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Part 5 Marketing: Developing Relationships © 2015 McGraw-Hill Education. 12-2 CHAPTER 11 Customer-Driven Marketing CHAPTER 12 Dimensions of Marketing Strategy CHAPTER 13 Digital Marketing and Social Networking 12-3 Learning Objectives LO 12-1 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. LO 12-2 Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. LO 12-3 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. LO 12-4 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. 12-4 The Marketing Mix The marketing mix is the part of the marketing strategy that involves decisions regarding controllable variables After selecting a target market, marketers develop and manage the dimensions of the marketing mix to give their firm an advantage over competitors Successful companies offer at least one dimension of the marketing mix that surpasses all competitors These companies must also maintain acceptable, and if possible distinguishable, differences in the other dimensions as well 12-5 Product Strategy Product Development Process Thousands of new products are introduced annually, few succeed It takes time to get a new product to market Sometimes a product or idea is shelved, only to be returned to later 12-6 Product Strategy Idea Development New ideas come internally from marketing research or employees and from external sources such as ad agencies, consultants and customers New Idea Screening Screening involves management looking at the company’s resources and its ability to produce and market the product; most ideas are rejected in this phase Business Analysis Analyze the product’s affects on sales, costs and profits 12-7 Product Strategy Product Development The few products to reach this stage get prototypes and the development of a marketing strategy Test Marketing A trial mini-launch of a product in limited areas that represent the potential market Commercialization The full introduction of a complete marketing strategy and the launch of the product for commercial success 12-8 Product Strategy Products are classified as consumer or business products Consumer products are products intended for household or family use Convenience Products – items bought frequently with no planning, such as eggs, milk, bread and newspapers Shopping Products – purchased after consumer has “shopped around” Specialty Products – require greater research and shopping effort; consumers unwilling to accept a substitute 12-9 Product Strategy Business Products • Used directly or indirectly in the operation or manufacturing processes of businesses Product relationships are of key importance Product Line • A group of closely related products that are treated as a unit because of similar marketing strategy, production or enduse considerations Product Mix • All the products offered by an organization 12-10 Product Strategy Like people, products are born, grow, mature and eventually die With redesign or new uses, products can be reborn The Life Cycle of a Product 12-11 Product Strategy As products pass through the four life cycle stages, they get new advertising and pricing strategies for each stage Introductory Stage Marketers focus on making consumers aware of the product and its benefits Growth Stage The firm tries to strengthen its market position by emphasizing benefits Maturity Stage Severe competition and heavy costs Decline Stage Firms may eliminate models, cut costs and finally phase out products 12-12 Product Strategy Branding • The process of naming and identifying products A brand is a name, term, symbol, design or combination that identifies a product A brand name is the part that can be spoken and consists of letters, words and numbers A brand mark is the part of the brand that is a distinctive design, such as McDonald’s arches Trademark • A brand registered with the U.S. Patent and Trademark Office and is thus legally protected from use by any other firm 12-13 Product Strategy Manufacturer Brands Private Distributor Brands • Initiated and owned by the manufacturer to identify products from the point of production to the point of purchase • May cost less than manufacturer brands, they are owned and controlled by a wholesaler or retailer Generic Products • Products with no brand name that often come in simple packages and carry only their generic name 12-14 Product Strategy Packaging • The external container that holds and describes the product; influences consumers’ attitudes • Performs several functions: protection, economy, convenience and promotion Labeling • The presentation of important information on a package; closely associated with packaging • Contains information required by law such as ingredients, nutrition facts, warnings, instructions and manufacturer’s address Quality • The degree to which a good, service or idea meets the demands and requirements of customers 12-15 Logo Customers can become really attached to a company’s logo Critics took to social media and created profiles and pages to voice their disdain for the new look Many may think that this was a marketing disaster, but it actually proved to the company that its customers care about and identify with the brand Gap took their new logo down within