BSB 126 Study Notes

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1 BSB 126 – MARKETING NOTES LECTURE 1: INTRODUCTION TO MARKETING AND THE MARKETING CONCEPT LECTURE NOTES Marketing is not selling or advertising! Marketing must get it (all) right • Product • Price collectively known as the 4 P’s • Place (target market eg. Myers or BigW?) • Promotion • People (target market and staff) • Time – increasingly valued by consumers • If the competition moves onto marketing before your business and they never do, the business is effectively dead • “The future belongs to people who see possibilities before they become obvious” The Production Orientation • Are willing to pay more for a product • People’s perception of a rand and its quality is difficult/slow to change • The difference between selling and marketing: - Selling – find and customer and sell it (to anyone) - Marketing – choose a need and know it better than the customer Examples • Railways – went broke due to competitions. Train is a product where as transport is a customer need. • MGM (movie studio) Movie business = entertainment Product = customer need Selling = marketing • Marketing involves thinking about a customer need, not the product. Solely concentrating on the product leads to failure eg. Apple ‘died’ for a while but came back into the market due to better product marketing. Selling Orientation • Selling – someone focused on the product that is focused on the needs of the seller and not the buyer (ie. the seller is trying to sell the product in order to make profit/commission/revenue) • “There will always be a need for selling. But the aim of marketing is to know and understand the customer so well that the product fits him and sells itself. Marketing should result in a customer who is ready to buy. All that is needed then is to make the product or service available …” • Selling = needs of the seller • Marketing = needs of the buyer Product orientation → selling orientation → marketing orientation Jessica King BSB126 –Marketing Semester 1, 2009 2 Marketing Concept Customer Orientation coordinated → customer satisfaction↓ + + marketing activities organisation success Organisation’s performance objectives Differences between marketing and selling orientations • Marketing orientation – determining customer needs and wants and then developing a product to satisfy that need and still yield a satisfactory profit. The aim is consumer satisfaction. • Synergy - 2 + 2 = 5 - Various products in a company feed off each other and all reinforce each other (eg. Disney) - Initial money may come from merchandise Satisfactions = Perceptions – Expectations S = P - E Customer Satisfaction • Brand loyalty is craved by marketers Refinements of the marketing concept • Quality is defined by customers • TQM = total quality management • Selling is about transactions whilst marketing is about building a relationship • For external marketing to be successful – internal marketing must be good. The bigger company generally = less concerned with their customers/marketing outside their area The Societal Marketing Concept • Customer satisfaction and profit = a certain balance • “green-washing” – green or carbon neutral claims Importance of Marketing • Traditionally, seen as an expense but is now seen as an investment. TEXTBOOK NOTES – Chapter 1: Presenting and Describing Information Definitions Marketing: process of developing, pricing, promoting and distributing goods, services and ideas to satisfy the needs of consumers Exchange: trade of things of value between buyer and seller so that each is better off Marketing concept: idea that an organisation should strive to satisfy the needs of consumers while also trying to achieve the organisation’s goals Market orientation: focusing organisational efforts to collect and use information about customers’ needs to create value Market: people with desire and ability to buy a specific product Target market: specific group of potential consumers towards which an organisation directs its marketing program Marketing mix: the marketing manager’s controllable factors – product, price, promotion and place – that can be taken to solve a marketing problem Environmental factors: uncontrollable marketing factors such as social, economic, technological, competitive and regulatory forces Customer value: buyers’ benefits including quality, price, convenience, on-time delivery and before-and-after sale service Jessica King BSB126 –Marketing Semester 1, 2009 3 Relationship marketing: linking the organisation to its individual customers, employees, suppliers and other partners for their mutual long-term benefit Marketing program: plan that integrates the marketing mix to provide a good, service or idea to prospective buyers Societal marketing concept: view that organisations should satisfy the needs of consumers in a way that provides for society’s wellbeing Ultimate consumers: people who use the goods and services purchased for a household Organisational buyers: manufacturers, wholesalers, retailers and government agencies who buy goods and services for their own use or for resale Utility: benefits or customer value receive by the product What is marketing? • The importance of the beneficial exchanges that satisfy the objectives of both those who buy and those who sell ideas, goods