Transcript 15--Marketing_Mix_IIx

MARKETING MIX II:
PUTTING IT ALL
TOGETHER
BUAD 307—Spring, 2016
BUAD 307
MARKETING MIX II
Lars Perner, Instructor
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Learning Objectives
• Identify strategic opportunities within the marketing mix
• Identify relationships and interdependencies among marketing mix
variables
• Identify tradeoffs between strategies
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PRODUCT: STRATEGIC ISSUES
• The diffusion of innovation
– Spreading new products
– Educating consumers about new products
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Types of Innovations
• A continuum of “newness:”
– Continuous—same product, just small improvements
over time—e.g., automobiles
– Dynamically continuous—product form changed, but
function and usage are roughly similar—e.g., cell
phones, HDTV, video streaming, Blu-ray
– Discontinuous—entirely new product; usage
approach changes— e.g., fax, GPS
• The more “new” a product category is, the
greater the need to educate the customer on
benefits and basic idea of how the product
works
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Some Diffusion Examples
• ATMs (*)
– Easy observability
– Significant relative advantage
• Credit cards (*)
• Fax machines (*)
– Network economies
• Rap music
– Low barriers to entry
– Spread to a new
consumer group
– “Chicken-and-egg” problem
– “Jump-starting the cycle”
• Faded, torn jeans
– Fads
– Innovations do not have to be
high tech
• Hybrid corn (*)
– Trialability
– Imitation
*You should be able to discuss these case histories on the final
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Diffusion Themes
• Observability: Products that can
be seen being used to others tend
to spread faster
• “Chicken-and-egg” problem: A
certain infrastructure is needed to
make adoption attractive, but
motivation to provide the
infrastructure depends on market
size—e.g.,
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Coupons and clearinghouses
Hydrogen/electric cars
HDTV
Entertainment media
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• Trialability: People tend to
prefer “trying out” a potentially
costly innovation rather than
having to commit before trial
• Network economies: Some
innovations become more
valuable when more others
have that innovation—e.g.,
–
–
–
–
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Text messaging
E-mail
Online personals sites
Other online communities
Auction sites
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DISTRIBUTION: STRATEGIC
ISSUES
•
•
•
•
Distribution intensity and selectivity
Direct to customer sales vs. use of distributors
Diversion
Retail trends
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Approaches to Distribution
• These strategies require
tradeoffs:
– Wide--essential to low involvement
goods
– Selective--desire to maintain
image
– Exclusive--very high prestige
needed or very high service
requirements
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Product Characteristics That May
Favor Direct-to-Customer Sales
• High need for customization—
especially if the work can be done by
the customer
• Rapid decline in the value of
inventory
• High value/bulk ratio
• Low need for customer to manually
inspect the product
• Highly specialized product requiring a
very large assortment of inventory
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Parallel Distribution Structures
(Multi-channel Distribution)
MANUFACTURER
DISTRIBUTOR
RETAILER
MAJOR
CHAIN
(e.g., Wal-Mart)
DIRECT
MARKETING
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FACTORY
OUTLET
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Diversion
• Products often end up where manufacturers
did not intend them to go
– Trade promotions in one region
• Within countries (Difficult to do today since sales at a given time
can be verified by scanner data)
• Between countries--different price sensitivities and structures
may exist (e.g., pharmaceuticals, luxury autos
– “Over-purchases” by small authorized retailers to supply
unauthorized distributors (e.g., Levis’ for Costco)—disliked by
full service retailers who have to compete
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Over-Purchase Diversion Example
• Joe’s Jeans Shop normally buys and sells 500 pairs of Levi’s XBM/P jeans per
week at $22.00 and sells at $32.
• A “consolidator” asks Joe to buy his usual 500 plus an extra 200. This increase
is not big enough to make Levi’s suspicious.
• The consolidator pays Joe 200*($22+$3)=$5,000.
• Joe makes an extra $3*200=$600.
• The consolidator resells to a large discount chain.
