Fall 2011 MCS 1000 Notes
Marketing 1000 Final Exam Study Notes
Needs/Wants/Demands
Needs
- States of felt deprivation, including basic physical needs for food, clothing, warmth, and safety.
Social needs for belonging and affection, individual needs for knowledge and self-expression, these
needs were not created by marketers; they’re basic part of human make up.
-ex need for shelter, food,
Wants
- Form of human needs that take as shaped by culture and individual personality
- We need food, but we want Big Mac’s
Demands
- Human wants that are backed by buying power
-we as consumers demand products that we believe will satisfy our wants
Marketing Concepts
The Production Concept
Production Concept – the idea that the buyers will favour products that are widely available and highly
affordable.
-management should focus on improving production and distribution efficiency
-useful in two situations: when demand>supply, and when the product’s cost is too high so the company
can use improved efficiency to bring it down
-can cause marketing myopia – businesses can lose sight of the real objective of building customer
relationships by satisfying customers’ needs
The Product Concept
Product Concept – the idea that buyers will favour products that offer the most in quality, performance,
and innovative features.
-marketing strategy should focus on making continuous product improvements
The Selling Concept
Selling Concept – the idea that the market will not buy enough of the firm’s products unless it
undertakes a large-scale selling effort.
-typically used with unsought goods, such as insurance and blood donations
-used when a firm faces overcapacity
-marketing focuses on selling what they make rather than what the market wants
-focus on creating sales transactions rather than building long-term customer relationships
The Marketing Concept
Marketing Concept – the marketing management philosophy that holds that achieving organizational
goals depends on knowing the needs and wants of target markets and delivering the desired
satisfactions better than competitors do.
-customer focus and value are the paths to sales and profits
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Fall 2011 MCS 1000 Notes
-job is to find the right products for your customers
The Societal Marketing Concept
Societal Marketing Concept – a principle of enlightened marketing that holds that marketing strategy
should deliver value to the organization’s customers in a way that maintains or improves the well-being
of society.
-questions whether the pure marketing concept overlooks possible conflicts between the short-term
needs and wants of individuals and the long-run welfare of society
Strategic Planning
Strategic Planning – the process of developing and maintaining a strategic fit between the organization’s
goals and capabilities and its changing market opportunities.
-strategic planning involves adapting the firm to take advantage of opportunities in its constantly
changing environment.
Corporate Level: Defining Company Mission  Setting Company Objectives and Goals  Designing the
Business Portfolio
Business Unit, Product, and Market Level: Planning Marketing and Other Functional Strategies
-marketing planning occurs at the business unit, product, and market level and it supports company
strategic planning with more detailed plans for specific market opportunities.
-“if you fail to plan, you are planning to fail”
Strategic Business Unit
Strategic Business Unit (SBU) – a unit of the company that has its own mission and objectives and that
can be planned independently from other company businesses.
Service Profit Chain
Service-Profit Chain – the chain that links service firm profits with employee and customer satisfaction.
-reaching service profits and growth begins with taking care of those who take care of customers
Five links:
1) Internal Service Quality –superior employee selection and training, quality work environment, strong
support for those dealing with customers…which results in..
2) Satisfied and Productive Service Employees – which results in…
3) Greater Service Value – more effective and efficient customer value creation and service delivery..
which results in..
4) Satisfied and Loyal Customers – which results in…
5) Healthy Service Profits and Growth – superior service firm performance
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Fall 2011 MCS 1000 Notes
Requires:
Internal Marketing – marketing by a service firm to train and effectively motivate its customer-contact
employees and all the supporting service people to work as a team to provide customer satisfaction.
-must precede external marketing
Interactive Marketing – marketing by a service firm that recognizes that perceived service quality
depends heavily on the quality of buyer-seller interaction.
-service companies have three major marketing tasks: competitive differentiation, service quality, and
productivity
Product Life Cycle
Product Life Cycle – the lifespan of a new product, from its development to its eventual decline.
- All products will pass through the PLC
What’s different is:
How long it takes between stages
How long it remains in each stage
5 Stages of the PLC:
1) Development – no customers, sales=0, heavy spending
-when company finds and develops a new product idea
2) Introduction – early adopter customer, slow sales growth, no profits, high launch costs
-product is introduced in the market
3) Growth – early majority customers, rapid sales growth and revenues
-rapid market acceptance and increasing profits
4) Maturity – late maturity customers, flat sales, declining profits
-increased marketing outlays to defend product against competition
5) Decline – laggard customers, declining sales and profits, replaced by new products
Criticisms of Marketing
Customer Concerns:
-High Prices – caused by unnecessary advertising
-High-Pressure Selling – commission based sellers
-Deceptive Practices
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Fall 2011 MCS 1000 Notes
-Unsafe Products
-Planned Obsolescence – holding back features then revealing them later to make older models obsolete
-Weblining – discriminating against customers based on their purchase behaviour, spending habits, etc
Societys Concern:
-false wants and too much materialism
-business yields too much political power
-marketing’s impact on other businesses
-too few social goods
-cultural pollution
Environmentalism
Environmentalism - An organized movement of concerned citizens, businesses, and government
agencies working to protect and improve the natural environment
-marketing system’s goal should be to maximize life quality
Environmental sustainability - a management approach that involves developing strategies that
both sustain the environment and produce profits for the company.