and services • Marketing seeks to discover the needs and wants of perspective customers and to satisfy them • The organisation must strike a continual balance among the sometimes differing interests of different individuals and groups eg. it is not possible to simultaneously provide the lowest-prices and highest- quality products to customers and pay the highest prices to suppliers, highest wages to employees and maximum returns to shareholders. How Marketing discovers and satisfies consumer needs • Should marketing try to satisfy consumer needs or wants? BOTH! • Marketing tries to influence what we as consumers buy • A mistake often made by businesses is to focus too much on the produce they are selling and not on the consumer need. • A focus on customer needs is central to the market orientation widely followed by businesses today • The first stage was the production era: goods were scarce and buyers were willing accept anything that was available from the 1920s-1960s. This was followed by the marketing concept era in which organisations strived to satisfy the needs of consumers while also trying to achieve the organisation’s goal. This lead to today’s market orientation era. The market orientation focuses its efforts on continuous collecting information about customer’s needs, sharing this information and using it to create customer value. • This has led to customer relationship management (CRM) – the process of identifying prospective buyers, understanding them intimately and developing favourable long-term perceptions of the organisation and its offerings so that buyers will choose them in the market place. • Word of mouth advertising is far more effective than any advertising a firm can do itself. • Loyalty matters financially to a firm because it costs a business up to time times more to recruit one new customer than to keep an existing customer. • The four P’s: Controllable Marketing Mix Factors o Product: a good, service or idea to satisfy a customer’s needs o Price: what is exchanged for the product o Promotion: a means of communication between the seller and buyer o Place: a means of getting the product the consumer. When a company puts a product on sale, they are changing one element of the marketing mix – namely, the price. The Marketing program: How customer relationships are built • A firm achieve meaningful customer relationships by creating connections with its customers through careful co-ordination of the product, its price and the way it’s promoted and how it’s placed. • Relationship marketing involves a personal, ongoing relationship between the organisation and its individual customers that begins before and continues after the sale Jessica King BSB126 –Marketing Semester 1, 2009 4 • The stages of marketing: o Awareness: knowing that the movie/product etc. is coming and what the main themes are o Exploration: involves actively seeking further information and a growing desire to purchase the product o Commitment: requires a definite intent to purchase the product and recruiting others to do so. How Marketing Became So Important • Every organisation markets through manufacturing, retailing and providing services as well as non- profit organisations • Goods, services and even ideas are marketing. • Both individuals and organisations buy and use goods and services that are marketed. Ultimate consumers are people who use these goods and services in their household. In contrast, organisational buyers are those such as retailers, manufacturers or government who buy goods and services for their own use or for resale. • In free-enterprise society, there are three specific groups who benefit from effective marketing: consumers who buy, organisations that sell and society as a whole. • True competition ensures consumers benefit from the best products, the lowest prices or exceptional service • Marketing creates utility, the benefits or customer value received by users of the product. The utility is the result of the marketing exchange process. There are four different utilities: form, place, time and possession. The production of the good or service constitutes form utility. Place utility means having the offering available where consumers need it, whereas time utility means having it available when needed. Possession utility is the value of making an item easy to purchase through financial arrangements. Summary 1. Marketing is process of planning and executing the conception, pricing, promotion and distribution of goods, services and ideas to create exchanges that satisfy individual and organisational objectives. This definition relates to two primary goals of marketing: a) discovering the needs of consumers and satisfying them and, b) satisfying them. 2. Because an organisation doesn’t have the resources to satisfy the needs of all consumers, it selects a target market of potential customers – a subset of the entire market – on which to focus its marketing program. 3. Four elements in a marketing program designed to satisfy customer needs are product, price, promotion and place. These elements are called the marketing mix or the four P’s or the controllable variables because they are under the general control of the marketing department. 