CHAPTER ONE
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Introductory Marketing Concepts
What is marketing?
What conditions must exist for an exchange to occur?
Voluntary participation by all parties
Two or more parties involved
Each party must have something of value to exchange
Parties must communicate with each other
Who is the customer?
User
Decider
Buyer
Influencer
Where can marketing be applied?
All exchange situations - private, public, business-to-business
Evolution of marketing
Production-orientation
Sales-orientation
Marketing-orientation
What is the marketing concept?
Coordinated customer-orientation to achieve organizational performance objectives.
What are organizational performance objectives?
What is relationship marketing?
Personal, long-term bonds with customers more like a partner than a participant in an exchange.
What is the societal marketing concept?
Social responsibility
Recycling
Sustainability
What is ethical behavior?
Golden rule
Kant - greatest good for the greatest number of people
Relativism
Banner Headline
What is quality?
Dimensions -- Performance
Time saving
Perceived quality
Durability
What is value?
What is utility?
The something in the product that satisfies needs is utility. Marketing helps create utility.
Time utility
Place utility
Possession utility
What is positioning?
Product's image in relationship to direct competitors
What is a differential advantage?
Feature of the organization or brand perceived by customers to be desirable and different from those of the competition.
What is a target market?
Group of people or organizations at which a firm directs a marketing program
What is the marketing mix?
Product
Place
Price
Promotion
What is a SBU?
Major market or product
What is the BCG matrix?
Industry Stars Question
Growth Marks
Rate
Cash Dogs
Cows
Market share
What is the product/market growth matrix?
Present Market Product
Markets Penetration Development
New Market Diversification
Development
Present New
Products
What is planning?
What is strategic planning?
Managers match an organization's resources with its market opportunities over the long-run
What is a strategic window?
Limited amount of time that a firm's resources coincide with a particular market opportunity.
What are key planning concepts/operations?
Where are we? Situation analysis
Where do we want to go? Mission/objectives
How doe we get there? Strategies/tactics
How do we know whether we got to where we want to go? Assessment or evaluation
KISS - keep it simple stupid
What is the difference between a strategy and a tactic?
Strategy is a broad plan of action
Tactics - the way a strategy is implemented
What is the process of strategic marketing planning?
Situation analysis
Set marketing objectives
Determine position & differential advantage
Select target markets & measure market demand
Design a marketing mix
Marketing Opportunity Analysis
1. Benchmark performance standards to assess effectiveness of marketing plans
2. Customer satisfaction research
3. Marketing Cost Analysis – cost efficiency of the marketing plan (accounting traces results of account/market costs and MIS generages usable information for marketing decision-makers)
4. Sales Analysis
5. Marketing Audit – systematic, critical and impartial review of the marketing effort
a. Horizontal – marketing mix
b. Vertical – functional audit
What is an Integrated Marketing Plan?
1. Clear statement of organizational mission – organization’s commitment to a type of business and place in the market
2. Long-term competitive advantages – Can be at the company, product or marketing level but must be defendable over time
3. Defined target markets
4. Compatible long-, moderate-, and short-term subplans
5. Coordination among SBUs
6. Coordination of the marketing mix
7. Stability over time
Organizing the Marketing Effort
Functional
Geographic
Product
Product/Market matrix
Criticisms of Marketing
Exploitation
Inefficiency
Stimulating unwholesome demand
Planned obsolesce
Consumerism
New calls for consumer protection in the U.S. Recent examples include lead paint used on toys imported from China, beef recall, subprime mortgage lending
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The Marketing Environment
Environmental Scanning
Gather information on external environment
Analyze the external environment
Forecast impact on whatever trends exist
External Environment
Demographics - Baby Boomers (One turns 50 every 7 seconds), Generation X, Echo Boomers
Economic conditions - interest rates, inflation
Social & Cultural forces - green marketing, gender roles, Health and fitness, Investment clubs for women.