-Sustainability is a crucial but difficult goal
-goal is to establish a sustainable global economy: an economy that the planet is capable of supporting
indefinitely
Pricing Strategies/Pricing Methods
Marketing Skimming Pricing – setting a high price for a new product to skim maximum revenues layer by
layer from the segments willing to pay the price.
-early adopters want new products right away, regardless of the price
-introduced at the highest price marketers think consumers will pay for it
-price is then lowered in stages
Market Penetration Pricing – a strategy that sets a low price for a new product to attract a segment of
buyers, then raises the price.
-goal is to attract a large number of buyers quickly and gain a large market share
-idea is that high sales volumes will reduce costs
Prestige Pricing – a product that offers the buyer prestige in exchange for a high price.
-ex Ferrari
-can also work for ordinary products – for example Stella Artois
Product Line Pricing
Optional-Product Pricing – offering to sell an optional or accessory product along with their main
product.
-ex. Bluetooth in a car
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Fall 2011 MCS 1000 Notes
Captive-Product Pricing – setting a price for products that must be purchased along with a main product.
-ex razor blades (that go with razors), printer cartridges (that go with the printer)
By-Product Pricing – company seeks a market for byproducts to help offset the costs of disposing of
them and to help make the price of the main product more competitive.
Bundle Pricing – when marketers group more than one product together and charge a price for the set.
-ex a combo at a fast food restaurant
Consumerism
Consumerism – an organized movement of citizens and government agencies to improve the rights and
power of buyers in relation to sellers.
-Consumer Association of Canada
Traditional Sellers Rights:
-right to introduce any product in any size and style
-right to charge any price for the product
-right to spend any amount to promote the product
-right to use any product message
-right to use any buying incentive schemes
Fundamental Consumer Rights:
-right to safety
-right to be informed
-right to choose
-right to be heard
-right to redress against damage
-right to consumer education
Marketing Environment
Marketing Environment – all the actors and forces outside the marketing department that affect
marketing management’s ability to perform its functions.
Microenvironment – the actors and forces close to the company that affect its ability to serve customers
– the company, suppliers, marketing intermediaries, customer markets, competitors, and publics.
Macroenvironment – actors and forces in society and the world that affect the microenvironment –
demographic, economic, natural, technological, political, and cultural forces.
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Fall 2011 MCS 1000 Notes
Marketing/Distribution Channels
Marketing Intermediaries – third-party companies – neither the marketer nor the customer – that help
the company promote, sell, and distribute its goods to customers.
Marketing Intermediaries include:
Retailers – buy merchandise from manufacturers and resell them in stores to consumers
Distributors – physically stock and move goods from their point of origin
Brokers – arrange for the movement of goods from their point of origin to their retailer or wholesaler,
but never physically touch or take possession of the merchandise
Marketing Services Agencies – perform marketing tasks
Financial Intermediaries – help finance transactions or insure against the risks associated with the
buying and selling of products
Wholesaler
-wholesaler is the company that sells the product to the retailer who sells the product to the consumer
-buy in bulk then break the lots into smaller quantities for retailers
-takes a risk by holding the product between the manufacturer and retailer
Retailer
Retailing – all activities involved in selling goods or services directly to final customers for their personal
(not business) use.
-classified in terms of the amount of service they offer (self-service, limited service, full service), the
breadth and depth of their product lines, their pricing approaches, and how they are organized.
Marketing Intelligence
Marketing Intelligence - A systematic collection and analysis of publicly available information about
competitors and developments in the marketing environment.
- Is a specific branch of competitive intelligence
- Goal is to improve strategic decision making, assess and track competitors’ actions, and provide early
warning of opportunities and threats
- Growing use of marketing intelligence raises some ethical issues, most techniques are legal, but some
are considered questionable
-good marketing intelligence usually comes from public sources
Marketing Research
Marketing Research – the systematic design, collection, analysis, and reporting of data relevant to a
specific marketing situation facing an organization.
-can hire someone to conduct research on a specific area or buy data collected by outside firms
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Fall 2011 MCS 1000 Notes
Research Process
The Marketing Research Process has four steps:
1.Defining the Problem and research objectives 
2. Developing the research plan for collecting info 
3. Implementing the research plan 
4. Interpreting and reporting the findings
Defining the Problem and Research Objectives
-manager best understands the decision for which info is needed
-researcher best understands marketing research and how to obtain the info
-often the hardest step in the process
-see research objectives section below
Developing the Research Plan
-need to determine exact info needed, develop a plan for gathering it efficiently, and present the plan to
management
-research plan includes: existing data, spells out research approaches, contact methods, sampling plans,
and instruments that researchers will use to gather new data
-research plan should be presented in a written proposal
-proposal should cover management problems addressed and research objectives, info to be obtained,
and how the results will help, and research costs
Primary Data – info collected for the specific purpose at hand.
