MARKETING 2
LECTURE 11 - COMMUNICATION AND ADVERTISING
Even companies do not know how to do adv so they ask third companies. It is important to have
consistency in communication.
Communicate = wants to persuade a customer, not only to buy but for example to activate customer
engagement.
Promotion use of communication to foster customer engagement behaviors.
i.e. buying behavior, word-of-mouth, promotion channels
Top 10 Advertising Markets
1. US
2. China
3. India
4. UK
5. Indonesia
6. Japan
7. Braxil
8. South Korea
9. Russia
10. France
Shift in Behavior
Falling:
● skip tv ads
● unsubscribe from email
● direct mail never opened
● on do-not-call list
Rising: digital promotion
● social media
● SEO (search engine
optimization)
● AI-based
● personalization
1
TV is still one of the most important channels for communication even though the number of people that
watch television is decreasing.
Radio doesn’t change that much, because it is in every car, so it is a good substitute to tv.
Apps are rising, so each brand is developing its own app -> personalized experience
COMMUNICATION PLAN (6’s M):
1.
2.
3.
4.
5.
6.
MARKET
MISSION
MESSAGE
MEDIA
MONEY
MEASUREMENT
1. MARKET: communication strategy depends on the target audience
- Who do you want to reach?
- Where can you find these people?
Example: video of clabe student life
Target audience: students of high school (last 2 years), parents -> they are looking to different
things
2. MISSION: communication campaigns have specific goals
AIDA — desirable qualities, cognitive/affective/behavioral
- Attention: catch the attention on the adv and the product (too many stimulus that we
have hard time remembering all)
- Interest: is it something that is useful for me? ex. i look at makeup but not at running
shoes
- Desire: “i want to try it”
- Action: i buy it and try it
Hierarchical model because I lose a lot of customer in the first steps
COMMUNICATION PROCESS
Source/sender -> he has a message -> this message, through a channel, arrive to a lot of people
-> the message is interpret by the receiver -> he gives the feedback (like/not like, buy/not buy)
This is what happen with adv
2
Content develop by the customer: I try a dress in the store and publish the photo on Insta
Adv also depends and change on the period
Example Coca Cola:
- In summer: functional -> it’s hot and you drink it because it is refreshing
- During Christmas: values -> family, stay together, Santa
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3. MESSAGE — communication campaigns should have a well-designed message
make decisions regarding
a. Message content
- What message do you want to deliver?
- communications goals are the key drivers of message content
b. Message structure
i.
Informational (rational):
Gives a reason to buy that is practical or functional
product quality, economic value, attributes
1. It is more effective
2. Comparative ads -> not very liked by consumers, no engage
ii.
Transformational (emotional):
Tries to stir up positive or negative emotions to motivate engagement
humor, sex, joy
1. Humor:
a. What make us laugh keep our attention -> no clear impact on
purchase behavior
b. A lot of word of mouth
c. Humor is expensive
d. You have to change it quite often (if you use humor)
e. BE CAREFUL!! Check…
i.
Fit with the product
ii.
Fit with the individual consumer
iii.
Fit with culture
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2. Sex:
a. Ads with sexual appeal are remembered more than ads without it
(due to higher attention and message processing, which facilitates
message retrieval) BUT no significant positive/negative impact on
the brand itself!
b. No extra impact on purchase intentions compared to ads without
sexual appeal.
c. Can be offensive
d. Everyone can see it on tv like children
e. An inappropriate fit leads to negative outcome
f. it works better for men
3. Fear:
a.
b.
c.
d.
Can influence attitudes, intentions and behavior
Work better for women
It works better for one-time behaviors versus repeated behaviors
Graph persuasion-fear
Why fear does not work for cigarettes?
● Perceived benefits are short term, emotionally high
● Perceived risk is inversely proportional to perceived benefit
● Effect isn’t immediate
● Voluntary use/conduct is seen as less risky
● Unrealistic control “nothing will happen to me”
● Parenthesis Effect — smoking causes damage but this cigarette won’t hurt
c. Message source: the sender should have
i.
Expertise: does the communicator process knowledge to back the claim?
ii.
Trustworthiness: how objective and honest is the source perceived to be?
iii.
Likability
Popular choice: expert, celebrity, influencer, “typical” consumer
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Copy strategy: content and structure of the adv message
Test the copy before and after:
- test in a lab
- test the content and the product
4. MEDIA — specific media must be selected to convey the message
Media Terminology
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Developing the media plan -> you have to check the audience of the programs and than decide to put
your adv between these programs
Scheduling Methods
1. Continuity — advertising evenly throughout a given period
2. Flighting — advertising at given intervals/peaks, for seasonal/cyclical products
3. Pulsing — continuous as lower-weight levels, but reinforced more strongly in peak period
Frequency: if a person sees the adv more than 3 times, he memorase it.
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5. MONEY — budget determination
Popular Methods of Budget Determination (4 FTSC)
a. Fixed percentage % of sales -> ineffective method because if sales decrease I cannot
increase adv which is fundamental to increase sales
b. Task -> set marketing goals based on tasks they want to complete (i.e. 1000
conversations on the website)
c. Residual -> based on what company can afford after all other expenditure -> very bad
d. Competitor-based -> When products are well-established (in the category?), with
predictable sales patterns
i. i.e. Nielsen
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6. MEASUREMENT — how to measure success & ROI of companies
* a frequency of 3 is considered
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LECTURE 12 - POSITIONING
Segmentation, Targeting and Positioning
Steps after market segmentation:
1. Differentiate on all the segments
2. Specialize on multiple segments
3. Concentrate on a single segment
4. Marketing one - to - one
Which customers to target?
● Selection of those that associate true value to product/services offered
● Company must have viable and sustainable strategies for selected segment/s
Value Definition and Assessment
● On the one side, competitive strengths of the firm
● On the other side, elements that are seen as valuable by the customers
● Requires an adequate measurement of value for the customer
Communicating Value
● Determine the mental perception of customers (of the brand)
○ Including with regard to competitors
● Obtaining a distinctive positioning
Positioning — act of programming the offering system & brand image in order to occupy a well-defined
position in customers’ minds
How do I want to be perceived by the segment? You have to be perceived in line with the benefit that the
segment is looking for.
Positioning: it is not objectively defined -> positioning is in the mind of the consumers -> the aim of adv is
to create the correct imagine of the brand in the mind of the consumers
Consumers have a holistic perception of brands.
Purpose
● To understand benefits customers are looking for and organize company to supply the benefits
● To translate the benefits in product and service features
Which Attributes to be used?
● Core features of product/service
● Peripheral attributes help differentiate the product/service in customers’ minds
○ Activia yogurt -> they underline the type of bacteria that their yogurt has (even though all
yogurts have bacteria)
● Attributes create value for target customers to satisfy their needs
○ Actual needs
○ Latent needs — problem consumers’ don’t know they have
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LEVERAGE OF POSITIONING
Product
1. Features
2. Performance
3. Consistency
4. Durability
5. Reliability
6. Repairability
7. Style & design
Service
1. Delivery
2. Installation
3. Counseling
4. Training
5. Assistance
Personnel
1. Competence
2. Coutest
3. Credibility
4. Communicability
5. Promptness
6. Reliability
Image
1. Symbols
2. Events
3. Atmospherics
4. Mental associations
VALUE PROPOSITION AND POSITIONING
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WHAT TO USE FOR A VALUE PROPOSITION?
