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Summary Principles of Marketing chapters 1-12
Marketing Principles (Royal Melbourne Institute of Technology)
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Chapter 1 – Marketing: creating & capturing customer value
What is marketing?
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering and exchanging offerings that have value for customers, clients and partners,
and society itself.
Steps of the Marketing Process
1.Understand the marketplace and customer needs, wants and demands.
2.Design a customer-driven marketing strategy.
3.Construct an integrated marketing program that delivers superior value.
4.Build profitable relationships and create customer delight.
5.Capture value from customers to create profits and customer equity.
THE MAIN GOAL IS TO CREATE VALUE FOR CUSTOMERS AND BUILD
RELATIONSHIPS!
Understanding the marketplace and customer needs
Needs: a state of felt deprivation
Physical – food, clothing, warmth & safety
Social – need for belonging and affection
Individual – need for knowledge and self-expression
Wants: the form human needs take, as shaped by our culture and individual personality.
Eg. A hungry person in China may want to indulge in some peking duck whereas, and
American may want to eat some KFC.
PEOPLE HAVE ALMOST UNLIMITED WANTS, BUT HAVE LIMITED RESOURCES
(TIME + MONEY)
Demands: human wants that are backed by buying power – these revolve around
satisfaction.
Market offering: some combination of products, services, information or experiences
offered to a market to satisfy a need or want.
Market myopia: the mistake of paying more attention to the specific products a company
offers than to the benefits and experiences produced by these products.
Exchange: the act of obtaining a desired object from someone by offering them
something in return.
Transaction: a trade between two parties that involves at least two things of value,
agreed-upon conditions, and a time and place of engagement. Eg. Buying shoes at the
shop (shoes for money), conditions may include the ability to return the item if unsatisfied
and the place would be the shoe shop.
Markets: set of actual and potential buyers of a product. Elements of the market include;
suppliers, company (marketer), marketing intermediaries, consumers & competitors –
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whereby each party in the system adds value for the next level.
Designing a customer - driven marketing strategy
Marketing management: the art and science of choosing target markets and building
profitable relationships with them.
> the marketing manager’s aim is to find, attract, keep and grow target customers by
creating, delivering and communication superior customer value.
> marketing management is concerned not only with finding and increasing demand but
also with changing or even reducing it. e.g. Uluru may have too many people wanting to
climb it.
> de-marketing: marketing in which the task is to temporarily or permanently reduce
demand.
> greater emphasis has been placed on retaining existing customers via building lasting
customer relationships. The key to this is creating superior customer value and
satisfaction.
Demand management ready-reckoner
Includes; negative demand, no demand, latent demand, declining demand, irregular
demand, full demand, overfull demand and unwholesome demand.
Marketing management orientations
Production concept: the notion that consumers will favour products that are available
and highly affordable, and that the organisation should therefore focus on improving
production and distribution efficiency. However, this may lead to market myopia.
Product concept: the idea that consumers will favour products that offer the most
quality, performance and features, and that the organisation should therefore devote its
energy to making continuous product improvements. This may also lead to market
myopia.
Selling concept: the idea that consumers will not buy enough of the firm’s products
unless it undertakes a large scale selling & promotion effort.
> Usually for unsought goods i.e.. blood donations & life insurance policies.
> not focused on building long lasting customer relationships. Less emphasis on catering
to a particular market’s needs or wants. More emphasis on selling what they have rather
than what the customer wants/needs.
Marketing concept: the marketing management philosophy which holds that achieving
organisational goals depends on knowing the needs and wants of target markets and
delivering the desired satisfactions better than competitors do.
>the marketing concept starts with a well-defined market, focuses on the customers
needs, and integrates all the marketing activities that affect customers. In turn, it yields
profits by creating long lasting relationships with the right customers based on customer
value and satisfaction.
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Selling vs. Marketing Concepts
Societal Marketing concept: the idea that a company’s marketing decisions should
consider consumer’s wants, interests & society’s long-run interests.
idea that marketing strategy should either maintain or enhance consumer and society
well-being.
calls for sustainable marketing to preserve or enhance the ability of future generations to
meet their needs.
:. consider the effects that bottled water has on the environment.
Preparing an integrated marketing plan and program
(7 Ps)
Target customers intended positioning
Product: goods, services and experiences. e.g.. variety, quality, design, features, brand
name, packaging, sizes, add-ons, warranties & return options.
Promotion: advertising, personal selling, direct marketing, online marketing
Price: list price, discounts, allowances and settlement, credit terms.
Placement logistics: demand chain management, logistics management, channel
management.
People: People interacting with people is how many services experiences might be
described. Relationships are important in marketing.
Process: In the case of ‘high contact’ services, customers are often involved in the
process of creating and enjoying experiences. Increasingly, so is technology.
Physical evidence: Services are mostly intangible. The meaning of other tools and
techniques used in measures of satisfaction are important.
Building customer relationships
customer relationship management: the overall process of building and maintaining
profitable customer relationships by delivering superior customer value and satisfaction.
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deals with all aspects of acquiring, keeping and growing demand.
customer-perceived value: the customer’s evaluation of the difference between all the
benefits and all the costs of a marketing offer relative to those of competing offers. eg. is
buying a Toyota Prius really that beneficial to saving the environment as well as money?
customer satisfaction: the extent to which a product’s perceived performance matches
or exceeds a buyer’s expectations.
smarter companies aim to delight customers not only to retain them but, for the idea that
they will ‘preach’ to others, their delight experienced with the company.
however, they do no seek to maximise customer satisfaction as the relationship must be
profitable. Therefore, businesses must balance customer satisfaction but maintain
profitability. In other words, they need to continue to strive for customer value and
satisfaction but not ‘give away the house’ as such.
The changing nature of relationships
In today’s world, more emphasis has been placed on building deeper, more direct and
lasting relationships with more carefully selected customers rather than mass marketing.
the goal is to target fewer, more profitable customers.
Interactive customer relationships
new communication approaches let markets create deeper consumer involvement and a
sense of community surrounding a brand to make the brand a meaningful part of
consumer’s conversations and lives.
customer managed relationships: marketing relationships in which customers,
empowered by technological advances, interact with companies and others to shape
their relationships with brands.
less intrusion by companies, more attraction through creating offerings and messages
that involve customers rather than interrupt them.
consumer-generated marketing: brand exchanges created by consumers themselves both invited and uninvited by which consumers are playing an increasing role in shaping
their own brand experiences and those of other consumers.
partner relationship management: working closely with partners in other company
departments and outside the company to jointly bring value to customers. eg. supply
chain management.
Capturing value from customers
customer lifetime value: the value of the entire stream of purchases that the customer
would make over a lifetime of patronage to the company.
companies realise that losing a customer is more than losing a single sale, it means
losing the entire amount of purchases that they would make over their lifetime at the
company.
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share of customer: the portion of the customer’s purchasing that a company gets in its
product categories.
a good way of achieving this is by; offering a greater variety of products & training staff
to upset and cross-sell (eg. offering software and accessories to a customer when they
buy a computer or recommending a more expensive model in relation to their needs)
customer equity: the total combined customer lifetime values of all the company’s
customers.
different types of customers require different relationship management strategies, their
ultimate goal is to build the right relationships with the right customers.
The changing marketing landscape
economic events such as the Global Financial Crisis have huge impacts on consumer
spending. Often economic turmoil tarnishes consumer confidence to spend lavishly due
to falling wages, falling house prices and unemployment. As such, marketing managers
may need to change or alter their approaches to particular specific markets.
not-for-profit marketing: marketing as practiced by a variety of organisations
(universities, hospitals, private schools & museums) whose aim is to make surpluses so
as to continue their operations, but who do not seek to make profits for share holders.
technology has introduced great opportunity for marketers as they now have more ways
of reaching people. Furthermore, technological advances have enabled companies to
expand significantly, their market coverage, purchasing and manufacturing monitoring.
despite the economic prosperity that globalisation has brought to many countries. it has
also been a major cause of environmental problems such as climate change and global
warming. eg. China & smog
So, what is marketing? Putting it all together
a company focuses on creating value and satisfaction for the consumers of their
respective markets.
they know that they cannot serve all customers in the way (ie. profitable vs. less
profitable). Thus, they need to balance their resources and focus on the customers that
they can serve best and most profitably.
the marketing manager outlines value propositions that spells out what values the
company will deliver in order to win the target market.
marketers focus on building lasting profitable relationships with customers and make it
their goal to satisfy and delight them in order to retain their business and be a part of
their conversations.
the company reaps the benefits (customer equity) from the relationships and satisfaction
that its products or services provide.
focus on technological advances, globalisation & partnerships.
Chapter 3 - Analysing the marketing environment
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The company’s microenvironment
marketing management’s job is to build relationships with customers by creating customer
value and satisfaction. They cannot do this alone and therefore, success will ride on building
relationships with other company departments, suppliers, marketing intermediaries,
competitors, various publics and customers that combine to make up the company’s value
delivery network.
The company
given that other departments impact on the marketing department’s plans and actions,
marketing managers must work with other departments. Aim is to think like a consumer and
help incorporate other less consumer focused departments like HR, finance and legal into
the corporation.
Suppliers
suppliers are an integral link in the company’s overall customer value delivery network
system. They provide the resources needed by the company to produce its goods and
services.
ultimately, suppliers should be considered as partners in creating and delivering customer
value. Note that strong supplier relationships warrant greater business performance as well
as when companies focus upon the supply chain as a whole.
Marketing Intermediaries
marketing intermediaries: businesses that help the company to promote, sell and distribute
its products to final buyers.
resellers: distribution channel firms that help the company find customers or make sales to
them. (eg. Wholesalers and resellers).
physical distribution: help the company to stock and move goods form their points of origin
to their destinations.
marketing services agencies: are the marketing research firms, advertising agencies,
media firms and marketing consulting firms that help the company target and promote its
products to the right markets.
financial intermediaries: banks, credit companies, insurance companies and other
businesses that help finance transactions or insure against the risks associated with the
buying and selling of goods.
marketing intermediaries, like suppliers, are crucial to optimise the performance of the
company and maximise its value delivery to customers.
Competitors
companies must focus upon the needs of their target market and deliver value to them in a
way that is superior to their competitors.
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Publics
public: any group that has an actual or potential interest in or impact on an organisation’s
ability to achieve its objectives.
financial publics: this group influences the company’s ability to obtain funds. Banks,
investment houses, and shareholders are main financial publics.
media publics: this group carries news, features and editorial opinion. It includes
newspapers, magazines and radio and television stations.
government publics: management must take government developments into account.
Marketers must often consult the company’s legal advisors on issues of product safety, truth
in advertising and other matters.
citizen-action publics: a company’s marketing decisions may be questioned by consumer
organisations, environmental groups, minority groups and others. Its PR department can
help it stay in touch with consumer and citizen groups.
local publics: includes local residents and community organisations. Large companies
usually appoint a community relations officer to deal with the community, attend meetings,
answer questions and contribute to worthwhile causes.
general public: a company needs to be concerned about the general public’s attitude
towards its products and activities. The public’s image of the company affects its buying.
internal publics: this group includes workers, managers, volunteers and the board of
directors. Large companies use newsletters, a company website and other means to inform
and motivate their internal publics. When employees feel good about their company, this
positive attitude spills over to external publics.