Secondary Data – info that already exists somewhere, having been collected for another purpose.
Gathering Secondary Data
-can use companys internal database, commercial data sources, government sources, etc
Online Databases – computerized collections of data available online, either from closed, subscriberonly services, or via the public internet.
-secondary data can usually be obtained faster and at a lower cost than primary data
-evaluate info to make sure it is relevant, accurate, current, and impartial
Primary Data Collection
-research approaches: observational, survey, experiment
Observational Research – the gathering of primary data by observing relevant people, actions,
and situations.
-mechanical observations, ex meters attached to TV sets
Research Objectives: Exploratory, Descriptive, Causal
-market research is about finding the answers to questions and businesses problems so that marketing
managers can make decisions
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Fall 2011 MCS 1000 Notes
-defining the problem and clearly stating the research objective is the hardest part
-can often begin with exploratory research to help define the problem and later follow with causal or
descriptive research
Exploratory Research
Exploratory Research – marketing research to gather preliminary info that will help define problems and
suggest hypotheses.
-Formats problems more precisely, clarifying concepts, gathering explanations, gaining
insight, eliminating impractical ideas, and forming hypothesises
-Does not seek to test them, just finds them out
Descriptive Research
Descriptive Research – marketing research to better describe marketing problems, situations, or
markets, such as the market potential for a product or the demographics and attitudes of consumers
who buy the product.
-Seeks to describe a product, determine how many people use the product
-Defines questions, prepares the company for required changes
Causal Research
Causal Research – marketing research to test hypotheses about cause-and-effect relationships.
-Seeks to find cause and effect relationships between variables
-Accomplishes this by experiments
Types of Research
Observational research – defined above
Mechanical Observation – ex meters on TV sets
Survey Research – the gathering of primary data by asking people questions about their knowledge,
attitudes, preferences, and buying behaviour.
Experimental Research – the gathering of primary data by selecting matched groups of subjects, giving
them different treatments, controlling unrelated factors, and checking for differences in group
responses.
Single-Source Data Systems – systems that combine surveys of huge consumer panels and electronic
monitoring of respondents’ purchases and exposure to various marketing activities in an effort to better
understand the link among consumer characteristics, attitudes, and purchase behaviour.
Consumer Buyer Behaviour
Consumer Behaviour – the buying behaviour of consumers – individuals who buy goods and services for
their own use and consumption.
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Fall 2011 MCS 1000 Notes
-consumer influences are strongly influenced by cultural, social, personal, and psychological
characteristics
Maslow’s Hierarchy of Needs
Self-Actualization Needs (self-development and realization)
Esteem Needs (self-esteem, recognition, status)
Social Needs (sense of belonging, love)
Safety Needs (security, protection)
Physiological Needs (hunger, thirst)
-tries to explain why people are driven by different needs at different times
-most pressing at bottom, least at top
-once most important need is satisfied, they move onto the next
High vs. Low Involvement Products
-low involvement products
-ex toothpaste or laundry detergent
-may require no info search
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Fall 2011 MCS 1000 Notes
-high involvement products
-ex motorcycle
-usually requires search time by consumers, such as, where can I buy it?
Segmentation
-identify bases for segmenting the market; develop segment profiles
Market Segmentation – dividing a market into distinct groups with distinct needs, characteristics, or
behaviour that might need separate products or marketing mixes.
Market Segment – a group of potential customers who respond in a similar way to a given set of
marketing efforts.
-when segmenting markets, caution and sound ethics must be used
Targeting
-develop measure of segment attractiveness; select target segments
Target Marketing – the process of evaluating each market segment’s attractiveness and selecting the
most appropriate ones to enter.
-target segments should be chosen based on an analysis of which ones it feels will profitably generate
the greatest customer value and sustain it over time
-niches are relatively small market segments
-most companies enter a market by serving a single segment, if this is successful, they expand to serve
additional segments
-large organizations sometimes strive to meet the entire market
Positioning
-develop positioning for target segments; develop a marketing mix for each segment
-a position is a place the product occupies in the mind of the potential customer, and relative to
competitors
Market Positioning – arranging for a product to occupy a clear, distinctive, and desirable place relative to
competing products in the mind of the buyer.