4. Environmental factors, also called uncontrollable variables, are largely beyond the organisation’s control. These include social, technological, economic, competitive and regulatory forces. 5. Building on customer value and relationship marketing concepts, successful firms develop mutually beneficial long-term relationships with their customers. 6. In marketing terms, our business history is divided into four periods: the production era, the sales era, the marketing concept era and the current marketing orientation era. 7. Marketing managers must balance consumer, organisational and societal interest. This involves issues of ethics and social responsibility. 8. Profit-making and non-profit organisations perform marketing activities. They market goods, services and ideas that benefit consumers, organisations and countries. Marketing creates utilities that give benefits, or customer value, to users. Jessica King BSB126 –Marketing Semester 1, 2009 5 LECTURE 2: SEGMENTATION LECTURE NOTES What is the most important choice that a company makes? • Choice shapes the business eg. Who are you selling to/who is your target market – ensure it fits with the marketing concept • Evolution from mass and product variety marketing (a different range eg. Colours, shape) due to new innovations • Product changes due to competition, consumer taste and technology improvements • Marketing targeting – focus on the customer need • Vertical integration – drive down costs to ensure a larger profit Market Segmentation Market Segmentation is the process of dividing the total market for a good or service into several smaller, internally homogeneous groups • Why segmentation is necessary: - Differences in buying habits - Differences in the way goods/services are used - Different motives for buying - In competitive markets, it is dangerous to treat all customers the same • Ideal is ‘one-to-one’ marketing – selling to one person at a time • Typically 2-12 is the market segment for most companies Markets are segmented by: • Intuition based on experience and judgement • Mimicking competitors and earlier market entrants • Performing an analysis: identifying current and potential wants – identifying characteristics that distinguish segments – determining who has each want A useful segmentation process must meet 5 criteria: 1. Potential for increased profit ie. extra costs such as production, advertising (x amount of different types are needed), distribution all go up – economies of scale 2. Similarity of needs of buyers within a segment eg. Product features wanted 3. Difference of needs of buyers among segments 4. Potential of a marketing action to reach a segment eg. Not just TV but radio or a letter drop – depending on the target market/demographics 5. Simplicity and cost of identifying and assigning buyers to segments Not every business should segment the market – most but NOT all should. Most basic market segmentation divides into: • Ultimate consumers: those who use it for themselves/in the home • Business users: those who use it in their businesses, to make other products or to resell it Example Market Segmentations Beer Hotels 1. Age 1. Star rating 2. Gender 2. Price 3. Occupation 3. Location Consumer markets are commonly further segmented on the basis of: Jessica King BSB126 –Marketing Semester 1, 2009 6 • Geography • Demographics • Psychographics • Buying behaviour These are the most significant factors! Geographic Segmentation • Divides the market based upon the geographic distribution of the population • Regional distribution eg. Europe, Asia as they tend to share the same values • Urban, suburban and rural distribution ie. to suit the needs of an urban customer will be different than that of a rural customer Demographic Segmentation • Uses the vital statistics that describe a population eg. Age, social class, ethnicity Psychographic Segmentation • Examining attributes related to how a person thinks, feels and behaves. • Approaches are typically based on personality, values, lifestyle and interests Behavioural Segmentation • Used to segment the market based upon product-related behaviour • Common bases are: - Benefits desired - Product usage rate eg. Nonusers, light, medium, heavy - 80/20 rule: 80% of profits are made by 20% of the customers Business markets are often segmented on the basis of: • customer location • type of business customer ie. industry, size In targeting, when selecting a segment to pursue, a company can follow one of 3 broad strategies: 1. market aggregation: every customer ie no segmentation at all. Employ product differentiation 2. single-segment concentration: focus on one segment or a niche market eg. Ferrari 3. multiple-segment segmentation: (most businesses are in this category) select two or more segments and devise marketing mixes for each Guidelines in selecting a target market • market size – large size = more attractive • expected growth • number and size of competition is minimal • cost of reaching the segment – is it effective • opportunity must be compatible with the company’s resources and objectives Roy Morgan Values Segments • allows you/business to know more about the target market and their interests and needs. Therefore, marketers are better able to suit the customer needs • Example: customer is always looking for a deal. Therefore retail staff is taught to make a ‘deal’ despite the retail price on the