Political Legal forces - Antitrust, Product Liability, Trademarks, Patents, Contracts
Technology - Chrysler plastic car, Blue ray versus HD players
Market - needs to be satisfied, money to spend willingness to spend
Suppliers
Intermediaries
Internal Environment
Marketing
Finance
Human Resources
Information Technology
Accounting
Operations
Global Marketing
Organization of global marketing effort
Exporting
Contract manufacturing
Licensing
Direct investment - joint venture
Social and cultural forces
Social customs
Education - literacy rate
Language differences
Economies
Market driven versus command economy
Level of economic development
Infrastructure
Political
Trade barriers - tariffs, import quota, local content law
Trade agreements - GATT 120 countries 40% decrease in tariffs
NAFTA
European Union
WTO
Understanding Consumer Market Behavior
What are the different markets?
Consumer market
Government market
Business-to-business market
What is the buying process?
Need recognition
Identification of alternatives
Evaluation of alternatives
Decision
Postpurchase behavior - cognitive dissonance
Involvement
Level of involvement affects consumer decision-making. The more the consumer is involved in the process, the longer the purchase process. Involvement is the amount of time and effort the consumer puts into the purchase process. Factors that influence the amount of involvement include experience, interest, perceived risk, social visibility, situation.
Low involvement is a characteristic of impulse buying
High involvement is a characteristic of a shopping or specialty purchase.
Influences of buying behavior
Social Influences
Culture - set of symbols and artifacts created by society and handed down from generation to generation as determinants of behavior. Baseball hats
Subculture - Hispanic market
Social class - consumers belong or aspire to belong to.
Upper class 2% - executives, Fortune 400
Upper middle class 12% - professional
Lower middle class 32% - small business owners, teachers
Upper lower class 38% - blue collar
Lower lower class 16% - unskilled
Reference Groups - group that develops its own standards of behavior (clothes, shampoo). Aspiration reference group are influenced by opinion leaders.
Families and households - structure determines marketing strategy
Initiator, influencer, decider, user, buyer (Buying roles)
Family Life Cycle
Bachelor (male or female)
Newly married
Full nest I (children < 10)
Full nest II (children 10-13)
Full nest III (children 14-22)
Empty nest
Sole Survivor I (remaining spouse is active)
Sole Survivor II (remaining spouse is inactive)
Psychological models
Motivation - motive is a need sufficiently stimulated to move to action (satisfaction)
Maslow's hierarchy of needs
Self actualization – self fulfillment
Esteem
Belonging and love - social
Safety
Physiological
Perception - receiving, organizing and assigning meaning to information gathered by the five senses.
Selective attention - selective distortion - selective retention
Learning
Stimulus - response model
Airline power off at airport yet people were queued up
Personality - confidence, dominance, friendliness
Psychoanalytic model – id (basic desires), ego (rationality), superego (moral standards)
Perceived risk – decision-making is a function of a perception of the amount and type of risk that is associated with a purchase
Types of risk: financial, social, physical, performance, time
Self concept - Self image (see yourself)
Ideal self concept (way you would like to be seen)
Social self concept (way you are viewed by others)
Attitudes -predisposition to respond to an object in the same way.
Beliefs (evaluation of beliefs) = attitudes
Aact = ∑ bi ei
Attitudes are learned
Attitudes have an object
Attitudes have direction and intensity
Situational influences that influence purchase behavior
Time - when
Physical and social surroundings - where
Terms of purchase - How
Temporary state - moods
Buying motives for purchasing
|Rational |Emotional |
|Economy of purchase |Pride of appearance |
|Durability |Fear |
|Ease of Repair |Safety |
|Availability |Desire to create |
|Economy of use |Desire for security |
Analyzing purchase behavior
6 Os of consumer buying behavior
Origins of purchase Who buys?
Objectives of purchase Why do they buy?
Occasions of purchase When do they buy?
Outlets of purchase Where do they buy?
Operations of purchase How do they buy? (What is the process used
to make a purchase)
Objects of purchase What do they buy?
