you to alternatives. When you participate in the exchange process, you trade something of value (usually money) for something else of value, whether you’re buying an airline ticket, a car, or a college education. When the exchange actually occurs, it takes the form of a transaction.
  • To encourage the exchange process, marketers enhance the appeal of their products and services by adding utility, something of value to customers. When organizations change raw materials into finished goods, they are creating form utility desired by consumers. In other cases, marketers try to make their products available when and where customers want to buy them, creating time utility and place utility. The final form of utility is possession utility— the satisfaction that buyers get when they actually possess a product, both legally and physically.
  • The underlying philosophy that guides all marketing decisions and activities is known as the marketing concept, the idea that companies should stress customers needs and wants, while seeking long-term profitability and coordinating their own marketing efforts to achieve the company’s long-term goals. These customer-focused companies modify their marketing strategies and product offerings to satisfy customers’ changing needs and wants.
  • Suppose you want to buy a car. Like most buyers, you go through a decision process that begins with identifying a problem, which in this case is the need for a car. Your next step is to look for a solution to your problem. Possibilities occur to you on the basis of your experience (perhaps you recently drove a certain make or model) and on your exposure to marketing messages. If none of the obvious solutions seems satisfying, you gather additional information. The more complex the problem, the more information you are likely to seek. Once you have all the information in hand, you are ready to make a choice. You may select one of the alternatives, such as a new Chevy Blazer or a used Ford Explorer. You might even postpone the decision or decide against making any purchase at all, depending on the magnitude of your desire, the outside pressure to buy, and your financial resources. If you decide to buy, you will evaluate the wisdom of your choice. If the item you bought is satisfying, you might buy the same product again under similar circumstances, thus developing a loyalty to the brand. If it is not satisfying, you will probably not repeat the purchase. If the purchase was a major one, you will sometimes suffer from cognitive dissonance, commonly known as buyer’s remorse . You will think about all the alternatives you rejected and wonder whether one of them might have been a better choice.
  • Throughout the buying process, various factors may influence a buyer’s purchase decision. An awareness of the following factors and consumer preferences enables companies to appeal to the group most likely to respond to its products and services: Culture. The cultures and subcultures that people belong to shape their values, attitudes, and beliefs and influence the way they respond to the world. Social class. In addition to being members of a particular culture, people also belong to a certain social class. In general, members of various classes pursue different activities, buy different goods, shop in different places, and react to different media. Reference groups. A reference group consists of people who have a good deal in common. Individuals use the opinions of the appropriate group as a benchmark when they buy certain types of goods or services. Self-image. The tendency to believe that “you are what you buy” is especially prevalent among young people. Marketers capitalize on people’s need to express their identity through their purchases by emphasizing the image value of goods and services. Situational factors. These factors include events or circumstances that can influence buying patterns. Such factors might include having a coupon, being in a hurry, celebrating a holiday, being in a bad mood, and so on.
  • Many companies obtain information about customers’ changing needs by engaging in marketing research — the process of gathering and analyzing information about customers, markets, and related marketing issues. Popular marketing research tools include personal observations, customer surveys and questionnaires, experiments, telephone or personal interviews, studies of small samples of the consumer population, and focused interviews of 6 to 10 people (called focus groups). Another way to learn about customer preferences is to gather and analyze all kinds of customer-related data. Database marketing is the process of recording and analyzing customer interactions, preferences, and buying behavior for the purpose of contacting and transacting with customers. Companies gather information about customers by engaging in two-way, ongoing dialogues with customers through e-mail, webpages, fax machines, and toll-free telephone numbers.
  • Another way that companies remain customer-focused is by building long-term satisfying relationships with key parties — customers, suppliers, distributors — to retain their long-term business. This practice, commonly referred to as relationship marketing, focuses on establishing a learning relationship with each customer. Thus, the relationship between customer and company does not end with the sales transaction; instead it is viewed as an ongoing process. One-to-one marketing involves individualizing a firm’s marketing efforts for a single customer to accommodate the specific customer’s needs. The four key steps to putting an effective one-to-one marketing program in place are (1) identifying your customers, (2) differentiating among them, (3) interacting with them, and (4) customizing your product or service to fit each individual customer’s needs.
  • Strategic marketing planning is a process that involves three steps: (1) examining your current marketing situation, (2) assessing your opportunities and setting your objectives, and (3) developing a marketing strategy to reach those objectives.
  • Examining your current marketing situation includes reviewing your past performance (how well each product is doing in each market where you sell it), evaluating your competition, examining your internal strengths and weaknesses, and analyzing the external environment.