Exaggerating expectation -> dissatisfaction
Parity Elements
(you give more or less the same things of your competitor)
Being at par/standard
1. With the category — signal membership
2. With the competitors — erase differences
Differentiation Elements
(give more than the competitors)
1. Desirability
○ Meaningful
○ Distinctive
○ Credible
2. Ability to keep promises
○ Viability — conveyed via features/design
○ Communicability
○ Sustainability over time — this is more feasible for market leaders
BRAND POSITIONING AND PERCEPTUAL MAPS
Perceptions ≠ Reality
○ i.e. perceived quality vs actual quality
Why perceptual?
● Perceptions are not equal to reality (e.g., perceived vs. actual quality)
● Customers behave and buy based on perceptions
● Brands do not hold an objective positioning with respect to a well definite set of attributes, but
rather are mentally perceived in association to a set of attributes
● Therefore, these perceptions need to be measured
PERCEPTUAL MAPS
Multidimensional Scaling (MDS) — determines perceived
relative image of a set of objects
● Purpose is to transform consumer judgments of similarity
or preference (i.e. preferred stores or brands) into
distances represented in multidimensional space
●
Can reconstruct position of a set of objects given their
relative distances
○ Basically like drawing a map given just distances
between cities
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Measurement of Perceived Distances
●
Decompositional: assess overall judgments or preferences and work backward to determine the
underlying attribute levels that contribute to these perceptions. Consumers are not asked about
the attributes directly; instead, they provide their overall preference for different products or
brands. The researcher then uses statistical techniques to infer the importance of different
attributes based on these overall preferences.
Attribute-free
1. more appropriate if the goal is to discover a more holistic perception of the brands that
determines the actual position of each object on the map, but are more difficult to
interpret.
2. Non-metric — ranking, ordinal (example, consumers might rank a set of products from
most to least preferred)
3. Metric — scales (example, consumers might rate products on a scale)
●
Compositional: start with attributes. Consumers rate products or brands on a set of attributes.
The ratings for these attributes are then compiled to build a profile for each product or brand.
Attribute-based
Evaluation along set of previously identified relevant attributes
1. preferable because it is easier for respondents to answer the questionnaire but they might
be biased by the choice of the particular attributes examined in the study;
2. Data reduction techniques — to summarize attributes into fewer factors
3. Segmenting customers — segment based on attribute evaluations, plot means per
segment on perceptual map
How to create the map?
We can ask the coordinates explicitly to consumers or implicitly
Implicitly: difficult -> ex. I have the distant but i don’t know where these points are in the map -> there are
algorithms to do that
Explicitly: less difficulty because the consumers tell you
Attribute free -> do not take into account any attribute
You have to interpret the axis because they are not given
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LECTURE 13 - PRICING
●
●
●
●
Different average ratings assigned to each one reflects a different liking
Same product can be evaluated differently depending on its price
Product rating reflects value consumers expect corresponding to its attributes (including price)
Consumers’ perceived value affects their reservation price
Reservation Price — maximum price customers are willing to pay for a product. Which is the max price
that people are willing to pay for a product with these attributes?
- PRODUCTS AS BUNDLES OF ATTRIBUTES
1. Products are Composed of Attributes
a. Core features (i.e. technical parts)
b. External features (i.e. packaging, style)
c. Supportive services (i.e. warranty, post-sales activities)
d. Brand (name, logo)
e. Price
2. Each Attribute Can Take Different Forms
“forms” -> various attribute levels
- i.e. gelato has different flavors, cars can have built in GPS or not
3. Product Attributes Fulfill Consumer Needs
a. Functional needs
b. Psychological needs
note: different attribute levels can contribute to fulfilling consumer needs at different levels
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If attribute levels fulfill consumer needs differently
● The value consumers attach to a product will be given by the sum of the value attached to each
attribute level
● depending on marginal contribution of each attribute level to overall product value (additional
value that each specific feature adds to the overall product value)
Very often consumers assume Price = Quality
Consumers have different liking of the same product -> they rate products in different way
Products = bundles of attributes (sum of all the attributes)
attributes have different forms
attributes can fulfill consumer’s needs
- RELATIONSHIP WITH PRICE
PRICE IS A REVENUE FOR THE COMPANY
● Revenue Generation: Price is a direct source of revenue for the company. It is the amount of
money that flows into the business when products or services are sold.
● Cost Coverage: The price set for products or services must cover the manufacturing or
production costs, which include raw materials, labor, overheads, etc.
● Profit Margin: Beyond covering costs, the price should also include a margin that represents the
profit for the company. This is essential for the business's sustainability and growth.
● Positioning Tool: Price is a strategic lever that can influence the market positioning of a product
or brand. A higher price might position a product as premium, while a lower price might make it
accessible to a wider audience.
PRICE IS A MEASURE OF ECONOMIC VALUE FOR THE CONSUMER
● Economic Value Exchange: From the customer's viewpoint, price is the economic value they
exchange for the ownership of a good or service. It's what they pay to acquire and use the
product.
● Additional Costs: The overall cost to the customer may also include other expenses incurred in
the process of acquiring the product, such as search costs, transportation costs, etc.
● Needs Fulfillment: Customers evaluate the price based on the value the product provides in
fulfilling their needs. This value assessment includes how well the product's attributes meet their
functional and psychological needs.
Balancing Price and Value:
● The ideal price point reflects a balance where:
○ The price aligns with the company's need for profitability.
○ It does not exceed the value that consumers attach to the product.
○ Given that the product is a bundle of attributes, price should reflect the marginal value
attached by consumers given the level of fulfillment of their needs.
■ It corresponds to the combined value of the product's attributes and the level of
need fulfillment for the consumer.
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- PRICING DECISIONS
Companies have to take into consideration the internal factors of the company. How much does it cost to
produce this product? The BEP is the minimum in order to not lose money.
The max price is the reservation price.
Internal Factors
- Costs & constraints - profitability necessity
External Factors
- Demand — market’s purchasing power (in the market there are also competitors)
- Competition — price positioning
3 CASES:
- Perceived Value > Price > Costs
● Product is charged at a lower price than the average consumers’ reservation price
● Strategy can be deliberate or unintentional
1. Deliberate — value pricing strategy: companies are trying to maximize the
penetration of their product with an aggressive pricing strategy in order to increase
their market share though renouncing to some potential margins from each
customer;
2. Unintentional — company underestimated value attached to their product, didn’t
acknowledge wide heterogeneity in demand
Good situation, somehow sharing a variable amount of your surplus to the customer (parts that
exceed price to perceived value), if your cost structure is better than competitors then you are
more competitive in this situation. Positive situation because consumers are willing to buy since
the price is lower than the reservation price.