shelf. Jessica King BSB126 –Marketing Semester 1, 2009 7 Positioning • The way a firm’s product, brand or organisation is viewed relative to the completion • There are 3 steps in the positioning process 1. Selecting the positioning concept 2. Design the feather that most effectively conveys position 3. Coordinate marking mix components to convey a consistent position • Once company is identified to a niche – the company has to stick to it! • Only 1 concept/idea can be put in a 30 second commercial and therefore it is ideal for the company to focus entirely on one key concept or idea Essence of market segmentation and marketing • In the willingness to not serve certain customers needs/wants – the ability to say No to a certain market • “The essence of positioning is sacrifice. Yu must be willing to give something up in order to establish that unique position.” • Eg. Nike choose athletes with attitude/who are rebellious to cater to their youth-oriented target market • Companies must be a choice – otherwise your brand is bland to all consumers Demand forecasting entails estimating sales of a product during some time in the future. Key Concepts/Ideas • The concepts of market segmentation, targeting and positioning • The process of market segmentation • Bases for segmenting consumers and business markets • Target-market strategies • Methods of forecasting demand TEXTBOOK NOTES: Chapter 8 Identifying Market Segments and Targets Definitions Market segmentation: sorting potential buyers into groups that have common needs and will respond similarly to a marketing action Marketing segments: groups that result from market segmentation Product differentiation: strategy of using different marketing mix activities, such as product features or advertising, to help consumers perceive a product as being different and better than competing products Market-product grid: framework relating the segments of a market to products or marketing actions of the firm Synergy: increased customer value achieved through performing organisational functions more efficiently Usage rate: quantity consumed or times visited during a specific period 80/20 rule: idea that 80% of a firm’s sales are obtained from 20% of its customers Product positioning: the space a product occupies in consumers; minds on important features relative to competing products Perceptual map: means of displaying the position of products or brands in the customers’ minds A new producer in a market is often smarter to create a new niche in an established market rather than take on a well-established business which dominates that market. Why Segment Markets? • Segment markets in order to respond more effectively to the wants of groups of potential buyers and thus increase sales and profits • Market segmentation involves aggregating prospective buyers into groups that have common needs and will respond similarly to a marketing action resulting in relatively homogeneous groups of perspective buyers r those who are relatively similar to each other in terms of their consumption behaviour Jessica King BSB126 –Marketing Semester 1, 2009 8 • Stresses the importance of grouping people or organisations according to the similarly of their needs and the benefits they are looking for in making a purchase • Such needs and benefits must be related to specific marketing actions the organisation can take and may involve separate products or other aspects of the marketing mix • It is only a means to an end: to lead to tangible marketing actions that can increase sales and profitability. When to Segment Markets • expects that this will increase its sales, profit and return on investment • there are three types/situations o one product and multiple market segments o multiple products and multiple market segments o ‘segments of one’ or mass customisation The process of segmenting and targeting markets involves five key steps Identify market needs Steps in segmenting and targeting markets 1. Group potential buyers into segments 2. Group products to be sold into categories 3. Develop a market-product grid and estimate size of markets 4. Select target markets 5. Take marketing actions to reach target markets Execute marketing program Step 1: Form potential buyers into Segments • It’s not always a good idea to segment a market • Segments should be developed that meet 5main criteria: o Potential for increase profit o Similarity of needs of potential buyers within a segment o Difference of needs of buyers among segments o Potential of a marketing action to reach a segment o Simplicity and cost of assigning potential buyers to segments • Two variables are generally used to segment consumer markets: consumer characteristics and buying situations Step 2: Form Products to be sold into groups Step 3: Develop a Market-Product Grid and Estimate Size of Markets Step 4: Select Target Markets • Target markets must be selected carefully • If a company picks too narrow a group of segments, it may fail to reach the volume of sales and profits it needs • If a company picks too broad a group of segments, it may spread its marketing efforts so thin that the extra expenses are more than the increased sales and profits • Criteria to use in picking target segments: o Market size o Expected growth o Competitive position o Cost of reaching the segment o