COLEGIO BRITANICO DE CARTAGENA
Marketing
Gabriela Stephan
Grado doce
Cartagena de Indias-Colombia
2013/2014
Here is to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs
in the square holes, the ones who see things differently-they’re not fond of rules. You
can quote them, disagree with them, glorify or vilify them, but the only thing you can’t
do is ignore them because they change things, they push the human race forward,
and while some may see them as the crazy ones, we see genius, because the ones
who are crazy enough to think that they can change the world, are the ones who do.
Think different.
Steve Jobs
Table of Content
I.
What is marketing?
a. Buyer’s and Seller’s market
II.
Marketing Conception
a. Production Concept
b. Sales Concept
c. Marketing Concept
III.
Marketing Instruments
a. Product
i. Product levels
ii. Product Classification
iii. Packaging
iv. Product Design
v. New-product development
vi. Challenges in new-product development
vii. Brand decisions
1. Brand definition
2. Level of Brand meanings
3. Brand Strategy
b. Price
i. Background
ii. Setting the price
iii. Promotional Pricing Techniques
IV.
Promotion
a. Developing effective marketing communications
b. Common Communication Platforms
Abstract
It is an old believe that marketing is just within the limited context of
advertising or selling, but this is not the whole story. Marketing is a
crucial management discipline that allows the producers of goods and
services to interpret customer wants, needs and desires in delivery to
their target consumers. Every product we buy, every store we visit, every
media message we receive, every choice we make in our consumer
society has been shaped by the forces of marketing. We are bombarded
with advertisement every minute of our lives. The advertising industry
has penetrated into every aspect our society. However, most of us do
not realize the mind games the advertisers have been playing on our
subconscious minds for the past half century.
Resumen
Es una antigua creencia que el marketing abarca solamente los ámbitos
de la publicidad o de la venta. El marketing es una disciplina
fundamental que permite a los productores de bienes y servicios
interpretar las necesidades y los deseos del cliente. Cada producto que
compramos, cada mensaje de los medios de comunicación que
recibimos, cada elección que hacemos en nuestra sociedad de
consumo ha sido moldeada por las fuerzas del marketing. Nos
bombardean con anuncios en cada minuto de nuestras vidas. La
industria de la publicidad ha penetrado en cada aspecto de nuestra
sociedad. Sin embargo, la mayoría de nosotros no se da cuenta de los
juegos psicológicos de los anunciantes que han estado manipulando
nuestra mente subconsciente durante el último medio siglo.
What is marketing?
“Branding is not just about being seen as better than the competition. It’s about being
seen as the only solution to your audience’s problem”
Advertisements bombard every minute of our lives. The advertising industry has
penetrated into every aspect our society. When we wake up in the morning, the first
thing we hear is my radio blaring out the latest ad for Sears or the Penn State
Bookstore. At night, the last thing we see is the latest peroxide innovation on the
toothpaste tube. Most of us ignore these ads as we drive by the Marlboro billboard
on the way to work or to the countryside on a lovely day. However, most of us do not
realize the mind games the advertisers has been playing on our subconscious minds
for the past half century. It's a scary thought, really, when you realize the advertisers
has gained control of our lives without us even knowing it. And here is it when
marketing comes in. But what exactly is marketing?
The heart of a business’s success lies in successful marketing and in the center of
that management are the customers. Without marketing, a business may offer the
best products or services in your industry, but none of your potential customers
would know about it. Marketing is all about getting the right product or service to the
customer at the right price, in the right place and at the right time.
It is an old believe that marketing is just within the limited context of advertising or
selling, but this is not the whole story. Marketing is a crucial management discipline
that allows the producers of goods and services to interpret customer wants, needs
and desires-and match or exceed them, in delivery to their target consumers. Every
product we buy, every store we visit, every media message we receive, every choice
we make in our consumer society has been shaped by the forces of marketing.
Today, as competitive pressures increase, marketing skills have never been more
highly valued.
However, we have to keep in mind, that the market is changing constantly and
continuing today’s strategy could be extremely risky. Therefore, tomorrow’s
successful companies will have to heed three certainties:
Global forces will continue to affect everyone’s business and personal life.
Technology will continue to advance and amaze us.
There will be a continuing push toward deregulation of the economic sector.1
We can say with some confidence that “the marketplace isn’t what it used to be.” It is
changing dramatically as a consequence of major forces such as technological
advances, globalization, and deregulation. These forces have created new behaviors
and challenges:

Business and Marketing are changing customers to expect higher quality and
service.

Customers perceive fewer real product differences and show less brand
loyalty.

They can obtain extensive product information from the Internet and other
sources, permitting them to shop more intelligently.

They are showing greater price sensitivity in their search for value.

Brand manufacturers are facing intense competition from domestic and
foreign brands, which is resulting in rising promotion costs and shrinking profit
margins.
1
http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf

Brand manufactures
are being further struck by powerful retailers who
command limited shelf space and are putting out their own store brands in
competition with national brands
Buyer’s and seller’s market
Through globalization and technological advances the world market has changed.
Many years ago there was no use of marketing, because the market was a seller’s
market. There were only a few products with a high cost and demand, and sellers
had only few or none competitors2. Nevertheless, the market changed to a buyer’s
market due to all the advances. Nowadays, there are many homogenous products
on the market, with lower prices and demand, because the competition increased.