-
Price > Perceived Value > Costs
● Customers won’t buy the product if the price is higher than the average consumers’
reservation price (unless in a monopoly!)
● Because p. value > cost, there is room to adjust prices to match consumers’ reservation
price while still profiting
● Key: price estimation
○ Knowing how much should the price be lowered so that there aren’t too many trials
that give consumers negative perception of the product
Negative situation because nobody is buying since the price is higher than what consumers were
expecting but you can lower your prices
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○
-
If we are in a monopolistic situation: consumers have no choice, they can
renounced at all or they are obliged to buy from you
Price > Costs > Perceived Value
● Worst case scenario
● Value consumer are receiving is not worth the money they are paying
● Highlights significance of correctly estimate value perceptions
Worst situation because making the product cost more than the reservation price
○ They can reduce costs: can be very dangerous -> lower product quality
○ Increasing value perceptions: increasing the perception of the product (using adv)
or actually add “benefits” to the product (but you can costs)
It clearly appears that this situation reflects some mistakes in the product development phases
● importance of market research BEFORE launching products.
- CUSTOMER - BASED PRICING
Price Elasticity — how sensitive price is to another variable (i.e. consumers’ reaction in demand)
1. Positive elasticity — consumers react more than proportionally
2. Negative elasticity — consumers react less than proportionally
3. =0 completely rigid demand
D2: Less elastic, i.e. gasoline (almost no alternatives)
D1: More elastic, i.e. beer (there are alternatives)
Cross-Elasticity — degree of interdependence between products
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- FACTORS AFFECTING CUSTOMER - BASED PRICING
Retailer/product it has:
1. Distinctive features
2. No substitutes
3. Difficult to asses & compare quality & performance
- i.e. Apple can charge more than 1k euros
4. Purchase is a completion of another purchase
- i.e. Apple’s chargers
5. Strong brand image (perceived high quality)
6. Purchases are shared among consumers
- Generally people are less price elastic when buying gifts for someone else
- Shared consumption i.e. family or friends
7. Impossible to stockpile
- i.e. can’t stock a 2nd washing machine for after the 1st one stops working
- FACTORS IN THE PRICING DECISION
1. STAGE OF PRODUCT LIFE CYCLE
Early Stages
● Few competitors
● Product is still an innovation
● High MC
● Higher prices since there is less competition
Growth and Maturity
● Growing rapidly
● Many competitors enter and start imitating pioneer
● Cost decrease due to economies of scale & experience urves
● Price lowered to increase market share
● Achieve high profitability by increasing quantity
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Final Stages
● After it reaches peak market potential
● Category shakeout causes them to revitalize profits since competitors might exit
● Despite demand going down
● Possible larger profits if product is maintained
○ Consequent focus on costs of product maintenance
2. PRICING OBJECTIVE
Penetration Pricing
● Giving the most of the value to customers by retaining a small margin.
● It is aimed at increasing the company market share, especially if the product category
does not entail frequent purchases;
● Attention to price-quality relationship;
Skimming
● Retaining a large margin by leaving a small value-cost gap to the customer;
● Excellent in categories with strong price-quality relationship to convey prestige;
● Good to target price insensitive customers in early stages or when variable costs are
negligible;
Investment Pricing & Stability Pricing
● Almost ignores customers’ value perception & competition
● Company is not taking into account surplus on consumer size, rather they aim to cover
costs over life cycle
● Ensure profitability, ROI, scarce fluctuations overtime
● For B2B markets -> but can be dangerous because of the 3 cases before
Competitive Pricing
● Price is at average of the market
● Good way to survive competition but may be risky since it can overlook perceived value
● For categories with scarce differences among products
3. INDUSTRY CONDITIONS
Threat of New Entrants
1. Low barriers — lower prices protect from potential competitors
2. High barriers — lower probability of new entrants, company can keep higher profits with
higher prices
● strong incentive for competitors not to enter the market
● patents
Power of Buyers/Suppliers
1. Buyers (e.g. retailers) will try to keep prices as lower as possible to maximize their
margins
i. Retailer stops to sell my product (he’s the only one) -> he has a strong bargaining
power (I am a price taker)
ii. If I’m unique I have bargaining power over retailers (I am a price maker)
2. suppliers (e.g. raw materials, services) will affect costs which indirectly affect prices
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Rivalry
● Price wars among competitors in fiercer competition settings
● Dependent on number & concentration of competitors in the industry
● Competing exclusively on price can be dangerous
Substitutes
● Viability of substitutes together with cross elasticity
● Pace of innovation technology to make sure products will be substituted by consumers
○ i.e. Planned obsolescence
○ i.e. Apple stops releasing software updates for older versions of the product,
customers start feeling their product is outdated
● Higher pressure from substitutes, stronger emphasis on price competition
Unused Capacity
● Consideration of the value of price-cost relationship
● When fixed costs are large you can be efficient with higher production quantity means
lower unitary costs (economies of scale)
● High competition generates volumes to cover fixed costs
○ i.e. Airlines
- PSYCHOLOGY OF PRICE
Reference Price
Individual Reference Price — reflects individuals’ standard of the category
● “Right price in the market”
● Comparison standard used by consumers to assess any transaction
● Reflects purchasing power of consumer
● Reflects what prices they have in their memory that they’ve now taken into consideration
● Reflects their expectations of future price levels
○ i.e. When to buy new Apple product
● Note it doesn’t say much about the value
Price-Quality Relationship
Signaling Theory
● For products with unobservable quality signals (SEC: search, experience, credence
goods)
● High prices can signal quality & prestige
○ i.e. Luxury
● Products advertised exclusivity not priced low since it would be an inconsistent perception
Psychological Price Points
● Mental threshold which separate the price levels
○ i.e. $0.99 to $799
○ Difference in perception between 0.99 and 1.00 is not linear, aka not just 0.1
● Need extensive knowledge on consumers’ internal perception of said thresholds
● Netflix tariff plans are all 9.99, exploiting the strategy, prefers 3 digits than 4
● Relationship between objective price increase and price perceptions is not linear
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- PRICING TACTICS
1. PRODUCT - LINE PRICING
Price Bundling
● Multi-unit pricing, more effective than single discounts on single items in the bundle
● Various forms (i.e. 3for2, discount for bundle phone+case+charger)
● Common with services (i.e. product + warranty)
Line Pricing
● Managing a product line with different brands for different price tiers;
● Managing portfolio of brands with different positioning
● Targets different segments without incurring brand dilution
● i.e. Toyota manages both Toyota & Lexus, there must be a clear distinction of price and
positioning or they might encounter the risk of confusing the consumers
Complementary Prices
● Products with different complements that may need to be replenished
● “Fixed” component can have lower margins since it serves to “lock-in” customers
● i.e. Consoles and video game market, choosing the console locks them in and they have
to buy the corresponding games, company can retain higher surplus since they have
locked in the customers
2. VALUE PRICING
● Giving customers more value than they expect for the price paid;
○ It gives customers most of the value-cost difference;
●
●
●
●
●
It differs from penetration price since value pricing is tightly related to customer
expectations about the price they have to pay and it is accompanied by other marketing
mix activities (communication, packaging etc.)