Compatibility with the organisation’s objectives and resources Jessica King BSB126 –Marketing Semester 1, 2009 9 Step 5: Take Marketing Actions to Reach Target Markets • Phil Knight, founder of Nike: “It doesn’t matter how many people you offend, as long as you are reaching your target market” Market Product Synergies: A Balancing Act • Recognising opportunities for key synergies (efficiencies) is vital to success in selecting target market segments and making marketing decisions • Marketing synergies: run horizontally across the grid, each row represents an opportunities for efficiency in terms of a market segment • Product synergies: run vertically down the market product grid, each column represents an opportunity for efficiency in research and development • Taking advantage of marketing synergies can often come at the expense of production ones because a single consumer segment will likely require a variety of products – each will have to be designed and manufactures Product Positioning Using Perceptual Maps • A key to positioning a product or brand effectively is the perceptions of customers. • In determining its position and the preferences of customers, companies obtain three types of data from customers: 1. The important attributes for a product class 2. Judgements of where existing products or brands are located on these attributes 3. The location of the firm’s own product or brand on these attributes Summary 1. Market segmentation is sorting potential buyers into groups that have common needs and will respond similarly to a marketing action 2. A straightforward approach to segmenting, targeting and reaching a market involves five steps a) form potential buyers into segments by characteristics such as their needs b) form products to be sold into groups c) develop a market-product grid and estimate size of markets d) select target markets e) take marketing actions to reach the target markets 3. Marketing variables are often used to represent customer needs in the market segmentation process 4. Usage rate is an important factor in a market segmentation study. Users are often divided into heave, medium and light users 5. Non-users are often divided into prospects and non-prospects. Non-users of a firm’s brand may be important because they are prospects – users of some other brand in the product class who may be convinced to change brands 6. Criteria used a) to segment markets and b) to choose target segments are related b different. The former includes potential to increase profits, similarity of needs of buyers within a segment, difference of needs among segments and whether or not a resulting marketing action is possible. The latter includes market size, expected growth, the competitive position of the firm’s offering in the segment and the cost of reaching the segment 7. A market-product grid is a useful way to display what products can be directed at which market segments, but the grid must lead to marketing actions for the segmentation process to be worthwhile 8. In positioning a product, a company can consider consumer judgments in the form of perceptual maps to locate its brand or product relative to competing ones. Jessica King BSB126 –Marketing Semester 1, 2009 10 LECTURE 3: LINKING MARKETING AND CORPORATE STRATEGIES LECTURE NOTES Levels of Strategy in Organisations • Corporate • Business unit: organisation that markets a set of related products to clearly defined customers • Function level groups of specialists create value for an organisation Why strategic planning is important? • Guidance to management: what are we trying to achieve? • Recognising/responding to threats/change/opportunities • Rationale to evaluate competing requests, coordinate strategy related to decision-making • Proactive not reactive • “The plan (outcome) is nothing, planning (a process) means everything” – its not about the outcome but about how you got there • Internal organisational politics and having a good plan – either of these factors make the final decision Strategic Planning: the mission comes first! • Mission statement: why organisation exists and what it seeks to achieve. Identifies, “What is our business?” • However, this question can only truly be answered from a customer’s perspective: with his/her perceptions, values, situations • It’s all about the customer need, not the product • It has been suggested to define a business in 3 ways: o Customer groups or who o Customer needs or what customer needs are satisfied. o Technologies or how A mission statement of the company’s scope including customers, markets, products, technology and values often with an inspirational theme In contract, a culture is a system of shared values ie. what are you saying to customers and employees about what you find important that distinguishes the organisation from others. Example: due to an increase in technology, Microsoft was forced to change their mission statement. As a result of this, Microsoft now competes with Nokia. It is crucial to know who the competition is and be able to define them. Stages in Strategic Marketing Planning • Situation analysis • Goals of objectives – convert mission into targeted levels of performance to be achieved • Strategies of how to achieve goals • Budgets • Control or checks that the plan is on target Situation Analysis • Assesses