Basic Marketing Concepts
Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.
- Market-a collection of buyers and sellers.
- Marketspace-electronic marketplaces unbound by time or space.
- Metamarket-a cluster of closely related goods and services that center around a specific consumption activity.
- Metamediary-provides a single access point where buyers can locate and contact many different sellers in the metamarket; Amazon, Expedia, and Priceline.
What is exchange?
Exchange-the process of obtaining something of value from someone by offering something in return; this usually entails obtaining products for money:
1. There must be at least two parties to the exchange.
2. Each party has something of value to offer the other party.
3. Each party must be capable of communication and delivery.
4. Each party must be free to accept or reject the exchange.
5. Each party believes it is desirable to exchange with the other party.
What is a product?
Product-something that can be acquired via exchange to satisfy a need or a want.
- Goods, Services, Ideas, Information, Digital Products, People, Places, Experiences and Events, Real or Financial Property, and Organizations.
- Customers usually seek out exchanges with marketers who offer products that are high in one or more of 5 types of utility:
- Time Utility-products are available when customers want them; faster transactions.
- Place Utility-Products are available where customers want them, which is typically wherever the customer happens to be at the moment or where the product needs to be at that moment.
- Place utility-the closer the better.
- Possession Utility-the transfer of ownership or title from marketer to customer. These products are more satisfying because marketers make them easy to acquire.
- Projection utility-example with cars.
- Psychological Utility-deliver positive experiential or psychological attributes that customers find satisfying Psychological utility: sporting events.
Major Marketing Activities and Decisions
All marketing activities have one thing in common: They aim to give customers a reason to buy the organization’s product.
- Strategy-outlines the organization’s game plan for success.
- Tactical planning-concerns itself with specific markets or market segments and the development of marketing programs that will fulfill the needs of customers in those markets
- Marketing Plan-provides the outline for how the organization will combine product, pricing, distribution, and promotion decisions to create an offering that customers will find attractive. Also concerns itself with implementation, control, and refinement of these decisions
Social Responsibility and Ethics
- Social Responsibility–an organization’s obligation to maximize its positive impact on society while minimizing its negative impact.
Research and Analysis
Strategic planning depends heavily on the availability and interpretation of information. Organization must also have access to three other types of information and analysis:
1. Internal Analysis-involves the objective review of internal information pertaining to the firm’s current strategy and performance, as well as the current and future availability of resources.
2. Competitive intelligence-involves analyzing the capabilities, vulnerabilities, and intentions of competing businesses.
3. Environmental scanning or External Analysis-involves the analysis of economic, political, legal, technological, and cultural events and trends that may affect the future of the organization and its marketing effects
Situation analysis-the overall process of collecting and interpreting internal, competitive, and environmental information
Developing Competitive Advantage-something that the firm does better than its competitors that gives it an edge in serving customers’ needs and/or maintaining mutually satisfying relationships with important shareholders. They set the tone, or strategic focus, of the entire marketing program.
Marketing Strategy Decisions
- Market Segmentation-divide the total market into smaller, relatively homogeneous groups or segments that share similar needs, wants, or characteristics.
- Target Markets-he or she identifies one or more segments of individuals, businesses, or institutions toward which the firm’s marketing efforts will be directed.
- Product positioning-involves establishing a mental image, or position, of the product offering relative to competing offerings in the minds of the minds of target buyers.
- Pricing decision: First, price is the only element of the marketing mix that leads to revenue and profit. Second, price typically has a direct connection with customer demand. Third, pricing is the easiest element of the marketing program to change. Finally, pricing is a major quality cue for customers. One of these reasons that pricing is so interesting is that price represents a major point in marketing strategy where buyer and seller motivations come into conflict.
Distribution and Supply Chain Decisions
The goal of distribution and supply chain management-to get the product to the right place, at the right time, in the right quantities, at the lowest possible cost. Distribution and supply chain issues are critical for major reasons: product availability and distribution costs.
Integrated Marketing Communication- the coordination of all promotional activities (media advertising, direct mail, personal selling, sales promotion, public relations, packaging, store displays, website design, personnel) to produce a unified, customer-faced message.
Implementation and Control
Marketing implementation-process of executing the marketing strategy is the “how” of marketing planning
Developing and Maintaining Customer Relationships
- Transactional Marketing-complete a large number of discrete exchanges with individual customers
- Relationship Marketing-develop and maintain long-term, mutually satisfying arrangements where both buyer and seller focus on the value obtained from the relationship
Taking on the Challenges of Marketing Strategy
One of the greatest frustrations and opportunities in marketing is change-customers change, competitor’s change, and even the marketing organization changes. One of the most basic shifts involves the increasing demands of customers. Decline in satisfaction can be attributed to: customers have become much less brand loyal than in previous generations. Today’s customers are very price sensitive. Product commoditization pushes margins lower and reduces brand loyalty even further
Strategic Marketing Plan
The Strategic Planning Process
An in-depth analysis of the organization’s internal and external environments-sometimes referred to as a situation analysis
Marketing Plan-a written document that provides the blueprint or outline of the organization’s marketing activities, including the implementation, evaluation, and control of those activities; clearly explains how the organization will achieve its goals and objectives
Organizational Mission Versus Organizational Vision
- Mission/mission statement-seeks to answer the question “What business are we in?”
Elements of the Mission Statement
1. Who are we?
2. Who are our customers?
3. What is our operating philosophy? (basic beliefs, values, ethics, etc)
4. What are our core competencies or competitive advantages?
5. What are our responsibilities with respect to being a good steward of our human, financial, and environmental resources?
One portion of the strategic plan that should not be kept confidential, should be included in annual reports and major press releases, framed on the wall in every office, and personally owned by every employee of the organization. Goals, objectives, strategies, tactics, and budgets are not for public viewing.
Mission Width and Stability
If the mission is too broad, it will be meaningless to those who read and build upon it. Well-designed mission statement should not stifle and organization’s creativity, it must help keep the firm from moving too far from its core competencies. Overly narrow mission statements that constrain the vision of the organization can prove just as costly. The mission should change only when it is no longer in sync with the firm’s capabilities, when competitors drive the firm from certain markets, when new technology changes the delivery of customer benefits, or when the firm identifies a new opportunity that matches its strengths and expertise.
Customer-Focused Mission Statements
Mission statements have become much more customer oriented
Corporate or Business-Unit Strategy
1) Corporate Strategy-central scheme or means of utilizing and integrating resources in the areas of production, finance, research, and development, human resources, and marketing, to carry out the organization’s mission and achieve the desired goals and objectives
2) Business-unit Strategy-determines the nature and future direction of each business unit, including its competitive advantages, the allocation of its resources, and the coordination of the functional business areas (marketing, production, finance, human resources, etc.)
Important consideration for a firm determining its corporate or business-unit strategy is the firm’s capabilities. When a firm possesses capabilities that allow it to serve customers’ needs better than the competition, it is said to have a competitive, or differential, advantage. The key issue is the organization’s ability to convince customers that its advantages are superior to those of the competition
Functional Goals and Objectives
Marketing and all their business functions must support the organization’s mission and goals, translating these into objectives with specific quantitative measurements
Marketing objectives: units of measure might include sales volume (in dollars/units), profitability per unit, percentage gain in market share, sales per square feet, average customer purchase, percentage of customers in the firm’s target market who prefer its products, or some other measurable achievement.
In marketing strategy, the process focuses on selecting one or more target markets and developing a marketing program that satisfies the needs and wants of members of the target market.
The strategy must:
(1) Fit the needs and purposes of the functional area with respect to meeting its goals and objectives
(2) Be realistic given the organization’s available resources and environment,
(3) Be consistent with the organization’s mission, goals, and objectives.