It also differs from pricing to value, since pricing to value is a strategy which requires to
estimate the value perceived by the customer and sets a price level accordingly.
Creating the reference point that i.e. $5 for a meal is good value for money
A communication strategy that leverages on consumers which is the right price they must
pay
Giving more value than what they expect for the price
3. DIFFERENTIAL PRICING
Price Discrimination
● Charging different prices to different types of customers
● i.e. airlines, traveling for business vs leisure, shows different price sensitivity, maximize
the mechanism to sell out the flight
1. Dynamic price — price depends on the timing of the purchase (e.g. Ryanair
tickets). It works well when direct costs connected to each extra unit sold are
almost null, whilst losses due to unsold items are considerable;
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2. Customized prices — favored by technologies which allow to track each
consumer’s preferences, prices are adapted to the individual- level price elasticity
for different goods. It might become a frontier in grocery shopping;
i.
To maximize selling the product at any given point in time
Second-Market Discounting
● To better exploit production capacity, a company can develop secondary markets - clearly
separated from primary markets - to sell their products at a discounted price (e.g. foreign
markets, private labels);
○ i.e. foreign markets, different channels of distribution, private labels
Everyday-Low-Price VS Periodic Discounting
● Usually used by retailers not manufacturers
1. EDLP — guarantees lowest possible price for the product during all periods
○ i.e. LIDL prices are at the lowest level possible
○ Saves in positioning of price convenience
2. High-Low Strategies (Periodic Discounting) — increase profits by obtaining
margins both from price- sensitive and price-insensitive customers, offer the
opportunity to get rid of slow-selling merchandise by creating the “excitement” for
sales periods
Flat-Rate VS Variable-Rate or Pay-Per-Use
● To better suit customers’ usage rate (i.e. Netflix flat rate VS pay-per-use from telcos)
●
i.e. UNIPOL car insurance per kilometer driven
Starting with moderate consumption and increase gradually
4. OTHER TACTICS
Drip Pricing (Partitioned Pricing)
● Consumers are exposed only to a part of the price upfront;
● The additional price components are revealed only later in the purchasing process;
● The initial price partitioned creates an initial anchor for consumers’ mental budgeting, so
that the subsequent adjustments are not sufficiently weighted
● Underestimation of total price
Name Your Own Price (NYOP)
● Price request from consumers to see if it is accepted by the seller
● Mainly for services, not fast-moving consumer goods
● Risk of consumer frustration if prices charged are compared
● Works as market research too, company can comprehend real consumers’ perceived
value
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- PRICING AND NEW CONSUMPTION MODELS
Sharing Economy
● Do not entail full ownership, temporary possession
○ i.e. Mobikes, AirBnB
● Price thereby reflects right to access/use a shared good/resources
Retailers Become Service Providers
● i.e. many cars aren’t bought by customers, customers pay car deals for the rights to temporary
use of the car that you do not have full ownership of, thus technically they are providing a service
● Nowadays there are different leasing models
● i.e. NFTs, buying the right to say through the NFT that “I posses the digital certificate of the
painting”
- CALCULATING CUSTOMER VALUE
Value-In-Use
● Economic qualification of benefits provided by the product
● Benefits can be subtracted by total price
● Benefit-cost difference assesses extent that company can leverage on price
● But some products provide purely experiential benefits
● Value of having iPhone in your pocket, sense of status, not possible cause its not
technical/functional question in nature
Field Experiments
● Selecting homogeneous markets in terms of target customer characteristics and charging
● different price levels in each of them;
● Manipulate features of products and attach value perception
● Observe effects on demand
Market Share
● Market share as a function of f (perceived value, price)
● Market Share is observable, perceived value and price are not independent from each other;
● Therefore, companies can try to leverage on different price levels to observe how the market
share changes;
● It might be somehow a dangerous method because it overlooks what competitors are doing
Conjoint Analysis
● Decompose total value attached product into marginal value attached to each attribute level of
the product
● To decompose overall
● i.e. consumers surveyed, assign a global rating to each product prototype
● Regression-based approach utilized to estimate marginal utility of each attribute as its weight on
total utility of the product
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Conjoint Analysis & Pricing Decisions
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LECTURE 14 - SALES PROMOTION
Sales promotion is not about price -> is a communication tool
It includes prices and it is temporary. This is not a way to estimate because it is done ex post.
Sales Promotion — action-focused marketing event, goal is direct impact on the behavior of a brand’s
consumers.
3 Kinds of Promotion
1. Consumer promotion — often price-related
2. Trade promotion — provides incentives to channel members
3. Retailer promotion — price & special displays
Negative effect: if the customer is used to use this promotion -> he will stop buying the product waiting
for the promotion, also if it is something that you do not use every day
After the promotion:
- Normal sales start again -> same level as before
- Based sales go down -> bad -> if the promotion is too frequent
- Based sales increase -> good -> someone tried the product and like it, or they switch brand for
that product
Lucky Loyals: people who in any case are gonna buy the product
I don’t want people to do the stock piling: they stock and not buying it in the next period
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- TYPES OF CUSTOMER PROMOTION
1. Product-based
a. Additional volume or bonus pack
b. Samples
● Central location (in-store)
● Direct (mail/email)
● Attachment (comes with package)
● Media-placed (clip-and-send coupons)
2. Price-based
a. Sales price
b. Coupons — dominant form but redemption is low
● Central location (in-store)
● Direct (mail/email)
● Attachment (comes with package)
● In media
c. Refunds & rebates
d. Financing terms
e. Frequent users
3. Premiums
4. Place-based — displays
5. Special events
- SALES PROMOTIONS
Price-oriented promotions
● Couponing is the dominant form of activity.
● Redemption is low.
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Coupon Distribution Methods
1. Free-standing inserts — loose piece of paper that is added separately to a newspaper or
magazine and that contains advertisements or coupons
2. Newspaper
3. Sunday supplements — section of a Sunday newspaper consisting of material other than news
4. Magazine
5. Direct mail
6. On-package
7. Instantly redeemable
8. In-package
9. Cross-ruff — obtained at the time of purchase of a carrier brand and may be redeemed at a later
date on a target brand, have the ability to link consumer purchases across different brands or
products
10. Retailer coupons
11. Coupon machines
28
Types of price-oriented promotions: Price oriented promotion may have a negative effect when the
consumer thinks the full price is not worth it
1.
2.
3.
4.
5.
Coupons
Price, value, bonus packs
Refunds, rebates, money-back offers
Interest rate promotions
In-store discounts
Product oriented Promotions:
● Give away product itself or closely related one
● Sampling is commonly used for new products
● Premiums: free merch with a purchase or with fee or with a proof of purchase (i.e. receipt)
Special events promotions:
Convergence of promotion recently due to new & different media.
More media, higher success, because of redemption rate.
1.
2.
3.
4.