  • . Successful companies are always on the lookout for new marketing opportunities, which can be classified into four options: selling more of your existing products in current markets (market penetration), creating new products for your current markets (new product development), selling your existing products in new markets (geographic expansion), and creating new products for new markets (diversification). These four options are listed in order of increasing risk; trying new products in unfamiliar markets is usually the riskiest choice of all.
  • Using your current marketing situation and your objectives as your guide, you’re ready to move to the third step. This is where you develop your marketing strategy, which consists of dividing your market into segments and niches, choosing your target markets and the position you’d like to establish in those markets, and then developing a marketing mix to help you get there.
  • Most companies subdivide the market by identifying market segments, or homogeneous groups within a market that are significantly different from each other. This process is called market segmentation; its objective is to group customers with similar characteristics, behavior, and needs. When you segment a market using demographics, the statistical analysis of population, you subdivide your customers according to characteristics such as age, gender, income, race, occupation, and ethnic group. When differences in buying behavior are influenced by where people live, it makes sense to use geographic segmentation. Psychographic analysis focuses on why people behave the way they do by examining such issues as brand preferences, media preferences, reading habits, values, and self-concept. Dividing markets into distinct neighborhoods by combining geographical and demographic data is the goal of geodemographics . Markets can also be segmented according to customers’ knowledge of, attitude toward, use of, or response to products or product characteristics. This approach is known as behavioral segmentation. An increasingly popular way to segment e-commerce customers is by Internet usage patterns .
  • Once you have segmented your market, the next step is to find appropriate target segments or target markets to focus your efforts on. There are three popular strategies for reaching target market. Companies that practice undifferentiated marketing (or mass marketing) ignore differences among buyers and offer only one product or product line to satisfy the entire market. This strategy, which concludes that all buyers have similar needs that can be served with the same standardized product, was more popular in the past then it is today. By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing. This is a popular approach, but it requires substantial resources to tailor products, prices, promotional efforts, and distribution arrangements for each customer group. When company resources are limited, concentrated marketing may be the best marketing strategy. You acknowledge that different market segments exist and you choose to target just one. The strategy can be risky, however, since you’ve staked your company’s fortune on just one segment.
  • Even though consumers position products with or without the help of marketers, marketers do not want to leave their product’s position to chance. Instead, they choose positions that will give their products the greatest advantage in selected target markets. They can position their products on specific product features or attributes (such as size, ease of use, style, performance, quality, durability, or design), on the services that accompany the product (such as convenient delivery, lifetime customer support, or installation methods), on the product’s image (such as reliability or sophistication), on price (such as low cost or premium), on category leadership (such as the leading online bookseller), and so forth.
  • After you’ve segmented your market, selected your target market, and positioned your product, your next task is to develop a marketing mix. A firm’s marketing mix (often called the four Ps ) consists of product, price, place (or distribution), and promotion. When positioning products for target markets, you need to consider the four marketing-mix elements plus the external environment: that is, competition, economics, nature, politics, regulation, technology, society, competition, ethics, and social responsibility. The most basic marketing-mix element is product, which covers the product itself plus brand name, design, packaging, services, quality, and warranty. From a marketing standpoint, a product is anything offered for the purpose of satisfying a want or a need in a marketing exchange. Price, the amount of money customers pay for the product (including any discounts) is the second major component of a firm’s marketing mix. Place (which is commonly referred to as distribution ) is the third marketing-mix element. It covers the organized network of firms that move goods and services from the producer to the consumer. This network is also know as marketing channels or distribution channels. Promotion, the fourth marketing-mix element, includes all the activities the firm undertakes to communicate and promote its products to the target market.
  • Although some products are predominantly tangible and others are mostly intangible, most products fall somewhere between those two extremes. The product continuum indicates the relative amounts of tangible and intangible components in a product. Education is a product at the intangible extreme, whereas salt and shoes are at the tangible extreme.
  • Service products have some special characteristics that affect the way they are marketed. As we have seen, intangibility is one fundamental characteristic. You can’t usually show a service in an ad, demonstrate it before customers buy, mass produce it, or give customers anything tangible to show for their purchase. Services marketers often compensate for intangibility by using tangible symbols or by adding tangible components to their products. Another unique aspect of service products is perishability. Because services cannot usually be created in advance or held in storage until people are ready to buy, services are time sensitive. For this reason, many services try to shift customer demand by offering discounts or promotions during slow periods.
