BUSINESS Ferrell Hirt Ferrell A CHANGING WORLD FHF EIGHTH EDITION Business: A Changing World Part 5 Chapter 12. FHF McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Marketing: Developing part 5 Marketing: Developing Relationships Chapter 11 Customer-Driven Marketing In chapter twelve we discuss more fully the dimensions of marketing strategy. We will examine the role of product in the marketing mix, define price and pricing strategies, consider the distribution channels that a firm may use, and discuss the activities involved in promotion. Finally, we will discuss how to evaluate an organization’s marketing strategy plans. Chapter 12 Dimensions of Marketing Strategy Chapter 13 Digital Marketing and Social Networking FHF 12-2

The Marketing Mix Keys to developing effective marketing strategy Maintain right marketing mix Satisfy target market Long-term customer relationships Successful companies have at least one dimension of value that surpasses all others The marketing mix is the part of the overall marketing strategy that involves decisions using controllable variables. The three keys to developing an effective marketing strategy are developing the right marketing mix, satisfying the target market, and building long-term customer relationships. Even though every successful company has at least one dimension of value at which it excels, it cannot ignore the other dimensions. FHF 12-3

The most visible variable of the marketing mix Product [ ] A good, service, or idea that has tangible and intangible attributes that provide satisfaction and benefit to consumers As mentioned before, the product is a good, service, or idea that has tangible and intangible attributes that provide satisfaction and benefit to consumers. The product is the marketing mix variable that is most visible to consumers and other stakeholders. The most visible variable of the marketing mix FHF 12-4

Developing New Products Idea development New idea screening Business analysis Product development Test marketing Commercialization Idea development: New ideas come from a variety of sources, including marketing research, engineers and outside sources like ad agencies or management consultants. Sometimes ideas even come from customers. New idea screening: A marketing manager looks at resources and objectives and assesses the firm’s ability to produce and market the product. Business analysis: A basic assessment of a product’s compatibility in a marketplace and its profit potential. Product development: A product that survives the first three steps is developed into a prototype. This is often an expensive step and few products make it this far. Test marketing: A trial mini-launch of a product in a select number of areas that are representative of the potential market. Commercialization: The first full introduction of the complete marketing strategy and full launch of the product to the public. FHF 12-5

Product Development Process Before introducing a new product, a firm must go through a multi-step process, illustrated in this slide. This figure also appears on page 368 of your textbook. FHF 12-6

Classifying Products: Consumer Products Convenience Products Purchased without doing research into price Widely available Often for immediate consumption Example: A gallon of milk Products can be classified different ways. Convenience products tend to be very low in price, meaning consumers will not do much comparison before purchase. …continued on next page FHF 12-7

Classifying Products: Consumer Products Shopping Products Consumer has compared competitors’ prices and has shopped around done Price, features, quality, style, service and image all influence the decision to buy Example: clothing, furniture Generally, consumers spend more time thinking about shopping products before they buy them. They will do some price comparison before they purchase. These items are not as widely available as convenience products. …continued on next page FHF 12-8

Classifying Products: Consumer Products Specialty Products Require the greatest level of research and shopping effort Not willing to accept substitutes Consumers know exactly what they want and go out of their way to find it Price not the strongest consideration Example: designer clothing, art, antiques Specialty products are even less widely available and are likely only available in stores specializing in the particular item in question. Shoppers will have done a lot of research and will have compared the product with other items before making a purchase. FHF 12-9

Classifying Products: Business Products Used directly or indirectly in the operation or manufacturing processes of a business Raw materials Major equipment Accessory equipment Component parts Processed materials Industrial services Many products can be both consumer products and business products depending on their end use. For example, light bulbs purchased for use in your home are a consumer product. Light bulbs purchased for use in an office or factory are a business product. FHF 12-10

Product Line and Product Mix Group of closely related products that are treated as a unit because of a similar marketing strategy, production, or end-use Product Mix All the products offered by the company The product like is a group of closely related products that are treated as a unit because of a similar marketing strategy, production, or end-use. The product mix is all of the products offered by a particular company. FHF 12-11

The Product Life Cycle FHF This slide shows the product life cycle and how it relates to profit. This figure is also available on page 372 of the text. A product’s stage helps the marketer to determine the marketing strategy and marketing mix. Marketing strategy and marketing mix will vary for different products at different points in the life cycle. FHF 12-12