Contests
Sweepstakes
Tie-ins to sports events
Tie-ins to movies (premiere/promotion period)
i.e. promotional activities related to Harry Potter in-store
29
- TYPES OF TRADE PROMOTIONS
1. Product based
a. Free goods
b. Consignment & return policy
2. Price based — give retailers incentive to carry the product, often used when manufacturers want
retailers to pass on savings to buyers
a. Buying allowances
b. Financial terms
3. Place based
a. Slotting allowances
b. Display allowances
c. Warehousing & delivery assistance
4. Advertising & promotion based
a. Co-op advertising
b. Selling aids
c. Co-op selling
5. Sales based
a. Bonus & incentives
b. Contests & prizes
- TYPES OF RETAILER PROMOTIONS
1.
2.
3.
4.
5.
6.
Price cuts
Displays
Feature advertising
Free goods
Retailer coupons
Contests & premiums
Brands with stronger bargaining power essentially pay less to the retailer (i.e. retailer would “lose”
customers if they don’t have Loreal compared to Head & Shoulders, Loreal has more bargaining power
and it’s easier to convince the retailer to have in-store promotion)
Point-of-purchase (POP) displays
● There is not necessarily a discount in a display
● But it still works to catch people’s attention, people think the display is an indication of a discount
30
- PROMOTION STRATEGY, OBJECTIVES AND EVALUATION
1. Consumer-Oriented Promotion
Strategic Issues
a. Effect on new products
b. Effect on existing brands
c. Promotional dilemma
d. Consideration of cost & benefits
2. Consumer Promotion Objectives
a. Short-run (transactional)
○ Current customers → buy more, buy more often, buy now
○ Occasional customers “brand switchers” → capture their next purchase/s
○ Noncustomers → people trying, brand wants the consumers to at least keep their brand in
their consideration set
b. Long-run (relationship building)
○ Awareness enhancement
○ Image enhancement
Blue line: regular sale
Orange: promotion activity
Some brands never have promotions
- High level
- Small brands that can’t afford that
31
3. Objectives of Trade Deals
● Induce retailers to offer price discounts, display and advertise the brand
● Offer incentives to sales force to push the brand to customers
● Gain or maintain distribution for the brand or an item in product line
● Load the retailer/dealer/distributor with inventory to avoid out-of-stocks
● Shift inventory from manufacturer to channels of distribution and consumer
● Avoid permanent price reductions
● Defend brand against competitors
● Induce price fluctuations into the market
● Finance retailer inventories
4. Sales Promotion Plan
Procter & Gamble created the following sales promotion plan for a new consumer goods product.
● Trade allowances
● Sampling
● Couponing
● Special promos
● Refunds
● Premiums
● Sweepstakes & contests </aside>
5. Evaluation
Sales Effect of Deal Discount, Feature Advertising, and Displays
32
●
●
●
100 is the base sale when no promotion occurs
Whenever you communicate the presence of a product on more media, the higher the sales
Happens without any discount
- PROMOTION BUDGETING
Same Steps as for Setting Advertising Objectives
1. Select method of budgeting
2. Determine overall advertising & promotion budget
3. Determining amount to be spent on promotion
Factors Influencing Promotion Budgeting
1. Competition
2. Total amount of resources
3. Customer factors
Sales Promotion & IT
● In-store IT
○ i.e. promoting roasted chicken or else 10 would be unsold, commonly in Italy there would
be a promo for said roasted chicken between 8 and 10 PM
○ i.e. airfare changing according to demand of customers, this can also be done in stores
with the right technology and the right promotion strategy, statistics using big data
collected from customers must be used
Goal of Promotion: Communicate
-Communicate its existence
33
Goal of Promotion: Launching new
product
-Can be a known brand already, points
Goal of Promotion: New consumption
habit
- Instead of seeing apples as just a fruit,
use it in a receipt
Goal of Promotion: Propose
co-consumption
34
Goal of Promotion: Explain product
●
Tell a story
Goal of Promotion: Attract & retain
customers
-Popular years ago
-Coming back but not as much
-Have people collect objects to get
something i.e. points
Goal of Promotion: Useful to get to know
customers
- Ask them questions to profile customers
i.e. in order to redeem the coupon answer
some questions for us like name age
gender race
35
Goal of Promotion: Target a specific
segment
i.e. women, pet lovers (well-identified,
easier)
Goal of Promotion: Solidarity
-Goal of being sustainable
-Having goodwill & doing beneficial
activities
→ If redemption rate of promotion is not good then promotion won't be successful and it will just be a
cost
→ Sales promo is short-term oriented
→ When there is a promotion we need that many people participate -> at least 70/80%
→ The promotion has to deal with behavior ex. Black Friday
Customer Lifetime Value = how much do i worth for the company
- Frequency
- Margin (how much i buy) -> which product? ex. nutella is a “premium” product so the retailer
makes more money)
- Life expectancy: for how many years i buy from them
36
LECTURE 15 - CUSTOMER RELATIONSHIP MANAGEMENT
Relationship Marketing — a philosophy of doing business, a strategic orientation, that focuses on
keeping current customers and improving relationships with them. Does not necessarily emphasize
acquiring new customers.
It is usually cheaper (for the firm) keeping a current customer costs less than attracting a new one.
The focus is less on attraction, and more on retention and enhancement of customer relationships.
Transaction Buyers — interested only in the purchase at hand.
Relationship Customers — interested in the benefits of buyer and seller interdependency.
Customer relationship management (CRM) programs develop programs of interest to relationship
customers.
Customer Goals of Relationship Marketing
1. Enhancing
2. Retaining
3. Satisfying
4. Acquiring
37
- BENEFITS OF RELATIONSHIP MARKETING
Benefits for Customers
● Receive greater value
●
Confidence benefits
○ Trust
○ Confidence in provider
○ Reduced anxiety
●
Social benefits
○ Familiarity
○ Social support
○ Personal relationships
●
Special treatment benefits
○ Special deals
○ Price breaks
Benefits for Firms
● Economic benefits
○ Increased revenues
○ Reduced marketing and administrative costs
○ Regular revenue stream
●
Customer behavior benefits
○ Strong word-of-mouth endorsement
○ Customer voluntary performance
○ Social benefits to other customers
○ Mentors to other customers
●
Human resource management benefits
○ Easier jobs for employees
○ Social benefits for employees
○ Employee retention
38
The philosophy is to keep the customers because it costs more to acquire new ones (real money comes
from the customer base).
Example:
Every time a bank acquires a new customer it’s like they pay 140$ -> after a 1 year you may see some
result.
In the example of the bank:
Base profit -> money i pay only to have an account
Revenue growth -> buy an insurance or ask for a
mortgage
Cost savings -> the customer already know how to do
things and it is not necessary to ask to an employee
Referrals -> word of mouth, so free adv
Price premium -> those customer that do not care if the
price is rising
- LOYALTY: SOME KEY INDICATORS
●
●
●
Customer Retention Rate: (customers at end of period - new customers added) / customers at
beginning of period
Attrition Rate: lost customers / customers at beginning of period
Expected Average Length of Relationship: 1 / (1- customer retention rate)
EX.