Customers
customers are the most important actors in the company’s microenvironment.
consumer markets: consist of individuals and households that buy goods and services for
personal consumption.
business markets: buy goods and services for the purpose of further processing or for use
in the production process.
reseller markets: buy goods and services for resell at a profit.
government markets: are made upon government agencies that buy goods and services to
produce public services or transfer the goods and services to others who need them.
international markets: consists of buyers in other countries including consumers,
producers, resellers and governments.
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The company’s macro-environment
Demographic Environment
demography: the study of human population in terms of size, density, location, age, gender,
race, occupation and other statistics.
changes in the world demographic environment have major implications for businesses.
Therefore, marketers need to keep close track of demographic trends and developments in
their markets, both at home and abroad. They track changing age and family structures,
geographic population shifts, educational characteristics and population diversity.
Changing structure of the environment
Baby Boomers - people born during the period following World War II - 1946 - 1964.
after years of prosperity, free spending and saving little, economic downturn hit this group
hard as share prices plunged and there was a sharp decline in house prices, eating into their
nest eggs.
however, many baby boomers are debt free and happily working with secure savings.
Among the wealthiest of Australians and hold nearly half of all Australia’s total household
wealth.
today’s boomers think young, no matter how old they are. Rather than viewing themselves
as phasing out, they see themselves entering new life phases.
boomers are wealthy and want to maintain their lifestyles as they move into retirement. In
the aftermath of the recession, they will require a lot of money management help.
marketers must transform their websites of financial services and make them more baby
boomer friendly so that they can access the information that they need.
Generation X - people born between 1965 - 1976, in the ‘birth dearth’ that followed the baby
boom.
increasing parental divorce rates and higher employment for their mothers made them the
first generation of latchkey kids.
they are increasingly displacing the lifestyles, culture and values of the baby boomers.
they are the most educated generation to date and they posses heavy annual spending and
purchasing power.
spending more money each month than any other generation and most of this is online.
Makes up a quarter of Australian online sales.
Millennials (Generation Y) - the children of baby boomers born between 1977 - 2000.
most technological advanced group given that they have grown up with it. Technology for
them is simply a way of life.
Generation Y consists of three main groups - teens (13-18), youth (19-24) and young adults
(25-36).
given that Generation Y’s purchasing power will soon eclipse that of the baby boomers, this
makes them a huge and attractive market.
Generational Marketing
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marketers must not simply forget about one market when they decide to target another
market.
marketers need to form more precise age specific segments within each group. More
importantly, defining people by their birth date may be less effective than segmenting them
by their lifestyle, life stage or the common values they seek in the products that they buy.
The changing family
family households will change greatly over the next 20 years, with more people getting
divorced, more women working and more couples choosing not to have children.
geographic shifts in population
shift in where people live, has shifted where they work. More people are working from home
or on the go.
A better-educated, more white-collar, more professional population
nearly 40% of Australian and New Zealand populations have attended university or
completed a vocational training course.
only 30% of those over 55 completed any post-secondary study.
individuals who achieve higher education outcomes are often better off in a number of ways
- different lifestyles and they earn more. Rising number of educated people will increase the
demand for quality products, books, magazines, travel, personal computers, tablets and
internet.
49% of Australians are employed in white-collar jobs and this is expected to grow.
Economic Environment
economic environment: factors that affect purchasing power and spending patterns.
the GFC dampened consumer spending habits for many years to come that is, consumers
lost confidence and saved more rather than spend.
industrial economies constitute rich markets for many different kinds of goods. Subsistence
economies - consume much of their own agricultural and industrial output and offer few
market opportunities. Developing economies - can offer outstanding marketing opportunities
for the right kinds of products.
changers in income and spending
Australia’s relative household debt levels are high by international standards.
since the GFC, people are saving more and buying more online.
people are saving wherever they can and tend to be spending more on services.
more Australians are buying less and looking for greater quality in the things that they do
buy. Companies now must find the right balance between price and quality.
marketers should also pay attention to income distribution as well as income levels. The
separation and gaps between incomes has created a tiered market.
changing consumer spending patterns
most household income is spend on food, housing and transportation.
Engel’s laws - differences noted more than a century ago by Ernst Engel in how people shift
their spending patterns across food, housing, transportation, health care and other goods
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and services as family income rises.
with warning, businesses can take advantage of the changes in the economic environment
and avoid being wiped out.
Natural Environment
natural environment: natural resources that are needed as inputs but marketers or that are
affected by marketing activities.
over the last 30 years, the world has become much more polluted (air and water). Global
warming is now endemic and many environmentalists fear that we may be seen buried in our
own trash.
trends
growing shortages of raw materials - air is becoming heavily polluted due to rapid
industrialization of developing nations. Some countries are experiencing water shortages
also.
non-renewable resources such as coal, oil and various minerals may indie huge costs
increases for firms that use as these materials become more scarce.
increased pollution - disposal of wastes and inappropriate recycling and nonbiodegradable packaging post serious threats to the environment.
increase government intervention - richer and political willed countries are doing more to
combat pollution. Poorer nations are neglecting.
hope that multinational companies will accept more social responsibility also.
instead of opposing regulation, marketers should develop solutions to the material and
energy problems faced by the world.
concern for the natural environment has spawned the so called go green movement as
people have become more conscious about environmental issues.
environmental sustainability: developing strategies and practices that create a world
economy that the planet can support indefinitely.
thus, marketers are pushing more environmentally friendly and sustainable products to
market.
more companies are opting for biodegradable and recycled packaging.
Technological Environment
technological environment: forces that create new technologies, creating new products
and market opportunities.
radio-frequency identification (RFID) transmitters are becoming more common as companies
track their products more closely.
technological environment is very progressive and is rapidly changing.
businesses must approach new technologies positively or face being left behind in today’s
world.
investment in research and development will be crucial for companies and nations.
Political and Social Environment
political environment: laws, government agencies and pressure groups that influence or
limit various organisations and individuals in a given society.
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legislation and regulating business
governments develop public policy to guide commerce - sets of laws and regulations that
limit business for the good of society as a whole.
increasing legislation
new legislation is always being implemented.
marketers must work hard to keep up with the changing nature of laws and regulations.
#1 - Business legislation was enacted to protect companies from each other.
laws are passed to define and prevent unfair competition (ACCC).
#2 - Another purpose of legislation is to protect consumers.
protect consumers from unfair business practices like - poor product quality, deceptive
advertising, invasions of consumer privacy, misleading packaging and labelling.
#3 - A third purpose of government regulation is to protect the interests of society against
unrestrained business behaviour.
regulation aims to ensure that firms take responsibility for the social costs of their production
or products.
changing government agency enforcement
things like the ACL and FSANZ (Food Standards Australia and New Zealand) and
Environmental Protection in each Australian state all set the bar high.
these organisations impact businesses processes and can have a significant impact on
marketing performance, and effective managers will keep up with developments and
changes in these authorities.
new laws and their enforcement will continue to coiners. Business executives must monitor
these developments when planning their products and marketing programs. Marketers need
to know about the main laws protecting competition, consumers and society. Must
understand these laws at the local, state, national and international levels.
Increase emphasis on ethics and socially responsible actions
as written laws cannot cover all aspects, business is also governed by social codes and
rules of professional ethics.
socially responsible behaviour
companies must be sure that they do no infringe upon the privacy of consumers without
consulting them.
cause-related marketing
many companies sponsor events for good causes in order to promote positive public image.
Often their reasoning is to use business to help make the world a better place.
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charitable organisations gain money and greater visibility.
Cultural Environment
cultural environment: institutions and other forces that affect a society’s basic values,
perceptions, preferences and behaviours.
persistence of cultural values
many people have core beliefs and values like getting married, working, giving to charity and
being honest. These core beliefs are passed through families, churches, business, schools
and government.
secondary beliefs are more open to change - believing in marriage is a core belief; believing
that people should be married early in life is a secondary belief.
shifts in secondary cultural values
people are more influenced by aspirational figures and popular trends. Here, marketers must
learn to predict cultural shifts in order to spot new opportunities or threats.
people’s views of themselves
people use products, brands and services as a means of self-expression, and they buy
products and services that match their views of themselves.
here, marketers can target their products and services based on such views.
people’s views of others
peoples views of others change over time.
the internet has enabled ‘mass mingling’ of people via social networks.
marketers should make their products a part of the conversation.
people’s views of organisations
attitudes vary against organisations. People have become less confident and loyal towards
business and political organisations and institutions.
many people view working as a chore to earn money for their non-work hours, this suggests
that organisations need to find new ways to win consumer and employee confidence.
people’s views of society
patriotism is rampant and marketers must be careful when meddling with such strong
national emotions.
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people’s views of nature
people now are more concerned about the environment and healthy living.
people’s views of the universe
people are ditching church for more permanent values - family, earth, community and faith and a more certain grasp of right and wrong.
consequently, these all influence changes in buying habits.
Responding to the marketing environment
companies must be proactive and take aggressive steps to affect the actions and forces in
their marketing environments.
Chapter 4 - Managing marketing information to gain customer insights
Marketing information and customer insights
customer insights: fresh understandings of customers and the marketplace derived from
marketing information that becomes the basis for creating customer value and relationships.
marketing information system (MIS): people and procedures dedicated to assessing
information needs, developing the needed information, and helping decision makers use the
needed information to generate and validate actionable customer and market insights.
Assessing marketing information needs
What types of decisions are you regularly called upon to make?
What types of information do you need in order to make these decisions?
What types of information do you regularly get?
What types of special studies do you periodically request?
What types of information would you like to get that you are now not getting?
What information do you want? Daily? Yearly? Monthly? Weekly?
What magazine and trade reports would like to see on a regular basis?
What specific topics would you like to be kept informed of?
What types of data analysis programs would you like to see made available?
What do you think would be the four most helpful improvements that could be made in the
present marketing information system?
Furthermore, the value of the information must outweigh the costs of obtaining and storing it.
Developing Marketing Information
internal databases: electronic collections of consumer and market information obtained
from data sources within the company network.
competitive marketing intelligence: the systematic collection and analysis of publicly
available information about consumers, competitors and developments in the marketing
environment.
Marketing Research
marketing research: the systematic design, collection, analysis and reporting of data
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relevant to a specific situation facing an organisation.
qualitative research: studies involving a small number of individuals such a focus groups or
in-depth one-to-one interviews. The primary tool in qualitative research is the focus group,
but this includes modern variations such as online focus groups and teleconferences. Oneon-one interviews are used to delve deeply into the topic.
quantitative research: studies involving ‘a lot’ of people. It uses statistical average
techniques such as mean ratings, and statistical tools such as sampling error and standard
error, to analyse data. There is no stated number of people who must be interviewed to
make a study quantitative, but samples of 100 or more are usually considered quantitative.
Marketing Research Process
Defining the problem and research objectives
Developing the research plan for collecting information
Implementing the research plan - collecting and analysing the data
Interpreting and reporting the findings
Defining the problem and research objectives
exploratory research: marketing research used to gather preliminary information that will
help to define problems and suggest hypotheses.
descriptive research: marketing research used to better describe marketing problems,
situations or markets.
causal research: marketing research used to test hypotheses about cause and effect
relationships.
Developing the research plan
The demographic, economic and lifestyle characteristics of current consumers of the product
in question.
The characteristics and usage patterns of the broader population of consumers.
Retailer reactions to the proposed product line
Forecast sales of both new and current products.