where a firms product has been, where it is now and where it is headed • Helps to understand where we are now in terms of plans and external factors and trends affecting it Examples of goals or objectives Jessica King BSB126 –Marketing Semester 1, 2009 11 • Profit • Quality/customer satisfaction • Social responsibility It is important to be specific in setting goals ie. by how much or give a time frame Stages in Strategic and Marketing Planning • Marketing strategy: means by which a marketing goal is achieved • Includes: o Segmentation o Positioning o Marketing program or mix The control phase • Comparing results with plans to identify deviations The Strategic Marketing Process: Developing a Strategy 1. Situation Analysis (lots of ways of doing this!) o Understanding the market environment o SWOT o Points of Difference o Business Portfolio Analysis o Market-Product Analysis o Porter’s 5 Forces Situation Analysis: Understanding the Marketing Environment • Customers – who are vs. Potential • Competencies – organisations special capabilities • Competitive advantage – unique strength compared to competitors • Benchmarking – discover how to do something better within your own firm ie. look at competitors/other organisations (someone who is very good at the process you are interested in) to see how to do it • Competitors – who are they? How do you define them? Don’t always focus on your immediate competition, rather on anyone who focuses on meeting the same consumer need Points of Difference • Characteristics of a product that make it superior to competitive substitutes • Most new products fail – approx 90%. • This is the single most important factor in the success or failure of a new product Developing Corporate Strategy: Business Portfolio Analysis • Studies a firms business units as though they were a collection of separate investments Net Promoter Scale • Indicator of loyalty and likely retention ie. how likely is a customer to recommend a business to others? • Correlates growth and other satisfaction scores, measured relative to competitors • Should be a basis for managerial decision making and situational analysis 4 Categories in BCG (Boston Consulting Group Growth – share matrix for a strong diversified firm) • Star: increased growth and market share – hope that it will become a cash cow • Cash cow: high share of the business profits Jessica King BSB126 –Marketing Semester 1, 2009 12 • Question mark/problem child: a couple of choices about what to do with it • Dog: ‘complete loser’ – get rid of it 4 Strategies of BCG • Invest to build Star and ? • Invest to hold ? • Harvest Cash Cow, Star • Divest Dog Market-Product Analysis • Market penetration • Market development • Product development • Diversification – very risky ie. almost 80% fail in the first 5 years Porter’s 5 Forces • Rivalry • Threat of new entry • Threat of substitutes • Power of buyers • Power of suppliers TEXTBOOOK NOTES: Chapter 2 Linking Marketing and Corporate Strategies Definitions Profit: reward to a business firm for the risk it undertakes for offering a product for sale Goals: targets of performance to be achieved, often by a specified time Market share: ratio of a firm’s sales to the total sales of all firms in the industry Strategic marketing process: approach whereby an organisation allocates its marketing mix resources to reach its target markets Marketing plan: road map for the marketing activities of an organisation for a specified future period of time Situation analysis: taking stock of where a firm or product has been recently, where it is now and where it is headed SWOT analysis: organisation’s appraisal of its internal strengths and weaknesses and its external opportunities and threats Market segmentation: sorting potential buyers into groups that have common needs and will respond similarly to a marketing action Points of difference: those characteristics of a product or service that make it superior to competitive substitutes Marketing strategy: means by which a marketing goal is achieved Marketing tactics: detailed day-to-day operational decisions essential to the overall success of marketing strategies Levels of Organisations and How Marketing Links to them • All organisations need strategic direction ie. they need an idea of what they hope to achieve and how they plan to do this • SBU – Strategic Business Unit • PMU – Product Market Unit Business Corporate-level strategy Mission goals Business unit-level strategy Jessica King BSB126 –Marketing Semester 1, 2009 13 Functional-level strategy Information Systems Finance Research and Development Marketing Manufacturing HR Strategy Issues in Organisations • The Business • The mission • Goals or objectives – businesses can pursue several different types of goals: o Profit o Sales o Market share in terms of revenue or volume o Quality o Customer satisfaction o Employee welfare o Social responsibility Setting Strategic Directions Involves answering two questions: 1. Where are we now? 2. Where do we want to go? Where are we now? • Customers • Competencies o An organisations special capabilities, including skills, technologies and resources that distinguish it from other organisations o Should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors, often based on quality, time, cost or innovation • Competitors