The customers can purchase the item that benefits them most.
Marketing-Conception
A marketing conception is a management philosophy according to which a firm's
goals can be best achieved through identification and satisfaction of the customers'
stated and unstated needs and wants. Today most firms have adopted the marketing
concept, but this has not always been the case.
In 1776 in The Wealth of Nations, Adam Smith wrote that the needs of producers
should be considered only with regard to meeting the need of consumers. While this
philosophy is consistent with the marketing concept, it would not be adopted widely
until nearly 200 years later.3
To better understand the marketing concept, it is essential to review other
philosophies that once were predominant. While these alternative concepts prevailed
2
3
http://www.cbplourde.com/buyers/buyers-market-vs-sellers-market/
http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf
during different historical time frames, they are not restricted to those periods and
are still practiced by some companies today.
The Production Concept
The
production
concept
prevailed from the time of
industrial revolution until the
early 1920’s. The production
concept was the idea that a
company should focus on
those products that it could
produce most efficiently and
that the creation of a supply of low-cost products would in and of itself create the
demand for the products. The key questions that a firm would ask before producing a
product were:
 Can we produce the product?
 Can we produce enough of it?
At the time, the production concept worked fairly well because the goods that were
produced were largely those of basic necessity and there was a relatively high level
4
of unfilled demand. Virtually everything that could be produced was sold easily by a
sales team whose job it was simply to execute transactions at a price determined by
the cost of production. The production concept prevailed into the late 1920’s.
4
Image: http://courses.unt.edu/kt3650_1/images/img045.gif
The Sales Concept
By the early 1930’s however, mass production had become a commonplace,
competition had increased, and there was little unfulfilled demand. Around this time,
firms began to practice the Sales Concept, under which companies not only would
produce the products, but also try to convince customers to buy them through
advertising and personal selling. Before producing a product, the key questions
were:
 Can we sell the product?
 Can we charge enough of it?
The Sales Concept paid little attention to whether the product was actually needed;
the goal simply was to beat the competition to the sale with little regard to customer
satisfaction. Marketing was a function that was performed after the product was
developed and produced, and many people came to associate marketing with hard
selling. Even today, many people use the term “marketing” when they really mean
sales.
The Marketing Concept
After World War II, the variety of products increased and hard selling no longer could
be relied upon to generate sales. With increased income, customers could afford to
be selective and buy only those products that precisely met their changing needs,
and these needs were not immediately obvious. 5 The key questions became:
 What do customers want?
 Can we develop it while they still want it?
5
http://dl.ueb.edu.vn/bitstream/1247/2250/1/Marketing_Management_-_Millenium_Edition.pdf
 How can we keep our customers satisfied?
In response to the discerning customers, firms began to adopt the marketing
concept, which involves:
 Focusing on customer needs before developing the product
 Aligning all functions of the company to focus on those needs
 Realizing a profit by successfully satisfying customer needs over the longterm
There are five fundamental elements in the marketing conception:
Marketing Instruments:
The main function of the marketing instruments is to stimulate the customers, in
order to obtain a higher demand. 6
Stimulation
Company
There can be stimulation over the:
6
Image: http://www.viewmichiganhomes.com/Blog/Supply-and-Demand
Demand
 Product
 Price
 Advertisement
 Availability
 Packaging
 Discounts
 Special price action
 Instructions
 Shelf placement in the shop
 Press reports
 Sponsoring
Etc.
The marketing instruments are known as the 4 P’s:
Product
Price
Promotion
Place
Product
A product is anything that can be offered to a market to satisfy a want or need.
Products include physical goods, services, experiences, events, persons, places,
properties, organizations, information, and ideas. The customer will judge the
offering by three basic elements: product features and quality, services mix and
quality, and price appropriateness. As a result, marketers must carefully think
through the level at which they set each product’s features, benefits, and quality.
Product levels:
Marketers plan their market offering at five levels. Each level adds more customer
value, and together the five levels create a customer value hierarchy. The most
essential level is the core benefit: the fundamental service or benefit that the
customer is really buying. For example a hotel guest is buying “rest and sleep”.
Effective marketers therefore see themselves as providers of product benefits, not
just product features. At the second level, the marketer has to turn the core benefit
into a basic product. Thus, a hotel room includes a bed, bathroom, towels, and
closet. At the third level, the marketer prepares an expected product, a set of
attributes and conditions that buyers normally expect when they buy the product.
Hotel guests expect a clean
Core Benefit
bed, fresh towels, and so on.
7
Basic Product
Expected
Product
Augmented
Product
Potential
Product
Because most hotels can
meet
this
expectation,
normally
whichever
minimum
the
will
expensive.
settle
hotel
convenient
traveler
is
or
At
the
for
most
least
fourth
level, the marketer prepares
an augmented product that exceeds customer expectations. A hotel might include a
remote-control television set, fresh flowers, and express check-in and checkout.
