MBA 601 Entrepreneurial Marketing Strategies Week Four Class Lecture Chapters 13,14 & 15

13 Designing and Managing Services 1

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-3 Chapter Questions  How do we define and classify services and how do they differ from goods?  What are the new services realities?  How can we achieve excellence in services marketing?  How can we improve service quality?  How can goods marketers improve customer support services?

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-4 What is a Service? A service is any act of performance that one party can offer another that is essentially intangible and does not result in the ownership of anything; its production may or may not be tied to a physical product.

Services are Everywhere Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-5

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-6 Categories of Service Mix  Pure tangible good  Good with accompanying services  Hybrid  Service with accompany goods  Pure service

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-7 Service Distinctions  Equipment-based or people-based  Service processes  Client’s presence required or not  Personal needs or business needs  Objectives and ownership

Figure 13.1 Continuum of Evaluation for Different Types of Products Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-8

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-9 Distinctive Characteristics of Services Intangibility Inseparability Variability Perishability

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Physical Evidence and Presentation  Place  People  Equipment  Communication material  Symbols  Price

Table 13.1 Dimensions of Brand Experience Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-11

Inseparability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-12

Variability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-13

Increasing Quality Control Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-14

Perishability Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-15

Matching Demand and Supply Demand side  Differential pricing  Nonpeak demand  Complementary services  Reservation systems Supply side  Part-time employees  Peak-time efficiency  Increased consumer participation  Shared services  Facilities for future expansion Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-16

New Service Realities Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-17

Figure 13.3 Root Causes of Customer Failure Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-18

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Solutions to Customer Failures  Redesign processes and redefine customer roles to simplify service encounters  Incorporate the right technology to aid employees and customers  Create high-performance customers by enhancing their role clarity, motivation, and ability  Encourage customer citizenship where customers help customers

Figure 13.4 Types of Marketing in Service Industries Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-20

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Best Practices  Strategic Concept  Top-Management Commitment  High Standards  Self-Service Technologies  Monitoring Systems  Satisfying Customer Complaints  Satisfying Employees

Figure 13.5 Importance- Performance Analysis Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-22

Table 13.3 Factors Leading to Customer Switching Behavior  Pricing  Inconvenience  Core Service Failure  Service Encounter Failures  Response to Service Failure  Competition  Ethical Problems  Involuntary Switching Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-23

Improving Service Quality  Listening  Reliability  Basic service  Service design  Recovery  Surprising customers  Fair play  Teamwork  Employee research  Servant leadership Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-24

Figure 13.6 Service-Quality Model Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13-25

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Determinants of Service Quality  Reliability  Responsiveness  Assurance  Empathy  Tangibles

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Customer Worries Failure frequency Downtime Out-of-Pocket Costs

14 Developing Pricing Strategies and Programs 1

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Chapter Questions  How do consumers process and evaluate prices?  How should a company set prices initially for products or services?  How should a company adapt prices to meet varying circumstances and opportunities?  When should a company initiate a price change?  How should a company respond to a competitor’s price challenge?

Synonyms for Price  Rent  Tuition  Fee  Fare  Rate  Toll  Premium  Honorarium  Special assessment  Bribe  Dues  Salary  Commission  Wage  Tax Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-30

Synonyms for Price  Rent  Tuition  Fee  Fare  Rate  Toll  Premium  Honorarium  Special assessment  Bribe  Dues  Salary  Commission  Wage  Tax Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-31

The Internet Changes the Pricing Environment – By Providing Information Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-32

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Common Pricing Mistakes  Determine costs and take traditional industry margins  Failure to revise price to capitalize on market changes  Setting price independently of the rest of the marketing mix  Failure to vary price by product item, market segment, distribution channels, and purchase occasion

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Consumer Psychology and Pricing  Reference prices  Price-quality inferences  Price endings  Price cues

Table 14.1 Possible Consumer Reference Prices  “Fair price”  Typical price  Last price paid  Upper-bound price  Lower-bound price  Competitor prices  Expected future price  Usual discounted price Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-35

Tiers in Pricing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-36

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Steps in Setting Price  Select the price objective  Determine demand  Estimate costs  Analyze competitor price mix  Select pricing method  Select final price

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 1: Selecting the Pricing Objective  Survival  Maximum current profit  Maximum market share  Maximum market skimming  Product-quality leadership

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 2: Determining Demand  Price sensitivity  Estimate demand curves  Price elasticity of demand

Figure 14.1 Inelastic and Elastic Demand Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-40

Table 14.3 Factors Leading to Less Price Sensitivity  The product is more distinctive  Buyers are less aware of substitutes  Buyers cannot easily compare the quality of substitutes  Expenditure is a smaller part of buyer’s total income  Expenditure is small compared to the total cost  Part of the cost is paid by another party  Product is used with previously purchased assets  Product is assumed to have high quality and prestige  Buyers cannot store the product Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-41

