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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