Today’s competition essentially takes place at the product-augmentation level. (In
less developed countries, competition takes place mostly at the expected product
7
https://.unigoettingen.de%2Fde%2Fdocument%2Fdownload%2Fa5c008dbbcfe2ee463e221fae72b5b64.pdf%
2FLehrbuch%2520Marketing%252020.%2520Januar.pdf&ei
level.) However, augmented benefits soon become, expected benefits, which means
that competitors have to search for still other features and benefits. And as
companies raise the price of their augmented product, some competitors can offer a
“stripped-down” version of the product at a much lower price. At the fifth level stands
the potential product, which includes all of the possible augmentations and
transformations the product might go through in the future. Here, a company
searches for entirely new ways to satisfy its customers and distinguish its offer.
Product Classification:
In addition to understanding a product’s position in the hierarchy, the marketer also
must understand how to classify the product on the basis of three characteristics:
durability, tangibility, and consumer or industrial use. Each product classification is
associated with a different marketing-mix strategy.8
 Durability and tangibility. Nondurable goods are tangible goods that are
normally consumed in one or a few uses (such as beer and soap). Because
these goods are consumed quickly and purchased frequently, the appropriate
strategy is to make them available in many locations, charge only a small
markup, and advertise heavily to induce trial and build preference. Durable
goods are tangible goods that normally survive many uses (such as
refrigerators). These products normally require more personal selling and
service, command a higher margin, and require more seller guarantees.
Services are intangible, inseparable, variable, and perishable products (such
8
https://unigoettingen.de%2Fde%2Fdocument%2Fdownload%2Fa5c008dbbcfe2ee463e221fae72b5b64.pdf%2
FLehrbuch%2520Marketing%252020.%2520Januar.pdf&ei=m4NsUornJdG0kQejyoFw&usg=AFQjCNFIKZWdfknZ
PmHZU5i37zCtWS8ubQ
as haircuts or cell phone service), so they normally require more quality
control, supplier credibility, and adaptability.
 Consumer-goods classification. Classified according to consumer shopping
habits, these products include: convenience goods that are usually purchased
frequently, immediately, and with a minimum of effort, such as newspapers;
shopping goods that the customer, in the process of selection and purchase,
characteristically compares on the basis of suitability, quality, price, and style,
such as furniture and specialty goods with unique characteristics or brand
identification, such as cars, for which a sufficient number of buyers are willing
to make a special purchasing effort.9
 Industrial-goods classification. Materials and parts are goods that enter the
manufacturer’s product completely. Raw materials can be either farm
products (e.g., wheat) or natural products (e.g., lumber). Farm products are
sold through intermediaries and natural products are generally sold through
long-term supply contracts, for which price and delivery reliability are key
purchase factors.10
9
http://www.socialenterprisesolutions.co.uk/wp-content/uploads/2011/03/82_marketing_promotion.pdf
http://online-marketing.eco.de/files/2011/10/Richtlinie-OM_2011.pdf
10
Packaging
Packaging includes the activities of designing and producing the container for a
product. The container is called the package, and it 11
might include up to three levels of material. Old Spice
aftershave lotion is in a bottle (primary package) that is in
a cardboard box (secondary package) that is in a
corrugated box (shipping package) containing six dozen
boxes of Old Spice. The following factors have contributed
to packaging’s growing use as a potent marketing tool:12
 Self-service: The typical supermarket shopper
passes by some 300 items per minute.13 Given that
53 percent of all purchases are made on impulse, an effective package
attracts attention, describes features, creates confidence, and makes a
favorable impression.
 Consumer affluence: Rising consumer affluence means consumers are willing
to pay a little more for the convenience, appearance, dependability, and
prestige of better packages.
 Company and brand image: Packages contribute to instant recognition of the
company or brand. Campbell Soup estimates that the average shopper sees
its red and white can 76 times a year, the equivalent of $26 million worth of
advertising.
 Innovation opportunity: Innovative packaging can bring benefits to consumers
and profits to producers. Toothpaste pump dispensers, for example, have
11
Image: http://www.atmydoorsteps.com/store/media/catalog/product/cache/1/image/147fbf
Image: http://www.corrugated.co.in/Product_image/corrugated-boxes.jpg
13
http://faculty.mu.edu.sa/public/uploads/1361465754.8876marketing%20mix30.pdf
12
captured 12 percent of the toothpaste market because they are more
convenient and less messy.
Developing an effective package for a new product requires several decisions. The
first task is to establish the packaging concept, defining what the package should
basically be or do for the particular product. Then decisions must be made on
additional elements—size, shape, materials, color, text, and brand mark, plus the
use of any “tamperproof” devices. All packaging elements must be in harmony and,
in turn, must harmonize with the product’s pricing, advertising, and other marketing
elements. Next come the engineering tests to ensure that the package stands up
under normal conditions; visual tests, to ensure that the script is legible and the
colors harmonious; dealer tests, to ensure that dealers find the packages attractive
and easy to handle; and, finally, consumer tests, to ensure favorable response.