39
- FRAMEWORK FOR CUSTOMER RELATIONSHIP MANAGEMENT
1.
2.
3.
1.
2.
3.
4.
Create a database
Analysis
Customer selection
Customer targeting
Relationship management
Privacy issues
Metrics
Customer informations file
40
- ANALYZING THE DATABASE
Customer Targeting for Retention — conventional direct-marketing approaches are used to contact &
keep customers.
- RELATIONSHIP DEVELOPMENT MODEL
1. Core Service Provision — service foundations built on delivery of excellent service (satisfaction,
perceived service quality/value)
2. Switching Barriers — customer inertia, switching costs
3. Relationship Bonds — financial / social / customization / structural bonds
4. Customer Benefits — Confidence benefits/ Social benefits / Special treatment benefits
5. Firm Benefits — Economic benefits / Customer behavior benefits / Human resource
management benefits
41
The customer is NOT always right and not all customers are good relationship customers, maybe due to:
● Wrong segment
● Not profitable in the long term
● Difficult customers
- RELATIONSHIP MARKETING PROGRAMS
●
Customer Satisfaction is KEY but not enough!
○ Merely satisfying customers may not keep them loyal to the firm/brand
○ Use net promoter — customer loyalty metric, where scores >75 are high
●
Customer Service supplements main product/service, can
DIFFERENTIATE your brand
○ “moments of truth” are critical
○ Online customer service has improved
○ Excellent customer service = augmented product
○ Augmented product means adding value to core
product for free (i.e. warranty)
●
Customer Types by Loyalty & Satisfaction
○ Loyalist/apostle — customers who are satisfied or
completely satisfied
○ Mercenary — satisfied customers, but they switch between brands
○ Hostage — not satisfied, but they keep repurchasing (maybe the brand is a monopoly)
○ Defector/terrorist — not satisfied not loyal, spread negative word-of-mouth
42
●
Customer Service Principles
○ Service is the backbone of business
○ Customer satisfaction measures great service
○ Compensation plans determine behavior
○ Sales and service are complementary
○ Service department hours signal dedication to customer satisfaction
○ Service technicians should work together
●
Customer service can differentiate your brand
○ Service guarantees
○ Service recovery
■ Training is necessary
■ Service recovery can boost loyalty
○ Web-based customer service has improved substantially
●
Technology & Loyalty Programs
○ Technology positively influenced loyalty programs, most are card-based, transaction data
(past purchases of the customer) are tracked
●
Potential Frequency Program Problems
○ Making reward too high
○ Ubiquity (meaning: appears everywhere/is so common)
○ Confusing loyalty with repeat buying
○ Lack of inspiration
○ Lack of customer communication
○ Insufficient database analysis
●
Mass Customization
○ Has a positive influence on retention & loyalty
○ Mostly used for manufactured goods
●
●
Creating a sense of affinity for brands is a challenging task.
Marketing managers often seek to create a customer community.
●
Other Relationship Marketing Programs
○ Successful Internet Communities offer:
■ Forum for exchange (communication/dialogues)
■ Sense of place/belonging
■ Encouragement for participation
○ Other ideas:
■ Volunteer Ambassador Program
■ Customer Defection Research Studies
●
Privacy issues
○ Critically important for two key reasons
○ Online communities need to post privacy policy information
43
CRM-Oriented Metrics
44
LECTURE 16 - SATISFACTION & SERVICES
Characteristics of Services:
1. Intangible
2. Non standard
3. Cannot separate the production & consumption (at the same time)
note: services have experience attributes
- CUSTOMER SATISFACTION MEANS MONEY
●
●
●
IBM in Rochester, Minn., calculates that a 1 percent increase in customer satisfaction is worth
$257 million in additional revenues over five years
Marriott found that each percentage point increase in the customer-wide satisfaction measure of
intent-to-return was worth some $50 million in revenues
Sears, Roebuck operates on a financial model which shows that a 5 point improvement in
employee attitudes will drive a 1.3 point improvement in customer satisfaction, which in turn will
drive a 0.5 percent improvement in revenue growth. The model also established that 4 percent
improvement in customer satisfaction translates into more than $200 million in additional
revenues.
- CONSEQUENCES OF CUSTOMER SATISFACTION
● Higher profit margins:
○ < price elasticity
○ < transaction costs
○ < product failure costs
○ < resources due to handling and returning
○ < reworking defective items
●
Repeat sales:
○ > frequent purchases
○ > purchase volume
○ > other goods
○ < switching
●
Increased word of mouth
○ > reputation of business
○ > effective adv
○ help introduce new products
○ + relationship with key suppliers, distributor ecc
○ Enhance Halo effect
45
- STEPS TO BUILD A SATISFACTION QUESTIONNAIRE
1. Ask yourself “what aspects of the service should we measure?”
○ Overall satisfaction
○ Satisfaction drivers (aka name some attributes of the service)
○ Will they come back or recommend to others
○ Demographics
○ Past Behavior
○ Word of mouth
2. Ask yourself “how do we measure/what method?”
○ Not too many items/ use positive words in questions
○ Scale (Likert scale: very unsatisfied, unsatisfied, neither satisfied nor dissatisfied,
satisfied, very satisfied)
○ Number of scale points (5 is the minimum as shown in Likert scale above, 10 is
maximum)
3. Ask yourself “how should we distribute the questionnaire/to who?”
○ Stratified random sample (best choice!)
○ Quota sample (is not random)
○ Convenience sample
46
47
EXERCISE
Customer satisfaction questionnaire for Pizzeria Bella Napoli
(Answer the questions: 1 very dissatisfied, 2 quite dissatisfied, 3 neutral, 4 quite satisfied, 5 very
satisfied)
Basic Information:
- Date of visit: ______________
- Time of visit: ______________
- Did you have a reservation? ______________
1.
2.
3.
4.
5.
6.
7.
8.
How satisfied were you with the overall experience in Bella Napoli?
How satisfied were you with the taste/quality of the pizza?
How satisfied were you with the freshness of the ingredients?
How satisfied were you with the variety of options available in the menu?
How satisfied were you with the friendliness of our staff?
How satisfied were you with the cleaness of our pizzeria?
How satisfied were you with the price of the plates in relation to the quality of the ingredients?
How likely are you to recommend Bella Napoli? (1 very unlikely - 5 very likely)
Additional feedbacks: ______________
48
- DIMENSIONS OF SERVICE QUALITY
SERVQUAL — scale that measures service quality
1. Reliability
2. Assurance
3. Tangibles
4. Empathy
5. Responsiveness
49
1. TOTAL MARKET, ANNUAL AND TRANSACTIONAL SURVEYS
●
●
●
Total market surveys and annual surveys — measure satisfaction with all major customer
service processes and products. The level of measurement is usually high.
Transactional surveys (intercept surveys) — conducted after customers have completed a
specific transaction. Many market research agencies offer cost- effective email, SMS, electronic
terminals, and app-based transactional survey tools.