Gathering Data
secondary data: information that already exists and was collected for another purpose.
primary data: information collected for the specific purpose at hand.
Secondary ~
companies start with secondary data and con buy secondary data reports from external
suppliers.
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commercial online databases: computerised collections of information available from
online commercial sources such as the internet.
Sources of Secondary Data: Internal (intranet), government publications,
periodicals/books, commercial data.
internet search engines may be used but are inefficient due to the amount of hits certain
searches can get.
Secondary data can usually be obtained more quickly and at a lower cost. Also, secondary
sources can sometimes provide data an individual company cannon collect on its own information that is not directly available or may be too expensive to collect.
Primary Data Collection
Implementing the Research Plan
Collecting, processing and analysing the information.
Researchers should ensure that the plan is implemented correctly - guard against problems
with interacting with respondents, with the quality of participants’ responses and interviewers
who make mistakes or take shortcuts.
Must manage data in order to isolate important information and insight.
Check for accuracy and completeness.
Types of Samples
probability samples: simple random sample, stratified random sample, cluster (area)
sample. (RSC)
non-probability sample: convenience sample, judgement sample, quota sample. (CJQ)
Analysing and using marketing information
customer relationship management (CRM): managing detailed information about
individual customers and carefully managing customer touch points in order to maximise
customer loyalty.
Some problems that could be associated with collecting data from international markets are:
language barriers, not knowing where to look and the type of people you’re dealing with.
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Chapter 5 - Understanding consumer & business buyer behaviour
Consumer markets and consumer buyer behaviour
consumer buyer behaviour - refers to the buying behaviour of final consumers which are
individuals and households that buy goods and services for personal consumption.
consumer market - all the individuals and households that buy or acquire goods and
services for personal consumption.
Model of buyer behaviour
Characteristics affecting consumer behaviour
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Cultural culture: set of basic values, perceptions, wants and behaviours learned from family and
society.
cultural groups: those that share common cultural values & perceptions. Eg. Asians,
Australians & Americans
social class: relatively permanent and ordered divisions in societies whose members share
similar values, interests and income. Eg. Toorak vs. Dallas
Social groups: two or more people who interact to accomplish individual or mutual goals
family: can strongly influence behaviour in buyers.
roles & status: people belong to many groups - sporting clubs, organisations. Roles in
society predict how people will act.
Personal age and life cycle stage: as people age, their lives change. Maturity brings different tastes
in products and services.
Life cycle change with demographics and life changing events - university, children an
marriage for example.
occupation: what kind of job people have will govern what they will buy. Eg. white collar
workers will buy suits and trades will buy work boots and work clothes.
economic situation: the economic situation of a country will determine whether consumers
will spend or save.
lifestyle: a person’s pattern of living as expressed in his or her activities, interests and
opinions. Eg. Mercedes does not just sell a car, they sell status.
personality & self concept: traits applied to brands. Apple = innovative, Dove = caring,
IKEA = affordability
self concept: idea that people’s possessions contribute to and reflect their personalities. eg.
bright clothing = fun person, dark clothing = depressed person.
Psychological motivation: motive or drive that is a need and is driving a person to seek satisfaction. eg. a
baby boomer buying a Ferrari to show off their success in life.
perception: how we make sense of the world around us.
Marketers using different forms of advertising in order to draw attention to their products.
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learning: relatively permanent changes in individual’s behaviour as a result of experience.
Occurs through the interplay of drives, stimuli, cues, responses and reinforcement.
belief: a descriptive thought that a person holds about something. Eg. Halal meat
attitude: a person’s consistently favourable or unfavourable evaluations, feelings and
tendencies towards an object or idea. Eg. Apple is the most innovative technology company
in the world.
Thus, companies need to tailor their products to particular attitudes. As people adopt more
healthy attitudes, marketers need to cater to these new attitudes. Eg. McDonald’s offering
their salad and wrap range as a more healthy alternative to cheeseburgers and fries.
Maslow’s hierarchy of needs
Physiological needs (hunger and thirst) > Safety needs (security and protection) > Social
needs (sense of belonging and love) > Esteem needs (self-esteem, recognition and status)
> Self-actualisation needs (self-development and realisation).
The buyer decision process
Need recognition > information search > evaluation of alternatives > purchase
decision > post purchase behaviour
need recognition: need a new car
information search: research types of cars I am interested in
evaluation of alternatives: determining which will best satisfy my needs
purchase decision: buying that car I want/need
post-purchase behaviour: how I feel after buying? Regrets? Happiness? Fulfilment?
The buyer decision process for new products
Stages in the adoption process (AIETA)
Awareness: aware of new product, lacks information about it.
Interest: seeking information about the new product.
Evaluation: considers whether the new product makes sense to buy.
Trial: tries new product on a small scale.
Adoption: full and regular use of new product.
Individual differences in innovativeness (product adoption)
People differ greatly in their decision to buy new products. Eg. iPhone - new model each
year.
Adoption rates:
Innovators (2.5%) > Early Adopters (13.5%) > Early Majority (34%) > Late Majority (34%) >
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Laggards (16%)
Eg. first day > few weeks after > few months after > more than 6 months after > just before
new model comes out
Influence of product characteristics on rate of adoption (RCCDC)
Relative Advantage: superiority over previous model
Compatibility: user ability and compatible with everything
Complexity: ease of use
Divisibility: price
Communicability: how consumers will recommend to others
Business markets and business buyer behaviour
business buyer behaviour: the buying behaviour of the organisations that buy goods and
services for use in the production of other products and services or to resell or rent them to
others at a profit. Wholesaling & retailing firms.
business markets: resellers and manufacturers
Business markets differ in many ways from consumer markets. The main differences are in
market structure and demand, the nature of the buying unit, the size (business = huge,
consumer = large), the nature of the buying unit and the types of decisions and buying
processes involved.
Market structure and demand
derived demand: business demand that ultimately comes from the demand for consumer
goods. eg. high demand for PCs = high demand for the microprocessors that power them.
nature of the buying unit: business purchases involves more people whom are trained to
buy better and get the best deals.
Types of decisions and the decision process
supplier development: systematic development of networks of supplier partners to ensure
an appropriate and dependable supply of products and materials for use in making products
or reselling them to others.
Business buyer behaviour
Four questions to be considered What buying decisions do business buyers make?
Who participates in the buying process?
What are the main influences on buyers?
How do business buyers make their buying decisions?
Main types of buying situations
straight re-buy: a business buying situation in which the buyer routinely reorders something
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without any modifications.
modified re-buy: a business buying situation in which the buyer wants to modify product
specifications, prices, terms or suppliers.
new task: a business buying situation in which the business purchases a product or service
for the first time.
systems selling (or solutions selling): buying a packaged solution to a problem from a
single seller. I.e. home, car, contents, health insurances from the same provider. Thus,
avoiding all the separate decisions involved in a complex buying situation.
buying centre: all the individuals and units that play a role in the business purchase
decision-making process.
The business buying process
Problem recognition > general need description > product specification > supplier
search > proposal solicitation > order-routine specification > performance review
value analysis: carefully analysing a product’s or service’s components to determine if they
can be redesigned and made more effectively and efficiently to provide greater value.
e-procurement: purchasing through electronic connections between buyers and sellers usually online.
Chapter 6 - Customer-driven marketing strategy - creating value for target customers
market segmentation: the process of analysing a market with the aim of directing
marketing focus towards smaller segments of buyers with distinct characteristics or
behaviours that might require separate marketing strategies or mixes.
market target (targeting): the process of evaluating each market segment’s attractiveness
and selecting one or more segments to enter.
differentiation: differentiating the market offering to create superior customer value.
positioning: arranging for a market offering to occupy a clear, distinctive and desirable
place relative to competing products in the minds of target consumers.
Market Segmentation
geographical - region, city size, density and climate.
demographic - age, sex, family size, family life cycle, income, occupation, education,
religion and nationality.
psychographic - socioeconomic status, values, attitudes, lifestyle groupings and
personality.
behavioural - purchase occasion, benefits sought, user status, usage rate, loyalty status,
readiness, stage, attitude towards products.
inter-market segmentation: forming segments of consumers who have similar needs and
buying behaviour even though they’re located in different countries.
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effective market segmentation requisites
measurable (benefits), accessible (reached), substantial (large + profitable), differentiable
(distinguishable) and actionable (effectiveness).
Market Targeting
target market: a set of buyers sharing common needs or characteristics that the company
decides to serve.
undifferentiated (mass) marketing: a market coverage strategy in which a firm decides to
ignore market segment differences and go after the whole market with one offer.
differentiated (segmented) marketing: a market coverage strategy in which a firm decides
to target several market segments and designs separate offers for each. Eg. concentrated &
micro marketing.
concentrated (niche) marketing: a market coverage strategy in which a firm goes after a
large share of one or a few segments or niches. Eg. NightOwl (convenience stores).
micro-marketing: the practice of tailoring products and marketing programs to the needs
and wants of specific individuals and local customer segments. Eg. local & individual
marketing.
local marketing: tailoring brands and promotions to the needs and wants of local customer
segments - cities, neighbourhoods, and even specific stores. Eg. Halal butchers in muslim
populated suburbs - Broadmeadows.
individual marketing: tailoring products and marketing programs to the needs and
preferences of individual customers also labelled one-to-one marketing. eg. Apple enables
you to customise your Mac and they’ll make it to your specifications.
Differentiation & Positioning
product position: the way the product is defined by consumers on important attitudes; the
place the product occupies in consumers’ minds relative to competing products.
competitive advantage: an advantage over competitors gained by offering greater
customer value, either through lower prices or by providing more benefits that justify higher
prices.
which differences to promote
important - the difference delivers a highly valued benefit to target buyers.
distinctive - competitors do not offer the difference or the company can offer it in a more
distinctive way.
superior - the difference is superior to other ways that customers might obtain the same
benefit.
communicable - the difference is communicable and visible to buyers.
preemptive - competitors cannot easily copy the difference.
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affordable - buyers can afford to pay for the difference.
profitable - the company can introduce the difference profitably.
Selecting an overall positioning strategy
value proposition: the full positioning of a brand, the full mix of benefits upon which it is
positioned. ie. more for less, more for the same, the same for less, less for much less or
more for less.
positioning statement: a statement that summaries company or brand positioning - it takes
this form: to (target segment and need) out (brand) is (concept) that (point of difference).
Chapter 7 - Products, services and brands: offering customer value
Product
product: anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or a need.
service: an activity, benefit or satisfaction offered for sale that is essentially intangible and
does not result in ownership of anything.
Levels of products/services
core customer value > actual product > augmented product
core customer value - the value instilled upon the product/service by the customer which
persuades them to buy.
actual product - the physical aspects of the product: brand name, design, features,
packaging and quality level.
augmented product - services associated with the product and buying: delivery and credit,
after sale service, warranty and product support.
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Product and service classifications
consumer products: products used for personal and household consumption.
industrial products: a product bought buy individuals and organisations for further
processing or use in a business.
Product and service decisions
product attributes - quality, features, style and design.
Brand
Packaging
Labelling
Product Support Services
product line decisions - deciding on product line length
product line - a group of products that are closely related because they function in a similar
manner, are sold to the same customer groups, are marketed through the same types of
outlets, or fall within given price ranges.
product mix (product portfolio) - all product lines of products for sale.