Involves activities that actually execute the functional area strategy. All functional plans have at least 2 target markets: an external market and an internal market. In order for a functional strategy to be implemented successfully, the organization must rely on the commitment and knowledge of its employers-its internal target market.
Evaluation and Control
The key to coordination is to ensure that functional areas maintain open lines of communication at all ties. Evaluation and control occur after a strategy has been implemented. The implementation of any strategy would be incomplete without an assessment of its success and the creation of control mechanisms to provide and revise the strategy or its implementation. Evaluation and control serve as the beginning point for the planning process in the next planning cycle.
Chapter 2: Writing a Marketing Plan
The Marketing plan provides a detailed formulation of the actions necessary to carry out the marketing program. A marketing plan is not the same as a business plan. Business plans, although they typically contain a marketing plan, encompass other issues such as business organization and ownership, operations, financial strategy, human resources, and risk management. Can be developed for specific products, brands, target markets, or industries. Likewise, a marketing plan can focus on a specific element of the marketing program, such as a product development plan, a promotional plan, a distribution plan, or a pricing plan.
Marketing Plan Structure
- Comprehensive-essential to ensure that there are no omissions of important information
- Flexible-must be flexible enough to be modified to fit the unique needs of your situation
- Consistent-may also include the connection of the marketing plan outline to the planning process used at the corporate- or business-unit levels.
- Logical-because the marketing plan must ultimately sell itself to top managers the plan’s outline must flow in a logical manner
I. Executive Summary-A synopsis of the overall marketing plan, with an outline that conveys the main thrust of the marketing strategy and its execution; should also identify the scope and time frame for the plan. The idea is to give the reader a quick understanding of the breadth of the plan and its time for frame for execution. It should always be the last element to be written because it is easier to write after the entire marketing plan has been developed. It may be the only element of the marketing plan read by a large number of people.
b. Major aspects of the marketing plan
II. Situational Analysis
a. Analysis of the internal environment-considers issues such as the availability and deployment of human resources, the age and capacity of equipment of technology, the availability of financial resources, and the power and political struggles within the firm’s structure.
b. Analysis of the customer environment-examines the current situation with respect to the needs of the target market, anticipated changes in these needs, and how well the firm’s products presently meet these needs
c. Analysis of the external environment-includes relevant external factors-competitive, economic, social, political/legal, and technological-that can exert considerable direct and indirect pressure on the firm’s marketing activities
III. SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)-common mistake in SWOT analysis is the failure to separate internal issues from the external issues. Another common mistake is to list the firm’s strategic alternatives as opportunities. At the conclusion of the SWOT analysis, the focus of the market
e. Analysis of the SWOT matrix
f. Developing competitive advantage
g. Developing a strategic focus
IV. Marketing Goals and Objectives-sets the performance targets that the firm seeks to achieve by giving life to its strategic focus through its marketing strategy. It also defines the parameters by which the firm will measure actual performance in the evaluation and control phase of the marketing plan.
a. Marketing goals-are broad, simple statements of what will be accomplished through the marketing strategy
b. Marketing objectives-are more specific and essential to planning. Should be stated in quantitative terms to permit reasonably precise measurements.
V. Marketing Strategy: involves selecting and analyzing target markets and creating and maintaining an appropriate marketing program to satisfy the needs of those target markets.
a. Primary and secondary target markets
c. Product Strategy-must be of higher quality that competitive offerings
d. Pricing Strategy-must be consistent with the level of quality (value)
e. Distribution/supply chain strategy-must be as efficient as possible
f. Integrated marketing communication (promotion) strategy-must be more effective in communicating with target customers
VI. Marketing Implementation
Structural issues-the implementation section of the marketing plan describes how the marketing program will be executed
1. What specific marketing activities will be undertaken?
2. How will these activities be performed?
3. When will these activities be performed?
4. Who is responsible for the completion of these activities?
5. How will the completion of planned activities be monitored?
6. How much will these activities cost?
a. Tactical marketing activities
VII. Evaluation and Control-Marketing control involves establishing performance standards, accessing actual performance by comparing it with these standards, and taking corrective action if necessary to reduce discrepancies between desired and actual performance.
a. Formal controls
b. Informal controls
c. Implementation schedule and timeline
d. Marketing Audits
Estimates of costs, sales, and revenues determine financial projections.
Marketing audit-systematic examination of the firm’s marketing objectives, strategy, and performance. Can help isolate weaknesses in the marketing plan and recommend actions to help improve performance.
Using the Marketing Plan Structure
1) Plan ahead-writing a comprehensive marketing plan is very time-consuming especially if the plan is under development for the first time.
2) Revise, then revise again-because the revision process always takes more time than expected, it is wise to begin the planning process far in advance of the due date for the plan
3) Be creative-a marketing plan is only as good as the information it contains and the effort and creativity that go into its creation
4) Use common sense and judgment-necessary to sort through all of the information, weed out poor strategies, and develop a sound marketing plan.
5) Think ahead to implementation-you should always be mindful of how the plan will be implemented.
6) Update regularly-once the marketing plan has been developed and implemented; it should be updated regularly with the collection of new data and information.
7) Communicate to others-ability to communicate to colleagues, particularly top managers who look to the marketing plan for an explanation of the marketing strategy, as well as for a justification of needed resources, like the marketing budget.
Research indicates that organizations that develop formal, written strategic marketing plans tend to be more tightly integrated across functional areas, more specialized, and more decentralized in decision-making.
Purposes and Significance of the Marketing Plan
1. Explains both the present and future situations of the organization. This includes the situation and SWOT analyses and the firm’s past performance.
2. It specifies the expected outcomes (goals and objectives) so that the organization can anticipate its situation at the end of the planning period
3. It describes the specific actions that are to take place so that the responsibility for each action can be assigned and implemented
4. It identifies the resources that will be needed to carry out the planned actions
5. It permits the monitoring of each action and its results so that controls may be implemented. Feedback from monitoring and control provides information to start the planning cycle again in the next time. The marketing plan is the means of communicating the strategy to top executives who make critical decisions regarding the productive and efficient allocation of resources
Organizational Aspects of the Marketing Plan
The marketing manager, brand manager, or product manager writes the market plan. Some develop through committees. Others hire professional marketing consultants. Most firms lie at the level of marketing vice president or marketing director. The plan must be clear and persuasive to win the approval of the decision makers who make the evaluation.
Maintaining Customer Focus and Balance in Strategic Planning
Many firms have changed the focus and content of their strategic planning efforts and marketing plans (1) Renewed emphasis on the customer (2) The advent of balanced strategic planning
Having a market or customer orientation meant putting customer’s needs and wants first. Market-oriented firms are those that successfully generate, disseminate, and respond to market information. These firms focus on customer analysis, competitor analysis, and integrating the firm’s resources to provide customer value and satisfaction, as well long-term profits. Where traditional structures are very authoritative, with desicion-making authority emanating from the top of the hierarchy, market-oriented structures decentralize decision making. Serving customer needs.
Balanced Strategic Planning
The basic tenet of the balanced performance scorecard is that firms can achieve better performance if they align their strategic efforts by approaching strategy from four complementary perspectives: financial, customer, internal process, and learning and growth. The financial perspective is vital but should be balanced by the other components of the scorecard. The customer perspective looks at customer satisfaction metrics as a key indicator of firm performance, particularly as the firm moves ahead. The internal process perspective focuses on the way the business is running by looking at both mission-critical and routine processes that drive day-to-day activity. The learning and growth perspective focuses on people and includes such vital issues as corporate culture, employee training, communication, and knowledge management.