Here are some examples of packaging which function is to attract:
14
14
Images: http://www.time4kids.ch/uploads/pics/elmex-Junior-Zahnpasta-RGB.jpg
http://www.sparfreunde.com/sites/default/files/dealpics/Lindt_Goldhase_enl.jpg
https://www.worldshop.eu/medias/sys_master/genmedia_PIC1740014_RL_01.jpg
Examples of packaging which have a functional use:
15
Product Design
“Product design is the translation of intellectual wisdom, requirements of the
entrepreneurs, or needs of the consumers, etc. into a specific product."16
Meaning of Product Design
15
Images: http://www.scjohnson.de/media//corporate/de/WC_Ente_AktivGel.jpg
http://us.123rf.com/400wm/-flaschendeckel--isoliert-mit-beschneidungspfad.jpg
http://src.discounto.de/pics/product/26384/4321black-star-Eau-de-Parfum-26384_xxl.jpeg
16
http://kalyan-city.blogspot.com/2012/02/what-is-product-design-definition.html
1. Form design means the shape and appearance of the product.
2. Functional design means the working of the product. That is, how the
product works. It is very important because the product will sell only if it works
as expected.
3. Product development involves the modification of an existing product or the
formulation of an entirely new product.
4. Product research is defined as marketing research that yields information
about desired characteristics of the product or service.
17
The iPhones for example are known for their thin,
simple and elegant design.
But who should ultimately design the product?
The customer, of course.
Every company must develop new products, due to the fact that new-product
development shapes the company’s future and replacement products must be
created to maintain or build sales. Customers desire new products, and competitors
will do their best to supply them. Each year over 16,000 new are introduced into
groceries and drugstores. A company can add new products through acquisition or
development. The acquisition route can take three forms: The company can buy
17
Image: http://niklausgerber.com/blog/designing-for-iphone4/
other companies, it can acquire patents from other companies, or it can buy a
license or franchise from another company.
And the development route can take two forms: The Company can develop new
products in its own laboratories or it can contract with independent researchers or
new-product-development firms to develop specific new products.
There are six categories to identify new products:
1. New-to-the-world products: New products that create an entirely new market.
2. New product lines: New products that allow a company to enter an established
market for the first time.
3. Additions to existing product lines: New products that supplement a company’s
established product lines (package sizes, flavors, and so on).
4. Improvements and revisions of existing products: New products that provide
improved performance or greater perceived value and replace existing products.
5. Repositioning’s: Existing products that are targeted to new markets or market
segments.
6. Cost reductions: New products that provide similar performance at lower cost.
Less than 10 percent of all new products are truly innovative and new to the world.
These products involve the greatest cost and risk because they are new to both the
company and the marketplace. Most new-product activity is devoted to improving
existing products. At Sony, over 80 percent of new-product activity is undertaken to
modify and improve existing Sony products.18
18
http://www.sony.com/
Challenges in new-product development
Companies that are not developing new products are putting themselves at great
risk. Their existing products are vulnerable to changing customer needs and tastes,
new technologies, shortened product life cycles, and increased domestic and foreign
competition. At the same time, new-product development is risky. For example
Texas Instruments lost $660 million before withdrawing from the home computer
business and Ford lost $250 million on its Edsel.19 To get a feel for how much money
can be thrown at a product that is destined to fail, consider the fate of the smokeless
cigarette.
By the late 1980s, R. J. Reynolds Tobacco Company (RJR) had already spent more
than $300 million on the reduced-smoke Premier cigarette. Five months after its
introduction in 1988, Premier disappeared from the test markets because smokers
didn’t like the taste and it was also difficult to light. However RJR went on to spend
an additional $125 million on another attempt. In 1997 RJR tested its smokeless
Eclipse cigarette in Chattanooga, Tennessee. But
smokers say they’re not switching. Eclipse seemed like
a good alternative; the cigarette heats the tobacco
instead of burning it, resulting in only 10 percent of the
20
smoke of conventional cigarettes. Only problem is
smokers like smoke. So far, nonsmokers are the only ones who like Eclipse.
New products continue to fail at a disturbing rate. When you consider that it costs
$20 million to $50 million to launch a new product, you wonder why people continue
to innovate at all. Yet product failures can serve one useful purpose: Inventors,
19
20
http://content.time.com/time/specials/2007/article/0,28804,1658545_1657867_1657781,00.html
Image: http://www.pbs.org/wgbh/nova/body/safer-cigarettes-history.html
entrepreneurs, and new-product team leaders can learn valuable lessons about what
not to do.
Why do new products fail?
 A high-level executive pushes a favorite idea through in spite of negative
market research findings.
 The idea is good, but the market size is overestimated.
 The product is not well designed.
 The product is incorrectly positioned in the market, not advertised effectively
overpriced.
 Development costs are higher than expected.
 Competitors fight back harder than expected.
Several other factors hinder new-product development:
 Shortage of important ideas in certain areas: There may be few ways left to
improve some basic products (such as steel, detergents).
 Fragmented markets: Keen competition is leading to market fragmentation.
Companies have to aim their new products at smaller market segments, and
this can mean lower sales and profits for each product.
 Social and governmental constraints: New products have to satisfy consumer
safety and environmental concerns. Government requirements slow down
innovation in drugs, toys, and some other industries.
 Costliness of the development process: A company typically has to generate
many ideas to find just one worthy of development. Furthermore, the company
often faces high manufacturing, and marketing costs.
 Capital shortages: Some companies with good ideas cannot raise the funds
needed to research and launch them. 21
Given these challenges, what can a company do to develop successful new
products? The number-one success factor is a unique, superior product. Products
with a high product advantage succeed 98 % of the time, compared to products with
a moderate advantage (58 % success) or minimal advantage (18 %success).