-therefore, positions are intended to distinguish their products from competing brands and
given them the greatest strategic advantage in their target markets
-positioning ultimately exists in the mind of the individual
-first the marketer needs to establish a possible competitive advantage on which to build the position
-effective positioning begins with actual differentiating the company’s marketing offer so that it
gives the consumer more than the competitor
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Fall 2011 MCS 1000 Notes
-once a position is chosen, the company must communicate that position to its customers
-the marketing program must support the positioning strategy
Based on four priniciples:
1. A company must establish a position in the minds of customers
2. The position should have one simple and consistent message
3. The position must set a company apart from its competitors
4. A company cannot be all things to all people – it must focus its efforts
Requirements for Effective Segmentation
-There are many ways to segment a market, but not all segmentations are effective
-To be useful, markets segments must be:
Measureable: the size, purchasing power, profiles of the segments, can be
measured
Accessible: the segments can be effectively reached and served
Differentiable: the segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs
Actionable: effective programs can be designed for attracting and serving the
segments
Differentiation Strategies
Differentiated Marketing – a market-coverage strategy in which a firm decides to target several market
segments and designs separate offers for each.
-generates higher sales and a stronger position within each market segment
-more expensive
Types of differentiation:
-product
-people
-channels
-services
-image
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Fall 2011 MCS 1000 Notes
Positioning Strategies
Good vs. Service
8 differences between goods and services:
1. Most service products cannot be inventoried
-customers may be turned away or have to wait
2. Intangible elements usually dominate value creation
-customers can’t taste, smell, or touch these elements and not may be able to see or hear them
-harder to evaluate service and distinguish from competitors
3. Services are often difficult to visualize and understand
-customers perceive greater risk and uncertainty
4. Customers may be involved in co-production
-customers interact with provider’s equipment, facilities, and systems
-poor task execution by customers may hurt productivity, spoil service experience, curtail
benefits
5. People may be a part of the service experience
-appearance, attitude, and behaviour of service personnel and other customers can shape the
experience and affect satisfaction
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Fall 2011 MCS 1000 Notes
6. Operational inputs and outputs tend to vary more widely
-harder to maintain consistency, reliability, and service quality or to lower costs through higher
productivity
-difficult to shield customers from results of service failures
7. The time factor often assumes great importance
-customers see time as a scarce resource to be spend wisely; dislike wasting time waiting, want
service at times that are convenient
8. Distribution may take place through nonphysical channels
-info-based services can be delivered through electronic channels but core products involving
physical activities or products cannot
Product Types
Consumer Products
Consumer Products – product bought by individuals for person consumption.
Convenience Products – consumer product that the individual usually buys frequently, immediately, and
with a minimum of comparison and buying effort. Ex soap, candy, newspapers, fast food
Shopping Products – consumer product that people, in the process of selection and purchase,
characteristically compares on bases such as suitability, quality, price, and style. Ex furniture, clothing,
used cards, major appliances, hotel and airline services
Specialty Products – consumer product with unique characteristics or brand identification for which a
significant group of buyers is willing to make a special purchase effort. Ex cars, high-priced photography
equipment, designer clothes, services of legal or medical specialists
Unsought Products – consumer product that the consumer either does not know about or knows about
but does not normally think of buying. Ex life insurance, cemetery plots, blood donations
Industrial Products
Industrial Products – product bought by individuals and organizations for further processing or for use in
conducting a business.
-materials and parts, capital items, and supplies and services
Product line
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.
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Fall 2011 MCS 1000 Notes
Service characteristics
Four Service Characteristics:
Intangibility – services cannot be seen, tasted, felt, heard, or smelled before purchase
Inseparability – services cannot be separated from their providers
Perishability – services cannot be stored for later sale or use
Variability – quality of services depends on who provides them and when, where, and how
7P’s Of Service
-combines the 4 Ps of marketing (product, price, place, promotion) with an additional 3 service-specific
Ps (process, physical environment, people)
Product Elements
-Service products lie at the heart of a firm’s marketing strategy, if it’s poorly designed, it won’t create
meaningful value for customers
-Service products need a core product that response to the customers’ primary need and an array of
supplementary service elements that help use the core product effectively
Place and Time
-When delivering, it involves decisions on when and where to deliver, as well as methods
-Use the electronic or physical channels, speed and convenience of place and time have become
important determinants of effective service delivery today
Price and other user outlays
-Make sure customer sees this price as “worth it”, if not, go beyond this
-Make it worth it to the customer, and give the customer satisfaction
Promotion and Education
-Be sure to use marketing programs, without them, no one will know about your product
-Suppliers need to inform customers about benefits of this service, where and when to obtain it, and
how their participation can provide the best results
Process
-How a firm does things, the underlying processes, these are just as important as what it does
-Create an effective process
-Customers are often involved in these processes, as co-producers
-If it’s badly designed slow processes and ineffective, it leads to a disappointing experience as well
-Make sure front line staff does the best they can
Physical Environment
-Appearance of buildings, landscaping, vehicles, interior furnishing, equipment, staff uniforms, signs,
printed materials, and other visible cues are all signs of good evidence of a firms quality
-Manage physical evidence carefully
People
-No matter what, services will always require direct interaction between customers and customercontact personnel
-These interactions strongly influence how customers perceive service quality
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Fall 2011 MCS 1000 Notes
Productivity and Quality
-Improving productivity is essential for any strategy for reducing costs, but making inappropriate cuts
will lead to bad service quality
-Improving quality is essential for product differentiation and for building customer satisfaction and
loyalty
-It’s unwise to invest in service-quality improvements without understanding trade-offs between the
incremental costs and incremental revenues
Brand Equity
-the real power of a strong brand is its ability to capture consumer preference and loyalty
-a powerful brand has high brand equity
Brand Equity – the usually positive but sometimes negative differential effect that knowing the brand
name has on a customer response to the product.