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Retail Trends
• Divergence—growth in both low cost, low service and
high cost, high service stores more than in the middle
• Growth of
– Mega stores: large stores with a wide assortment (e.g., WalMart)
– Category killers: stores emphasizing in one area (e.g., Best
Buy, Staples, Home Depot, Toys “R” Us)
• Large buying power based on large volume purchases within select
categories
• Tendency to make large deals early on in order cycle
– Manufacturer gets a large quantity guaranteed sale
– Category killer gets a low price
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Product Characteristics That May
Favor Direct-to-Customer Sales
• High need for customization—especially if the
work can be done by the customer
• Rapid decline in the value of inventory
• High value/bulk ratio
• Low need for customer to manually inspect the
product
• Highly specialized product requiring a very large
assortment of inventory
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PRICING: STRATEGIC ISSUES
• Legal issues
• Consumer reference prices
• Introductory price strategies
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Legal Issues
• Banned by some state laws:
• Banned by Federal law:
– Gender discrimination (e.g.,
– Discrimination in prices paid by
charging more for dry cleaning
firms which compete against each
women’s clothes than men’s
other unless supported by
clothes)
evidence of cost savings
– Discrimination between
• OK to charge restaurants more than
grocery stores
• Can only charge Wal-Mart less than
Joe’s Supermarket if volume savings can
be proven—and the price difference
must be no greater than the actual
provable cost savings.
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consumers in general
• Senior citizen discounts are
explicitly permitted in California
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More Legal Issues
• Federal and State bans on:
– Collusion (coordinating or even discussing prices with competitors)
– Tying: Requiring the customer to buy one product to be allowed
to buy another
– Predation (offering temporary prices below cost of production to
drive competitors out of business and then raising prices)
• In general, fully absorbed average cost must be used—cannot use
marginal cost
– Using monopoly power in one market to “subsidize” new market
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Price Maintenance
• In 2007, the U.S. Supreme Court reversed the longstanding ban on
explicit agreements between manufacturers that the branded product
would not be sold below an agreed upon “floor” price
–
–
Although setting minimum retail prices for a brand reduces intra-brand competition (competition
between different retailers selling the brand), some believe that minimum prices may
encourage investment in service and brand building to the extent that competition between
brands increases (inter-brand competition)
Manufacturers generally cannot enforce minimum price agreements on existing inventory, but
they can “cut off” offending retailers
• “Gray market” goods: Retailers in the U.S. generally have an
absolute right to sell products that they have bought legally at a price
lower than the suggested retail price.
–
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Diversion: Legitimate retailers buy up extra quantity to be resold to unauthorized dealers
and/or geographic shipment. (More details will be given under distribution).
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Other Manufacturers’ “Suggested” Retail
Prices (MSRPs)
• U.S. manufacturers often put an exorbitantly high
“suggested” price on a product so that even full service
retailers can look good by selling below the MSRP
• In some EU countries, selling below the MSRP is generally
not legal—manufacturers must therefore be careful not to
“recommend” excessive prices
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REMINDER
INCOME
≠ WILLINGNESS TO
SPEND!
It makes more sense to segment on price sensitivity than on income or wealth
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Price Adjustments For and
Discrimination Among Consumers
• Cars: List price – manufacturer discounts and
rebates – dealer discount
• Tuition: List price – scholarships – financial
aid
Text, p. 263. Copyright © 2005 McGraw-Hill.
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Introductory Effects
1200
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1000
Low price
intro
High price
intro
800
600
400
200
0
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Units
sold
8
• In an experiment, laundry
detergent was introduced at
$0.49 in one condition and
$0.79 in another.
• After 8 weeks, price was raised
to $0.79 for low price intro
condition.
• There were higher cumulative
sales in high price intro.
Weeks
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Consumer Price Awareness
• A survey revealed of consumers who had just selected a
product suggested:
• Avg. time spent before departing from product area:
12 seconds
• Avg. no. of products inspected: 1.2; only 21.6%
claimed to check price of non-chosen brand
• 55.6% could state price of just chosen product within
5%
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Consumer Reference Prices
• Consumers typically have some expectation of what
they will pay. This is based on:
• Previous experience
• Common sense
• Perceived fairness
• Two kinds of reference prices:
• Internal: Based on consumer’s memory.