Point-of-transaction surveys on touchscreen terminals allow measurement of customer
satisfaction on key attributes immediately after a transaction has taken place.
2. SERVICE FEEDBACK CARDS, ONLINE AND MOBILE MESSAGES
●
●
These powerful and inexpensive tools involve providing customers the opportunity to use
feedback cards, online forms, e-mail, text messaging or apps
Are a good indicator of process quality and yield specific feedback on what works well and what
does not
50
3. MYSTERY SHOPPING
●
●
Service businesses often use “mystery shoppers” to determine whether frontline staff display
desired behaviors
Actions such as the correct positioning of various products, up-selling and cross-selling and
closing deals are measured using mystery shoppers
- UNSOLICITED CUSTOMER FEEDBACK
●
●
●
Complaints and compliments are rich sources of detailed feedback on what makes customers
unhappy and what delights them
Detailed customer complaint and compliment letters, recorded telephone conversations, and
direct feedback from employees are
also excellent tools for communicating internally what customers want
For complaints, suggestions and inquiries to be useful as research input, they have to be
funneled into a central collection point, logged, categorized and analyzed
- FOCUS GROUP DISCUSSION AND SERVICES REVIEWS
●
●
●
Focus groups organized by key customer segments or user groups drill down on needs of users
Service reviews are in-depth, one-on-one interviews usually conducted once a year with a firm’s
most valuable customers
Typically, a senior executive of the firm visits the customer and discusses issues such as how
well the firm performed the previous year and what should be maintained or changed
- ONLINE REVIEWS AND DISCUSSION
●
●
●
User-generated content and data increasingly provide rich insights into quality perceptions of a
firm and its competitors
Sentiment analysis of postings and automated text processing allows real time insights into
changes in consumer perceptions
Online monitoring tools combined with big data analytics allow real time sensing of information
- ANALYSIS, REPORTING AND DISSEMINATION OF CUSTOMER FEEDBACK
Three types of service performance reports:
1. A monthly Service Performance Update provides process owners with timely feedback on
customer comments and operational process performance
2. A quarterly Service Performance Review provides process owners and branch or department
managers with trends in process performance and service quality
3. An annual Service Performance Report gives top management a representative assessment of
the status and long-term trends relating to customer satisfaction
51
- HARD MEASURE OF SERVICE QUALITY
●
●
Hard measures refer to operational processes, or outcomes and include data such as uptime,
service response times and failure rates.
Control charts are a simple method of displaying performance over time against specific quality
standards
- ANALYZE AND ADDRESS SERVICE QUALITY PROBLEMS
The Fishbone Diagram
●
●
●
Managers and staff brainstorm all possible reasons that might cause a specific problem
Reasons then grouped into one of five groupings; i.e., Equipment, Manpower (or People),
Material, Procedures, and Other on a cause- and-effect chart (fishbone diagram)
This technique was initially used in manufacturing but is now widely used for services
- ANALYZE AND ADDRESS SERVICE QUALITY PROBLEMS
Pareto Analysis
●
●
Identifies the main causes of observed outcomes, by separating important causes from the trivial;
allows services firms to focus improvement efforts
80/20 rule — 80% of the value of one variable (number of service failures) is caused by only 20%
of causal variables (number of possible causes as identified by the fishbone diagram)
52
- ANALYZE AND ADDRESS SERVICE QUALITY PROBLEMS
Blueprinting
●
●
●
A powerful tool for identifying fail points
Allow us to drill down further to identify where exactly in a service
process the problem was caused
Help to visualize the process of service delivery by showing the sequence of front-stage
interactions that customers experience, and supporting back-stage activities
- RETURN ON QUALITY
●
Assess Costs and Benefits of Quality Initiatives
○ Assesses the costs and benefits of quality initiatives
○ Based on the assumptions that
1) Quality is an investment
2) Quality efforts must make sense financially
3) It is possible to spend too much on quality, and
4) not all quality expenditures are equally justified
●
Determine the Optimal Level of Reliability
○ Service firms should increase reliability up to the point that the incremental improvement
equals the cost of service recovery
53
- OPTIMAL LEVEL OF RELIABILITY
●
●
●
How far should one go in improving service reliability?
Initial investments in reducing service failure often bring dramatic
results
However, at some point, diminishing returns set in and can become expensive
54
55
LECTURE 17 - DISTRIBUTION CHANNELS
- RETAILING ACTIVITY
Retailing — set of business activities within the supply chain that delivers and adds value to the
products and services sold to consumers for their personal or family use.
Someone might tempted to think at retailing only as selling products in stores
1. Involves also delivery services
2. Not necessarily in stores (i.e. internet/online, direct selling, etc.)
3. Comprises activities beyond selling (i.e. store & inventory management, atmosphere,
transportation, logistics)
Retail Managers’ Decisions
● Select target markets & retail location
○ i.e. IKEA stores all over the world: you expect them to be far from city center because
they need a lot of space, near a highway since most people come by car
●
Determine which merchandise & service to offer
○ i.e. purchase of a washing machine, # of alternatives
●
Choose & negotiate with suppliers
○ i.e. Eataly (throughout the whole country)
●
●
Distribute merchandise to stores
Decide how to price, promote, & present merchandise
- SUPPLY CHAIN
Supply Chain — set of firms that make & deliver goods/services to consumers
56
RETAILERS EXIST BECAUSE THEY OFFER SEVERAL BENEFITS AND INCREASE THE VALUE
FOR CONSUMERS AND MANUFACTURERS:
●
providing assortment: they concentrate many brands, sizes, product and price categories in
one single place.
○ Consumers can choose from a larger set of options
●
breaking bulk: manufacturers benefit from scale economies, consumers are not forced to buy
more products than their needs
○ i.e. retailer buys thousands of liters of milk while each consumer buys only 1-2 depending
on their needs
●
holding inventory: consumers can find what they need when they need it. Otherwise, everything
should be stored at home!
●
providing services that enable customers to use/purchase the products more easily
○ i.e. product warranty, extension of warranty in exchange for payment (the risk is on the
retailer not the manufacturer anymore)
Wholesalers — engage in buying, taking title to, often storing, and physically handling goods inlarge
quantities and then reselling the goods (usually in smaller quantities) to retailers or other businesses
● Wholesalers focus on satisfying retailers' needs, while retailers direct their efforts to satisfying the
needs of consumers
Vertical Integration — a firm operating simultaneously at different levels
1. Retailer acting as wholesaler
2. Manufacturer managing own retail stores
3. Firm designing product, licensing its manufacturing & retailing
57
Forward Integration — manufacturers becoming at the same time retailers
● i.e. Zara, planning, developing, & manufacturing products & managing stores
Backward Integration — retailers becoming at the same time wholesalers
- CHANNELS FUNCTIONS
1. Market research — research that follows exact path of customers in store (i.e. to identify
most/least visited areas in the store)
2. Communication — retailers’ main purpose: attract customers to the store
3. Direct contact:
a. Physical: sales personnel, customer service/assistance, checkout personnel
b. Online: chat/support box
4. Customization — at store level
a. i.e. customize tariff plan, customize car
5. Negotiation — i.e. car dealer, you negotiate the price with the retailer
6. Logistics & distribution — needs to be effective meaning enough inventory at the right time,
retailers must forecast demand effectively with data analysis
a. i.e. forecast fashion trends (cannot exactly rely on historical data)
7. Financing — stores provide financial systems to customers
8. Risk taking — they take the risk if they are not able to sell the product
9. Service & assembly
10. Relationship management — loyalty card is a technique the retailer adopts to retain customer
relationship and perform analysis of their basket size (for their interest, price elasticity, etc.) to
customize their product variety
The product of retails IS the store (whether virtual or physical), retailers SELL shelf space to
manufacturers.