-measure of a brands equity is the extent to which people are willing to pay more for the brand
-the fundamental asset underlying brand equity is customer equity – the value of the customer
relationships that the brand creates
New Product Development
- The development of original products, new brands, and product improvement and
modifications, through the firm’s own research and development (R&D) efforts
- Firm can obtain a new product in two ways:
1.Acquisition:
-By buying a whole company, patent, or a licence to produce someone else’s product
2. New product development:
-Development of original products, new brands, and product improvements and modifications
through the firm’s own research and development efforts
Major stages in the new product development process are:
1. Idea Generation
-The systematic search for new product ideas
-Company must usually generate many ideas to find a good one
-Good product ideas usually come out from watching and listening to customers
2. Idea Screening
- Sorting through new product ideas to identify good ideas, and separate them from the
not-so-good ideas
3. Concept Development and Testing
- Developing the new product idea into various alternative forms and testing the concepts
with a group of potential customers
4. Marketing Strategy Development
-Designing an initial marketing strategy for a new product based on the product concept
Product Concept - a detailed version of the new product idea that can be shown to potential customers
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Fall 2011 MCS 1000 Notes
5. Business Analysis
- A review of the sales, cost, and profit projections for a new product to determine whether the
company’s objectives will be met
6. Product Development and Testing
-Developing the product concept into a real working version of the product and subjecting it to a variety
of tests
-All new products must pass through the product development and testing phase
7. Test Marketing
- Testing the product and marketing program in real, but limited market conditions
8. Commercialization
- The full-scale introduction of the new product into the market
Marketing Mix
-aka the 4 Ps of marketing (product, price, place, promotion)
Marketing Mix – the set of controllable, tactical marketing tools that the firm blends to produce the
response it wants in the target market.
-consists of everything the organization can do to influence demand for its products and services
-the marketing mix constitutes the companys tactical tool kit for establishing strong positioning in target
markets
-an effective marketing program blends all the marketing mix elements into an integrated marketing
program designed to achieve the company’s marketing objectives by delivering value to consumers
Price Elasticity
Price Elasticity = percentage change in demand / percentage change in price
- A way of measuring how sensitive the market is to price changes
Inelastic: minimal change in demand as price increases
Elastic: significant drop in demand as price increases
-when price elasticity is at “unity”, sales of a service rise (or fall) by the same percentage the price falls
(or rises)
Types of Retailers
-can be classified in terms of amount of service offered, breadth and depth of product lines, the relative
prices they charge, and how they are organized
-self-service retailers (ex supermarkets and future shop) vs limited-service retailers (ex Sears) vs fullservice retailers (ex specialty stores and first-class department stores)
Product line
Specialty Store – a retail store that carries a narrow product line with a deep assortment within that line.
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Fall 2011 MCS 1000 Notes
Department Store – a retail organization 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.
Supermarket – large, low-cost, low-margin, high-volume, self-service store that carries a wide variety of
food, laundry, and household products.
Convenience Stores – a small store located near a residential area that is open long hours seven days a
week and carries a limited line of high-turnover convenience goods.
Superstores – a store much larger than a regular supermarket that carries a large assortment of
routinely purchased food and nonfood items and offers services such as dry cleaning, post offices, photo
finishing, cheque cashing, bill paying, lunch counters, car care, and pet care.
Category Killer – giant specialty store that carries a very deep assortment of a particular line and is
staffed by knowledgeable employees.
Service Retailers – retailers that sell services rather than goods. Ex hotels and universities.
Relative Prices
Discount Store – a retail institution that sells standard merchandise at lower prices by accepting lower
margins and selling at a higher volume. Ex Walmart.
Off-Price Retailers – retailer that buys at below wholesale prices and sells at less than retail. Ex factory
outlets, independents, warehouse clubs.
Independent Off-Price Retailers – off-price retailer that is either owned and run by
entrepreneurs or is a division of a larger retail corporation. Ex Winners.
Factory Outlets – off-price retailing operation that is owned and operated by a manufacturer
and that normally carries the manufacturer’s surplus, discounted, or irregular goods.
Warehouse Clubs – 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 annual
membership fees. Ex Costco.