a week Made evident when Gap decided to change theirs in 2010 from the navy blue square with tall thin white text to a white background with bulky black text and a decorative blue square on the right SOURCES: Innovation by Design. “Hands Off That Logo!” Fast Company. October 2013. Page 64; Blake Ellis. “New Gap Logo Ignites Firestorm”. www.money.cnn.com. October 8, 2010. http://money.cnn.com/2010/10/08/news/companies/gap_logo/index.htm. (accessed September 24, 2013) 12-16 Pricing Strategy o Almost anything of value can be assessed by a price o Consumers vary in their response to price o The product’s perceived value in the marketplace added to the production costs help determine price Calculating the Value of a Product Source: Rafi Mohammed, “Use Price to Profit and Grow,” Forbes.com, March 25, 2010, www.forbes.com/ 2010/03/25/profit-gainvaluemckinsey-sears-whirlpool-cmo-network-rafi-mohammed.html (accessed April 15, 2012). 12-17 Pricing Strategy Price is a key element in the marketing mix as it related directly to revenue and profits Price is probably the most flexible variable; can be set or changed in a few minutes Pricing objectives specify the role of price in an organization’s marketing mix and strategy Four common pricing objectives: maximizing profits, boosting market share, maintaining the status quo, and survival 12-18 Pricing Strategy Pricing strategies provide guidelines for achieving the pricing objectives Pricing New Products Price Skimming is charging the highest possible price buyers who want the product will pay Penetration price is a low price designed to help a product enter the market and gain market share rapidly 12-19 Pricing Strategy Psychological Pricing encourages purchasing based on emotional rather than rational responses to price Even/Odd Pricing assumes people will buy more of a product for $9.99 than $10 because it seems to be a bargain at the odd price Symbolic/Prestige Pricing assumes that high prices connote high quality Perfume and cosmetics prices are set artificially high to give the impression of superior quality 12-20 Pricing Strategy Discounts • Temporary price reductions often employed to boost sales o Quantity discounts are given for purchasing in large volumes o Seasonal discounts are those given for purchasing goods or services out of season o Promotional discounts attempt to improve sales by advertising price reductions on selected products; increasing customer interest and profits 12-21 Distribution Strategy Marketing Channel A group of organizations that moves products from their producer to customers; also called a channel of distribution Makes products available to customers when and where they desire to purchase them Middlemen, or intermediaries, are organizations that bridge the gap between a product’s manufacturer and the ultimate consumer Middlemen create time, place and ownership utility 12-22 Distribution Strategy • Intermediaries who buy products from manufacturers (or other intermediaries) and sell them to consumers Retailers for home and household use rather than for resale or for use in producing other products Move products from producers to a convenient retail establishment (place utility) Maintain hours of operation (time utility) Assume the risk of inventories (ownership utility) Wholesaler • Intermediaries who buy from producers or from other wholesalers and sell to retailers 12-23 Distribution Strategy A major distribution decision is how widely to distribute a product – how many and what type of outlets Intensive Distribution • A product is made available in as many outlets as possible • Used for frequently purchased items Selective Distribution • Only a small number of all available outlets are used to expose products • Used most often when consumers buy only after shopping and comparing price, quality and style 12-24 Distribution Strategy Exclusive Distribution • The awarding by a manufacturer to an intermediary of the sole right to sell a product in a defined geographic territory • Includes high-quality merchandise Physical Distribution • All the activities necessary to move products from producers to customers – inventory control, transportation, warehousing and materials handling • Both goods and services require physical distribution 12-25 Distribution Strategy Transportation is the shipment of products to buyers Railways – least expensive Motor vehicles – greater flexibility Inland waterways – cheap but slow Pipelines – transport petroleum and natural gas Airways – costly but speedy Factors affecting choice include cost, capability, reliability and availability 12-26 Distribution Strategy Warehousing • The design and operation of facilities to receive, store and ship products Companies can own their own warehouse, lease a private warehouse or rent space in a public warehouse Materials Handling • The physical handling and movement of products in warehousing and transportation Handling processes vary significantly due to product characteristics 12-27 Packaging Design thinking produces products that creatively solve problems that touch several people For example, medication bottles have been problematic for a long time… Incidents of children taking medication because the bottle was