Identifying Products Branding The process of identifying products Name Term Symbol Design Trademark A brand registered with U.S. patent and trademark office Protected from use by any other firm Branding, packaging and labeling are all used to identify and distinguish products from their competitors. Branding involves identifiable names, terms or symbols that help customers identify particular products. A trademark is a brand that is registered with the U.S. patent and trademark office. Trademarks are protected by use from other firms. FHF 12-13

Brand Categories Manufacturer Brands Private Distributor Brands Initiated and owned by the manufacturer to identify products from production to point of purchase Private Distributor Brands Cost less than manufacturer brands; owned and controlled by wholesaler or retailer Generic Products No brand name often come in simple packages and carry their generic name There are different types of brand categories, which are listed on this slide. Manufacturer brands are owned by the manufacturer and identify products from production to point of purchase. Private distributor brands tend to cost less than manufacturer brands and are owned by a wholesaler or retailer. Generic products are not branded. They tend to come in simple packages and carry a generic name. FHF 12-14

The Most Valuable Global Brands The brands listed in this slide have been deemed most valuable in the world. The value of a brand represents more than simply annual sales, but also how recognizable the brand is and intangible factors like consumer goodwill toward the brand. http://www.youtube.com/watch?v=BqMD6AOIG6g FHF 12-15

Packaging http://www.youtube.com/watch?v=E3RlwaMhfD4 External container that holds & describes the product Protection Economy Convenience Promotion Packaging is the external container that holds and describes a product. It can influence consumers’ attitudes about the product and decision to buy it. Most consumers are willing to pay more money for products with certain packaging attributes such as reusability, keeping product fresh longer, etc. http://www.youtube.com/watch?v=E3RlwaMhfD4 FHF 12-16

Labeling The presentation of important information on the package (often by law) Ingredients or content Nutrition facts (calories, fat, etc.) Care instructions Suggestions or use (such as recipes) The manufacturer’s address and toll-free number Website Other useful information Labeling is the presentation of important information on the package. It is closely associated with packaging. The information on labels can strongly impact sales. Some of the information provided on packaging is often mandated by law. FHF 12-17

Product Quality [ ] The degree to which a good, service, or idea meets the demands and requirements of customers Product quality is the degree to which a good, service, or idea meets the demands and requirements of customers. The level of quality is the amount of quality a product possesses. Consistency of quality depends on a product maintaining the same level of quality over time. Quality is subjective and therefore difficult to gauge–it depends on customers’ perceptions. FHF 12-18

Pricing Strategy Four Common Pricing Objectives Maximize profits and sales Boost market share Maintain the status quo Survival Customers’ evaluation of value may be influenced by time constraints, price levels, perceived quality and motivations to use available information about prices. For most goods, supply and demand sets the price–as demand goes up (and supply goes down), so does price. Marketers generally have four main objectives when setting prices, as listed in this slide. FHF 12-19

Specific Pricing Strategies New Product Pricing Price skimming Penetration pricing Psychological Pricing Even/odd Symbolic/prestige pricing Price Discounting Quantity discounts Seasonal discount Promotional discounts Specific pricing strategies involve new product pricing, psychological pricing and price discounting. With new products, marketers may engage in price skimming, which is charging the highest possible price that buyers will pay; or penetration pricing, which is setting a low price that will help a product gain market share quickly. Psychological pricing involves even/odd and symbolic/prestige pricing. Even/odd pricing takes advantage of the fact that people will buy more of a product $9.99 than at $10 because it seems like more of a bargain at the odd price. Symbolic/prestige pricing utilizes people’s perception that high connote quality to consumers. Price discounting is exactly what is sounds like–selling products at a discount. Discounts are often employed to boost sales. FHF 12-20

Premium Pricing in the Pet Market Consumers in the U.S. spend more on pets than on music, movies and video games combined Dog segment is largest in the pet market Dog owners spend over $2,500 on their dogs annually Many pet owners are willing to pay a premium for natural dog food and products 17 million premium pet households in the U.S. Complete Natural Nutrition is a premium pet food company One industry that engages in prestige pricing is the high-end pet market. Consumers spend more money on their pets than they do on music, movies, and video games combined. Often, pets are treated as family members and owners spare no expense. To satisfy people’s desires to pamper their pets, premium pet brands offer all-natural, high-end pet food and other products to the roughly 17 million pet households in the U.S. Complete Natural Nutrition is one of these premium pet food brands. Click on the title for a video (14:24) on marketing in the premium dog market. Note: This video is quite in-depth and will require nearly 15 minutes of class time. This video does discuss all key aspects of this chapter. FHF 12-21