Retail Organizations
-four major types: corporate chains, voluntary chains and retailer cooperatives, franchise organizations,
and merchandising conglomerates
Chain Stores – two or more outlets that are owned and controlled in common, have central buying and
merchandising, and sell similar lines of merchandise. Ex LCBO
Voluntary Chain – a wholesale-sponsored group of independent retailers that engages in group buying
and common merchandising. EX IGA
Retailer Cooperative – independent retailers banded together for central buying and promotion. Ex Ace
Hardware
Merchandising Conglomerate – a free-form corporation that combines several diversified retailers under
central ownership. Ex The Venator Group  Northern Reflections, Northern Getaway, etc.
Franchise – a contractual association between a manufacturer, wholesaler, or service organization (a
franchiser) and independent businesspeople (franchisees) who buy the right to own and operate one or
more units in the franchise system. Ex Canadian Tire
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Fall 2011 MCS 1000 Notes
Conventional Distribution Channel VS Vertical Marketing System
Conventional distribution channel – consists of one or more independent producers,
wholesalers, and retailers, each a separate business seeking to maximize its own profits
even at the expense of profits for the system as a whole
-no channel member has much control over the other members, and no formal
means exists for assigning roles and resolving channel conflict
Vertical marketing system (VMS) – consists of producers, wholesalers, and retailers
acting as a unified system. One channel member owns the other, has contracts with
them, or has so much power that they all cooperate (ie. sears buys more than 50% of its
goods from companies that it partly or wholly owns)
-can be dominated by the producer, wholesaler, or retailer
-Franchises are special types of vertical marketing systems that link several stages in the
production-distribution
Distribution Channel Conflict
-“a chain is only as strong as its weakest link”
Channel Conflict – disagreements among marketing channel members about who should do what, and
for what rewards.
Horizontal Conflict – conflict among firms at the same level of the channel.
-two retailers or two manufacturers
Vertical Conflict – conflict between different channels of the same level.
Marketing Communications Mix
Marketing Communications Mix – the specific blend of advertising, sales promotion, public relations,
personal selling, and direct marketing tools a company uses to pursue its advertising and marketing
objectives.
-each element requires its own delivery medium (method through which members of the target market
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Fall 2011 MCS 1000 Notes
can receive its communications)
-everything a company does communicates a message to its consumers
Five major promotional tools:
Advertising – any paid form of non-personal presentation and promotion of ideas, goods, or services by
an identified sponsor. The paid placement of a promotional message in mass media.
Sales Promotion – short-term incentives usually presented at the point of purchase, designed to
encourage the immediate purchase of a product or service.
Personal Selling – personal presentation by the firm’s sales reps for the purpose of making sales and
building customer relationships.
Direct Response Marketing – direct communications with carefully targeted customers that request an
immediate, measureable response and cultivate lasting customer relationships.
Public Relations – building good relations with the company’s various publics by obtaining favourable
publicity, building a good corporate image, and handling or heading off unfavourable rumors, stores,
and events.
Push vs Pull Strategy
PUSH STRATEGY
Push Strategy – a promotion strategy that calls for using the sales force and trade promotion to push the
product through the channels.
-producer markets to retailers to carry and promote the product, who will then market the product to
consumers
-generally used in B2B markets
PULL STRATEGY
Pull Strategy – a promotion strategy that calls for using advertising and consumer promotion to build
consumer demand.
-idea is to get consumers asking retailers for the product, who will ask the company to produce it
-generally used in consumer products companies
Four Categories of Service
Tangible:
1.People Processing
-services directed at people’s bodies: passenger transportation, health care, lodging, beauty salons,
physical therapy, etc.
2.Possession Processing
-services directed at physical possessions: freight transportation, repair and maintenance,
warehousing/storage, laundry and dry cleaning, landscaping/gardening, etc.
Intangible:
3.Mental-Stimulus Processing
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Fall 2011 MCS 1000 Notes
-services directed at people’s minds: advertising/PR, arts and entertainment, broadcasting/cable,
management consulting, education, info services, music concerts, psychotherapy, religion, etc.
4.Information Processing
-services directed at intangible assets: accounting, banking, data processing, data transmission,
insurance, legal services, programming, research, securities investment, software consulting
Core Product & Supplementary Services (flower of service)
-supplementary services play one of two roles:
1. Facilitating supplementary services are either required for service delivery or aid in the use of
the core product
-ex information, order-taking, billing, payment
2. Enhancing supplementary services add extra value for customers
-ex consultation, hospitality, safekeeping, exceptions
-petals are examples around core product, listed in a clockwise manner in which they are often likely to
be encountered by customers
-people processing services tend to be accompanied by more supplementary services than do the other
three categories
-high-contact services will have more supplementary aspects than low-contact services
-types of exceptions: special requests, problem-solving, handling of complaint/suggestions, restitution
Competition-Based Pricing (services)
-firms with relatively undifferentiated services need to monitor what competitors are charging and
should try to price accordingly
Price competition intensifies with:
-increasing number of competitors
-increasing number of substituting offers
-wider distribution of competitor and/or substitution offers
-increasing surplus capacity in the industry
Circumstances that reduce price competition:
-non-price-related costs of using competing alternatives are high
-personal relationships matter
-switching costs are high
-time and location specificity reduce choice
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Fall 2011 MCS 1000 Notes
-managers should take into account entire cost to customers of each competitive offering, including all
related financial and non-monetary costs, plus potential switching costs, and then compare this total
with that of the provider’s own service
Value-Based Pricing (services)
-importance of understanding the monetary worth of the incremental value created by a service
-when customers purchase a service, they are weighing the perceived benefits obtained from the service
against the perceived costs they will incur
-four broad expressions of value:
-value is low price
-value is whatever I want in a product
-value Is the quality I get for the price I pay
-value is what I get for what I give
-aka Net Value – the sum of all perceived benefits (gross value) minus the sum of all the
perceived costs of service. The greater the positive difference, the greater the net value
Consumer Surplus – the difference between the price customers pay and the amount they would
actually have been willing to pay to obtain the desired benefits offered by a specific product.