Services Marketing
service intangibility - not seen, tasted, heard, felt (etc.) before purchase.
service inseparability - cannot be separated from providers of service.
service variability - quality depends upon the provider.
service perishability - services cannot be stored for later sale or use.
Marketing strategies for service firms
service-profit chain: the chain that links the service firm profits with employee and
customer satisfaction.
internal marketing: orienting and motivating customer contact employees and supporting
service people to work as a team to provide customer satisfaction.
frontline marketing: interacting with customers and others in the marketing channels on a
one-to-one basis in person or remotely via digital technologies.
Managing Service Differentiation
managing service quality - should aim for superior quality delivery.
managing service productivity - pushing employees to work more efficiently.
Branding Strategy
brand equity: the value of the brand itself.
building strong brands - is your brand known?
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brand positioning: based on attributes, benefits, beliefs and values.
brand sponsorship - national (Kellogs’) vs. private (Woolworth’s Select), co-branding Qantas and MasterCard
Brand Development
line extensions: new forms of products under the same brand.
brand extensions: introducing new brands.
multi-brands: many brands under a name. (Nescafe products, Apple products).
new brands: introducing entirely new brands.
managing brands - advertising etc.
Chapter 8 - Developing new products &managing innovation
New Product Development Strategy
new-product development - the development of original products, product improvements,
product modifications and new brands through the company’s own research and
development efforts.
Why new products fail
companies may overestimate the size of the market
poorly designed products
incorrectly positioned, launched at the wrong time, price too high or poorly advertised
development costs may be higher than expected and competitors may fight back harder than
expected
products may fail because they simply did not bring value to customers or brand became
attached to things that were totally out of character
patents are crucial in the development of new products
The new product development process
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Idea generation > idea screening > concept development and testing > marketing strategy
development > business analysis > product development > test marketing >
commercialisation
Idead Generation
idea generation: the systematic search for new-product ideas
internal idea sources: include employees, and others within the company. More than 41%
of new product ideas come from employees.
external idea sources: predominantly consumer and customer based. Involves consumer
observation and ideas from loyal customers.
NB: companies shouldn’t rely too heavily on what customers say as their technical
knowledge of products is limited and might not adequately reflect what they need.
crowdsourcing: inviting broad communities of people - customers, employees, independent
scientists and researchers and even the public at large - into the new-product innovation
process.
Idea Screening
idea screening: screening new-product ideas in order to spot good ideas and drop poor
ones as soon as possible.
R-W-W (real, win, worth it) - #1 - is it real? is there a real need and desire for the product
and will customers buy it? Is there a clear product concept and will it satisfy the market?
#2 - Can we win? Does the product offer a sustainable competitive advantage? Does the
company have the resources to make the product a success?
#3 - Is it worth doing? does the product fit the company’s overall growth strategy? Does it for
sufficient profit potential?
In answering ‘yes’ to all these questions, the product should be developed further.
Concept Development & Testing
product concept: the idea that consumers favour products that offer the most quality,
performance and features and that the organisation should therefore, devote its energy to
making continuous product improvements; a detailed version of the new-product idea stated
in meaningful terms.
product image: the way consumers perceive an actual or potential product.
concept development: involves coming up with a range of concepts of a new product that
will each target different market segments.
concept testing: testing new product concepts with a group of target consumers to find out
if the concepts have strong consumer appeal.
concepts are presented to customers, either physically or symbolically.
firms tend to test concepts before attempting to turn them into actual new products. They ask
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a range of questions to determine which concept has the greatest appeal and who would
buy it. From this data they estimate sales volume - often uncertain because consumers are
quite unpredictable in their buying behaviours of non-staple goods.
Marketing Strategy Development
marketing strategy development: designing an initial marketing strategy for a new product
based on the product concept - consists of three parts.
#1 - describes the target market, the planned value proposition, the sales, market share and
profit goals for the next few years.
#2 - outlines the products planned price, distribution and marketing budget for the first year.
#3 - the marketing strategy statement describes the planned long-run sales, profit goals and
marketing mix strategy.
Business Analysis
business analysis: a review of the sales, costs and profit projections for a new product to
find out whether these factors satisfy the company’s objectives.
may analyse successes of other products. Conduct estimates of minimum and maximum
sales to assess risk. Determine costs and profits from sales forecast. Ultimately, they use
this to analyse the new products financial attractiveness.
Product Development
product development: a strategy for promoting company growth by offering modified or
new products to current market segments; developing the product concept into a physical
product to ensure that the product idea can be turned into a workable product.
products undergo testing to ensure that they are safe and effective
Test Marketing
test marketing: the stage of new product development in which the product and marketing
program are introduced into more realistic market settings.
testing costs may be high and time consuming thus, allowing competitors to gain
advantages.
Commercialisation
commercialisation: introducing a new product into a new market.
companies must be smart about which markets they enter into and when they release a
product into market.
Customer Centered New-Product Development
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customer centered new product development: focus on finding new ways to solve
customers problems and create more customer satisfying experiences.
more successful products are ones that are differentiated, solve major customer problems
and offer a compelling customer-value proposition.
companies that directly engages their customers in the new product innovation process has
twice the return on assets and triple the growth in operation incomes of firms that do not.
begins and ends with solving customer problems. Successful innovation boils down to
finding fresh ways to meet the needs of customers.
Systematic New-Product Development
holistic and systematic trumps compartmentalised and haphazard.
innovation management new ideas. Arranged in hierarchy and encourages everyone to be
involved in the innovation process.
two favourable outcomes include - innovation oriented market culture with rewards for
innovation & more ideas will be considered and developed systematically.
Team-Based New-Product Development
sequential product development: a new product development approach in which one
company department works individually to complete its stage of the process before passing
the new product along to the next department and stage.
dangerously slow, in fast changing, highly competitive markets, such slow step-by-step
approaches can result in product failures, lost sales and profits and crumbling market
conditions.
a quicker approach team-based new-product development: an approach in which company departments work
together in cross-functional teams, overlapping the steps in the product development
process to save time and increase effectiveness.
companies that combine a customer centered approach with team-based new product
development gain a big competitive advantage by getting the right products to market much
faster.
Product Lifecycle Strategies
product life cycle: the course of a products sales and profits during its lifetime. Involved 5
distinct stages - product development, introduction, growth, maturity and decline.
Product Development: new product idea; during this stage, sales are zero and investment
costs are high.
Introduction: period of slow sales growth; profits are non-existent due to the costs
associated.
Growth: period of rapid market acceptance and increasing profits.
Maturity: slow down in growth due to high acceptance from buyers. Profits tend to level off
or decline in order to fend off competition.
Decline: period when sales fall off and profits drop.
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style - a basic and distinctive mode of expression
fashion - a currently accepted or popular style in a given field
fad - a fashion that enters quickly, is adopted with great zeal, peaks early and declines
quickly
#1 - Introduction
introduction stage - the stage in the product life cycle when the new product is first
distributed and made available for purchase.
in this stage, profits are negative or low because of low sales, high distribution and
promotion expenses. Much money is needed to attract distributors and build their
inventories.
promotion spending is high in order to get their product out there and known.
focus on selling to people that are willing to buy.
first step in positioning strategy should focus upon the whole product life cycle in the long
run. This is crucial for staying a market leader.
#2 - Growth
growth stage - the stage in the product’s life cycle when a products sale starts climbing
quickly.
profits increase due to large sales volume and as unit manufacturing costs fall.
trade off between high profit or market share. That is, profits may be crimped by heavy
spending in order to maintain or gain greater market share.
#3 - Maturity maturity - the stage in the product life cycle when sales growth slows or flat lines.
this stage is the longest. The slow down in growth is caused by over capacity in the market
(many sellers). Competition leads to undercutting against competitors in order to claw back
market share which in turn, kills profit.
most products spend their lifetime in this stage, as such, marketing managers need to
constantly adapt to the needs of the ever changing market of consumer needs.
#4 - Decline
decline - a stage in the products life cycle when a product’s sales decline.
occurs rapidly in technology progressiveness, notably CDs > digital music.
sales decline may lead to withdrawal from the market, remaining companies may prune their
product offerings.
weak products are costly as they use valuable resources and money.
maintain the bran while competitors leave, thus leaving you with greater market share,
salvage value the products and leave or harvesting product lines by cutting out weak
products thus lessening your risk.
Product Decisions and Social Responsibility
companies should think carefully around issues regarding - acquiring or dropping products,
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patent protection, production quality and safety, and product warranties.
different countries have different trade rules and regulations of which foreign companies
must be aware of and abide by.
companies may be liable for defective products and may be sued for damages. Such things
may damage their reputation.
Internal Product & Services Marketing
companies may standardise or adapt its products to foreign markets. They must figure out
what their brand/name represents in a market and sure that it is positive.
packaging may also tailor to foreign needs.
many companies have made their push into the global market.
Chapter 9 - Price
Price is the only element of the production mix that produces revenue; all other elements are
costs.
Pricing for more ‘savvy’ marketing managers may be used as a tool for creating and
capturing customer value.
A small percentage improvement in price can generate a large percentage in profitability.
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One frequent problem is that companies are too quick to reduce prices in order to get a sale,
rather than convincing buyers that their product’s greater value is worth a high price,
especially when sales are sluggish.
Market-based Pricing Strategies
customer value based pricing - setting the price based on buyer’s perceptions of value,
rather than on the seller’s cost.
good value is not the same as low price.
a company using value based pricing must find out what value buyer’s assign to different
competitive offers.
often it is hard to measure the value that customers will attach to its products.
in determining value - companies may ask consumers about certain products, may run
experiments to determine perceived value.
if the seller charges less, its products sell very well. But they produce less revenue than they
would if it were priced at the level of perceived customer value.
good-value pricing - offering just the right combination of quality and good service that
customers want at a fair price.
good value pricing has involved redesigning existing brands to offer more quality for a given
price or the same quality for less.
an important type of good value pricing at the retail level is everyday low pricing (EDLP).
This involves charging a constant, everyday low price with few or no temporary price
discounts.
in contrast, high-low pricing involves charging higher prices on everyday items but running
frequent promotion to lower prices temporarily on selected items.
value-added pricing - rather than cutting prices to match competitors’ prices, marketers
adopting this strategy attach value-added features and services to differentiate their offerings
and this supports higher prices.
cost-based pricing - setting prices based on the costs for producing, distributing and selling
the product, plus a fair rate of return for its effort and risk.
companies with lower costs can set lower prices that result in smaller margins but greater
sales and profits. Other companies however, intentionally pay higher costs so that they can
claim higher prices and margins.
Types of costs:
fixed costs: costs that do not vary with production or sales level.
variable costs: costs that vary directly with the level of production.
total costs: the sum of the fixed and variable costs for any given levels of production.
management wants to charge a price that will at least cover the total costs of production at
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any given level of production.
cost-price pricing - adding a standard mark-up to the cost of the product.
break-even pricing (target return pricing) - setting the price to break even on the costs of
making and marketing a product, or to make the desired profit.
main problem with break-even pricing is that it fails to consider the customer value and the
relationship between price and demand.
when using this method, the company must also consider the impact of price on sales
volume needed to realise target profits and the likelihood that the needed volume will be
achieved at each possible price.
competition-based pricing - setting prices based on competitors’ strategies, costs, prices
and market offerings.
does the company’s market offering compare with competitors’ offerings in terms of
customer value?
how strong are the current competitors and what are their pricing strategies?
how does the competitive landscape influence customer price sensitivity?