1. Translate the strategy into operational terms
2. Align the organization to strategy-link different functional areas through common themes, priorities, and objectives.
3. Make strategy everyone’s everyday job-move the strategy from the executive boardroom to the front lines of the organization.
4. Make strategy a continual process-hold regular meetings to re-view strategy performance.
5. Mobilize change through executive leadership-committed energetic leaders who champion the strategy and the balanced scorecard.
One of the major benefits of the balanced scorecard is that it forces organizations to explicitly consider during strategy formulation those factors that are critical to strategy execution. Good strategy is always developed with an eye toward how it will be implemented
Chatper 7 Product Strategy
Strategic decisions to be made in the marketing plan, the design, development, branding, and positioning of the product are perhaps the most critical. Product-something that buyers can acquire via exchange to satisfy a need or a want (food, entertainment, information, people, places, ideas, etc.) Products are not created and sold as individual elements; rather than products are developed and sold as offerings. Organization’s product offering is composed of tangible goods, services, ideas, images, or even people. Due to complexity, we prefer to discuss products as offerings, or the bundle of physical (tangible), service (intangible), and symbolic (perceptual attributes) designed to satisfy customers’ needs and wants. Organizations strive to enhance the service and symbolic elements. Focusing primarily on the intangible aspects of a product, not on its tangible or physical elements. Product Strategy needs to be fully integrated with pricing, distribution, and promotion, as these components of the marketing program add value to the product offering. Product offerings in and of themselves have little value to customers. Rather, an offering’s real value comes from its ability to deliver benefits that enhance a customer’s situation or solve a customer’s problems.
The Product Portfolio
Products purchased for personal use and enjoyment are called consumer products, whereas those purchased for resale, to make other products, or for use in a firm’s operations are called business products. Marketing strategy for consumer convenience products must max availability and ease of purchase-both important distribution considerations. The strategy associated with consumer shopping products often focuses more on differentiation through image and symbolic attributes-both important branding and promotion issues. For commodities such as raw materials conformance to exacting product specifications and low acquisition costs are the keys to effective strategy. Many business products are also characterized by derived demand, where demand of product is derived from the demand for other business or consumer products. The products sold by a firm can be described with respect to product lines and product mixes. A product line consists of a group of closely related product items. Most companies sell a variety of different product lines. A firms product mix or portfolio is the total group of products offered by the company.
Types of Consumer and Business Products
Convenience Products-inexpensive, routinely purchased products that consumers spend little time and effort in acquiring. Ex: Soft Drinks, Candy and Gum, Gasoline
Shopping Products-products that consumers will spend time and effort to obtain. Consumers shop different options to compare prices, features, and service. Ex: Dry cleaning, appliances, furniture, clothing, and vacations
Specialty Products-unique, one-of-a-kind products that consumers will spend considerable time, effort, and money to acquire. Ex: sports memorabilia, antiques, plastic surgery, luxury items
Unsought products-products that consumers are unaware of….
Important decision is the number of product lines to offer, referred to as the width or variety of the product mix. By offering a wide variety of product lines, the firm can diversify its risk across a portfolio of product offerings. Assortment-product line depth is an important marketing tool. Firms can attract a wide range of customers and market segments by offering a deep assortment of products in a specific line
- Economies of scale-offering many different product lines can create economies of scale in production, bulk buying, and promotion. Many use umbrella theme.
- Package uniformity-customers can locate the firms products more quickly. Also becomes easier for the firm to coordinate and integrate promotion and distribution.
- Standardization-same component parts
- Sales and Distribution Efficiency-firm offers many different product lines, sales personnel can offer a full range of choices and options to customers. Channel intermediaries are more accepting of a product line than they are of individual products.
- Equivalent Quality Beliefs-Customers typically expect and believe that all products in a product line are about equal in terms of quality and performance.
The Challenges of Service Products
Products can be intangible services and ideas as well as tangible goods. All firms develop and implement marketing strategies designed to match their portfolio of intangible products to the needs of target markets. Intangible services face unique challenges in developing marketing strategy. Services cannot be stored for future use. The demand for services is extremely time-and-place dependent because customers must typically be present for service to be delivered. Due to intangibility of service, it is quite difficult for customers to evaluate a service before they actually purchase and consume it. Customers can ask friends and family for recommendations. Some service companies provide satisfaction guarantees to customers.
Unique Characteristics of Services and Resulting Marketing Challenges
It is difficult for customers to evaluate quality, especially before purchase and consumption.
It is difficult to convey service characteristics and benefits in promotion. As a result, the firm is forced to sell a promise. Many services have few standardized units of measurement. Therefore, service prices are difficult to set and justify. Customers cannot take possession of a service.
Simultaneous Production and Consumption
Customers or their possessions must be present during service delivery.
Other customers can affect service outcomes including service quality and customer satisfaction. Service employees are critical because they must interact wit customers to deliver service. Converting high-contact services to low-contact services will lower costs but may reduce service quality. Services are often difficult to distribute.
Services cannot be inventoried for later use. Therefore, unused service capacity is lost overview. Service demand is very time-and-place sensitive. As a result, it is difficult to balance supply and demand, especially during periods of off-peak demand. Heterogeneity
Service quality varies across people, time, and place, making it very difficult to deliver good service consistently.
There are limited opportunities to standardize service delivery.
Many services are customizable by nature. However, customization can dramatically increase the costs of providing the service.
Most services live or die by maintaining a satisfied clientele over the long term. Generating repeat business is crucial for the service frim’s success.