-four distinct categories for capturing and communicating the value of a service:
-uncertainty reduction
-relationship enhancement
-low-cost leadership
-value perception management
-uncertainty can be reduces by: a) benefit-driven pricing – pricing the aspect of the service that directly
benefits customers; b) flat-rate pricing – quoting a fixed price in advance of service delivery so as to
avoid surprises for users
-a strategy is relationship pricing, to discount prices for large purchases which can often be profitable for
both parties, or giving a discount when two or more services are purchased together
-cost leadership is an effective strategy
-must manage the perception of value to ensure customers know what value they have received
Demand Management Strategies
5 basic ways to manage demand:
1. take no action and leave demand to find its own levels
2. Reduce demand in peak periods
3. Increase demand in low periods
4. Inventory demand using a queuing system (asking customers to wait in line)
5. Inventory demand using a reservations system
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Fall 2011 MCS 1000 Notes
CRM (Customer Relationship Management) Strategies
- Overall process of building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction
- One of most important concepts for modern marketing
- CRM is the generic term for any corporate software system that collects and organizes customer
data and provides marketing managers, customer service representatives and sales
representatives with powerful information tools
Strategies:
1. Business Strategy
-guides the development of customer strategy
-business vision
-industry and competitive analysis
2. Customer Strategy
-target segments
-tiering of services
-loyalty bonds
-churn management
Processes:
-value creation
-multichannel integration
-performance assessment process
Cycle of Failure, Mediocrity, Success
-applies to both employees and customers
Cycle of Failure
-occurs in businesses with high employee turnover
-search for productivity leads to simplifying job processes that pay minimum wage and require repetitive
tasks that need little to no training
-employee cycle of failure begins with a narrow design of jobs for low skill levels; emphasis on rules
rather than service; use of technology to control quality; low wages; little investment in selection and
training; bored employees who adopt a poor service attitude
-results in low service quality and high employee turnover
-customer cycle of failure; high employee turnover leaves no customer relationships and customers who
are dissatisfied with the employee performance
-results in high customer turnover
Cycle of Mediocrity
-occurs in businesses that offer job security but are rule and procedure based
-stress on operational efficiencies
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Fall 2011 MCS 1000 Notes
-job responsibilities are narrowly defined
-salary increases and promotions are based on length of work time
-successful performance is seen as no mistakes rather than high productivity or outstanding customer
service
-customers are frustrated with the rules and lack of service flexibility
-jobs pay good wages and so employees are reluctant to leave
Cycle of Success
-occurs in businesses that are managed well
-better pay and benefits attract good quality staff
-good training
-employees are happier in the workplace and provide better service
-lower turnover means customers appreciate the continuity in the service and are likely to be loyal
-higher profit margins
Demand Management Approaches
1. Use price and other costs to manage demand
-charge customers more money to use services during peak periods
-may also cause customers to go at a different time (either to avoid $ or save $)
-when capacity is limited, goal should be to make as much use of the capacity as possible by
making available to the most profitable segments at any given time
2. Change product elements
3. Modify the place and time of delivery
-3 options: 1) no change, 2) varying the times when the service is available, 3) offering service to
customers at a new location
4. Promotion and Education
-tell customers about peak times and encourage them to purchase at non-peak times
-educate them about undesirable demand (ex 911 calls that are not emergencies)
Dimensions of Service Quality
5 dimensions of service quality:
1. Tangibles (appearance of physical elements)
-appearance of facilities, equipment, personal, and communication materials
2. Reliability (dependable and accurate performance)
-ability to perform the promised service dependably and accurately
3. Responsiveness (promptness and helpfulness)
-willingness to help customers and provide prompt service
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Fall 2011 MCS 1000 Notes
4. Assurance (credibility, competence, courtesy, security)
-credibiltiy – trustworthiness, believability, and honesty of the service provider
-security – freedom of danger, risk, or doubt
-competence – possession of the skills and knowledge required to perform the service
-politeness, respect, consideration, and friendliness of the service personnel
5. Empathy (good communications, customer understanding, and easy access)
-access – approachability and ease of contact
-communication – listening to customers and keeping them informed in a language they can understand
-understanding the customer – making the effort to know the customer and their needs
Service Attributes
Search Attributes – product characteristics that consumers can readily evaluate prior to service.