Other internal and external considerations affecting price decisions
customer perceptions of the value set the upper limit for prices whereas, costs set the lower
limit. Within these limits, customers will compare the prices and value of the company’s offer
to those of competitors.
before setting the price, the company must decide on its overall marketing strategy for the
product or service.
Overall marketing strategy, objectives and mix.
pricing is very important - a firm may set new prices to attract new customers or to profitably
retain loyal ones. May set prices low to keep competitors out of the market or set at
competitor prices to stabilise the market.
companies often position their products on price and then tailor other marketing mix
decisions to the prices they want to charge.
target costing: starts with an ideal selling price based on customer-value considerations
and then target costs that will ensure that the price is met.
marketers tend to consider what customers rarely buy on price alone, instead they seek
products that give them the best value in terms of the benefits received for the prices paid.
Organisation Considerations
companies must decide who best within the company to determine prices.
in industries where pricing is crucial, companies often have pricing departments to set the
best prices or to help others to set them.
others who have influence include sales managers, production managers, finance managers
and accountants.
The Market & Demand
Pricing in different types of markets
pure competition: many buyers and sellers selling a uniform commodity, no single buyer or
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seller has much affect on the market price. A seller cannot sell for more than the going price
and thus, wouldn’t sell for lower because it would crimp its margins. These sellers hardly
spend on marketing.
monopolistic competition: many buyers and sellers with a range of prices rather than a
single market price. A range of prices occurs because sellers can differentiate their offers to
buyers.
oligopolistic competition: a market that consists of few buyers that are highly sensitive to
each others’ pricing and marketing strategies. There are few sellers because it is difficult for
new sellers to enter the market. Each seller is alert to competitor’s strategies and moves.
pure monopoly: the market consists of one seller. May be a government monopoly, a
private regulated monopoly or a private non-regulated monopoly.
demand curve: a curve that show the umber of units in the market will buy in a given time
period at different prices.
price elasticity: a measure of the sensitivity to the demand to changes in price.
New Product Pricing Strategies
market-skimming pricing: setting a high price for a new product to skim maximum revenue
from the segments willing to pay the high price. The company makes fewer but more
profitable sales.
market-penetration pricing: setting a low price for a new product in order to attract a large
number of buyers and a large market share.
the market must be highly price sensitive so that a low price produces more market growth.
production and distribution costs must fall as sales volume increases.
the low price must help keep out the competition, and the company adopting penetration
pricing must maintain its low price position otherwise the price advantage may only be
temporary.
Product-mix Pricing Strategies (5)
product-line pricing: setting prices across an entire product-line.
optional-product pricing: pricing optional or accessory products sold with the main
product.
captive-product pricing: pricing products that must be used with the main product.
by-product pricing: pricing low value by-products to get rid of them.
product-bundle pricing: pricing bundles of products sold together.
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Price Adjustment Strategies
Discount Allowance Pricing
discount: a straight reduction in price on purchases during a stated period of time when
purchasing larger quantities.
allowance: promotional motives paid by suppliers to retailers in return for agreement to
feature the supplier’s product in some way.
Segmented Pricing
a company sells a product or service at two or more prices, even though the difference in
price is not based on the differences in costs.
companies must ensure that they do not treat customers in lower segments as ‘2nd-class
citizens’.
Psychological Pricing
sellers consider the psychology of prices and not just simply the economics.
often difficult for buyers to adequately determine the value/price of what they’re buying.
references prices: prices that buyers carry in their minds and refer to when looking at a
given product.
Promotional Pricing
a company temporarily prices its product below list price, and some times even below cost,
to create buying excitement and urgency.
manufacturers may offer: rebates, low-interest financing, longer warranties, free
maintenance or reduce the consumers price.
if used too frequently and copied by competitors, price promotions can create deal prone
customers who wait until brands go on sale before buying them.
promotional pricing can be an effective means of generating sales for some companies in
certain circumstances; however, it can be damaging for other companies or if taken as a
steady diet (used frequently).
Geographical Pricing
where companies price products or services differently in the regions in which they’re
offered.
delivery costs many vary from region to region and companies must ensure that buyers are
getting the best deals.
Dynamic Pricing
prices are adjusted continually to meet the characteristics and needs of individual customers
and situations.
International Pricing
prices may be uniform across all markets or many differ in market to market.
factors include; economic conditions, competitive situations, laws and regulations and the
development of wholesaling and retailer systems.
often prices are much higher in some markets than others. This is caused by; the additional
costs of product modifications, shipping and insurance, import tariffs and taxes, exchangerate fluctuations and physical distribution
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Price Changes
Initiating Price Changes
price cuts - due to excess capacity or falling demand.
may lead to price wars as competitors battle to hold onto market share.
companies may seek to increase market share via low prices which means larger volume
and ultimately, lower costs.
Initiating Price Increases
successful in this can greatly increase profits.
a major factor in price increases is cost inflation. Rising costs squeeze profit margins and
lead to companies passing cost increases along to consumers.
another factor leading to price increases is over demand, when a company cannot supply all
that its customers need it may raise prices, ration products to customers or do both.
companies should be very vocal about their price increases and the reasons to them.
should aim to handle higher costs without raising prices. Can do this through unbundling
services, removing features, changing packaging or delivery companies for instance.
Buyer reactions to price changes
buyers have different perceptions of price increases and price cuts. Increased price may
mean they’re getting more quality and decrease in price may mean that the company is
skimping on quality.
Competitor reactions to price changes
competitors watch each other closely and will often tend to match each other or even offer
better deals in order to retain market share.
Responding to price changes
competitors must consider the following:
why did the competitor change its price?
is the price change temporary or permanent?
what will happen to the company’s market share and profits if it does not respond?
are other competitors going to respond?
Public Policy & Pricing
Pricing within channel levels
price fixing is illegal and companies will face heavy fines.
predatory pricing - selling below cost with the intention of punishing a competitor or gaining
higher long run profits by putting competitors out of business. NB: selling below of costs to
clear excess inventory is not classified as a predatory.
Pricing across channel levels
given that price discrimination is illegal, this ensures that sellers off the same price terms to
customers at any given level of trade.
price maintenance: a manufacturer cannot require dealers to charge a specific retail price
for their product. They may only recommend.
deceptive pricing occurs when a seller states prices or price savings that mislead consumers
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or are not actually available to them.
treating customers fairly and making certain that they fully understand prices and pricing
terms is an important part of building strong customer relationships in the long run.
Chapter 10: Placement: customer value fulfilment
Supply Chains and the Value Delivery Network
supply chain - a system of efficiently and effectively producing, making and getting products
to end-users.
supply chain management - managing, upstream and downstream, value-added flows of
materials, final goods, and related information among suppliers, the company, resellers and
final consumers.
marketing logistics (physical distribution) - the tasks involved in planning, implementing
and controlling the physical flow of materials and final goods from points of origin to points of
use to meet the needs of customers at a profit.
involves getting the right product to the right customer at the right time.
value delivery network - the company, suppliers, distributors, and ultimately, the customers
who partner with each other to improve the performance of the entire system.
IT systems play a critical role in managing supply chains. Major gains in logistical efficiency
have resulted from information technology such as: point-of-sale terminals, uniform product
codes, satellite tracking of transport, radio-frequency ID tags (RFID), electronic data
interchange (EDI) and now the internet.
Given that logistics account for 30-40% of product costs, it is crucial to invest in ways to
make supply chains more efficient.
When logistics fail, consumers are affected as they are dissatisfied when they to not receive
their product on time.
services marketing logistics - coordinating, non-material activities needed to provide a
service in a cost effect way and with the quality expected.
Supply Chain Goals
supply chain trade-offs - the trade-offs in costs areas involved when deciding on the
service level the organisation will offer customers.
Companies will add supply-chain value through cycle time reductions
conversions operations location
purchasing decisions to make or buy/network with suppliers.
manufacturing and operations process decisions.
order processing and costs.
inventory levels and costs.
transport type and costs.
restructuring the marketing channels used to place products within easy reach of buyers and
end users.
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Major Supply Chain Functions
Transportation
forms of transport include - air, rail, sea, truck, internet and pipelines.
intermodal transportation - combining two or more modes of transportation - for increased
efficiency.
Air and truck are the fastest transport choices. Water and rail are at the lowest cost.
Supply Chain Information Management
channel partners often link up and share information, this creates efficiency.
The nature of marketing channels and value creation
marketing channel (distribution channel) - is a network of interdependent organisations intermediaries - involved in the process of making goods and services available for use or
consumption by the consumer or business user.
Major Supply Chain Functions
warehousing a company must decide on how many and what types of warehouses it needs and where
they will be located.
distribution centre - large and highly automated warehouse designed to receive goods
from various plants and suppliers, take orders, fill them efficiently, and deliver goods to the
retail owned of the centre as quickly as possible.
Inventory Management
Managers must maintain the delicate balance between carrying too little inventory and carry
too much inventory.
Many companies have greatly reduced their inventories and related costs through just-intime logistics networks. With such systems, producers and retailers carry only small
inventories or parts or merchandise, often only enough for a few days operations. New stock
arrives daily and when needed, rather than being stored in inventory until being used. JIT
systems require accurate forecasting along with fast, frequent and flexible delivery so that
new supplies will be available when needed.
The nature of marketing channels and value creation
marketing channels add value many suppliers lack the financial resources to carry out direct marketing, or customers want
personal interaction before buying large ticket items. Here, suppliers must use retailers and
other intermediaries to reach customers on a personal level.
through contacts, intermediaries reduce the amount of work that must be done by suppliers
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to sell and distribute the product, and by customers to search for and buy products.
Marketing channel members perform many key functions
information - gathering intelligence about the players in the marketing environment for
planning and aiding exchange.
promotion - developing and spreading persuasive communications about an offer.
contact - finding and communicating with prospective buyers.
matching - shaping and fitting the offer to the buyer’s needs.
physical distribution - transporting and sorting goods.
financing - acquiring and using funds to cover the costs of channel work.
risk taking - assuming the risks of carrying out channel work.
in determining these roles, we consider who is most efficient at keeping costs low.
all these roles have 3 things in common; they use scarce resources; more efficient through
specialisation, and can be transferred to other channel members.
Number of channel levels
channel level - a layer of intermediaries who perform some work in bringing the product and
its ownership to the final buyer.
direct marketing channel (Channel 1) - a marketing channel that has no intermediary
levels.
Channel 2 - a retailer who sells a range of products that they buy directly from a
manufacturer.
Channel 3 - two intermediary levels. Typically consist of a wholesaler and retailer.
channels in the service sector - distributors must be close to a population that is going to
utilise them or need them.
Channel behaviour and organisation
through channel cooperating, individual channel members can more effectively sense, serve
and satisfy the target market. As they all depend upon each other, cooperation is in their
best interests
channel conflict - disagreements among marketing channel members on goals, roles and
rewards - that is, on who should do what and for what rewards.
horizontal conflict - conflict between firms at the same level of the channel.
Such conflict may be due to rivalry between insurance agents encroaching on each other’s
territory or customers.
vertical conflict - refers to conflicts between different levels on the same channel and is
even more common. Channels need leadership in order to thrive.