Another key success factor is a well-defined product concept prior to development.
The company carefully defines and assesses the target market, product
requirements, and benefits before proceeding. Other success factors are
technological and marketing synergy, quality of execution in all stages, and market
attractiveness.
New-product success is greater the deeper the company’s understanding of
customer needs, the higher the performance-to-cost ratio, the earlier the product is
introduced ahead of competition, the greater the expected contribution margin, the
more spent on announcing and launching the product, the greater the top
management support, and the greater the cross-functional teamwork.
New-product development is most effective when there is teamwork among
engineering, manufacturing, purchasing, marketing, and finance. The product idea
must be researched from a marketing point of view, and a specific cross-functional
team must guide the project throughout its development.
21
http://smallbusiness.chron.com/four-reasons-new-product-fails-18004.html
Brand Decisions
Branding is a major issue in product strategy. On the one hand, developing a
branded product requires a huge long-term investment, especially for advertising,
promotion, and packaging. On the side, manufacturers eventually learn that market
power comes from building their own brands. The Japanese firms Sony and Toyota,
for example, have spent liberally to build their brand names globally. 22 Even when
companies can no longer afford to manufacture their products in their homelands,
strong brand names continue to command customer loyalty.
Top five world brands (2013 Rank)
23
What is behind these succesful brands? In order to answer this question we have to
clearify some concepts.
What is a Brand?
Perhaps the most distinctive skill of professional marketers is their ability to create,
maintain, protect, and enhance brands. The American Marketing Association defines
a brand as a name, term, sign, symbol, or design, or a combination of these,
intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors.
24
Whether it is a name, trademark,
logo, or another symbol, a brand is essentially a seller’s promise to deliver a specific
set of features, benefits, and services consistently to the buyers. The best brands
22
http://www.interbrand.com/es/best-global-brands/2013/top-100-list-view.aspx
Images: http://www.brands.com/es/top-brands/2013/top-100-list-view.aspx
24
http://www.marketingpower.com/_layouts/dictionary.aspx?dLetter=B
23
convey a warranty of quality. But a brand is an even more complex symbol. It can
convey up to six levels of meaning. The branding challenge is to develop a deep set
of positive associations for the brand. Marketers must decide at which level(s) to
anchor the brand’s identity. One mistake would be to promote only attributes. First,
buyers are not as interested in attributes as they are in benefits. Second, competitors
can easily copy attributes. Third, today’s attributes may become less desirable
tomorrow. Ultimately, a brand’s most enduring meanings are its values, culture, and
personality, which define the brand’s essence. Smart firms therefore craft strategies
that do not dilute the brand values and personality built up over the years.25
Levels of Brand Meaning
Meaning
Description
Example
Attributes
A brand brings to mind certain
attributes.
Benefits
Attributes must be translated into
functional and emotional benefits.
Values
The brand says something about
the producer’s values.
Culture
The brand may represent a certain
culture.
Personality
The brand can project a certain
personality.
User
The brand suggests the kind of
costumer who buys or uses the
product.
Mercedes suggests expensive,
well-built, durable, high-prestige
vehicles.
The attribute “durable” could
translate into the functional
benefit “I won’t have to buy
another car for several years.”
Mercedes stands for high
performance, safety and
prestige.
Mercedes represents German
culture: organized, efficient,
high quality.
Mercedes may suggest a nonnonsense boss (person) or a
reigning lion (animal).
Mercedes vehicles are more
likely to be bought by 55 yearold top managers than by 20
year old store clerks.
25
http://www.tronviggroup.com/the-difference-between-marketing-and-branding/
Brand Strategy Decision
A company has five choices when it comes to brand strategy. The company can
introduce line extensions, brand extensions, multibrands, new brands and co-brands.
Line Extensions:
Line extensions introduce additional items in the same product category under the
same brand name, such as new flavors, forms, colors, added ingredients, and
package sizes. The vast majority of new products are actually line extensions. Line
extension involves risks and has provoked heated debate among marketing
professionals. On the downside, extensions may lead to the brand name losing its
specific meaning.” A consumer asking for a Coke in the past would receive a 6.5ounce bottle. Today the seller will have to ask: New, Classic, or Cherry Coke?
Regular or diet? With or without caffeine? Bottle or can?
However, the success of a new line extension sometimes hurts other items in the
line. A line extension works best when it takes sales away from rivals, not when it
deflates or cannibalizes the company’s other items.
Brand Extensions:
A company may use its existing brand name to launch new
products in other categories. Brand-extension strategy offers many
of the same advantages as line extensions—but it also involves
risks. One risk is that the new product might disappoint buyers and
damage their respect for the26 company’s other products. Another
is that the brand name may be inappropriate to the new product—
consider Bic perfume, a classic failure because buyers did not associate the Bic
26
Image: http://fimgs.net/images/perfume/nd.12390.jpg
brand with fragrance products. A third risk is brand dilution, which occurs when
consumers no longer associate a brand with a specific product or highly similar
products.
Multibrands:
A company will often introduce additional brands in the same product category.
Sometimes the firm is trying to establish different features or appeal to different
buying motives. Multibranding also enables the company to lock up more distributor
shelf space and to protect its major brand by setting up flanker brands.
New Brands:
When a company launches products in a new category, it may find that none of its
current brand names are appropriate.