Distribution Strategies Marketing Channel A group of organizations that moves products from their producer to consumers Retailers Buy products from manufacturers and sell them to customers for uses other than resale Many now compete online Wholesalers Intermediaries that buy from producers or other wholesalers and sell to retailers Also called middlemen Distribution ensures that products are available where and when they are needed and wanted. The marketing channel is a group of organizations that moves products from their producer to consumers. Retailers buy products from manufacturers and sell them to customers for uses other than resale. Wholesalers, or middlemen, are intermediaries that buy from producers or other wholesalers and sell to retailers. FHF 12-22

Supply Chain Management Creates alliances between channel members Channels for consumer products Channels for business products More likely to be direct marketing channels Supply chain management is important because it creates alliances between channel members. There are different channels for consumer and business products. More than half of all business products are sold through direct marketing channels because businesses like to communicate directly with the producer and receive extra technical support. FHF 12-23

Channels for Consumer Products This slide illustrates different distribution channels for consumer products. It is also available on page 384 of your textbook. Channel A: Farmers at a roadside stand use this distribution channel Channel B: Use this channel for college textbooks, cards, and appliances. Channel C: Is for products that go through a wholesaler and a retailer involve a wide range of products from televisions to office supplies and watches. Channel D: This channel is commonly used for convenience products like candy and some types of produce. FHF 12-24

Intensity of Market Coverage Depends on buyer behavior, the nature of the target market and competition Intensive Makes a product available in as many outlets as possible Selective Uses only a small proportion of all available outlets to expose products Exclusive Exists when a manufacturer gives a middleman the sole right to sell a product in a defined geographic territory The intensity of market coverage depends on buyer behavior, the nature of the target market and on competition. Intensive distribution seeks to make products available in as many outlets as possible. Selective distribution uses only a small proportion of available outlets. Exclusive distribution occurs when a manufacturer gives a middleman the sole right to sell a product in a defined territory. Convenience products like bread or milk are intensively distributed, while luxury items like sports cars or fine jewelry are exclusively distributed. FHF 12-25

Physical Distribution Includes all the activities necessary to move products from producers to customers Inventory control Transportation Warehousing Materials handling Physical distribution includes all the activities necessary to move products from producers to customers. It creates time and place utility by making products available when and where they are needed, with adequate service and minimum costs. http://www.youtube.com/watch?v=t_4pTlAj6Yo FHF 12-26

Physical Distribution Transportation The shipment of products to buyers Railroads, trucks, air and pipelines Factors to consider are: cost, capability to handle the product, reliability and availability Warehousing Design and operation of facilities to receive, store and ship products Materials Handling Physical handling and movement of products in warehouses and transportation Can increase efficiency and reduce costs Transportation, warehousing and materials handling are all part of the physical distribution process. Transportation is the shipment of products to buyers. Shipping methods are rail, truck, air and pipeline. The best method of shipment will depend on a number of factors including: cost, capability to handle the product, reliability and availability. Warehousing involves the design and operation of facilities to receive, store and ship products. Materials handling is the physical movement of products–smart materials handling can increase efficiency and reduce costs. FHF 12-27

Distribution Strategy The least flexible element of marketing mix Commits resources and establishes contractual relationships Difficult to change Expansion into new markets may require new distribution strategy The distribution strategy is important for marketers to get right because, once implemented, it is quite inflexible. Because of contractual agreements, distribution can be very difficult to change. Expanding globally will require a rethinking and expansion of distribution. FHF 12-28

Promotion Strategy Goal is to communicate with individuals, groups and organizations Encourages marketing exchanges Used to influence opinions and attitudes toward organizations, people, or causes Promotion encourages marketing exchanges by attempting to persuade individuals, groups and organizations to accept goods, services and ideas. Promotion is used to sell products and to influence opinions and attitudes toward an organization, person, or cause. FHF 12-29

The Promotion Mix http://www.youtube.com/watch?v=M4jPl-nL-YM Advertising Personal Selling Publicity Sales Promotion The approaches listed in this slide are collectively known as the promotion mix because a successful promotion strategy will come out of choosing and blending these elements appropriately for the target market. http://www.youtube.com/watch?v=M4jPl-nL-YM http://www.youtube.com/watch?v=qMOuF8oskRU FHF 12-30