Do consumers buy features or benefits?
|Features |Benefits |
|Performance |Time saved |
|Reputation |Prestige |
|Colors |Increased sales |
|Size |Greater convenience |
|Service |Economy of use |
|Workmanship |Long life |
Understanding Business Markets
Types of Markets
Agriculture market $190 billion
Reseller market 500k wholesalers, 2.7 mil retailers
Government market 86k Fed, State and Local units
Services market
Nonprofit market
International market 40% of earnings from outside the U.S.
What is derived demand?
Derived from the end user (consumer)
Inelastic demand
What is an SIC - Standard Industrial Classification System
What are the various buying situations?
Rebuy, modified rebuy, new task
What is the buying process?
Need recognition
Identification of alternatives
Evaluation of alternatives
Purchase decision
Postpurchase behavior
What is the buying center?
Individuals or groups of people involved in the decision making process regarding what to purchase.
Characteristics of purchase
Infrequent
Large order size than consumer market
Usually direct purchase
Longer negotiation period
Demand service
Market Segmentation
Energy Drink Market
2007 consumption of carbonated soft drinks = 14.7 billion gallons
8.7 billion gallons of bottled water
313 million gallons of energy drinks, 3.5 billion cans or about $10 billion
There are about 250 energy drink brands. Some of these are:
Vegas Fuel targeting brighter moods
Coke’s Enviga targeting weight management
Tab Energy targeting fuel for the fabulous
5 Hour Energy targeting more energy without the crash
Go Girl targeting women
Pro Player targeting poker lovers
Kabbalah targeting spiritualists
Red Bull
Rockstar
Monster
What is market segmentation, market segment, target market?
How to segment a market?
Demographic
Geographic - urban, rural, southeast, northeast
Psychographic - personality, lifestyle, attitude
Benefits Sought - usage rate, usage occasions
Behavioral
Requirements - measurable, accessible, data available, size
What are the different segmentation strategies?
Undifferentiated - market aggregation
Concentrated - single segment
Multisegment - multiple segment
Process of selecting a target market
1. Select a market
2. Divide market into segments using one of the methods of segmentation
3. Profile and analyze segments
4. Select target market
5. Design marketing mix
Evaluating viability of market segments
1. Can the segment be identified?
2. Can the segment be measured?
3. Is the segment large enough to support the marketing effort?
4. Can the segment be reached with a marketing mix?
What is product positioning?
Perceptual mapping
Positioning - Developing an image in relation to competitive products.
- Position relative to a competitor
- Position relative to a product class or attribute
- Position relative to a price & quality
Repositioning
What is market potential, sales potential, market share, sales forecast?
Marketing Research
What is research? [Asking ‘what if’ questions]
Discrete studies to assist in decisions
What is marketing intelligence?
Continuous flow of information
What is a customer database?
Why is such a database important?
Sources of data for databases - Scanners
Commercial sources
Business cards
Product registration cards
Contests
Marketing research process?