Co-brands:
A rising phenomenon is the emergence of co-branding, in which two or more wellknown brands are combined in an offer. Each brand sponsor expects that the other
brand name will strengthen preference or purchase intention. In the case of copackaged products, each brand hopes it might be reaching a new audience by
associating with the other brand. 27
27
http://www.brandchannel.com/images/papers/what_is_a_brand.pdf
Examples of Brand Strategies
Line extensions
Brand extensions
Multibrands
Co-brands
28
28
Images: http://www.esquire.com/cm/esquire/images/00/esq-snickers-021612-xlg.jpg
http://redgalah.com.au/WP2/wp-content/uploads/2013/03/fanta.png
http://www.globalvillagedirectory.info/Uploads/Images/-1_Multibrands-PP.jpg
http://forum.belmont.edu/business/archives/Cinnabon%20Carvel%20Co-Brand.jpg
http://www.dionlabel.com/tl_files/dion/images/Summer%202009%20Blog/CocaCola%20Winter%20Olympics%20Cans.jpg
Price
All organizations set prices on their goods or services. Whether the price is called
rent (for an apartment), tuition (for education), fare (for travel), or interest (for
borrowed money), the concept is the same. Throughout most of history, prices were
set by negotiation between buyers and sellers. Then, the “one-price policy”29 was
developed, due to the fact that organizations had so many items and employees. In
a “one-price policy” the same price is offered to every customer who purchases the
product under the same conditions. It also means that prices are set and cannot be
negotiated by customers.
Now, 100 years later, technology is taking us back to an era of negotiated pricing.
The Internet, corporate networks, and wireless setups are linking people, machines,
and companies around the globe, connecting sellers and buyers as never before.
On-line auction sites like eBay.com and Onsale.com make it easy for buyers and
sellers to negotiate prices on thousands of items. At the same time, new
technologies are allowing sellers to collect detailed data about customers’ buying
habits, preferences, even spending limits, so they can modify their products and
prices. In the entire marketing mix, price is the one element that produces revenue;
the others produce costs. Price is also one of the most flexible elements; it can be
changed quickly, unlike product features.
29
http://www.businessdictionary.com/definition/one-price-policy.html
Setting the Price
A firm must set a price for the first time when it develops a new product and the price
is also the key element used to support a product’s quality positioning.
Because an organization, in developing its strategy, must decide where to position
its product on price and quality, there can be competition between price-quality
segments.30
In setting a product’s price, marketers follow a six-step procedure:
1. selecting
2.
the pricing
objective
determining
demand
4. analyzing
5. selecting a
competitors’
costs, prices,
and offers
pricing
method
3.estimating
costs
6. selecting
the final price
Step 1: Selecting the Pricing Objective
A company can pursue any of five major objectives through pricing:
Survival: This is a short-term objective that is appropriate only for companies
that are plagued with overcapacity, intense competition, or changing
consumer wants. As long as prices cover variable costs and some fixed costs,
the company will be able to remain in business.
30
http://www.businessdictionary.com/definition/one-price-policy.html
Maximum current profit: To maximize current profits, companies estimate the
demand and costs associated with alternative prices and then choose the
price that produces maximum current profit, cash flow, or return on
investment. However, by emphasizing current profits, the company may
sacrifice long-run performance by ignoring the effects of other marketing-mix
variables, competitors’ reactions, and legal restraints on price.
Maximum market share: Firms choose this objective because they believe
that higher sales volume will lead to lower unit costs and higher long-run
profit. With this market-penetration pricing, the firms set the lowest price,
assuming the market is price sensitive. This is appropriate when (1) the
market is highly price sensitive, so a low price stimulates market growth; (2)
production and distribution costs fall with accumulated production experience;
and (3) a low price discourages competition.
Maximum market skimming: Many companies favor setting high prices to
“skim” the market. This objective makes sense under the following conditions:
(1) A sufficient number of buyers have a high current demand; (2) the unit
costs of producing a small volume are not so high that they cancel the
advantage of charging what the traffic will bear; (3) the high initial price does
not attract more competitors to the market; and (4) the high price
communicates the image of a superior product.
Product-quality leadership: Companies that aim to be product-quality leaders
will offer premium products at premium prices. Because they offer top quality
plus innovative features that deliver wanted benefits, these firms can charge
more.31
Step 2: Determining Demand
Each price will lead to a different level of demand and, therefore, will have a different
impact on a company’s marketing objectives. Normally, demand and price are
inversely related: The higher the price, the lower the demand. In the case of prestige
goods, nevertheless, the demand curve sometimes slopes upward because some
consumers take the higher price to signify a better product. Still, if the price is too
high, the level of demand may fall.
Demand Curve
A demand curve is a graphic representation of the
relationship between product, price and the quantity
of the product demanded. It is drawn with price on
the vertical axis of the graph and quantity
demanded on the horizontal axis.
Price Sensitivity
The demand curve shows the market’s probable purchase quantity at alternative
prices, summing the reactions of many individuals who have different price
sensitivities. The price sensitivity is less when:
 The product is more distinctive
31
http://strategies-to-grow-business.blogspot.com/2011/03/6-steps-to-setting-price-strategy-for.html
 Buyers are less aware of substitutes
 Buyers cannot easily compare the quality of substitutes
 The expenditure is a lower part of buyer’s total income
 The expenditure is small compared to the total cost of the end product
 Part of the cost is borne by another party
 The product is used in conjunction with assets previously bought
 The product is assumed to have more quality, prestige, or exclusiveness, and
 Buyers cannot store the product.