New Product Development +
Market characteristics and competitive situations will affect the sales potential of new products (GPS units now sold in cars, on phones, etc)
-Some firms base new product introductions on a product/ technological superiority, some minor tweak existing products
-New-to-the world products (discontinuous innovations)- creation of entirely new market; radical thinking by entrepreneur; Ex: Fred Smith’s idea for overnight packaging (UPS)
-New product lines- new offerings to the firm, but in established markets; Dells move to flat screens; not as risky as innovation
-Product line extensions- existing product line with new styles, models, features, and flavors; Budweiser’s introduction of Bud Light Lime; allow company to keep products fresh with minimal costs and risks
-Improvements or revisions of existing products- products that offer improved performance or greater perceived value; “new and improved”; anti-allergen or shampoo plus conditioner
-Repositioning- targeting existing products at new markets or segments; Carnival Cruise effort to attract senior citizens
-Cost reductions- modifying products to offer performance similar to competing products but at a lower price; convert hard cover to paper back
-First two options are most effective and profitable when firm wants to significantly differentiate its product
-Key to success is to create a differential advantage
-Customer perceptions are what matters in many cases
-Process of developing new products:
-Idea generation- ideas can be obtained from customers, employees, research, competitors, and supply chain partners
-screening and evaluation- ideas are screened for match with firms capabilities and ability to meet customers needs and wants
-development- product specifications are set, design is finalized, and initial production begins; full marketing plan is developed in order to acquire the resources and collaboration needed for full scale launch
-test marketing in real or simulated situations to determine performance
-commercialization- launched with complete marketing program
Strategic Issues in Branding Strategies +
-Branding makes the customer buying process more efficient because customers can locate and purchase products more easily
-Manufacturer vs. private-label brands: private label brands (store brands) range from well known products (Gap) to other products (Wal-Mart)
-both types of brands have key advantages- many stores carry both
-Brand loyalty- positive attitude toward a brand that causes customers to have a consistent preference for that brand over all other competing brands in a product category
-brand recognition- customer knows about a brand and is considering it as an alternative in evoked set; lowest form of brand loyalty
-brand preference- customer prefers one brand to competitive brands and will usually purchase this brand if it is available; customer has brand preference for Diet Coke but if unavailable will accept a substitute
-brand insistence- customer will go out of their way to find the brand and will accept no substitute; will drive far to get product
-Many products categories had brand loyal customers (especially products put on their bodies)
-Brand equity- the value of a brand; has ties to brand name awareness, brand loyalty, and other attributes; hard to measure but key asset for the firm; brand awareness and loyalty increase customer familiarity with a brand
-Brand alliances- relationships with other firms are among the most important competitive advantages that can be held by an organization; co-branding- leverages the brand equity of multiple brands to create distinct products with distinctive differentiation; ex: Hersheys and Betty Crocker
-brand licensing- contractual agreement where company permits an organization to use its brand on non competing products in exchange for licensing fee
-brand misidentification- Xerox, Band-Aid
Packaging and Labeling +
-color used is vital part of branding, size and shape of label
-packaging is important: protection, storage, convenience
-sometimes change in packaging can create major problem for the brand
-labels- product identification and promotion and contain valuable information
Differentiation Strategies +
-differences among brands can be based on real qualities or psychological qualities
-product features: factual descriptors of the product and its characteristics
-not what get the customer to buy
-Advantages- performance characteristics that communicate how the features make the product behave
-benefits- positive outcomes they acquire from purchased products
-Customer Support services- providing good customer support may be only way to differentiate products
-EX: many bookstores have gone out of business because of Barnes and Noble, ones that stay alive are due to good customer service
-assistance in customer needs, delivery, technical support, training, parking
-Image- overall impression (positive or negative) that customers have of it
-reality is not as important as perception
-can be lost over time
Positioning Strategies +
-Strengthen the Current Position- monitor constantly what target customers want and the extent to which customers perceive the product as satisfying those wants
-ex: firm known for good customer service must continue to invest time/money (Ritz Carlton)
-must constantly raise the bar of customer expectations
-Repositioning- fundamental change in any of the marketing mix elements
-Ex- its not just for breakfast anymore- OJ
-Reposition the competition- put competitors in less favorable light or force competitor to change positioning strategy
-Ex- Coke vs. Pepsi
Chapter 8 Pricing Strategy
Revenue=price times quantity
Prices around the world account for differences in currencies, taxes/tariffs, and consumer demand. Firms take considerable pains to discover and anticipate the pricing strategies and tactics of other firms. Pricing is given a great deal of attention because it is given a great deal of attention because it is considered to be the only real means of differentiation in mature markets plagued by commoditization. Guessing is never a good strategy in marketing; it can be downright deadly when it comes to setting prices.
The Role of Pricing in Marketing Strategy
Pricing is often a major source of confrontation between sellers and buyers. Sellers obviously want to sell a product for as much as possible, whereas buyers would love to get the products they want for free.
Seller’s Perspective on Pricing
Have a tendency to inflate prices because they want to receive as much as possible in an exchange with a buyer. If buyer cannot be found, then the homeowner is guilty of letting sentiment cloud his or her perception of market reality. Sound pricing strategy should ignore sentimental feelings of worth and instead focus on the market factors that affect the exchange process. Four key issues: cost, demand, customer value, competitor’s prices.
direct costs-finished goods/components, materials, supplies, sales commission, transportation
indirect costs-administrative expenses, utilities, rent
Firms make money either through profit margin, high sale volume, or both.
Manufacturers of tangible goods who do not sell a product today can sell that same product tomorrow. Service firms, like airlines use complex pricing systems in an attempt to squeeze every dollar out of every seat on every plane. Market demand is also a key issue in a seller’s pricing strategy. More efficient firms-like low-cost airlines or discount retailers-are able to cover their costs while simultaneously offering lower prices to customers. The bottom-line impact o value delivered to the customer is often an issue in setting variable prices. Setting a price for this product may have little to do with costs, but instead focuses on the value associated with the innovation and intellectual capital of the selling firm. Finally, organization must be aware of what its competitors charge for the same or comparable products. Rather than beating competitor’s prices, a better strategy may be to create real or perceived differentiation for the product offering.
The buyer’s perspective on Pricing
Buyers often see prices a being lower than market reality dictates. Price is about what the buyer will give up in exchange for a product. Buyers perspective key issues for pricing: perceived value and price sensitivity
Buyers will give up in exchange for a product depends to a great extent on their perceived value of the product. Some customers have good value with high product quality, whereas others see value as nothing more than a low price. Value-a customer’s subjective evaluation of benefits relative to costs to determine the worth of a firm’s product offering relative to costs to determine the Worth of a firms product offering relative to other product offerings.
Perceived value=Customer Benefits/Customer Costs
Customer Benefits-quality, satisfaction, prestige/image, and the solution to a problem. Customer costs-money, time, effort, and all non-selected alternatives (opportunity costs)
Good pricing strategy also based on understanding of the price elasticity associated with a firms goods and services. On buyer’s side, price elasticity translates into the unique and varying buying situations that cause buyers to be more or less sensitive to price changes.
A shift in the Balance of Power
Buyers have increase power over sellers when there is a large number of sellers in the market or when there are many substitutes for the product. Have power when the economy is weak and fewer customers will part with their money. Sellers have increased power over buyers when certain products are in short supply or in high demand. Sellers have increased power during good economic times when customers will spend more money. Buyer’s market prevails mostly. Exists because of the large number of product choices that are available, increased commodization among competing products and brands, and a general decline in brand loyalty among customers.
The relationship between Price and Revenue
Price cutting can also move excess inventory and generate short-term cash flow. Any price cut must be offset by an increase in sales volume just to maintain the same level of revenue.
Percent change in Unit Volume=Gross Margin/Gross Margin % +- Price Change % -1. Video game manufactures, often bundle games and accessories with their system consoles to increase value. The cost of giving customers these free add-ons is low because the marketer buys them in bulk quantities. This added expense is almost always less costly than a price cut. And the increase in value may allow the marketer to charge higher prices for the product bundle.
Key Issues in Pricing Strategy
Firms pricing objectives, supply and demand, and the firm’s cost structure, are critically important in establishing initial prices. Increases in product quality or the addition of new product features often come with an increase in power. Pricing is also influenced by distribution, especially the image and reputation of the outlet where the good or service is sole. Coupons, represent a combination of price and promotion that can stimulate increased sales in many different product categories.
Realistic, measurable, and attainable. Firms make money on profit margin, volume, or some combination of the two. Sometimes, firms simply want to maintain their prices in an effort to certain their position relative to the competition. Status quo. Decision to maintain prices must be done after a careful analysis of all factors that affect pricing strategy.
Description of Common Pricing objectives
Profit-oriented-designed to maximize price relative to competitors prices, the products perceived value, their firms cost structure, and Princeton efficiency. Profit objectives are typically based on a target return, rather than simple profit max.
Volume Oriented-Set prices in order to max dollar or unit sales volume. This objective sacrifices profit margin in favor of high product turnover.
Market Demand-sets prices in accordance with customer expectations and specific buying situations. This objective is often known as charging what the market will bear
Market Share-Designed to increase or maintain market share regardless of fluctuations in industry sales. Market share objectives are often used in the maturity state of the product life cycle.
Cash Flow-Designed to match or beat competitors prices. The goal is to maintain the perception of good value relative to the competition
Prestige-Sets high prices that are consistent with a prestige or high status product. Prices are set with little regard for the firm’s cost structure or the competition.
Status quo-Maintains current prices in an effort to sustain a position relative to the competition
Supply and Demand
Customer expectations regarding pricing/
The firm’s cost structure
Cost must be factored out of the revenue equation in order to determine proftis, and ultimately the survival of the firm. Most popular way to asscoatie costs and prices is through breakeven pricing.