Channel Organisation
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conventional marketing channel - a channel consisting of one or more independent
producers, wholesalers and retailers, each a separate business, seeking to maximise its own
profits, perhaps even at the expense of profits to the system as a whole.
vertical marketing network (VMN) - a distribution channel structure in which producers,
wholesalers, and retailers act as a unified network; one channel member owns the others,
has contracts with them, or wields so much power that they all cooperate.
corporate vertical marketing network - a vertical marketing network that combines
successive stages of production and distribution under single ownership, channel leadership
is established through common ownership.
contractual vertical marketing networks - a vertical marketing network in which
independent firms at different levels of production and distribution join together through
contracts.
Types of Franchises:
1. manufacturer sponsored retailer franchise - Ford, Holden, Honda (etc) + car
dealerships
2. manufacturer sponsored wholesaler franchises - Coca Cola Corporation (CCC) +
Coca Cola Amatil (CCA)
3. service-firm sponsored retailer franchise - groups of retailers: KFC, The Athlete’s Foot,
Ray White, etc.
wholesaler sponsored voluntary chains - networks in which wholesalers organise
voluntary chains of independent retailers to help them compete with large chain
organisations. (IGA competing with Woolworths’ & Coles)
retailer cooperatives - are networks in which retailers organise a new, jointly owned
business to carry on wholesaling and, possibly production.
administered vertical marketing networks - a vertical marketing network that coordinates
successive stages of production and distribution, not through stages of production and
distribution, not through common ownership or contractual ties, but through size and power
of one of the parties.
horizontal marketing networks - a channel arrangement in which two or more companies
at one level join together to follow a new marketing opportunity.
multichannel distribution networks - a multichannel distribution system in which a single
firm sets up two or more marketing channels to reach one or more marketing segments.
disintermediation - the removal of marketing channel intermediaries by goods or service
producers, or the displacement of traditional resellers by new and different types of
intermediaries.
Retailing
retailing - all activities involved in selling goods or services directly to final consumers for
their own personal, non-business use.
Types of Retailers
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retailer - a business whose sales come primarily from retailing.
retailing provides a very important role in most marketing channels. Most retailing is done in
stores, over the internet, door-to-door sales, telephone, vending machines, etc.
shopper marketing - using point-of-sale promotions and advertising to extend brand equity
to ‘the last mile’ and encourage favourable in-store purchase decisions.
Major retailer types
specialty stores - JB Hi-Fi, The Athlete’s Foot, Swarovski Crystal
department stores - David Jones, Myer, Marks & Spencer
supermarkets - Woolworths’, Coles, ALDI
convenience stores - 7-Eleven, Coles Express, NightOwl
discount stores - Big W, K-Mart & Target
mass merchants - Mitre 10, Retravision
off-price retailers - Costco, Campbell’s Cash & Carry
superstores - Bunnings, IKEA, Masters Home Improvement
Amount of Service
self service retailers - a retailer that provides few or no services to shoppers; shoppers
perform their own locate-compare-select process. (eg. Supermarkets and discount-retailers)
limited-service retailer - a retailer that provides only a limited number of services to
shoppers.
full-service retailer - a retailer that provides a full range of service to shoppers.
specialty stores, return policies, credit plans, delivery etc. All govern higher operating costs.
Product Line
specialty stores - a retail store that carries a narrow product line with a deep assortment
within that line. Eg. household good retailers, electronics retailers, clothing & jewellery.
combination stores - a combined grocery and general merchandise store. Eg. Woolworths’
& Coles.
department store - a retail organisation that carries a wide variety of product lines, typically
clothing, home furnishings and household goods. Each line is operated as a separate
department managed by specialist buyers or merchandisers. Eg. David Jones, Myer and
Marks & Spencer.
supermarket - a large, low-cost, low-margin, high-volume, self-service store that carries a
wide variety of food, laundry and household products. Eg. Woolworths’, Coles and ALDI
supermarkets are continually evolving and improving the services on offer; these include better locations, improved decor, long trading-hours, cheque cashing, EFTPOS, home
delivery and specialised services such as insurance and banking, and petrol.
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supermarkets are even adapting to neighbourhoods with some stores offering kosher/halal
foods in relation to location and demographics within specific suburbs.
convenience stores (C-store) - a small store, located near a residential area, open long
hours seven days a week, carry a limited line of high turnover convenience goods. Eg. 7Eleven, NightOwl.
mass merchant - a type of store carrying a large assortment of merchandise such as:
hardware (Bunnings), electrical goods (Harvey Norman) or personal and healthcare goods
(Priceline).
superstore - a store almost twice the size of a regular supermarket carrying a large
assortment of routinely purchased food and non-food items, and offering such services like
dry cleaning, photo developing, cheque cashing, bill paying as well as, car and pet care.
hypermarket - a huge store that combines supermarket, discount and warehouse retailing;
in addition to food, it carries furniture, appliances, clothing and many other items.
service businesses - a business where the product line is actually a service - for example:
hotels, airlines and restaurants. Eg. Novotel, Disneyland, Qantas and Gold Coast theme
parks.
discount store - a retail institution that sells standard merchandise at lower prices by
accepting lower margins and selling at higher volume. Eg. Reject Shop & Sam’s Warehouse.
off-price retailers - a retailer that buys at less than the regular wholesale prices and sells at
less than retail, usually carrying an unstable collection of higher-quality merchandise, often
left-over goods. Eg. US - Family Dollar & Dollar General
direct factory outlets (DFOs) - an off-price retailing operation owned and operated by
manufacturers, normally carrying that manufacturers surplus, discontinued or irregular
goods.
warehouse clubs (wholesale clubs) - an off-price retailer that sells a limited selection of
brand-name grocery items, appliances, clothing and a hodgepodge of other goods at deep
discounts to members who pay an annual membership fee. Eg. Costco and Campbell’s
Cash & Carry
Organisational Approach
chain stores (corporate chains) - two or more outlets that are commonly owned and
controlled, employ central buying and merchandising, and sell similar lines of merchandise.
Eg. Coles Group (Wesfarmers) and Woolworths Limited
voluntary chain - a wholesaler-sponsored group of independent retailers that engage in
group buying and common merchandising. Eg. Mitre 10
franchise - a contractual association between a manufacturer, wholesaler or service
organisation (a franchisor) and independent business people (franchisees) who buy the right
to own and operate one or more units in the franchise system. (Eg. Baker’s Delight &
McDonald’s)
Retailer Marketing Decisions
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retailers are always looking for new ways to attract customers and cut their costs.
Segmentation, targeting, differentiating and positioning decisions
Retailers must first define their target markets and then decide how they will position
themselves in these markets.
Too many retailers fail to define their target markets and positions clearly. They try to have
‘something for everyone’ and end up satisfying no market properly. In contrast, successful
retailers define their target markets well and position themselves strongly.
Product and Service Assortment Decisions
A retailer’s product assortment should differentiate the retailer while matching target
shopper’s expectations.
One strategy is to offer merchandise that no other competitor carries such as private brands
or national brands that it holds ‘exclusively’ - meaning no-one else stocks them.
Another strategy is to feature blockbuster merchandising events. Which may involve
showcasing goods from other countries.
Lastly, the retailer may differentiate itself by offering a highly targeted product assortment.
Price Decisions
Most retailers seek either; high mark-ups on lower volume (most specialty stores) or low
mark-ups on higher volume (mass merchandisers and discount stores).
Promotion Decision
Retailers use many forms of advertising to promote and get their products out there.
Promotions may include; in-store demonstrations, displays, contests and visiting celebrities.
Placement Decision
central business districts (CBDs) - the area of business as the heart of a city or town.
have become less popular over time due to less convenience.
shopping centre - a group of retail businesses planned, developed and owned, and
managed as a single unit. (Eg. Westfield, Chadstone, Watergardens, Highpoint & Fountain
Gate)
strip-shopping centres - a group of retail businesses located along an arterial road. (Eg.
Evans St, Sunbury, Acland Street, St. Kilda)
People, processes and physical evidence decisions
Retailers must design stores to create an atmosphere that will align with their target markets.
Eg. Apple’s futuristic looking stores.
Retailing Trends & Development
Retailers operate in harsh and fast-changing environments which offer threats as well as
opportunity.
Consumer demographics, lifestyles and spending patterns are constantly evolving and
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therefore, retailers need to constantly adapt to these progressive and change natures.
wheel of retailing concept - a concept of retailing that states that new types of retailers
usually begin as: low margin, low status, low price operations but evolve into higher
priced/serviced and eventually becoming like the conventional retailers they replaced.
Wholesaling
wholesaling - all activities involved in selling goods and services to those buying for retail or
business use.
wholesaler - a firm engaged primarily in wholesaling activities.
Wholesalers are better at performing one or more of these channel functions
selling and promoting - wholesaler’s sales teams help manufacturers to reach many small
customers at low cost. The wholesaler has more contacts, and buyers often trust the
wholesaler more than they trust the distant manufacturer.
buying and assortment building - wholesalers can select items and build assortments
needed by their customers, thereby saving consumers much work.
bulk-breaking - wholesalers save their customers money by buying in carloads and
breaking bulk (breaking large lots into smaller quantities)
warehousing - wholesalers old inventories, thereby reducing the inventory costs and risks
of suppliers and customers.
transportation - wholesalers can provide quicker delivery to buyers because they are closer
than the procedures.
financing - wholesalers finance their customers by giving credit and they finance their
suppliers by ordering early and paying on time.
risk bearing - wholesalers absorb the risk by taking title and beanie the cost of theft,
damage, spoilage and obsolescence.
market information - wholesalers give information to suppliers and customers about
competitors, new products and price developments.
management services and advice - wholesalers often help retailers to train people,
improve store layouts and displays, and set-up accounting and inventory control systems.
merchant wholesalers - an independently owned business that takes title to the
merchandise it handles.
broker - a person or business who does not take title to goods and whose function is to
bring buyers and sellers together and assist in negotiations.
agent - a person or business who represents buyers or sellers on a more permanent basis,
performs only a few functions and does not take title to goods.
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manufacturers’ sales offices and branches - wholesaling by sellers or buyers themselves,
rather than through independent wholesalers.
Chapter 11 - Communicating customer value: Advertising & PR
The Promotion Mix
promotions mix (marketing communications risk) - the specific blend of advertising,
public relations, personal selling, sales promotion and direct-marketing tools that the
company uses to persuasively communicate customer value and build customer
relationships.
advertising - any paid form on non-personal presentation and promotion of ideas, goods or
services by an identified sponsor. Eg. internet, magazines, news n& TV
sales promotion - short-term incentives to encourage the purchase or sale of a product or
service. Eg. discounts, coupons and displays.
personal selling - personal presentation by the firm’s sales force for the purpose of making
sales and building relationships. Eg. trade shows and incentive programs.
public relations - building good image and publicity. Eg. sponsorships, press releases and
web pages.
direct & digital marketing - direst connections with individually targeted consumers o both
obtain an immediate response and cultivate lasting customer relationships. Eg. catalogues,
internet, mobile phones.
Integrated Marketing Communications
The new marketing communications landscape
overtime traditional marketing methods have become less relevant and effective in this
changing, wireless, digital age. Companies who embrace digital technologies are more likely
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to target consumers and get their attentions.
companies are shifting away from mass-marketing and adapting more focused programs
designed to build closer relationships with customers in more narrowly defined micromarkets.
communications technology in the digital age has enabled firms to connect with customers in
more ways that ever before.
