Transcript 15--F16--Marketing_Mix_IIx

MARKETING MIX II:
PUTTING IT ALL
TOGETHER
BUAD 307—Fall, 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 of Credit Cards
CONSUMERS HAVE
LIMITED INTEREST IN
NEW CREDIT CARDS
SINCE FEW
MERCHANTS ACCEPT
THEM
MERCHANTS HAVE
LIMITED INTEREST IN
ACCEPTING CREDIT
CARDS SINCE FEW
CUSTOMERS CARRY
THEM
BANKS APPROACH
LARGE FIRMS OFFERING
TO WAIVE FEES FOR
SEVERAL YEARS IF THEY
WILL SIGN UP FOR
EMPLOYEES TO USE
CREDIT CARDS
MORE CUSTOMERS
SIGN UP
JUMP
START
LARGE FIRMS HAVE
NOTHING TO LOSE BY
ADOPTING
SOME MERCHANTS
BEGIN TO ACCEPT THE
CARDS
MORE MERCHANTS
BEGIN TO ACCEPT
CONSUMERS AND
OTHER FIRMS SIGN UP
FOR CREDIT CARDS
CHICKEN AND EGG PROBLEM
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Diffusion of Fax Machines
LARGE FIRMS ACQUIRE
AT LEAST ONE FAX
MACHINE FOR EACH
BUILDING
INDIVIDUALS AND
SMALLER FIRMS
ACQUIRE FAX
MACHINES
NETWORK
ECONOMIES
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SUPPLIERS AND
CUSTOMERS ACQUIRE
FAX MACHINES
PRICES COME FURTHER
DOWN.
FAX IS INCREASINGLY
MORE USEFUL AS
MORE PARTIES CAN BE
REACHED
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PRICES COME DOWN
AS VOLUMES SOLD
INCREASE
MORE FIRMS AND
ORGANIZATIONS
ACQUIRE FAX
MACHINES
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Diffusion of Hybrid Corn
Trialability
Trialability
Imitation
MORE
CONSERVATIVE
FARMERS BEGIN
PLANTING HYBRID
ON SOME OF THEIR
LAND
HIGH YIELDS
CONTINUE
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PROGRESSIVE
FARMERS TRIED
HYBRID CORN ON
A SMALL
PERCENTAGE OF
LAND
HIGHER YIELD ON
ACREAGE WHERE
HYBIRD CORN WAS
PLANTED
HIGH YIELDS
CONTINUE
ALL THE FARMERS’
LAND DEVOTED TO
HYBRID COERN
CONSERVATIVE
FARMERS DEVOTE
MORE LAND TO
HYBRID
HIGH YIELDS
CONTINUE
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Observability
MORE LAND WAS
DEVOTED TO HYBRID
CORN
HIGH YIELD ON THE
NOW GREATER
PERCENTAGE OF
LAND WITH HYBRID
CORN
HIGH YIELDS
CONTINUE
PROPORTION OF
LAND DEVOTED TO
HYBRID CORN AGAIN
INCREASED
CONSERVATIVE
FARMERS DEVOTE
ALL LAND TO HYBRID
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Hybrid Corn Diffusion Phases
1.
2.
3.
4.
5.
Progressive farmers initially commit a limited portion of their land to hybrid corn.
Over several years, as increased yields are consistently observed, the progressive farmers
devote more and more land until all land is used for hybrid.
More conservative farmers observe the success of those who plant hybrid corn.
More conservative farmers start out devoting a small part of their land to hybrid corn.
Over several years, as increased yields are consistently observed, conservative farmers devote
more and more land of their land to hybrid corn until all land is used for hybrid.
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Diffusion Themes
• Trialability: People tend to
• Observability: Products that can be
prefer “trying out” a potentially
seen being used to others tend to
costly innovation rather than
spread faster
having to commit before trial
• Imitation: Later adopters follow the
• Network economies (the inverse
lead of earlier adopters whose
of the chicken-and-egg
adoption has been shown to be
problem): Some innovations
successful
become more valuable when
• “Chicken-and-egg” problem: A certain
more others have that
infrastructure is needed to make
innovation—e.g.,
adoption attractive, but motivation to
– Text messaging
provide the infrastructure depends on
– E-mail
market size—e.g.,
– Online personals sites
–
–
–
–
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Coupons and clearinghouses
Hydrogen/electric cars
HDTV
Entertainment media
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–
–
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., Wal-Mart)
– 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., charging
– Discrimination in prices paid by firms
more for dry cleaning women’s
which compete against each other
clothes than men’s clothes)
unless supported by evidence of cost
– Discrimination between consumers
savings
in general
• 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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• 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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Intra- vs. Interbrand Competition
• Intrabrand Competition: Competition among sellers of the same brand
– Often focused on price, although retailers can compete on service as well
• Interbrand Competition: Competition between different brands
– Both manufacturers and retailers may be involved
– Price is one factor
– If manufacturers are able to guarantee retailers a certain margin since other retailers
will not undersell them, retailers may be motivated to invest in additional services
for customers (e.g., salesperson training, in-store repair facilities)
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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!
Income or wealth is a necessary, but not sufficient, condition for buying certain high price items.
Some customers may value one product category particularly highly.
Many consumers live beyond their means, running up large debts.
It generally 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
Low price
intro
High price
intro
800
Units
sold
600
400
200
0
Weeks
Coupons may help avoid
sending this signal.
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1000
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• 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
8
Introducing a product at
a low price without
clearly indicating that
this is a temporary price
to encourage trial will
likely create an image
among customers that
this is a “low priced”
brand.
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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
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Some Promotional Objectives
• Brand awareness
• Brand preference
– Knowledge of product category
•
•
•
•
Existence
Benefits
Functions
Technology
– Knowledge of brand differences
Objectives involve what we
are trying to achieve rather
than the specific methods of
accomplishing these goals.
• Brand attitude
– Favorable beliefs about the brand
• Increase in product category or
brand usage
– Quantity used
– Frequency used
– Scope of uses
• Overall
• Relative to competitors
• 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)
–
–
–
–
–
• Cell phone minutes
• Call to family/friends
• Quantity used
– Calcium supplements
– Milk
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Cosmetics
Deodorant
Wine
Greeting cards
Phone calls
–
–
–
–
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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., use
– 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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Listerine™ to avoid tooth loss due to
gingivitis
• Repetition
• Celebrity endorsements
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