Breakeven in units=Total Fixed Costs/Unit Price-Unit Variable Cost
Another way is cost-plus pricing-a strategy that is quite common in retailing
Selling price=Average Unit Cost/1-Markup percent (decimal)
Cost-plus pricing is easy to use, but has a weakness in determining the correct markup percentatge.
Different firms have different cost structures.
Competition and Industry Structure
Firms that use competitivie matching pricing objecives face a constant struggel to monitor and respond to competitor’s price changes. However, a firm does not alsays have to match comnpetitor’s prices to compete effectively
- Perfect competitoin-a market containing an unlimited number of sellers and buyers who exchange for homogenious products
- Monopolistic compettion-a market containing manuy sellers an buyers who exchange for relatively heterogenous products. The heterogenous nature of the products give firms some control over prices.
- Oligopoly-a market containing relatively few sellers who control the supply of a dominant portion of the industry’s product
- Monopoly-a market dominated by a single seller who sells a product with no clos substitutes.
Stage of the Product Life Cycle
Pricing strategy in the introduction starge is criticabl becasuse it sets the standard for pricing changes over time. Firms mus look inward to find ways to cut costs and maintain profits later in the lfie cycle. Also, very few firms enjoy the luxury of raising prices during the decline stage.
Pricing Service Products
When buying services, customers have a difficult time determining quality prior to purchase
If service provider sets prices too low, customers will have inaccurate pereceptions and expectation about quality.
- Service quality is hard to detect prior to purchase
- The costs associated with providing the service are difficult to determine
- Customers are unfamiliar with the service process
- Brand names are not well established
- Customers cna perform the service themselves.
- The services has poorly defined units of conusmption
- Advertising wihtin a sercie catergoy is limited
- The totla price of the servie experience is diffeicult to ste beforehand,..
Most services suffer from the challenges associted with determining costs because intangible experse such as labor, insuracne, and overhead must be taken into account.
When services that customers cnad do for themseleves, the firm i scompeting with the customers’w evaluation of his or her time and ability, in addition to other conpeting service providers.
Customres often balk a t the high prices of service providers because they have a limited ability to evaluate the quality or total cost until the service process has been competed. The heterogeneous nature of these services limits standardixation, therefore, customer knowledge about pricing is limited.
Due to the limted capscity associtatd with most services, service pricing is also a key issue with respect to balancing suply and demand during peak and off-peak demand times.
Yield management allows the service firm to simultaneoulsy control capacity and demnad in order to maximize revenue and capaicuty utilization. Acccomplished 2 ways:
1) The service firm contrls capacity by limiting the availbale capacity at certain price points
In the off-season, many hotels schedule routine maintenance and remodeling, and reduce trates for conventions in order to fill unused capacity. Airlines do this by selling a limited number of sears at discount prices three or moer weeks prior to a flight’s departure.
2) The service fimr controls demand through price changes over time and by overbooking capacity. These activites esnure that service demand will be consistent and that any unused capacity will be minimized. These practives are common in servcices characterized by high fixed costs and low variable costs, such as airlines, hotels, rental cars, cruises, transportation firms, and hospitals. Firms will sell some capacity at reduced prices in order to maximize utilization.
Yield management systems are also useful in their ability to segment markets based on price elasticity. Consultants are less price senstive because their cliinets reimbruser then for expenses. Many other firms can reach idfferent market segmnts iwth attracti ve off-peak pricing. Many customers take advantage of the lower prices at theme parks and beach resorts by traveling during the off-season. Similar situations occur in lower-priced movie matinees and lower prces for lunch items at most restauratns.
Price elasticity of demand
Pricing has intricate connections to issues such as demand, competiton, and customer expectations.
Price elasticity-customer’s responsiveness or sensitivity to changes in price. The relative impact on the demand for a product given specific increases or decreases in the price charged for that product.
Price elasticity of demand=Percentage Change in Quantity demanded/Percentage Change in Price
Inelastic-number less than 1, price change does not significantly affect the quantity demanded
Price elasticity is not uniform over time and place becuase demand is not uniform over time and place.
Situations that increase price sensitivity
More sensitive to price when they have many idfferent choices or option sfor fulffilling their needs and wants.
- Availability of Product Substitutes-much more sensitive to price differences. Name-brand products
- Higher totalk expenditure-higher total expense, th emore elastic the demand for that product will be
- Noticeable differences-products having heavily promoted prices tend to experience more demand.
- Easy price comparisons-more price sensitive if they can easily comare prices among competing prodcuts. Industires such as retailing, supermarkets, travel, toys, and books. Fetchbook.info, customers can find lowest prices on books across 145 different bookstores.
Situations that decrease price sensitivity
customers becom much less sensitive to price when they have few choices or options for fulfillin their needs and wants. Price elasticity is lower (more inelastic) in these situations:
- Lack of substitutes-baking/cooking ingredients, add-on or replacement parts, one-of-a-kind antiques, collectables or memorabilia, unique sporting events, and specialized vacation destinations
- Real or perceived necessities-food, water, medical care, cigarettes, and prescription drugs, have extremely inelastic demand because customers have real or percieved needs for them. Some product categories are price inelastic because customers percieve those products as true necessities.
- Complementary products
- Percieved Product Benefits-fine wines, gourmet chocoloates, imported coffee, or trips to a day spa. Other customes base their entire puchasing patters on buying the best prodcuts in all categoreiess.
- Situational influences-Time pressures or purchase risk increase to the point that an immediate purchase must be made or the availability of product substitutes falls dramatically. Other influences reslove around purchase risk, typically the social risk in aming a bad decisioin.
- Product differentiation-make the demand for the curve for a product more inelastic. Product differentiation does not have to be based on real differences in order to make customers less price sensitive.
Most firms have developed a general and consitent approach or general pricng strategy to be used in establishing prices. The way that members of the target market percieve the price. Customer psychology and the information processing.
Base Pricing Strategies
A fim’s base pricing strategy establishes the initial price and sets the range of possible price movements throughout the product’s life cycle. Different approaches to base pricing, market introduction pricing, prestige pricing, value-based pricing (ELDP), competitive matching, and nonprice strategies.
YOU NEED TO FINISH THIS CHAPTER
Chapter 10: Integrated Marketing Communications
Marketing communications includes conveying and sharing meaning between buyers and sellers, either as individuals and firms, or between indiviuals and fimrs. Integrated marketn communications refers to the strategic, coordinated use of promotion to create one consistent message across multiple channles to enuser maximum persuasive impact on the fimrs current and potetnial customers. Imc takes a 360 degree veiw of the customer that considres each eand e ery contact that a customer or potetial customer may have ni his or her relationshiop with the firm. The key to IMC is consistency and uniformity of message across all elements of promotion. By coordinating all communicatoin “touch points” firms using IMC oncey an image of truly knowing and caring about their customers that can trabslate into long-term customer relationships. Likewise, IMC reduces costs and increases efficiency because it can reduce or eliminate redundanceis and waste in the overall promotional program. Many firms have embraced IMC because mass-media advertising has become more expensive and less predictable than in the past. IMC helps to inform, persuade, and remind customers about the firm’s products. We also explore the strategic decisoins to be made with respect advertising, public relations, personal selling and sales management, and sales promotion.
Strategic Issues in Integrated Marketing Communications
Holistic perspective that coordinates not only all promotional elements but alos the IMC program with the rest of the marketing programs (product, price, and supply chain strategy). For example, the advertising campaign stresses quality, the sales force talks about low price, the supply chain pushes intensive distribution, and the website stresses product innovation, then what is the customer to believe?