• External: Based on environment (e.g., signs,
other products in the store)
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Internal Reference Prices
• Consumers tend to develop some memory of prices of
frequently purchased items ---> to make store prices
look low, you may want to price especially salient
products lower
• More knowledgeable consumers typically have tighter
price range expectations
• Reference prices are constantly updated to some
extent, but are hard to change upwards--certain
unreasonable “stimuli” (prices) may be rejected as unreal
• Consumer reference prices tend to be lower than actual
prices ---> “sticker shock”
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External Reference Prices
• Reference prices provided by seller or environment
• E.g.,
• “MSRP $3.99; our price $2.49”
• “Sold elsewhere for $20.00; our price $14.99”
• “Was $100.00; now $69.95”
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The Promotion Signal
• A segment of consumers will respond to
negligible discounts--e.g., “SALE! $3.95
(Was $4.02).
• However, merely placing a sign
“EVERYDAY LOW PRICE” randomly also
increased sales of affected products.
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Odd/Even Pricing--Does It Have an
Impact?
• Theory: $3.00 is rounded to $3.00 while $2.99 is rounded to “$2.00 plus
change”
• Reality: Studies in U.S. have found a small impact (the price elasticity is
greater going from $5.00 to $4.95 than from $5.10 to $5.05). This is a
very small impact. Sales increase only a slight amount. The loss of the
extra cents may cancel out profit from increased quantity sales.
• Note that odd pricing may signal receiving a bargain, which may nor may
not be compatible with the desired product image
• Odd pricing has typically been used by tradition (initially implemented to
force cashiers to ring up purchases in order to give change).
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REMINDER
• The increase in sales that results from using “odd” prices is tiny!
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PROMOTION: STRATEGIC
ISSUES
• Promotional objectives vs. tactics
• Promotion across the product life cycle (PLC)
• Advertising strategies
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REBATES
ADVERTISING
PERSONAL
SELLING
PREMIUMS
SALES
(DISCOUNTS)
COUPONS
SALES
PROMOTIONS
SPECIAL
RETAIL
SPACE
/DISPLAY
PROMOTION
ELEMENTS
DIRECT
MARKETING
PUBLIC
RELATIONS
(MEDIA
OUTREACH)
Some Promotional Objectives
• Brand awareness
– Knowledge of product category
•
•
•
•
Existence
Benefits
Functions
Technology
• Brand preference
Objectives involve what we are
trying to achieve rather than the
specific methods of
accomplishing these goals.
– Knowledge of brand differences
• Brand attitude
• Increase in product
category or brand usage
– Favorable beliefs about the brand
• Overall
• Relative to competitors
– Quantity used
– Frequency used
– Scope of uses
• Product category or brand
trial
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– Willingness to pay a premium for the
brand
– Resistance to competitor promotions
(e.g., sales, coupons)
– Willingness to buy under less
convenient circumstances
• Increase in short term sales
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Increase in Product Category or Brand
Usage—Product Category Potential Examples
• Scope of uses
• Frequency used
– Orange juice: “It isn’t just for breakfast
anymore”
– Baking soda
– ZipLock™ bags
– WD-40™ (lubrication and sticker
removal)
• Quantity used
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Cosmetics
Deodorant
Wine
Greeting cards
Phone calls
• Cell phone minutes
• Call to family/friends
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– Calcium supplements
– Milk
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Hotels, airlines
Conference calls
Car engine oil
Canned soup
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Promotional Objectives Across the
Product Life Cycle (PLC)
• Introduction
–
–
–
Advertising and
public relations 
awareness
Sales promotion 
trial
Personal selling 
distribution
• Growth
–
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Advertising and PR
 brand loyalty
Less emphasis on
sales promotion
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• Maturity
–
–
Advertising persuasion,
reminder
Sales promotion 
market share
• Decline
–
–
Reduction in advertising
and PR
More emphasis on sales
promotions  temporary
sales
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Some Advertising Strategies
• Fear appeal
• Comparative ads
– To be effective:
• Feared stimulus must be of medium
intensity—enough to motivate action but
not so intense that the individual “tunes
out” the ad
– Illegal in most countries
– Generally very disliked by U.S. consumers
but still relatively effective
• Humor appeal
• A clear solution must be offered—e.g.,
– A way to get attention to the advertisement—
but the consumer may remember the humor
and not what the product featured was
• Adding beliefs
• Classical conditioning (association)
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use Listerine™ to avoid tooth loss
due to gingivitis
• Repetition
• Celebrity endorsements
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