58
1. Channel Density — number of firms operating at the same level in the supply chain
a. i.e. in a given industry, consumer electronics, let’s say 4 competing retailers, the channel
density is 4
b. Note: it’s not mere number of competitors that say how fierce competition is,
concentration of market share is relevant
2. Channel Concentration — extent that sales are equally distributed between channel members
3. Channel Length — number of intermediates between manufacturer & consumer
a. Shortest number of intermediaries is direct selling between manufacturer & consumer
- IMPACT ON CHANNEL POWER
Is the retailer a price maker or taker? depends on their bargain power
Different businesses within a channel might have an unbalanced powerwith respect to the others.
Retailers (distributors) have larger bargaining power than manufacturers (suppliers) when…
1. Product accounts for a small proportion of the channel’s sales
a. Retailer dictates price of PastaPizzi because they’d rather sell Barilla
2. There’s a scarce differentiation from competitors — consumers are indifferent on which brand
a. i.e. salt, retailer has higher bargaining power since it is basically a commodity
3. The channel has low switching costs — changing from one brand of assortment to another,
comes at a low cost anyway
59
4. The channel has a credible likelihood to integrate backward — private labels, retailers using their
own brand to sell products, makes other competitors in the category have a lower bargaining
power
a. i.e. Coop soap, Lidl jam
5. Channel has better market information — when retailers conduct more info than manufacturers,
information asymmetry
SRP — “suggested retail price” it is explicit to customers that the price is dictated by retailer not
manufacturer
Implications of Channel Power
1. Pricing & promotion decisions
○ i.e. not having a discount on black friday, Dyson has high bargaining power
2. Linear shelf space
3. Information shared
4. Shelf position — at eye level there is the market leader, immediately under there is the private
label of the retailer (if any)S
60
- TYPES OF CHANNELS
61
1. Direct Channels:
1. High technical complexity of product
2. Product customization is important
3. Quality assurance required
4. Large purchase orders
5. Complex transportation
6. Brand image consistency
Pros:
● Direct control of company
● Property of info
● Shopping experience definition
Cons:
● Higher costs
● Complex organization structure
2. Indirect Channels:
1. Consumers value a one-stop shopping experience
2. Product availability is relevant
3. Considerable after-sale activities
Pros
●
●
●
Lower costs
Externalized risks
Skills & technicalities outsourced
Cons
● Loss of control (quality)
● Potential competitor
3. Physical Store
● 5 senses
● Personal service
● Immediate gratification
● Hedonic experience
● Diff payment methods (i.e. card or cash)
4. Automated Store
● i.e. vending machine
● Lower operating costs
● Higher margins
● Location convenience
5. Direct Selling
● Safety
● Convenience
● Sampling
● Demonstration
● Loyalty
● Risk: customer must know how to use it correctly or else they will be dissatisfied
● i.e. Bimbi cooking machine
62
6. Online Channels
● Assortment
● Available info
● 24/7 available
● Personalization/customization
- HOW TO CHOOSE AMONG CHANNELS?
1. Customer behavior — who, when, why, how?
a. Amount of info needed
b. i.e. does the product require personal assistance? then use a physical store of direct
selling
c. Price expectations & needs for negotiation — online channels are perfect for price, if
avoiding a price war then include them in different channels
d. Service levels needed — i.e. warranty, after-sales, transportation, channels like physical
or direct selling
2. Competitors — what channels do competitors use?
- Emulating competitors (parity elements);
- Differentiating from them providing a more rewarding experience;
i.
Compete on same channels they are exploiting in order to be on the same level
ii.
Compete on differentiation, use a different channel, i.e. if they all sell in store then
I’ll sell online
3. Marketing strategy & resources — different costs, company should be able to invest/fund their
strategy
- Distribution channels are not as easy and quick to change as a marketing strategy; (i.e.
price & packaging can be changed easily, more complicated for distribution channels,
cannot just close all stores or open a store in 1 day)
- Must be carefully considered in advance
- Internal resources (financial and organizational) available;
- Technological opportunities (e.g. automatization of some processes such as
self-checkout) aid in driving the company to a better choice
i.e. VR is a potential new channel, metaverse
63
- ADVANTAGES OF USING MORE CHANNELS
Companies can
● Overcome limitations of original channel
● Build strategic advantage
● Expand market presence
● Target different segments (increase share of wallet)
● Have multiple insights on consumer behavior
Risks & Challenges of Using More Channels
● Brand image consistency across channels
○ Hard to maintain the same perception in store and online with regard to stimulation, etc.
○ Risks brand dilution
●
Price consistency across channels
○ People visit stores to check then buy online because it’s cheaper
○ Problem, you cannibalize your channels with your own multi-channel strategy
●
Assortment size & availability
○ Customers get used to variety online, then when go into a store and see less options
○ Retailers need to balance this or else risk that the activities dilute the brand overall and
lower profitability of other channels
●
Channel migration & showrooming
64
Vertical Conflict — misbehavior put in place by a business in a higher level exerts negative input on
businesses downstream
Horizontal Conflict — misconduct of one business at a given level of the supply chain, which damages
business at the same level
● i.e. misconduct of retailer has negative impact of the other retailers
● Manufacturers should address conflicts since it would lead retailers to stop selling your product!
Multi-Channel Conflict — retailers use more than one channel, activity performed by retailer on one
channel, exerts negative impact on retailer in another channel
● i.e. retailers online has negative impact on retailers in store
Examples:
A) A beer company provides cafeterias with refrigerators at discounted prices. They notice that
Cafeteria A is not performing well, thus they give them the refrigerator for free. Cafeteria A starts
performing better, but Cafeterias B, C, and D get very upset and threatens to boycott the beer
company
-> vertical conflict
B) A home textile manufacturer has deals with two wholesalers (A and B) which have the exclusive
rights to distribute the company products to retail stores and to hotels and restaurants
respectively. Wholesaler A starts selling products also to a hotel chain thus increasing its
revenues. Wholesaler B gets upset and threatens not to sell the company’s products anymore
-> horizontal conflict
C) A tire manufacturer has traditionally sold its products through tire dealers. They start to sell the
same tires on Amazon at a price lower than 20% than in tire dealers. The tire dealers threaten not
to sell the products from that manufacturer anymore as long as the product is sold on Amazon
-> multi-channel conflict
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