Ultimately, the goals and objectives of any promotional campaign culminate in the purchase of goods and servies by the target market. The classic model for outlining promotional goals and achieving this ultimate outcome is the AIDA model-attention, interest, desire, and action.
- Atttention-the first major goal of any promotional campaign is to attract the attention of potential customers.
- Interest-the firm must spark interest in the product by demonstrating its features, uses, and benefits.
- Desire-Good promotion will stimulate desire by convingcing potential customers of the product’s superiority and its ability to satisfy specific needs.
- Action-promotion must then push them toward the actual purchases.
Mass-communication elements such as advertising and public relations, tend to be used more heavily to stimulate awareness and interest due to their efficiency in reaching large numbers of potential customers. Along with advertising, sales promotion activities, such as product samples or demonstrations, are vital to stimulating interest in the product. Other sales promotional activities such as product displays, coupons, and trial-size pacakaging, are well suited to publishing customers toward the final ac of making a purchase. When firms use a pull-strategy, they focus their promotional efforts toward stimulating demand among final customers, who then exert pressure on the supply chain to carry the product. In a push strategy, promotional efforts focus on memberts of the supply chain, such as wholesalers and retailers, to motivate them to spend extra time and effort on selling the product. This strategy relies heavily on persaonl seling and trade sales promotion to push porudcts through the supply chain toward final customers. The role and importance of specific promoitaoinl elemnts also vary depending on the nature of the proudcts. Industrial pridcuts rely more heavily on personal selling; consumer products require greater use of advertising, sales promotion, and public relations. Early in a product’s lif cycle, even before its introduction, the heavy expenditures on promotional actiivites are often a significant drain on the firms resources. By the time a product has moved into the maturity phase of its life cycle, the firm can reduce promotional expenditures somewhat, thereby enjoying lower costs and higher profits.
key component of promotion and is ually one of th emost visible elemtns of an integrated marketing communications promgram. Advertising is paid, nonpersonal communication transmitted through media such as television, radio, magazines, newspapers, direct mail, outdoor displays, the Internet, and mobile devices. Advertising targeted to market segements such as African Americans, gays, Hispanics, and Asian Americans have been an accelerating trend among advertisers. Targeting potential customers by coordinating the message with their lifestyles is an important strategic consideration. Diverse hispanic market of Mexican-Amercians, Cuban-Americans, Puerto Ricans, Dominincas, Salvadorans, and more hispanic subcultures. Advertising can be a cost-efficient element of an IMC program when used to reach a large number of people via television, magazines, outdoor dipslays, or outdoor ads. Ad Meter Award. Despite the new opportunities for amateur ad makers, the intial expenses for advertising is generally quite high, which is a majro dreawback of advertisn to gental However, online advertising provides an opportunity to reach highly specialized markets at a relatively low cost. Most online ad revenue comes from search advertising, followed by classifieds and banner ads. The use of rich media advertising, including animations and audio/video combinations, will continue to grow as broadband internet acess becomes more widely available both in the home and vai mobile connections.
Types of Advertising
Adverising promotes all types of products, including goods, services, ideas, issues, people, and anything else that marketers want to communicate to potential customers.
promotes a firm’s image, ideas, and culture, with the goal of creating or maintaining an overall corporate image. Aimed at various stakeholders, including shareholders, consumer advocacy groups, government regulators, or the public at large, institutional advertising can create a positive view of their organization. Advocacy advertising often promotes socially approved behavior such as recycling, the responsible use of alcoholic beverages, support for the arts, or the firm’s support for cultural diversity.
Promotes the image, features, uses, benefits, and attributes of products. Forms: Pionee advertising stimulates demand for a product category rather than any one specific brand. The goal is to increase customer interest and awareness in the product category in order to increase the size of the entire market Ex. got milk. Competitive advertising attempts to stimulate demand for a specific demand for a specific brand by promoting the brands image, features, uses, and benefits. This is the type of advertising that we see most often in the mdia. The most successful slogans adn ad campaings are those that are combined with other promotional elements in an integrated marketin effort. Other types of product advertising include reminder advertising to let customers know that a brand is available and reinforcement advertising to assure current customers that they mad eth right-choice in buying and consuming a certain product. Sam adams always a good decions campaing.
Comparative advertisng occurs when one firm compares its product with one or more competitve products on specific features or benefits. Common in soft drinks, automobiles, computers, and other over-the-counter medicatons. Can be direct or indirect.
Determining the Advertising Budget
The total amount of money a firm allocates to advertising activities for a specific time period, is difficult to determine because the effects of advertising are difficult to measure. Determinants include the geographic size of the market, the distribution or density of customers, the types of products advertised, sales volume relative to the competition, and the firm’s own historial advertising budget. Ways to determine an appropriate advertising budget:
- Percentage of sales approach-most widely used method for determining the advertising budget. The approach is simple, straighforward, and based on what the firm traditionally spends on advertising. Flaw of this is its implied assumption that sales create advertising. Reduced advertising is not the best strategy.
- Objectives and Task Approach-requires that the firm lay ouout its goals for the advertising campaign and then list the tasks required to accomplish specific advertising objectives. Major drawback is that the level of effort needed to accomplish advertising objectives is difficult to know with certainty.
- Competitive Matching Approach-firms attempting to match major competitor’s advertising expenditures in absolute dollars. Problem with this approach is that all firms are different, so competitors are likely to have different advertising objectives and different resources to devote to advertising.
- Arbitrary Approach-Intuitiion and personal experience set the advertising budget under this approach. The arbitrary approach can lead to mistakes in budgeting because it is not necessairly scientific, objective, or logical
Evaluating advertising effectiveness
Some methods include evaluating the achievement of advertising objectives; assessing the effectiveness of advertising copy, illustrations, and layouts; and evaluating the effectiveness of various media. One of the issues facing social media as an advertising medium is the difficulty associated with tracking the effectiveness of social media advertisement and “fan” sites.
To pretest advertisements, firms often use a panel of acutal or potential buyers who judge one or more aspects of an advertisement. During an ad campaign, the company typically measures effectiveness by looking at actual customer behavior patterns, such as purchases, responses to toll-free telephone numbers, rate of coupon redemption, page visits to the firm’s website, or even personal communications.
Customer surveys, panels, or experiments may be used to evaluate a campaign based on communication objectives. Firms will also use performance outcomes such as sales or market share changes to determine campaign effectiveness.
Corporate affairs is a collection of strategic activities aimed at marketin an organization, and its idelas to potetnial stakeholders (consumers, general public, stakeholders, media, government, and so on). The goal of public relations is to track public attitudes, identify issues that may elicit public concern, and develop programs to create and maintain positvie relationships between a firm and its stakeholders. Public relations can improve the public’s general awareness of a company and can create specific images such as quality, innovativeness, value, or concern for social issues.
Public relations methods
Firms use a number of public relations methods to convey messages and to create the right attitudes, images, and opinions. Public relations professionals prepare materials such as brochures, newsletters, annual reports, and news releases that reach and influence desired stakeholders.
Publicity-includes the firm’s activities designed to gain media attention through articles, editorials, or new stories. By encouraging the media to report on a firms desired image.
- News (or press) releases-used to draw attention to company event, product, or person affiliated with the firm.
- Feature articles-full-lenght story prepared for a specific purpose or target audience. Feature articles typically focus on the impications or ecnonomic impact of a firms actions. They are also very useful when responding to negative events or publicity.