Integrated Marketing Communication [ ] The process of coordinating the promotion mix elements and synchronizing promotion as a unified effort Integrated marketing communications is the process of coordinating the promotion mix elements and synchronizing promotion as a unified effort. It comes from the successful combination of the elements in the promotion mix. Properly done integrated marketing communication will result in the intended message being sent to the intended market. http://www.youtube.com/watch?v=RqGIemVf4cY FHF 12-31

Advertising A paid non-personal communication communicated through mass media Advertising campaign involves designing a series of advertisements and positioning them to reach a target audience Online advertising is increasing Advertising is a paid non-personal communication communicated through mass media. Online advertising is on the rise because it helps marketers reach new target markets and is often more affordable than traditional advertising media. FHF 12-32

Advertising Campaign Designing a series of ads and placing them in various media to reach a particular target audience Product’s features, uses and benefits affect the message Characteristics of the target audience influence content and form Advertisers use words, symbols and forms familiar to the target audience to communicate effectively An ad campaign involves designing a series of advertisements and positioning them to reach a target audience. An ad campaign will often stress a product’s features, uses and benefits. The message, content and form of the campaign should be tailored to the characteristics of the target audience. FHF 12-33

Online Advertising Ray-Ban’s Official Website Features a Virtual Mirror Advertising Campaign Encourages marketing exchanges Used to influence opinions and attitudes toward organizations, people, or causes Online advertising is on the rise. High-end sunglasses brand, Ray-Ban, utilized the web to help customers try on new shades. Ray-Ban invites consumers to virtually try on the company’s sunglasses looks. It encourages consumers to interact with the company through its website. Click on the Ray-Ban logo to access the Bay-Ban Virtual Mirror campaign. http://www.youtube.com/watch?v=0E_T7hARgiM FHF 12-34

Personal Selling Avon uses personal selling Direct two-way communication with buyers/potential buyers Avon uses personal selling Targets women as customers and salespeople Personal interaction with customers Salespeople earn commissions Flexible hours The internet is an increasingly important component Personal selling is direct, two-way communication with buyers and potential buyers. It is the most flexible of the promotional methods. There are three categories of salespeople: order takers, creative salespersons, and support salespersons. Avon is one of the best-known personally selling companies in the world. Click on the hyperlink to access an infomercial on Avon and the business opportunities it offers. FHF 12-35

Personal Selling is a Six-step Process Prospecting Approaching Presenting Handling objections Closing Following up Personal selling is a six-step process, as shown in this slide. It used to be a door-to-door endeavor. Technology is changing that. Some of these steps, such as prospecting, approaching and presenting can be done via the Internet and other digital communications devices. FHF 12-36

Publicity http://www.youtube.com/watch?v=QlBMF1MvAGY A non-paid, non-personal communication through mass media channels Mainly informative or descriptive News story forms Can be extremely important for a company Buzz marketing: marketers attempt to create a trend through publicity Publicity is a non-paid, non-personal communication through mass media channels. It is usually informative or descriptive, such as a news story. It can be an extremely important way for companies to improve sales and market share through enhancing its public profile. A firm does not pay for the cost of publicity and is not the originator of the message–can be positive or negative. Buzz marketing is where marketers attempt to create a trend through publicity. http://www.youtube.com/watch?v=QlBMF1MvAGY FHF 12-37

Sales Promotion Direct inducements such items as coupons, contests and free samples to persuade buyers to purchase products Stimulates customer purchasing Enhances other promotional efforts Generally less expensive than advertising Sales promotions are direct inducements such items as coupons, contests and free samples to persuade buyers to purchase products. Promotions can stimulate purchasing temporarily. It can also work to enhance other promotion efforts, and is generally less expensive than advertising. FHF 12-38

Promotion Strategies FHF This slide illustrates two different marketing strategies: the push and pull strategies. The Push strategy attempts to motivate intermediaries to push the product down the line. The Pull strategy uses promotion to create consumer demand for a product so consumers put pressure on distribution channels to make the product available. FHF 12-39

Objectives of Promotion Promotion is only one element of the marketing strategy Must be tied to goals of firm Stimulate demand Stabilize sales Inform Remind Reinforce customers Promotional Positioning To create and maintain an image of a product in buyers’ minds Promotion is only one element of the marketing mix and it must be coordinated with the other elements. Promotion also must be tied to the overall goals of the firm. It can help to stabilize falling sales, and inform or remind consumers about products. The marketing mix a company uses depends on its objectives. Promotional positioning is the process of creating and maintaining an image of a product in buyers’ minds. FHF 12-40