A number of forces, such as instant price comparisons that are available over the
Internet, have turned products into commodities in the eyes of consumers and
increased their price sensitivity. More than ever, companies need to understand the
price sensitivity of their target market.
Step 3: Estimating Costs
While demand sets a ceiling on the price the company can charge for its product,
costs set the floor. Every company should charge a price that covers its cost of
producing, distributing, and selling the product and provides a fair return for its effort
and risk.
A company’s costs take two forms: fixed and variable. Fixed costs (also known as
overhead) are costs that do not vary with production or sales revenue, such as
payments for rent, heat, interest, salaries, and other bills that must be paid
regardless of output. In contrast, variable costs vary directly with the level of
production. To price intelligently, management needs to know how its costs vary with
different levels of production. A firm’s cost per unit is high if only a few units are
produced every day, but as production increases, fixed costs are spread over a
higher level of production results in each unit, bringing the average cost down. At
some point, however, higher production will lead to higher average cost because the
plant becomes inefficient (due to problems such as machines breaking down more
often). By calculating costs for different-sized plants, a company can identify the
optimal plant size and production level to achieve economies of scale and bring
down the average cost.
Step 4: Analyzing Competitors’ Costs, Prices, and Offers
Within the range of possible prices determined by market demand and company
costs, the firm must take into account its competitors’ costs, prices, and possible
price reactions. If the firm’s offer is similar to a major competitor’s offer, then the firm
will have to price close to the competitor or lose sales. If the firm’s offer is inferior, it
will not be able to charge more than the competitor charges. If the firm’s offer is
superior, it can charge more than does the competitor—remembering, however, that
competitors might change their prices in response at any time. 32
Step 5: Selecting a Pricing Method
The three Cs: the customers’ demand schedule, the cost function, and competitors’
prices, are major considerations in setting price First, costs set a floor to the price.
Second, competitors’ prices and the price of substitutes provide an orienting point.
Third, customers’ assessment of unique product features establishes the ceiling
price. Companies must therefore select a pricing method that includes one or more
of these considerations.
32
http://telecomespana.files.wordpress.com/2013/04/larevolucic3b3nllamadafaxmail.jpg
Step 6: Selecting the Final Price
The previous pricing methods narrow the range from which the company selects its
final price. In selecting that price, the company must consider additional factors such
as psychological pricing.
Psychological Pricing
Many consumers use price as an indicator of quality. Image pricing is especially
effective with ego-sensitive products such as perfumes and expensive cars. A $100
bottle of perfume might contain $10 worth of scent, but gift givers pay $100 to
communicate their high regard for the receiver. Similarly, price and quality
perceptions of cars interact:
Higher-priced cars are perceived to possess
high quality; higher-quality cars are likewise
perceived to be higher priced than they
actually are. In general, when information
about true quality is unavailable, price acts as
a signal of quality. 33
Sellers often manipulate these reference prices. For example, a seller can situate its
product among expensive products to imply that it belongs in the same class.
Reference-price thinking is also created by stating a high manufacturer’s suggested
price, by indicating that the product was priced much higher originally, or by pointing
to a rival’s high price. Often sellers set prices that end in an odd number, believing
that customers who see a television priced at $299 instead of $300 will perceive the
33
Imagen: http://thumbs.dreamstime.com/z/psychological-price-pricing-21693187.jpg
price as being in the $200 range rather than the $300 range. Another explanation is
that odd endings convey the notion of a discount or bargain, which is why both
toysrus.com and etoys.com set prices ending in 99. But if a company wants a highprice image instead of a low price image, it should avoid the odd-ending tactic.34
Promotional Pricing Techniques
Technique
Description
Loss-leader pricing
Stores drop the price on
well-known brands to
stimulate additional store
traffic.
Sellers establish special
prices in certain seasons
to draw in more customers
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service
contracts
Psychological
discounting
34
Example
Kmart cuts the price of
selected toys to attract
shoppers before
Christmas.
Panamericana offers
special prices on
stationary items during a
back-to-school sale.
Manufacturers offer cash
Mazda advertises cash
rebates to encourage
rebates on the purchase
purchase of their products of selected previous-year
within a specified period;
models to clear these
this helps clear inventories vehicles out of dealer
without cutting the stated
inventory.
price.
Instead of cutting its price, Ford offers low-or nothe company can offer
interest financing to
customers low-interest
encourage the purchase
financing.
of selected vehicles.
Sellers stretch loans over
Auto companies and
longer periods and thus
montage banks use this
lower the monthly
approach because
payments that customer
consumers are more
pay.
concerned with affordable
payments than with the
interest rate.
Companies can promote
Real estate brokers offer
sales by adding a free or
special warranties on
low cost warranty or
selected homes to
service contract.
expedite sales.
Used legitimately, this
A jewelry store lowers the
involves offering the item
price of a diamond ring
at substantial savings
and advertises “Was
from the normal price.