- White papers-more technincal and focus on very specific topics of interest to a firms takehoders. White papers are similar to feaure articles, hoewer they are more technical and focus on very specific topics of interest to the firms stakeholders. White papers promoete a firms stance on important prodcut or market issues and can be useed to promote the firms own proudcts and soulutions.
- Press Conferences-a meeting with news media called to announce or respond to major events. Media personnel recieve invitations to a specific location, with written materials, photographs, exhibits, and even products given to them.
- Event sponsorship-local evens-high school, international evens Tour de France
- Product Placement-beverages, computers, clothing, and automobiles. These firms have a strong interest in placing their products in the hands of movie and television characters that consumers see as enjoying the product or using the product as part of the action.
- Employee Relations-Provide organizational support for employees with respect to their jobs and lives. Employee relations can encompass many different activities, including internal newsletters, training programs, employee assistance programs, and human resource programs. The firm has much less control over how the mesage will be delivereed. Another drawback invloves the risk of spending a great deal of time and deffor itn developing public relaitns messages that fial to attrarct media tttention.
Negative Puablic Relations
Unexpected and often unfavorable public relations resulting from an ehtical or legal inquiry, unsafe products, accidents, or the controversial actions of employees and executives. Sometimes public relations campaigns themselves cause problems, leading to unintended consequences on the parts of the campaings creators. The city of Bost underwent a bomb scare after Ted Turner and Turner Broadcasting.
Negative publicity i s critiically important when its effects reduc the dergree of trust that customers have in a sspecifi cindudstry or firm. Tylenol cyanide-tampering.
Negative stories reveie more attention now thatn in th epast. To avoid negative publicity, is vital to avoid negative inicidnets and events that can create problems. Firms can achieve this goal through effecitive ethical and legal compliance programs, safety programs, quality-control procedures, and programs designed to enhance employee integrity. One of the great public relations lessons learned over time is that firms must expedite new coverage of negative events rather than try to block the news or cover up facts about the incident.
Personal Selling and Sales Management
Personal Selling is paid personal communincation that attemtps to infrom customers about products and persuade them to purchase thoe producrts. The complexity of these types of contracts requires a long-term, personal relationship between salespeople and companies. Compared to other types of promotion, personal selling is the most precise from of communication becausse it assures companies that they are in direct contaft wiht an excellent prospect. The most serious drawback of personal selling is the cost per contact. Personal selling is also expensive due to the costs associated with recruiting, selecting, training, and motivating salespeople. Despite the high costs, personal selling plays an increasingly important role in IMC and overall marketing strategy. These goals typically involve finding prospects, inforrming prospects, persauding prospefcts to buy, and keeping customers satisfied through follow-up service after the sale. To effectively deliver on these goals, salespeople have to be not only competent in selling skills but also thouroughly trained in technincal product characteristics. Very few businesses can survive on the proftis generated from purely transactional marekting (one-time purchases). For this reason, personal selling has evolved to take on elemtns of customer sevice and marketing research. Every contact with a customer gives the sales force a change to deliver exceptional service and learn more about the customers needs. Salespeople also have the oppportunity to learn about competing products and the customers reaction toward them. The importance of building relationships during the sales process. The frontline knowledge held by the sales force is on e of the most important assests of the firm. In fact, the knowledge held by the sales force is often an importanst strenght that can be leveraged in develloping marketing strategy.
The sales management process
Generating performance outcomes, the sales force often creates the firms reputation, and the conduct of individual salespeople determines the percieved ethicalness of the entire firm.
Developing Sales Force Objectives
Vital to the overall IMC strategy and must be fully integrated with the objectives and activities of other promotional events. Salespeople may be needed to find new customers through prospecting-the identification of potentilal customerss most likely to buy the firm’s products.
A different skill st must be developed to provide support, educate consumers, and provide sservice after the sale. The connection between selling skills ans sales force objectives reinforces the importance of having a fully integrated sales management process.
The technincal aspect of establishing sales force objectives involve desired Sales dollars, sales volume, or market share. Further, individual sales objectives might be based on order size, the number of sales calls, or the ratio of order to calls. Ultimately, sales objectives help evaluate and control sales force activities, as well as compensate individual salespeople.
Determining Sales Force Size
The size of the sales force is a function of many variables, including the type of salespeople used, specific sales objectives, and the importance of personal selling within the overall IMC program. The size of the sales force is important because the firm must find a balance between sales expenses and revenue generation.
Determining the specific objectives and tasks that are required to fufill sales and IMC goals is one approach. This number can be divided by the average number of sales calls that a salesperson can make in one year to derive an estimate of sales force sixe. Another method involves marginal analysis, where additional salespeppole join the sales force until the cost of adding an addtiional salesperson equals the potetnial sales that can be gernated bny that salesperson.
Recruting and Training Salespeople
Recruiting the right types of salespeople should be closely tied to personal selling and IMC strategies. Firms usually recruit potential salespeople from a number of sources including within the firm, competing firms, employment agencies, educational instiutions, and direct-response advertisements placed on the Internet, in magazines, or in newspapers. The cost of hiring and training salesperson can be expensive. State Farm Insurance strives for low sales froce turnover by forcing applicants for agent positions to undergo a yearlong series of interviews, tests, and visits with agents before finding out wheter they will be hired. Formal training methods have moved toward self-directed, online training modules and away from classroom training. The majority of sales training will be done online or via wireless delivery to handheld devices. The worldwide online saless training market is growing mainly because it is much more cost-effective than than traditional training.
Controlling and Evaluating the Sales Force
Controlling and evaluating the sales force require a comparison of sales objectives with actual sales performance. To effectively evaluate a salesperson, predetrmined performance standards must be in place. These standards also determine the compensation plan for the sales force. To improve sales performance , the firm can increase incentives to better motoviate the sales force, provide additional training to salespeople, or perhaps even change the performance standards if they are inconsistent with market failures.
The impact of technology on Personal Selling
The development of integrated supply chains and the procurement of standardized products over the Internet reduced the need for salespeople in many industries. How can firms use new technology to reduce costs and increase productivity while maintaining personalized, one-to-one client relationship? One of the keys to using sales technology effectively is to seamlessly integrate it with customer relationship management systems, competitive inteligence activities, and interanbl customer databases. By automating many repetitive selling tasks, like filling repeat orderes, sales technoloyg cna actuallyy increase sales, productivity, and one-to-one relationships at the same time. Third-party providers like Salesforce.com-an on demand, web-based provider of integrated CRM and sales automation solutions. Key to these solutions is integration. By pushing integrated customer, competitive, and product information toward the salesperson, technology can increase salesperson productiviy and sales revenue by allowing the sales foce to serve customers’ needs more effectively.
Sales promotion activites account for th ebulk of promotional speding in many firms. This is especially true for firms selliong consumer products. Sales promotij involves activiteis that create buyer incentivs to purchase a product or that add value for the buyer or the trade. Sales promotion can be targeted towrard consumers, channel intermediaties, or the sales force. Sales promotion has one universal goal: to induce product trial and purchase.
Most firm use sales promotion i support of advertising, public relations, or personal selling activities rather than as stand-alone promotional element. Advertising is frequently coordinated with sales promotion activities to provide free product samples, premiums, or value-added incentives.
Sales Promotion in Consumer Markets
Coupons and product sampling are frequently used during new product launches to stimulate interest and trial. Retailers typically offer sales promotions to stimulate customer traffic or increase sales at specific locations. Coupons and free product are common examples, as are i n-store product demonstration.