easy for them to open led to the child-proof feature of the cap design The elderly are also affected by insufficient designs in packaging Generally they have multiple medications in their cabinets, and all the bottles look the same and the dosage directions are difficult to read ClearRx was designed specifically for this problem: It has a larger flat front surface where the label can be easily read and comes with colored bands so the patient can differentiate between medications based on color. SOURCE: Innovation by Design. “A Better Drug Bottle”. Fast Company. October 2013. Page 44; Tim Adkins. “Design of the Decade: ClearRx”. www.idsa.org. Winter 2010. http://idsa.org/design-decade-clearrx. (accessed September 24, 2013) 12-28 Promotion Strategy Promotion encourages consumers to accept products and influences opinions and attitudes Advertising, personal selling, publicity and sales promotion are collectively known as the promotion mix Integrated Marketing Communications • Coordinating the promotion mix elements and synchronizing promotion as a unified effort This approach results in delivery of the desired message to consumers 12-29 Promotion Strategy Advertising • A paid form of non-personal communication transmitted through a mass medium, such as television commercials or magazine advertisements Advertising Campaign • Designing a series of advertisements and placing them in various media to reach a particular target market Several factors affect the campaign, including: product features, target audience, marketing objectives and the choice of media used 12-30 Promotion Strategy Personal Selling • Direct, two-way communication with buyers and potential buyers o Most flexible promotional method but expensive o Three categories of salesperson: Order takers – retail sales clerks Creative salespersons – automobiles sales Support salespersons – customer educators 12-31 Promotion Strategy Personal selling is a six-step process Prospecting: identifying potential buyers Approaching: referral or cold call Presenting: demonstrating the product Handling Objections: countering reasons for purchase Closing: asking for a purchase Following Up: checking back after purchase 12-32 Promotion Strategy Publicity Non-personal Message is communication presented as a transmitted news story and the through mass company is not media but not paid seen as the for directly by the originator of the firm message Most companies have a public relations department trying to gain favorable publicity and minimize negative publicity 12-33 Promotion Strategy Advertising and publicity are both carried by mass media but they differ is several ways Purpose • Advertising in informative, persuasive, or both; publicity is informative Impact • Advertising calls for action; publicity rarely does Cost • Companies pay for advertising; publicity is free Duration • Advertising is repeated often; publicity appears once 12-34 Promotion Strategy Buzz marketing is a variation of traditional advertising where marketers attempt to create a trend Companies seek out trend setters in a community and get them to “talk up” their product The idea is that accepted members of a group have more credibility than any form of paid communication Works best as part of an integrated marketing plan A related concept is viral marketing, which gets Internet users to pass on ads and promotions to others 12-35 Promotion Strategy Sales Promotion • Direct inducements offering added value or some other incentive for buyers to enter into an exchange Easier to measure and less expensive than advertising Includes: store displays, premiums, samples and demonstrations, coupons, contests and sweepstakes, refunds, and trade shows Used to enhance and supplement other forms of promotion 12-36 Promotion Strategy When developing a promotion mix, companies must decide whether to push or pull the product Push Strategy Pull Strategy An attempt to motivate intermediaries to push the product down to their customers Uses promotion to create consumer demand so consumers exert pressure on marketing channel members to make it available A company can use either strategy or a combination 12-37 Promotion Strategy Personal selling indicates a push strategy The exclusive use of advertising is a pull strategy 12-38 Promotion Strategy Typical objectives of promotion Stimulate Demand • Often through ads and sales promotion, particularly important when using a pull strategy Stabilize Sales • Decreasing sales call for sales promotions and ads Inform, remind and reinforce customers Promotional positioning uses promotion to create and maintain an image of a product in buyers’ minds 12-39 The Importance of Marketing Strategy Marketing creates value through the marketing mix The marketing mix must be carefully integrated into an effective marketing strategy Companies with an effective marketing mix gain competitive advantage Advantages often come when a company excels at one or more elements of the marketing mix Companies must monitor demand and adapt the marketing mix when needed 12-40 Discussion ? ? What is the product life cycle? How does a product’s life cycle stage affect its marketing strategy? How do publicity and advertising differ? How are they related?