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 3: Estimating Costs  Types of costs  Accumulated production  Activity-based cost accounting  Target costing

Figure 14.2 Cost Per Unit at Different Levels of Production Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-43

Cost Terms and Production  Fixed costs  Variable costs  Total costs  Average cost  Cost at different levels of production Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-44

Figure 14.3 Cost per Unit as a Function of Accumulated Production Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-45

Target Costing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-46

Analyzing Competitor’s Costs Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-47

Figure 14.4 The Three Cs Model for Price-Setting Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-48

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 5: Selecting a Pricing Method  Markup pricing  Target-return pricing  Perceived-value pricing  Value pricing  Going-rate pricing  Auction-type pricing

Figure 14.5 Break-Even Chart for Determining Target-Return Price and Break-Even Volume Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-50

Dollar Store Pricing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-51

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Auction-Type Pricing English Dutch Sealed-Bid

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Step 6: Selecting the Final Price  Impact of other marketing activities  Company pricing policies  Gain-and-risk sharing pricing  Impact of price on other parties

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Geographical Pricing  Pricing varies by location

Price Discounts and Allowances  Discount  Quantity discount  Functional discount  Seasonal discount  Allowance Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-55

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Promotional Pricing Tactics  Loss-leader pricing  Special-event pricing  Cash rebates  Low-interest financing  Longer payment terms  Warranties and service contracts  Psychological discounting

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Differentiated Pricing  Customer-segment pricing  Product-form pricing  Image pricing  Channel pricing  Location pricing  Time pricing  Yield pricing

Traps in Price Cutting Strategies  Low-quality trap  Fragile-market-share trap  Shallow-pockets trap  Price-war trap Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-58

Should We Raise Prices? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14-59

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Methods for Increasing Prices  Delayed quotation pricing  Escalator clauses  Unbundling  Reduction of discounts

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Brand Leader Responses to Competitive Price Cuts  Maintain price  Maintain price and add value  Reduce price  Increase price and improve quality  Launch a low-price fighter line

15 Designing and Managing Integrated Marketing Channels 1

Chapter Questions  What is a marketing channel system and value network?  What work do marketing channels perform?  How should channels be designed?  What decisions do companies face in managing their channels?  How should companies integrate channels and manage channel conflict?  What are the key issues with e-commerce and m-commerce? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-63

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall What is a Marketing Channel? A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption.

Intermediaries Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-65

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channels and Marketing Decisions  A push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users  A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries

REI Employs Hybrid Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-67

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Buyer Expectations for Channel Integration  Ability to order a product online and pick it up at a convenient retail location  Ability to return an online-ordered product to a nearby store  Right to receive discounts based on total online and offline purchases

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 15.1 Channel Member Functions  Gather information  Develop and disseminate persuasive communications  Reach agreements on price and terms  Acquire funds to finance inventories  Assume risks  Provide for storage  Provide for buyers’ payment of their bills  Oversee actual transfer of ownership

Figure 15.1 Marketing Flows in the Marketing Channel for Forklift Trucks Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-70

Marketing Channel Levels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-71

Figure 15.2 Consumer Markets Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-72

Figure 15.2 Industrial Markets Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-73

Reverse-Flow Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-74

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Designing a Marketing Channel System  Analyze customer needs  Establish channel objectives  Identify major channel alternatives  Evaluate major channel alternatives

Figure 15.3 What European Consumers Value Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-76

Service Outputs of Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Lot size Waiting and delivery time Spatial convenience Product variety Service backup

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Identifying Channel Alternatives  Types of intermediaries  Number of intermediaries  Terms and responsibilities

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Number of Intermediaries  Exclusive  Selective  Intensive

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Terms and Responsibilities of Channel Members  Price policy  Condition of sale  Distributors’ territorial rights  Mutual services and responsibilities

Figure 15.4 The Value-Adds versus Costs of Different Channels Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-81

Figure 15.5 Break-Even Cost Chart Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-82

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel-Management Decisions  Selecting channel members  Training channel members  Motivating channel members  Evaluating channel members  Modifying channel members

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel Power Coercive Reward Legitimate Expert Referent

Channel Integration and Systems  Vertical marketing systems  Corporate VMS  Administered VMS  Contractual VMS  Horizontal marketing systems  Multichannel systems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-85

Integrated Marketing Channel System Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-86

Figure 15.6 The Hybrid Grid Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-87

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Channel Conflict  What types of conflict arise in channels?  What causes conflict?  What can marketers do to resolve it?

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Causes of Channel Conflict  Goal incompatibility  Unclear roles and rights  Differences in perception  Intermediaries’ dependence on manufacturer

Table 15.3 Strategies for Managing Channel Conflict  Strategic justification  Dual compensation  Superordinate goals  Employee exchange  Joint memberships  Cooptation  Diplomacy  Mediation  Arbitration  Legal recourse Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-90

E-Commerce Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Pure-click Brick-and-click

M-Commerce Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15-92