1. Define objectives
2. Situation analysis - helps refine the research problem
3. Informal investigation - using available information, "Is a formal study needed?"
4. Formal study
Types of Data
|Secondary |Primary |
|Cheaper |More expensive |
|Previously collected |Must be gathered for the project |
|May not be in the exact form that is needed |Focus group |
|Question accuracy |Experiments - test markets |
|Question timeliness |Surveys and observation |
5. Gather data
6. Analyze data
7. Prepare report
Types of Studies
|Type of study |Exploratory |Descriptive |Predictive |
|Sample |Convenience |Convenience, random, systematic |Random, systematic random, |
| | |random, cluster, stratified |cluster, stratified |
|Type of data |Qualitative |Qualitative or Quantitative |Quantitative |
|Data collection method |Observation, case studies, mall |Mail, telephone, personal |Experiment – for example test |
| |intercept, consumer panel |interview, web survey, email |market |
Data Collection Methods
|Type of Survey |Advantages |Disadvantages |Recommendation |
|Mail |Frequently used for social |May result in biased sample |Target population is highly |
| |research |based on response rate |literate or is in a group with |
| |Low cost (almost 75% less than |Time! Need to wait at least |specialized interests |
| |personal interviews) |several weeks for responses | |
| |Limits potential interviewer |Low response rate | |
| |bias |Limited to mostly closed-ended | |
| | |questions | |
|Telephone |Reach 96% of all homes |Sales calls often pose as |General population surveys |
| |Computer software streamlines |research calls | |
| |process |Typical calling window | |
| |Interviewers can ask for |interrupts respondents | |
| |clarification on responses |Call screening is common | |
| |Very fast |No observation of interviewee | |
| | |Limited mostly to closed-ended | |
| | |questions | |
|Web |Very low cost |Do not reflect population as a |Use when desired target |
| |Very fast |whole (not everyone has Internet|population consists of Internet |
| |Able to ask complex questions |service) |users (business-to-business |
| |Anonymity of responses for |Respondent completion rates low |research, employee attitude |
| |sensitive topics |for long surveys |surveys) |
| |Able to ask more open-ended |Random respondents may reply | |
| |questions | | |
| |Software simplifies compilation | | |
| |and analysis of data | | |
|Email |Similar to mail survey |Mailing list required |Use when desired target |
| |Low cost |Spam filters prevent reception |population is connected to the |
| |Fast |of survey |Internet |
| | |Limited to length of | |
| | |questionnaire and closed-ended | |
| | |questions | |
|Personal Interview |Frequently used to gauge |Very expensive |Very specific target population |
| |attitudinal behavior |Time consuming |that has interest in a |
| |Excellent response rates |May produce non-representative |particular service or product |
| |Longer interviews are tolerated |sample | |
| | |Higher chance of interviewer | |
| | |bias | |
Product Concepts
What is a product?
A bundle of benefits that satisfies a human need or want.
Classification of Products
Consumer Business
Convenience Raw materials
Shopping Fabricating materials and parts
Specialty (strong Assembled or undergo further processing
Brand preference)
Unsought (new product Installations
Consumer is unaware
Or consumer is aware Accessory Equipment
but doesn't want it
right now. Operating supplies
Importance of Product Development
40% of sales and 60% of profits from new products
Types of New Products
Imitative
Really innovative
Significantly different
Product Development Process
Generate New Product Ideas
Screen Ideas
Business Analysis
Prototype Development
Market Tests
Commercialization -- Launch
Criteria for New Products
1. Adequate market demand
2. Financial standards met
3. Fit into company marketing structure
Adoption process
Awareness Interest Evaluation Trial Adoption Confirmation
Innovators 3% Venturesome
Early adopters 13% Respected
Early majority 34% Deliberate
Late majority 34% Skeptical
Laggards 16% Tradition-bound
Factors Affecting Adoption
Relative advantage
Compatibility
Complexity - difficulty in understanding
Trialability - may be sampled
Observability - demonstrated
Differences between products and services
Intangible
Perishable
Inseparable
Heterogeneous
Word of mouth critical
Greater customization
Service quality is defined by the customer, not the producer
Marketing mix for service marketing
Future challenges in services marketing
Need for increased productivity - how if heterogeneous?
Nonprofit organizations
Ability and interest in giving time or money
Pricing = volunteer
Product mix depth, width (breadth), product line
Product Positioning
Developing an image in relation to competitive products.