$359, now $299.”
http://www.development.tas.gov.au/__data/assets/pdf_file/0014/39200/Marketing_and_Promotion.pdf
Promotion
Promotion is the method a business uses to spread the word about its product or
service to customers, stakeholders and the broader public.
Once you’ve identified your target market, you’ll have a good idea of the best way to
reach them, but most businesses use a mix of advertising, personal selling, referrals,
sales promotion and public relations to promote their products or services.
Developing effective marketing communications
Today there is a new view of communications as an interactive dialogue between the
company and its customers that takes place during the preselling, selling,
consuming, and post consuming stages. Successful companies are asking not only
“How can we reach our customers?” but, in a break from the past, are also asking
“How can our customers reach us?” Now sellers use a variety of communication
platforms to stay in touch with customers.35
Increasingly, it is the newer technologies, such as the Internet, that have encouraged
more firms to move from mass communication to more targeted communication and
one-to-one dialogue with customers and other stakeholders. There are eight steps to
follow in developing an effective marketing communications:
35
http://www.development.tas.gov.au/__data/assets/pdf_file/0014/39200/Marketing_and_Promotion.pdf
1
• Identify the target audience
2
• Determine the communication objectives
3
• Design the message
4
• Select the communication channels
5
• Establish the total communication budget
6
• Decide on the communication mix
7
• measure the communications’ results
8
• manage the integraded marketing communication process
Common Communication Platforms
Advertising
Sales
Promotion
Contests,
games
Public
Relations
Press kits
Personal
Selling
Sales
presentations
Direct
Marketing
Catalog
Packaging
Premium, gifts
Speeches
Sales
meeting
Mailings
Brochures
Fairs, trade
shows
Seminars
Incentive
programs
Telemarketing
Print,
broadcast,
online ads
Billboards
Coupons
Sponsorship
Fairs and
trade shows
Electronic
shopping
Display signs
Rebates
Charitable
donations
E-mail
Logos and
Symbols
Sampling
Lobbying
TV shopping
Web sites
Tie-ins
Special events
Fax mail
In essence, marketing has a quintessential function in our society, due to the fact
that it brings new variety of useful and quality goods to consumers. This raises the
standard of living. Better marketing gives room for mass production. Under mass
production, cost of production will be low and hence price of the article will be low,
since price is low people can buy more goods for their money. This will result in a
higher standard of living.
Marketing also increases employment opportunities. Just as every industry provides
employment opportunities to thousands of skilled and unskilled labor in various,
marketing also provides employment to millions of people. Marketing is a complex
mechanism involving number of functions and sub-functions which call for different
specialized persons for employment. The major marketing functions are buying and
selling, transport, warehousing, financing, risk bearing, market information and
standardization. In each such function, different activities are to be performed by a
large number of individuals or institutions. It is said that roughly 30 to 40% of the
population depend directly or indirectly on marketing.
Another aspect is that marketing increase national income. The nation’s income is
composed of goods and services which money can buy. Efficient system of
marketing reduces the cost to the minimum. This in turn lowers the prices and the
consumer’s purchasing power increases. This will increase the national income.
It also helps to maintain economic stability and development. Economic stability is
the sign of any efficient and dynamic economy. Economic stability is maintained only
when there is a balance of supply and demand. If production is more than demand,
the excess goods cannot be sold at acceptable prices. Then the stocks of goods
would be piled up and there would be glut in the market, resulting in fall in price.
Similarly, if production is less then demand, prices shoot up resulting in inflation. In
such a situation, marketing maintains the economic stability by balance production
and consumption.
However, marketing often modifies the world of consumption by creating an artificial
need in the mind of the consumer. This sells the product, and this is the ultimate
goal of the business. The advertising industry, a prominent and powerful industry,
engages in deceptive subliminal advertising which most us are unaware of. By
bypassing our unconscious mind using subliminal techniques, advertisers tap into
the vulnerabilities surrounding our unconscious mind, manipulating and controlling
us in many ways. For instance, you can find subliminals in every major
advertisement and magazine cover. Legislation against the advertisers has had no
effect in curbing the use of subliminals. In this Information Age, it seems people are
no longer in control of the people. The ones in control are the ones with knowledge
(as usual). In this case, the advertisers have it; you don't. Until now.
Bibliography
Books:
 “The principles of Marketing” by Philipp Kotler (second edition)
 “Marketing 2.0” by Ardath Albee” (sixth edition)
Internet sources:
 http://www.marketingmagazine.co.uk/knowledge (20.10.13)
 http://www.cim.co.uk/files/7ps.pdf (22.10.13)
 http://www.marketingweek.co.uk/opinion/designing-a-consumer-product-fivethings-to-think-about/4003981.article (25.10.13)
 http://www.zukunftsinstitut.de/verlag/studie.pdf (25.10.13)
 http://www.absolit.de/PDF/Praxistipps-Internet-Marketing.pdf (25.10.13)
 http://www.brandchannel.com/images/papers/what_is_a_brand.pdf (01.12.13)
 http://www.promotionalmarket.com/ (15.02.14)
 http://www.development.tas.gov.au/__data/assets/pdf_file/0014/39200/Market
ing_and_Promotion.pdf (19.02.14)
 http://www.redicecreations.com/specialreports/brainwash.html (19.02.14)
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