The shifting marketing communication model
traditional strategies (newspapers, TV and magazines) are declining as the use of digital
technologies continues to explode.
companies are doing less broadcasting and more narrowcasting by targeting smaller
segments of the market.
given that we can now record shows or watch them later and watch without ads or skip ads,
many larger advertisers are shifting their advertising budgets away from network television in
favour of more targeted, cost-effective interactive and engaging media - digital media.
television advertising remains stable while the adoption of digital advertising is exploding.
many companies are struggling with the transition of old traditional strategies to new
advanced strategies of reaching consumers.
The need for integrated marketing communications
integrated marketing communications (IMC) - careful integration of a company’s many
communications channels to deliver a clear, consistent and compelling message about the
organisation and its brands.
IMC calls for recognising all touch points where the customer may encounter the company
and its brands. Each brand contact will deliver a message, whether good, bad or indifferent.
The company wants to deliver a consistent and positive message with each contact.
Shaping the overall Promotion Mix
The nature of each promotion tool
Advertising
has the power to reach massive audiences at low cost per exposure and it enables the seller
to repeat a message many times.
large scale advertising reflects the company’s size, popularity and success and its public
nature, consumers tend to view advertised products are more legitimate.
in essence, advertising is used to build up brand names and can trigger quick sales.
however, advertising is impersonal and is only one way of communication with potential
consumers. Furthermore, consumers may feel that they don’t even need to tune in.
depending on the form used, advertising may be very expensive too.
Personal Selling
most effective tool at certain stages of the buying process. Involves interaction between two
or more people, so each person can observe the other’s needs and characteristics and
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make quick adjustments.
an effective salesperson keeps the customer’s interests at heart in order to build a long-term
relationship by solving customer problems.
a salesforce is expensive compared to advertising and unlike advertising, cannot simply be
‘turned up or turned down’, given that a salesforce size is harder to adjust.
Sales Promotion
includes - coupons, contests, cents-off deals, premiums and others. They attract attention
and offer strong incentives to purchase and can be used to dramatise product offers and
boost sagging sales.
sales promotions warrant quick responses. Advertising says ‘buy our product’ whereas,
sales promotion says ‘buy it now’. These effects are often short-lived.
Public Relations
product information reaches buyers as new rather than sales directed communications.
well though out public relations campaigns used with other promotion mix tools can actually
be very effective and economical.
Direct and Digital Marketing
direct marketing is less public, that is, the message is normally directed to a specific person.
direct marketing is immediate and customised, messages can be prepared very quickly and
can be tailored to appeal to specific customers.
direct marketing is also interactive - it allows a dialogue between the marketing team and the
consumer and messages can be altered depending on the consumer’s response.
direct marketing is well suited to highly targeting marketing efforts and to building one-onone customer relationships.
Promotion Mix Strategies
push strategy - a promotional strategy using the salesforce and trade promotions to push
the product through marketing channels to final consumers. The producer promotes the
product to channel members, who in turn promote it to final consumers.
pull strategy - the producer directs its marketing activities (primarily advertising and
consumer promotion) towards final consumers to induce them to buy the product. Eg.
Unilever and its Lynx brand.
more productive companies use a mix of both push and pull strategies.
Advertising
marketing management must make four important decisions when developing an advertising
program: setting advertising objectives, setting advertising budgets, developing advertising
strategy (message decisions and media decisions) and evaluating advertising campaigns.
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Setting Advertising Objectives
advertising objective - a specific communication task to be accomplished with a specific
target audience during a specific period of time.
aims of advertising are - to inform, persuade or remind.
informative advertising - used heavily when introducing a new product brand. Objective is
to build primary demand.
persuasive advertising - advertising becomes more important as competition increases.
Objective is to build selective demand.
comparative advertising (attack advertising) - whereby a company directly or indirectly
compares its brand with one or more other brands.
companies must be cautious with comparative advertising as it might turn into a way that
neither can win. Furthermore, upset competitors may take drastic action or may sue.
reminder advertising - important for mature products - helps to maintain customer
relationships and keep customers thinking about the products.
the main goal of some advertising may be to encourage immediate action or change the way
that customers think or feel about the brand.
Setting Advertising Budget
advertising budget - the dollars and other resources allocated to a product or a company
advertising program.
Methods
the affordable method - the promotion budget is set at the level the company can afford.
start with the total revenues, deduct expenses, what is left over, a small portion goes
towards advertising.
ignores the effects of promotion on sales and tends to place promotion last among spending
priorities.
percentage of sales method - the promotion budget is set at a certain percentage of
current or forecasted sales.
strongly viewed as the cause of sales and thus when sales are low, it is hard to increase
spending in order to bolster sales volume.
budget varies with year-to-year sales, making long-term planning difficult. Also, stronger
brands will always have more money to spend.
competitive parity method - the promotion budget is set to match competitors’ outlays.
objective and task method - the promotion budget is set by defining specific objectives and
determining the promotional tasks required to achieve these objectives. The budget is set to
cover the costs of these tasks.
the advantage of this method is that it forces management to spell out its assumptions about
the relationships between dollars spend and promotion results.
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companies that can maintain or even increase their advertising spending while others
(competitors) are decreasing their can gain competitive advantage.
Developing Advertising Strategy
advertising strategy - consists of two main elements - creating advertising messages and
selecting advertising media.
Creating the Advertising Message
Breaking through the clutter
advertising environments like TV commercials are becoming very cluttered and therefore,
company advertisers need to make their ads stand out.
digital technology that allow consumers to record and playback TV has enabled consumers
to skip and bypass ads meaning they have less exposure. This means that advertisers are
not as well equipped to force people to watch ads like they were in the past.
nowadays there is much emphasis that is placed upon creative and emotionally engaging
commercials.
Merging Advertising & Entertainment
take one of two forms; advertainment or branded entertainment
advertainment: making ads entertaining or useful so that people will want to watch them
and take notice.
branded entertainment (brand integrations) - involves making the brand an inseparable
part of some other form of entertainment (eg. when we see brand names in movies etc.)
the most common is product placements - imbedding brand or props within other
programming. (eg. Coles items seen on MasterChef).
Media Strategy
to decide what general message will be communicated to consumers.
developing an effective message strategy begins with identifying customer benefits that can
be used as advertising appeals.
creative concept: a ‘big idea’ that will bring the message strategy to life in a distinctive and
memorable way.
advertising appeals should have three characteristics - they should be meaningful pointing
out the benefits that make the product more desirable or interesting to customers. Second appeals must be believable. Consumers must believe that the product or service will deliver
the promised benefits. Lastly, appeals must also be distinctive, they should tell how the
product is better than competing brands.
Message Strategy
to decide what general message will be communications to consumers.
developing an effective message strategy begins with identifying customer benefits that can
be used as advertising appeals.
creative concept - a ‘big idea’ that will bring the message strategy to life in a distinctive and
memorable way.
advertising appeals should have three characteristics - they should be meaningful, pointing
out benefits that make the product more desirable or interesting to customers. Second appeals must be believable, consumers must believe that the product or service will deliver
the promised benefits. Lastly, appeals must also be distinctive, they should tell how the
product is better than competing brands.
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Message Execution
execution styles - the approach, style, tone, words and format chosen for executing the
message.
slice of life - this style shows one or more typical people using the product in a normal
setting.
lifestyle - this style shows how a product fits in with a particular lifestyle.
fantasy - this style creates a fantasy around a product or its use.
mood or image - style builds a mood or image around the product or service, such as
beauty, intrigue, love or serenity.
musical - this style shows people or cartoon characters singing about the product.
personality symbol - style creates a character that represents the product.
technical expertise - this style shows the company’s expertise in making the product.
scientific evidence - style presents survey or empirical evidence that the brand is or bette
liked than one or more other brands.
testimonial evidence or endorsement - this style features a highly believable or likeable
source endorsing the product. Ordinary or celebrity.
the advertiser must also use a tone for the ad - positive is popular. Others may use humour
to stand out from the clutter.
must also use memorable and attention-getting words in the ad.
format - illustration, headline and copy must all work together to create an impact on the
viewer.
Consumer Generated Messages
where consumers put forward ideas for ads.
‘engage a satisfied customer in a dialogue about a product - and give them a forum to
express their creative aspirations for that product - and you will have a brand advocate who
speaks from the heart’
Selecting Advertising Media
advertising media: the vehicles through which advertising messages are delivered to their
intended audiences.
main steps: deciding on reach, frequency and impact, choosing among major media types >
selecting specific media vehicles and deciding on media timing.
Deciding on Reach, Frequency & Impact
reach is the measure of the percentage of people who are exposed to the ad during a given
time.
frequency is the measure of how many times the average person in the target market is
exposed to the message.
must also decide on media impact - the qualitative value of message exposure through a
given medium (format). Eg. an article about the world economy will be more believable from
The Wall Street Journal compared to the Herald Sun.
nowadays, the advertiser wants to choose media that will engage customers rather than just
reach them.
Choosing among the main media types
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TV - Advantages: good mass-marketing coverage, low cost per exposure, combines sound,
sight and motion, appealing to the senses.
Limitations: high absolute costs, high clutter, fleeting exposure, less audience sensitivity.
Internet - Advantages: high selectivity, low cost; immediacy & interactive capabilities.
Limitations: relatively low impact, audience controls the exposure.
Newspapers - Advantages: flexibility, timeliness, good local market coverage, broad
acceptability and high believability.
Limitations: short-life, poor reproduction quality, small pass long audience.
Direct mail - Advantages: high audience selectivity; flexibility, no ad competition within the
same medium (form), allows personalisation.
Limitations: relatively high cost per exposure, ‘junk mail’ image.
Magazines - Advantages: credibility and prestige high quality reproduction, long life and
good pass long leadership.
Limitations: long ad purchase lead time, high cost, no guarantee of position.
Outdoor - Advantages: flexibility, high repeat exposure, low cost, low message
competition, good positional selectivity.
Limitations: little audience selectivity, creative limitations.
Radio - Advantages: good local acceptance, high geographic and demographic selectivity,
low cost.
Limitations: audio only, fleeting exposure, low attention, fragmental audiences.
Selecting Different Media Vehicles
companies must select which media vehicles will be best value for their budget and will have
the highest exposure to the audience that they’re trying to target.
Deciding on Media Timing
most firms do seasonal advertising.
continuity: means scheduling ads evenly over a given period of time.
pulsing: scheduling ads unevenly over a given time period.
Evaluating advertising effectiveness and return on advertising investment
return on advertising investment - the net return on advertising investment divided by the
costs of the advertising investment.
advertisers can gain feedback on adverts before showing them in order to gauge their
effectiveness.
profit from sales may be determined by comparing to different years or quarters.
Other Advertising Considerations
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Organising For Advertising
large companies use their own departments whereas, small companies may use agencies.
advertising agency: a marketing services business that assists companies in planning,
preparing, implementing and evaluating all or portions of their advertising programs.
International Advertising Decisions
some companies support their brand through highly standardised worldwide advertising.
e.g.. McDonald’s, Apple and VISA.
Functions Of The PR Department
press relations or press agency - creating and placing news worthy information in the
news media to attract attention to a person, product or service.
product publicity - publicising specific products.
public affairs - building and maintaining national or local community relations.
lobbying - building and maintaining relationships with legislators, and government officials
to influence legislation and regulation.
investor relations - maintaining relationships with shareholders and others in the financial
community.
development - public relations with donors or members of not for profit organisations to gain
volunteer or financial support.