-tangible characteristics such as style, colour, texture, taste, and sound
Experience Attributes – product performance features that customers can only evaluate during service
delivery.
-ex. Vacations, live entertainment performances, sporting events
Credence Attributes – product characteristics that consumers may not be able to evaluate even after
purchase and consumption.
-ex. Counseling, legal advice, surgery, financial investment, planning services and consulting
services
-ex the cleanliness in a restaurants kitchen after eating there
Gaps in Service Design and Delivery
6 Gaps (5 gaps that lead to the 6th gap):
Gap 1: The Knowledge Gap
-difference between what the senior management thinks customers expect and what customers
actually need and expect
Gap 2: The Policy Gap
-difference between managements understanding of the customers’ expectations and the
service standards they set for delivery
-usually set standards below customer expectations because of cost and feasibility
Gap 3: The Delivery Gap
-difference between service standards and the service delivery teams actual performance on the
standards
Gap 4: The Communications Gap
-difference between what the company communicates and what it actually delivers to the
customer
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Fall 2011 MCS 1000 Notes
-caused by two sub-gaps: internal communications gap and overpromise gap (then
interpretation gap)
Gap 5: The Perceptions Gap
-difference between what is actually delivered and what customers feel they have received
Gap 6: Service Quality Gap
-difference between what the customers expect to receive and their perceptions of the service
that is actually delivered
Service Employees
Service personnel help to maintain the firms positioning. They are:
1. A core part of the product
-most visible part of the service
-deliver the service
2. The service firm
-are the firm from the customers perspective
3. The brand
-either deliver or do not deliver the brand promise
-a source of customer loyalty
-see what customers need
-deliver the service
-build personal relationships with customers
-key driver of the productivity of the frontline operation
Service-Profit Chain – a strategic framework that links employee satisfaction to performance on service
attributes to customer satisfaction, then to customer retention, and finally to profits.
Boundary Spanning – jobs that straddle the boundary between the external environment, where
customers are encountered, and the internal operations of the organization.
Sources of conflict:
Organizational/Client Conflict – must attend to both operational and marketing goals
Person/Role Conflict – conflict between job requirements and own personalities
Interclient Conflict – have to tell a customer to obey the rules
Emotional Labour – expressing socially appropriate (but sometimes false) emotions toward customers
during service transactions.
-ex of flight attendant asked to smile
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Fall 2011 MCS 1000 Notes
Front and Back Stage Personnel
-part of a cause and effect analysis
Front Stage Personnel
Front Stage – those aspects of service operations and delivery that are visible and otherwise apparent to
customer.
-experienced directly by customers
Back Stage Personnel
-experienced through a ripple effect
Backstage (or Technical Core) – those aspects of service operations that are hidden from customers.
Four Service Focus Strategies
Can either be:
Market Focus – extent to which a firm serves few or many markets.
or
Service Focus – extent to which a firm offers few or many services.
Four service focus strategies:
1. Fully Focused
-provides a limited range of services to a narrow and specific market segment
2. Market Focused
-concentrates on a narrow market segment but offers a wide range of services
3. Service Focused
-offer a narrow range of services to a fairly broad market
4. Unfocused
-serve broad markets with a wide range of services
-firms are often “the jack of all trades and master none” – not a good focus strategy
Important vs Determinant Attributes
-attributes that differentiate services are not always the most important ones
Determinant Attributes – those that actually determine buyers choices between competing alternatives.
-consumers focus on attributes that are different between competing alternatives
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Fall 2011 MCS 1000 Notes
Establishing Service Levels
-customers can often be segmented according to their willingness to give up some level of service for a
lower price
-price-insensitive customers are willing to pay a relatively high price to obtain high levels of service on all
attributes that are important to them
-price-sensitive customers will look for an inexpensive service that offers relatively low levels of
performance on many key attributes
Jack Trout’s Four Principles of Positioning
Effective positioning is based on four levels:
1. A company must establish a position in the minds of its target customers
2. The position should have one simple and consistent message
3. The position must set a company apart from its competitors
4. A company cannot be all things to all people – it must focus its efforts
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Fall 2011 MCS 1000 Notes
Wheel of Loyalty
-you need a solid foundation for building customer loyalty
-right mix of customer segments
-attracting the right customers
-tiering the service and delivering high levels of satisfaction
-develop close bonds with customers
-through cross-selling and bundling
-loyalty rewards (delivering special treatment benefits)
-higher level bonds (creating social benefits)
-identify and reduce factors that result in “churn”
Churn – loss of existing customer accounts and the need to replace them with new ones.
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