Types of sales promotions to consumers:
- Coupons-reduce the price of a product and encourage customers to try new or established brands. Coupons can be used to increase sales volume quickly, to attract repeat purchases, or even to introduce new product sizes or models. To be most effective, coupons need to be accessible, easy to recognize, and easy to use. For the most part, this requires that coupons be distributed on packaages (the highest redemption rates), through inserts in print advertising, through direct mail, or through in-store displays. Although copuon cutting (cutting coupons from newspapers or direct mail) was once quit common, the practive declined over the years. Marketers percieve a bright future for electronic coupons because redemption rates are higher, and because printing and processing costs are lower.
- Rebates-Require much more effort on the consumer’s part to obtain the price reduciton. Firms have more contol over rebates because they can be luanched and ended very quicly. Second, a rebate program allows the firm to collect imoprtatn consumer inofmation that can be used bto build cusomer databases.
Samples-Samples stimulate trial of a product, increase volume in the early stages of the product’s life cycle and encourage consumers to actively search fro a product. Samples can be distributed through the mail, attached to other products, and given out personal selling efforts or in-store displays. Samples can also be distributed via less direct methods. Free samples migh be placed in hotel rooms to create consumer awarness of new products.
Loyalt Programs-reward loyal customers who engage in repeat pruchases. Discover Card, Hallmark Gold Crown Card
- Point-of-Purchase Promotion-displays, counter pieces, display racks, or self-service cartons that are designed to build traffic, advertise a product, or induce impulse prucaes. In-store product demonstration. Examples of these demonstrations include fashion shows, food prepartin demonstrations in grocery stores like Whole Foods, and free makeovers in the cosmetics departments departments of departmnet stoores and specialty stores.
- Premiums-are items offered free or at minimum cost as a bonus for purchasing a product. Premium are good at increasing consumption and presuading consumers to swith bnrnads.
- Contest and Sweepstakes-Consumer contests, games, and sweepstakes encourage potential consumers to compete for prizes to try their luck by submitting their names in a drawing for prizes. Contest and sweepstakes are good at attracting a large number of participants and generating widespread interest in a product. Because they require no skill to enter, sweepstakes are an effective way to increase sales or market share in the short term.
- Direct Mail-includes catalog marketing and other printed material mailed to individual consumers, is a unique category because it incorporates elements of advertising, sales promotion, and distribution into a coordinated effort to induce customers to buy. The use of direct mail has grown tremendously in recent yeras due to conumer time contraints, relatively low cost, and the advent of sophisticated database management tools
Sales Promotion in Business Markets
Sales promotion in business markets is also know as trade promotion. By targeting channel intermediates with promotional activities, manufactures hope to push heri products through the channel by increasing sales and encouraging increased effort among their cahnnel partners.
- Trade Allowances-Manufactures offer a number of different trade allowances, or price reductions, to theri channle intermediaries. Buying allowances are price reductions for purhcasing specified quantities of a product at a single time (the equivalent of a bulk discount). Related to this is a buy-back allowance where the reduction is proportional to the total amount of product purchased during the time frame of promotional offer. Finally, a merchnadise allowance is a manufactures agreement to pay intermediaries a specific sum of money in exchange for specific promotional efforts such as special displays or advertising. The goal of the allowance is to induce intermediaries to perform specific actions.
- Free Merchandise
- Training Assistance-Can offer training to an intermediatry’s employees. This typically occurs when the products involved are rather complex.
- Coooperative Advertising-a manufacturer agrees to apy a certain amount of an intermidary’s media cost of advertisng the manufacturer’s products. A very popular sales promotion method among retailers.
- Selling Incentives-Push money and sales contests. Push money is in the form of additional compensation to encourage outstanding performance within an intermediary’s sales force. Sales personnel can be recognized for outstanding achievements by receiving money, vacations, computers, or even cars for meeting or exceeding certain sales targetes.
Chapter 11 Marketing Implementation and Control
Strivastawan, Sherva, and Fahey
PPM-Product Develoment Management (Brand mand management, brand extensions, line extensions, ,
SCM-Supply Chain Management, place but less important
CRM-Customer Relationship Management-customer satisfaction
Strategic Issues in Marketing Implementation
Marketing Implementation is critical to the success of any firm because it is responsible for putting the marketing strategy into action. Implementation refers to the “how” part of the marketing plan. Some of this misunderstanding stems from the fact that marketing strategies almost always turn out differently than expected. In fact, all firms have two strategies: their intended strategy and a realized strategy. Intended marketing strategy is what the firm wants to happen-is is the firm’s planned strategic choices that appear in the marketing plan iteself. The realized marketing strategy, on the other hand, is the strategy that actually takes palce.
The link between Planning and Implementation
Many of the problems of marketing implementation occur because of its relationship to strategic planning. The three most common issues in this relationship are interdependency, evolution, and separation.
The content of the marketing plan determines how it will be implemented, it is also true that how the marketing strategy is to be implemented determines the content of the marketing plan.
Employee training programs
Employee training, as a tool of implementation, can also dictate the content of the firm’s strategy.
Important environmental factors constantly change. Because planning and implementation are intertwined, each must constantly evolve to fit the other. Just as strategy often results form trial and erro, so does marketing implementation. These rapid chagnes require that firms be flexible in both marketing strategy and implementatoin.
The ineffective implementation of marketing strategy is often a self-generated problem that stesm from the way tha planning and implementation are carried out in most firms. Believing that frontline managers and employees wil lbe exvited about the marketin strategy and motivated to implemetn iit. Managers and employees often fail to identify with the firms’ goals and objectives, and thus fail to fully understand the marketing strategy.
The elements of Marketing Implementation
Shared Goals and Values
Shared Goals and values among all employees within the firm are the “glue” of successful implementation because they bind the entire organization together as a single, functioning unit. Firms such as FedEx, Google, and ESPN, are well-known for their efforts to ensure that employees share and are committed to corporate goals and values. The primary means of creating shared goals and values is through employee training and socialization programs. Some experts have argued that creating shared gaols and values is the single most important element of implementation because it stimulates organizational commitment so that employees become more motivated to implement the marketing strategy, achieve the frims goals and objectives, and serve more fully the needs of the frim’s customers.
Organizing a firm’s marketing activities. Marketing structures establishes fromal lines of authority, as well as the divisoijn of labor witin the marketing function. One of the most important decisions that firms make is how to divide and integrate marketing responsibilities. This decision typically comes down to the question of centralization verus decentralization. In a centralized marketing structure, the top of the markting hierarchy coordinates and manages all marketing activities and decisions. The front line of the firm coordinates and manages marketing activities and decisions.
Centralized Structures are very cost-efficient and effective in ensuring standardization within the marketing program. Walmar or Dell.
Decentralized marketing stuctures have the important advantage of placing marketing decisions closer to the front line, where serving customes is the number one priority. By decentralizing marekting decisions, frontline managers can be creative and flexible, allowing them to adapt to changing market conditions. Firms that employ a strategy of customer intimacy, such as Ritz-Carlton or Nordstom. The righ marketing structure will depend on the specific firm, the nature of its internal and external environments, and ts chosen marekting strategy.
Systems and Processes
Organizational systems and processses are collections of work activitis that absorb a variety of inputs to create information and communication outputs that ensure the consistent day-to-day operation of the firm. Examples include information systems, strategic planniong, capital budgeting, procurement, order fulfillment, manufacturing, quality control, and performance mesurement.
Tangible Resources include financial resources, manufacturing capacity, facilities, and equipment. Although not quite as obvious, intangible resources such as marketing expertise, customer loyalty, brand equity, corporate goodwill, and external relationships/strategic alliances are equally important.
A critical and hones evaluation of available resources during the plannin phase can help ensure that th emarketing strategy and marketing implementaiton are within the realm of possibility. This makes the communication aspects of the actual marketing plan document critical ot the success of the strategy.