- Position relative to a competitor
- Position relative to a product class or attribute
- Position relative to a price & quality
Line Extensions
Trading up and trading down
Product Life Cycle
|Characteristic |Introduction |Growth |Maturity |Decline |
|Sales |Slow to build |Peak |Level off |Fall off |
|Profits |Loss or slight profit |Peak |Fall |Stable but low margin |
|Competition |Few or many depending on |Intense |Intense |Few competitors remain as|
| |type of new product | | |resources directed at new|
| | | | |markets |
|Product |One model |Attributes added to basic|Many models |Best selling model |
| | |model | |remains |
|Promotion |High expenditure to build|Moderate expenditure to |High expenditure to |Low expenditure to |
| |awareness (advertising) |attract early majority |stabilize market share |maintain distribution |
| | |(advertising and sales |(sales promotion and |(trade promotion) |
| | |promotion) |advertising) | |
|Distribution |Limited or intense |Intense |Intense |Limited as channels drop |
| |depending on type of new | | |low margin products |
| |product | | | |
|Price |Skimming or penetration |Keep price in high part |Competition forces price |Stable price to generate |
| |depending on type of |of price range to |reductions |acceptable margins |
| |product |maintain margins and | | |
| | |improve profitability | | |
Brand name, brand mark, trademark
Generic versus branding
Producer's brands -- middleman's brands
National brand - private label
Cobranding
1. Ingredient – Cereal contains Sunmaid Raisins
2. Cooperative – Coach Leather and Lexus cars
3. Complementary – Segrams 7 and 7 Up
Why brand?
Benefits of branding
- product identification
- brand equity
- global brand
- brand loyalty
What are the characteristics of a good brand name?
1. Identifiable
2. Understandable
3. Memorable
4. Able to protect
5. Supported by marketing mix
6. Supports product positioning
How to deal with product counterfeiting?
Brand Equity
Value brand adds to the product -- e.g., Oreo cookies in ice cream
Packaging
Purposes - convenience, protection, acceptance from the trade, promotion
Labeling
Brand label
Descriptive label
Grade label
Nutritional labeling
Design and Color - Bring in samples of labels, packages, brand names.
What a Car Says About You
Minivan – nurturing and escape
SUV – adventure
Hummer, or large SUV – power and control; a warrior mentality
Hybrid – character, doing the right thing, fear of judgment
Compact – deficient in rationality and character
Convertible – freedom and independence
Sports car – youthful exuberance, rejuvenation
Four-door sedan – practically and nurturing
Full-size truck – power and control
Four-door truck – independence (women)
Lexus – status and rejuvenation
Mercedes-Benz – status and power
BMW – status and control
Corvette – immortality
Source: The Right Brain People, a self-described consumer psychology consulting firm.
What Color Means
Silver – elegant, loves futuristic looks, cool
White – fastidious
Vibrant red – sexy, speedy, high-energy and dynamic
Deep blue-red – some of the same qualities as red, but you’re far less obvious about it
Taupe or light brown – timeless, basic and simple taste
Black – empowered, not easily manipulated, loves elegance, appreciates classics
Neutral gray – sober, corporate, practical, pragmatic
Dark green – traditional, trustworthy, well balanced
Bright yellow-green – trendy, whimsical, lively
Yellow-gold – intelligent, warm, loves comfort and will pay for it
Sunshine yellow- a sunny disposition, joyful and young at heart
Deep brown – down to earth, no nonsense
Orange – fun loving, talkative, fickle and trendy
Deep purple – creative and individualistic
Source: The Color Answer Book, Leatrice Eiseman
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Distribution Concepts
Structure of Distribution Decisions
Distribution Objectives
Channels Physical Distribution/Logistics
Retailing Transportation
Wholesaling Order processing
Agents/brokers Warehousing
Power Pallets
Conflict
Direct/indirect
What is a channel of distribution?
All organizations involved in the movement of products and services to the final customer.
Long-term relationship
Physical Flow
C
R
W
M Insurance, financing, marketing research
How important are middlemen?
Reduce transaction costs
Break bulk
Merchant wholesalers - take title to products
Agent wholesalers - don't take title to products, bring buyer and seller together.
Factors in choosing a channel of distribution
Perishabililty of product
Service level required
Number of customers
Geographic concentration
Order size
Degree of channel control
What is a vertical marketing system?