  • Products that are primarily sold to consumers are known as consumer products . Consumer products can be classified into four subgroups, depending on how people shop for them: Convenience products are the goods and services that people buy frequently, without much conscious thought, such as toothpaste, dry cleaning, film developing, and photocopying. Shopping products are fairly important goods and services that people buy less frequently: a stereo, a computer, a refrigerator, or a college education. Such purchases require more thought and comparison shopping to check on price, features, quality, and reputation. Specialty products include particular brands that the buyer especially wants and will seek out, regardless of location or price. Specialty products do not have to be expensive, but they are products that customers go out of their way to buy and rarely accept substitutes for. Unsought goods are products that people do not normally think of buying, such as life insurance, cemetery plots, and new products they must be made aware of through promotion.
  • Two categories of organizational products are expense items and capital items. Expense items are relatively inexpensive goods and services that organizations generally use within a year of purchase. Capital items, by contrast, are more expensive organizational products and have a longer useful life. Aside from dividing products into expense and capital items, organizational buyers and sellers often classify products according to their intended usage. Raw materials like iron ore, crude petroleum, lumber, and chemicals are used in the production of final products. Components like spark plugs and printer cartridges are similar to raw materials. They also become part of the manufacturers’ final products. Supplies such as pencils, nails, and light bulbs that are used in a firm’s daily operations are considered expense items. Installations such as factories, power plants, airports, production lines, and semiconductor fabrication machinery are major capital projects. Equipment includes less expensive capital items such as desks, telephones, and fax machines that are shorter lived than installations. Business services range from simple and fairly risk-free services such as landscaping and cleaning to complex services such as management consulting and auditing.
  • Regardless of a product’s classification, few products last forever. Most products go through a product life cycle, passing through four distinct stages in sales and profits: introduction, growth, maturity, and decline. As the product passes from stage to stage, various marketing approaches become appropriate. The first stage in the product life cycle is the introductory stage, during which producers launch a new product and stimulate demand. After the introductory stage comes the growth stage, marked by a rapid jump in sales and, usually, an increase in the number of competitors and distribution outlets. As competition increases, so does the struggle for market share. During the maturity stage, the longest in the product life cycle, sales begin to level off or show a slight decline. Most products are in the maturity stage of the life cycle where competition increases and market share is maximized-making further expansion difficult. Although maturity can be extended for many years, most products eventually enter the decline stage, when sales and profits slip and then fade away. Declines occur for several reasons: changing demographics, shifts in popular taste, product competition, and advances in technology. When a product reaches this point in the life cycle, the company must decide whether to keep it and reduce the product’s costs to compensate for declining sales or discontinue it and focus on developing newer products.
  • Creating an identity for your products is an important part of developing effective product strategies. Companies create product identities by assigning their products a brand identity — a unique name or design that sets the product apart from those offered by competitors, and by designing and producing an attractive package and label for the product.
  • Jeep, Levi’s 501, Apple, and Acrobat are brand names, the portion of a brand that can be spoken, including letters, words, or numbers. McDonald’s golden arches symbol is an example of a brand mark, the portion of a brand that cannot be expressed verbally. A trademark is a brand that has been given legal protection so that its owner has exclusive rights to its use. Brands offered and promoted by a national manufacturer, such as Procter & Gamble’s Tide detergent and Pampers disposable diapers, are called national brands. Private brands are not linked to a manufacturer but instead carry a wholesaler’s or a retailer’s brand. DieHard batteries and Kenmore appliances are private brands sold by Sears. As an alternative to branded products, some retailers also offer generic products, which are packaged in plain containers that bear only the name of the product. Co-branding is another way to strengthen brands and products. Co-branding occurs when two or more companies team up to closely link their names in a single product. . Two examples of successful co-branding include Kellogg’s Pop Tarts made with Smucker’s jam and Nabisco Cranberry Newtons filled with Ocean Spray cranberries.
  • A product line is a group of products that are similar in terms of use or characteristics. Knowing that no product has an unlimited life cycle, to keep sales strong, companies use the following product-line expansion methods: Line filling. Developing items to fill gaps in the market that have been overlooked by competitors or have emerged due to customer demand. Line extension. Creating a new variation of an existing product. Brand extension. Putting the brand for an existing product category into a new category. Line stretching. Adding higher-priced or lower-priced items to extend a product line’s appeal to new economic groups. An organization with several product lines has a product mix, a collection of goods or services offered for sale. Three important dimensions of a company’s product mix are width, length, and depth. A company’s product mix is wide if it has several different product lines. A company’s product mix is long if it carries several items in its product lines. A product mix is deep if it has a number of versions of each product in a product line.