PR is used to promote product, people, places, ideas, activities, organisations and even
nations.
companies use PR to build good relations with consumers, investors, the media and their
communities.
The Role & Impact of PR
PR has a stronger impact on the publics than advertising and is cheaper and run by people
within the company.
However, PR may be very scattered and limited given that its usually carried out in company
HQ or by a separate agency and may be busy dealing with various publics and not devote
enough time to marketing objectives.
The Main PR Tools
News - PR may create favourable news about the company or people within the company.
Speeches - create good publicity where executives answer questions, drop hints about
future products, etc.
Special events - such as conferences, trade shows, grand openings, press conferences
(WWDC), etc.
Written materials - periodicals, reports, etc.
Corporate identity materials - buildings, merchandise, logos, business cards.
goodwill through donations and freebies.
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Chapter 12 - Personal selling and sales promotion
Personal Selling
The nature of personal selling
personal selling: personal presentation by the business’s salesforce for the purpose of
making sales and building customer relationships.
most sales people are well-educated, well-trained professionals who add value for
customers and maintain long-term customer relationships. They listen to their customers,
assess customer needs and organise the company’s efforts to solve customer problems.
a good salesperson can read customer emotions without exploiting them, because the
bottom line is that he or she wants what is best for the customers.
after getting an order (ie. 57 Boeing 787-8s), sales people must then stay in almost constant
touch to ensure that the customer remains satisfied. Success depends on building solid,
long-term relationships with customers based on performance and trust
salesperson: an individual representing a company to customers by performing one or
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more of the following: prospecting, communicating, selling, servicing, information gathering
and relationship building.
The role of the sales force
advertising consists largely of non-personal communication with target groups. On the other
hand, personal selling involved interpersonal interactions between sales people and
customers.
personal selling can be more effective than advertising in more complex selling situations.
Sales people can probe customers to learn more about their problems and then adjust the
marketing offer and presentation to fit the special needs of each customers.
Linking the company with its customers
sales people are the link between the company and its customers. To many customers, the
salesperson is the company.
they sell products by approaching customers, presenting their offerings, answering
objections, negotiating prices and terms and closing sales.
customers may become loyal to the salespeople that serve them.
strong relationships with the sales person will result in strong relationships with the company
and its products.
coordinating marketing and sales - ideally both marketing and sales departments should
work together but most of the time they don’t. Here, companies should incentivise the
benefits of both departments working together and push/encourage them to coordinate.
Managing the Salesforce
salesforce management: the analysis, planning, implementation and control of sales force
activities. It includes designing salesforce strategy and structure, and recruiting, selecting
and training, compensating, supervising and evaluating the business’s salespeople.
Designing Salesforce Strategy & Structure
Salesforce Structure territorial salesforce structure: a salesforce organisation that assigns each sales person
to an exclusive geographical area in which that salesperson sells the company’s full line.
travel expenses are small and local customer relationships are more easily created.
outlines the hierarchy (from the bottom) - entry level territory sales representatives (often
called merchandisers) who report to territory managers who report to regional managers
who report to the director of sales who is responsible for national sales.
product salesforce structure: a salesforce organisation where salespeople specialise in
selling only a portion of the company’s products or lines.
may cause overlapping with customers who buy diverse range/similar products.
customer salesforce structure: a salesforce organisation where salespeople specialise in
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selling only to certain customers or industries.
complex salesforce structures - when a company sells a wide variety of products to many
types of customers over a broad geographic area, it often combines several types of
salesforce structures.
salespeople can be specialised by customer and territory, by product and territory and by
product and customer, or by territory, product and customer.
these sales forces should be revised often in order to ensure that they’re maintaining their
effectiveness.
salesforce size - increasing size increases costs.
many companies use a workload approach.
other salesforce strategy and structure issues
sales management must also decide who will be involved in the selling effort and how
various sales and sales support people will work together.
outside & inside sales forces
outside salesforce (field salesforce) - salespeople who travel or call on customers in the
field.
inside salesforce - salespeople who conduct business from their offices by telephone, the
internet or visits from prospective buyers.
some inside salesforce personnel provide support for those in the field.
the inside representative provides daily access and support; the outside representative
provides face to face collaboration and relationship building
team selling: using teams of people from sales, marketing, engineering, finance, technical
support and even upper management to service large, complex, customer accounts.
some disadvantages of this technique is that salespeople are often trained and rewarded for
outstanding individual performance and therefore highly skilled salespeople may find it
difficult to work in groups and lean on others.
Recruiting and Selecting Salespeople
a good salesforce will bring in greater sales.
good salespeople possess these talents - intrinsic motivation, disciplined work style, the
ability to close a sale, a thorough process that balances convergent and divergent thinking
and, the ability to build relationships with customers.
top performers will entail these attributes to understand customer needs - empathy,
patience, caring, responsive and good listening skills.
Training Salespeople
companies must invest heavily in the training of sales people, better trained salespeople will
yield greater results.
Compensating Salespeople
companies must have appealing compensation plans in order to attract the best
salespeople.
compensation is made up of - a fixed amount (salary to live), a variable amount
(commissions or bonuses related to sales performance), expenses and fringe benefits.
four types - straight salary, straight commission, salary and bonus, salary and commission.
companies with the best compensation packages have more motivated staff and yield
greater sales results.
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Supervising and Motivating Salespeople
the goal of supervision is to encourage the salespeople to work smart by doing the right
things in the right ways.
the goal of motivation to encourage sales people to ‘work hard’ and energetically towards
salesforce goals.
sales 2.0 - the merging of innovative sales practices with internet 2.0 technologies to
improve salesforce effectiveness and efficiency.
sales quotas - a standard stating the amount a salesperson should sell and how sales
should be divided among the company’s products.
evaluating sales performance helps to provide constructive feedback for salespeople and
helps to motivate them.
Sales Promotion
#1 - Prospecting & Qualifying
prospecting: the step in the selling process in which the salesperson or company identifies
qualified potential clients.
may search for prospects in many ways - phone, web, referrals etc.
salespeople must also know how to qualify leads. That is, how to identify the good ones and
screen out the poor ones. Prospects can be qualified by looking at their financial ability,
volume of business, special needs, location and possibilities for growth.
#2 - Pre-approach
pre-approach: the step in the selling process in which the salesperson learns as much as
possible about a prospective customer before making a sales call.
this stage begins with good research, the more you know about your client and their needs,
the better you can serve them.
must decide on the best approach to use and what the best timing will be.
#3 - Approach
approach: the step in the selling process in which the salesperson meets the customer for
the first time.
during this step, the salesperson should know how to meet and greet the buyer and get the
relationship off to a good start. This should involve a lot of positivity an listening to the needs
of the customer.
#4 - Presentation & Demonstration
presentation: the step in which the salesperson tells the customer the ‘value story’ to the
customer, showing how the company’s offer solves their problems.
sellers that listen more to their customers tend to sell more since customers like to be
listened to.
the qualities that buyers dislike the most in sales people include being pushy, late, deceitful,
and unprepared or disorganised.
the qualities that buyers value - good listening, empathy, honesty, dependability,
thoroughness and follow through.
they must then develop a good interpersonal communication for their product. Goals are to
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be better than the competition, keep listeners engaged and deliver more information in less
time.
#5 - Handling Objections
handling objections: the step in the selling process in which the salesperson seekers out,
clarifies and overcomes customer objections to buying.
should turn the objections into reasons for buying and be skilled in the ways in which they
handle on-the-spot questions.
#6 - Closing
closing: the step in which the salesperson asks the customer for the order.
some salespeople may not be confident and feel guilty about asking for an order to fail at the
right time to close the sale.
#7 - Follow-up
follow-up: the last step in the selling process in which the salesperson follows up after the
sale to ensure customer satisfaction and repeat business.
Personal Selling & Managing Customer Relationships
although most stages of the personal selling process are described as transaction oriented,
sellers are not always just looking for a quick sale, most aim to build lasting customer
relationships with customers.
unfortunately, some companies separate sales forces and, engineers and technical people
may be unwilling to help customers and saying that this is the job of the salesperson and not
them.
most companies are now focusing on value selling. Demonstrating and delivering superior
customer value that is fair for both the customer and the company.
value selling require listening to customers, understanding their needs, and carefully
coordinating the whole company’s efforts to create lasting relationships based on customer
value.
Sales Promotion
sales promotion: consists of short-term incentives to encourage the purchase or sale of a
product or service.
Rapid Growth of Sales Promotion
four types - final buyers (consumer promotions), retailers and wholesalers (trade
promotions), business customers (business promotions), and members of the salesforce
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(salesforce promotions).
most companies spend 20-30% of their marketing budget on sales promotion and 20%
spend more than 50% of their marketing budgets on sales promotion.
Factors contributed to the rapid growth of sales promotion
#1 - Product managers face greater pressures to increase their current sales, and promotion
is viewed as an effective short-run sales tool.
#2 - Company faces more competition and competing brands are less differentiated.
Increasingly, competitors are using sales promotions to help differentiate their offers.
#3 - Advertising efficiency has declined because of rising costs, media clutter and legal
restraints.
#4 - Consumers have become more deal oriented in today’s marketing environment,
consumers routinely make comparisons online before purchasing even when they plan to
shop in store.
rapid growth in sales promotion has led to promotion clutter and manufacturers must find
new ways to stand out.
Sales Promotion Objectives
objectives vary widely from - urging short torn customer buying to getting retailers to carry
new items and more inventory to getting more salesforce support for current or new
products.
sales promotions are used in conjunction with: advertising, personal selling, direct marketing
or other promotion mix tools.
a downturn in the economy may prompt retailers to offer deep discounts in order to spur
sales. However, sales promotions should help to reinforce the product’s position and build
long-term customer relationships. Marketers should favour brand equity building promotions.
Major Sales Promotion Tools
consumer promotions: a sales promotion tool used to boost short-term customer buying
and involvement or to enhance a long-term customer relationship.
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samples: trial amounts of new products. Most effective but most expensive way to introduce
a new product.
coupons: certificates that give buyers a saving when they purchase goods. Mobile coupling
is crushing paper coupons as it is much more convenient.
cash refunds (rebates): like coupons, except price reduction occurs after the sale and
comes to the consumer from the manufacturer.
price packs (cents-off deals): give consumers savings off the regular price of a product.
premiums: goods offered either free or at a low cost as an incentive to buy a product.
advertising specialties (promotional products): useful articles imprinted with an
advertisers name, logo or message that are given as gifts to consumers. Eg. T-Shirts, mugs,
tickets, and key rings.
point-of-purchase promotions: displays and demonstrations that take place at the point of
sale. (eg. aisle displays of sales as you are walking to the cash register.)
contests, sweepstakes and games: give consumers a chance to win something like cash,
items, cars and holidays.
event marketing: creating a brand-marketing event or servicing as a sole or participating
sponsor of events created by others.
trade promotions: a sales promotion tool used to persuade resellers to carry a brand, give
it shelf space, promote it in advertising and push it to consumers.
business promotions: a sales promotion tool used to generate business leads, stimulate
purchases, reward customers and motivate sales people.
Developing the sales promotion program
must decide on size of incentive and then set conditions for participation.
companies must constantly evaluate sales promotions in order to make sure that they’re
effective.
clearly, sales promotion is crucial. To use it well, the marketer must define the sales
promotion objectives, select the best tools design the sales promotion program, implement
the program and evaluate the results.
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