Contractual
Corporate Coordination of control
Administered
Factors to consider in selecting intensity of distribution
Intensive distribution - convenience goods
Selective distribution - shopping goods
Exclusive distribution - dealership or distributorship
How does channel conflict = doing business
Horizontal conflict = competition
Main source is scrambled merchandising
Vertical conflict = channel inefficiencies
Mfg using the Internet to sell direct to the consumer
How to solve vertical conflict
Channel captain
Coercive power
Economic power
Referent power
Legitimate power
Expert power
Legal considerations
Non price restraints
Interbrand vs. intrabrand competition
Exclusive dealing rule of reason
Territorial restraints rule of reason
Tying arrangements - per se illegal (one product vs. two)
Refusals to deal - rule of reason
Distribution of Services
Direct channel and possible franchising
What is retailing?
Where do you take your dog to get a new tail!
2.7 mil stores in the U.S.
$2.2 trillion
Operating costs are roughly 2.5 more than wholesaling
Types of Retailers
Breadth and depth of product mix
Dept store Broad, deep
Discount Broad, shallow
Limited-line Narrow, deep
Specialty Very narrow, deep
Off-price Narrow, deep
Category killer Narrow, very deep
Supermarket Broad, deep
Convenience store Narrow, shallow
Warehouse store very broad, very shallow
Scrambled merchandising
Nonstore retailing
$200-250 billion 10% of all retailing
Telemarketing - $50 billion
Automatic vending - $25 billion (Coke’s idea to price vending relative to outside temperature)
Direct marketing - $150 billion (direct mail, catalog, online)
What is wholesaling?
Resale, use in producing other goods or services, operating an organization
$3.2 trillion in 1992
Category
Merchant wholesalers - full service, truck jobbers, drop shippers (don't handle the product)
Agent wholesalers - mfg reps, brokers (represent sellers)
Manufacturer's sales facility
Physical Distribution
$1 saved in supermarket sales for supermarkets = $100 in sales
Uses of PD
Improve customer service
Reduce distribution costs
Create time and place utilities
Stabilize prices
Control shipping costs
Where to establish distribution centers? Factors?
Hub and wheel
Types of warehouses - private (no seasonality, special handling and storage requirements), public (variable cost)
Materials handling
Containerization
Standard pallets
Inventory control
JIT
Market response system - purchase by final consumer activates process to produce and replace
EOQ (carrying costs, order processing costs)
Order processing issues
Database
Insure correct delivery address
VF computers in Penny's and Walmart link their computers to order replacements
Transportation
Rail
Water
Highway
Pipeline
Air
Freight forwarders
Ship less than a carload combined into a full shipment
Promotion Concepts
What is the promotional mix?
Personal selling - direct presentation of the product to the customer
Advertising - impersonal communication, paid
Sales promotion - demand stimulating supplements advertising and personal selling
Public relations - no specific sales message (newsletters, annual reports)
Publicity - nonpaid, news stories about products
Integrated marketing communication is all of the elements of the promotional mix
What is the communication process?
Define message encode transmit receive decode response feedback
What is the purpose of promotion?
Informs, persuades and reminds
What factors influence selection of promotional mix?
➢ Target market
1. Readiness to buy - Hierarchy of Effects Model (AIDA)
Awareness Knowledge Liking Preference Conviction Purchase
2. Type of customer
3. Concentration of the market
4. Geographic scope of market
➢ Nature of product
1. Presale/postsale service, unit value (low=low risk)
➢ Stage of Product Life Cycle
What is the difference between a push and pull strategy?
Methods of Budgeting promotion
% of sales
available funds
competitive parity
objective/task
Regulation of Promotion
FTC - misleading advertising
Robinson-Patman - promotional allowances
Lanham Act - 1988 Trademark Improvement Act
Types of salespeople?
Inside order taker - retail sales
Outside order taker - Pillsbury
Missionary salesperson - doesn’t close sale, builds goodwill, perform promotional activities
Creative order getter - commission sales project oriented
What is systems selling?
Selling a total package of goods and services
What is relationship selling?
Build long-term relationship with customer
What is the selling process?
Prospecting
Preapproach
Presentation - AIDA
Post sale services
What are the types of advertising?
Consumer, business-to-business
Product, institutional (an organization’s position on an issue)
Social (Drug free America campaign)
Primary demand - introductory period (pioneer advertising)
Selective demand - comparative advertising
What is cooperative advertising?