  • A company’s pricing decisions are determined by manufacturing and selling costs, competition, and the needs of wholesalers and retailers who distribute the product to the final customer. In addition, pricing is influenced by a firm’s marketing objectives, government regulations, consumers’ perceptions, and consumer demand. Marketing objectives. The first step in setting a price is to match it to the objectives you set in your strategic marketing plan. Government regulations. Government plays a big role in pricing in many countries. To protect consumers and encourage fair competition, the U.S. government has enacted various price-related laws over the years. Consumer perceptions. Another consideration is the perception of quality that your price will elicit from your customers. Consumer demand. Whereas a company’s costs establish a floor for prices, demand for a product establishes a ceiling.
  • Common pricing approaches include cost-based, price-based, skimming, penetration pricing, and discounting. Many companies simplify the pricing task by using cost-based pricing (also known as cost plus pricing). They price by starting with the cost of producing a good or a service and then add a markup to the cost of the product. Recent thinking holds that cost should be the last item analyzed in the pricing formula, not the first. Companies that use priced-based pricing can maximize their profit by first establishing an optimal price for a product or service. A product’s price will vary depending on the product’s stage in its life cycle. During the introductory phase, the objective might be to recover development costs as quickly as possible. To achieve this goal, the manufacturer might charge a high initial price ( skimming) and then drop the price later, when the product is no longer a novelty and competition heats up. Rather than setting a high initial price to skim off a small but profitable market segment, a company might try to build sales volume by charging a low initial price, a practice known as penetration pricing. Once a company has set a product’s price, it may choose to adjust that price from time to time to account for changing market situations or changing customer preferences. When you use discount pricing, you offer various types of temporary price reductions, depending on the type of customer being targeted and the type of item being offered.

Chapter 11 Chapter 11 Presentation Transcript

  • Developing Product and Pricing Strategies
  • What Is Marketing? Individual Objectives Organizational Objectives Conception Pricing Promotion Distribution Ideas Services Goods
  • Types of Marketing Product Marketing Place Marketing Cause-Related Marketing Permission Marketing
  • The Role of Marketing Exchanges and Transactions Needs and Wants
  • Time Form Place Possession The Four Utilities
  • The Marketing Concept
    • Customers
    • Profitability
    • Integration
  • The Buyer’s Decision-Making Process Need Recognition Information Search Evaluation of Alternatives Purchase Postpurchase Evaluation
  • Factors That Influence the Buyer’s Decision Culture Social Class Reference Groups Self-Image Situational Factors
  • Analyzing Customer Preferences Marketing Research Database Marketing
  • Building Customer Relationships Relationship Marketing One-To-One Marketing
  • Planning Marketing Strategies Examine Current Marketing Situation 1 Assess Opportunities and Set Objectives 2 Develop Marketing Strategies 3
  • Examine the Current Marketing Situation Review Performance Examine Strengths and Weaknesses Evaluate the Competition Analyze the External Environment
  • Assess Opportunities and Set Objectives Market Penetration Geographic Expansion New-Product Development Diversification
  • Develop the Marketing Strategy Segments and Niches Market Position Target Markets Marketing Mix
  • Segmenting Markets Behavioral Patterns Psychographics Demographics Usage Patterns Geodemographics Geographics
  • Target Market Strategies Company Marketing Mix Company Marketing Mix Market Undifferentiated Differentiated Concentrated Marketing Mix 1 Marketing Mix 2 Marketing Mix 3 Segment 1 Segment 2 Segment 3 Segment 1 Segment 2 Segment 3
  • Positioning the Product Features Image Services Category Leadership
  • Developing the Marketing Mix Social Responsibility Social Responsibility Business Ethics Business Ethics Promotion Place Price Product Competition Economics Nature Politics Regulation Technology Society Target Market
  • The Product Continuum Goods Products Ideas Services Salt Shoes VCR Auto Fast Food Cruise Consulting Education Insurance Tangible Dominant Intangible Dominant
  • Characteristics of Service Products Intangible Quality Perishable Nature
  • Consumer Products Specialty Products Convenience Products Unsought Goods Shopping Products
  • Business Products Raw Materials Installations Supplies Business Services Components Equipment
  • The Product Life Cycle Time Introduction Growth Maturity Decline DVD Players Internet VCRs Cassette Tapes + 0  Sales Volume (units) Sales Profits
  • Product Identities Packaging Labeling Branding
  • Branding Products Brand Names Brand Marks Trade Marks National Brands Private Brands Co-Branding Generic Products
  • Selecting Products Product Line
    • Line filling
    • Line extension
    • Brand extension
    • Line stretching
    Product Mix
    • Width
    • Length
    • Depth
    • Risks and rewards
  • Developing Pricing Strategies Customer Perceptions Marketing Objectives Consumer Demand Government Regulations
  • Pricing Approaches Cost-Based Price-Based Skimming Penetration Discounting