Vertical coop advertising, advertising allowance
Advertising Objectives
• Build awareness
• Reminder to use
• Change attitudes about use of a product
• Change perceptions of importance of brand attributes
Characteristics of various media
Newspaper - flexible and timely, perishable, clutter
TV - motion, sound and visual effects, products demonstrated, relatively
expensive
Radio - attention low, audio only, relatively inexpensive for frequency
Outdoor - rule of thumb is 6 words or less, make it brief, limited locations
Direct mail - most personal and selective of all media, low amount read
Magazines - high quality printing and color are desired, pass along rate
Yellow pages - difficult to differentiate, timeliness is an issue
Internet – click rates vary, relatively inexpensive
How to evaluate ads?
Direct tests - recognition, aided recall, unaided recall
CPM = cost of an ad x 1,000/circulation
Reach (percentage of target audience that could be exposed to the ad)
Frequency (average number of times a member of the target audience is exposed to the ad)
Gross Rating Points = reach x frequency
What is the purpose of sales promotion?
Short-term sales results
Techniques
• Sampling
• Couponing
• Sponsorship and event marketing
• Trade shows
• Product placements
Possible objectives
• Inquiries (free gifts, mail-in coupon for information, catalog offers, exhibits)
• Trial (coupons, free samples, contests, premiums, demonstrations)
• Inventory building (return allowances, slotting allowances)
• Promotional support (reusable display cases, sales contests, merchandise allowances)
• Repurchase (on-pack coupons, mail-in rebates)
• Traffic building (special sales, weekly sales, entertainment events, retailer coupons)
• Increase rate of purchase (multipacks, special price on twos)
Evaluation methods
• Redemption rates
• Acquisition rates
• Displacement rates
• Conversion rates
• Stock-up rates
What is the purpose of PR?
Less than 1% of for profit organization’s promotion budget
Large part of nonprofit organization’s promotion budget
Viewed as a more creditable message compared to advertising
Difficult to control
How do you evaluate PR?
Difficult to evaluate
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Pricing Concepts
What is price?
Price is the amount of money and/or other items with utility to acquire a product.
Importance of Price
Only variable that generates revenue. In the economy, price determines the allocation of goods and services.
What are pricing objectives?
Profit-oriented Sales-oriented
Target return Increase sales volume
Maximize profits Maintain or increase market share
Stabilize prices
Meet the competition
Factors that Influence Price
Estimate demand
Determine competition reaction
Look at the marketing mix
Product positioning
Distribution
Promotion
Cost of the product
Don't worry about average fixed cost curve, average variable cost, average total cost, marginal cost curve.
Computing Price
Cost method
(1 + markup %) cost = price
Retail method
Cost
= price
(1 - markup %)
Breakeven Analysis
Total Fixed Costs
BEP =
Contribution margin (sp-vc)
Pricing Through a Channel of Distribution
Retail price = $40
Retail margin = 20%
Wholesaler margin = 50%
Manufacturer margin = 505
What is the maximum cost for the manufacturer to produce?
Price Thresholds - price ranges
Pricing Strategies
Price competition versus non price competition - shift demand curve
Value pricing - ratio of benefits to its price and related costs
Market entry strategies
Market skimming
Market penetration
Discounts
Quantity - cumulative, noncumulative
Trade
Cash
Seasonal
Promotional Allowance
Robinson-Patman Act
Geographic Pricing
Uniformed delivered pricing - postage stamp pricing
FOB factory pricing - seller doesn't pay freight costs
Zone delivered pricing - uniformed delivered pricing for each zone
Freight-absorption pricing - absorb some or all freight costs
One price strategy - charge same price to all buyers
Flexible pricing strategy - different customers pay different prices. Greater bargaining situations.
Price lining - limited number of prices at which a business will sell related products
Odd pricing - psychological pricing
Leader pricing - leader items where price is cut
Everyday low pricing
High/low pricing - everyday low prices on some products and higher prices on other products
Resale price maintenance and suggested list price
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