Where do we want to go? Knowing where the organisation is at the present time enables managers to set a direction for the firm and commit resources to move in that direction • Business Portfolio Analysis o Uses quantified performance measures and growth targets to analyse a firm’s strategic business units as though they were a collection of separate investments o Vertical axis represents market growth rate ie. the annual rate of growth of the specific market or industry o Horizontal axis represents relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry o Can be divided into four groups based on the amount of cash generated or required from the firm:  Cash cows: generate large amounts of cash, far more than they can invest profitably in their own product line. Dominant market share of a low-growth market and provide cash to pay large amounts of company expenses and enables investment in other SBU’s  Stars: high share of high-growth markets that may need extra cash to finance their own rapid future growth – hope they become cash cows  Question markets/problem children: low share of high-growth markets which require large injections of cash just to maintain their market share Jessica King BSB126 –Marketing Semester 1, 2009 14  Dogs: low share of low-growth markets. They may never generate enough cash to sustain themselves and do not hold the promise of ever becoming real winners for the firm. Dropping may be required, except when relationships with other SBUs, competitive considerations or potential strategic alliances exist • Market Product Analysis o Use the strategy of market penetration – increase sales of present products to existing markets o Market development – selling existing products to ne market o Product development – involves selling a new product to existing markets o Diversification – involves developing new products and selling them in new markets. This is a potentially high-risk strategy because the company has neither previous product experience nor marketing experience from which to draw The Strategic Marketing Process Other questions soon begin to emerge: 1. How do we allocate our resources to get where we want to go? 2. How do we convert our plans to actions? 3. How do your results compare with plans and do deviations require new plans? • This approach is used in the strategic marketing process – an organisation allocates its marketing mix resources to reach its target markets. Divided into three phases: planning, implementation and control • Leads to a formal marketing plan – a road map of marketing activities of an organisation for a specified future period Strategic Marketing Process: The Planning Phase 1. Situation (SWOT) analysis • Taking stock of where the firm or product has been recently, where it is now and where it is headed in light of the organisation’s plans and the external forces and trends affecting it • SWOT – an organisation’s appraisal of its internal strengths and weaknesses and its external opportunities and threats • Both can be done at the level of the entire company, business unit, product line or specific product • Knowledge of favourable/unfavourable factors both internal and external from the company forms the foundation on which the business builds its marketing program: o Indentifying trends in the firm’s industry o Analysing the firm’s competitors o Assessing the firm itself o Researching the firm’s present and prospective customers • SWOT analysis helps a firm identify the strategy related factors which can have a major effect on the company in order to translate these results into specific actions to help the firm grow 2. Market-Product Focus and Goal Setting • Determining which products will be directed towards which customers is essential for developing an effective marketing program • Groups have common needs and will respond similarly to a marketing action • Ideally, a firm can use market segmentation to identify the segments on which it will focus its efforts and develop one or more marketing programs to reach them 3. Marketing Program • Use of the 4 P’s in the marketing program Jessica King BSB126 –Marketing Semester 1, 2009 15 Executing the Marketing Program • Strategy: used loosely but implies both the end sought (target market) and the means to achieve it (marketing program) Comparing Results with Plans to Identify Deviations • Planning gap: the difference between the projection of the path to reach a new goal and the projection of the path of results of a plan already in place. Summary 1. Today’s large organisations, both business firms and nonprofits organisations, are often divided into three levels: the corporate, business unit and functional levels 2. Marketing has a role in all three levels by keeping a focus on customers and finding ways to add genuine customer value. At the lowest level, marketing serves as part of a team of functional specialists whose day-to-day actions actually involve customers and create customer value 3. Organisations exist to accomplish something for someone. To give itself focus, an organisation continuously assesses its business, mission and goals 4. Setting strategic directions for an organisation involves asking, “Where are we now?” to assess the organisation’s customers, competencies and competitors. It also involves asking, “Where do we want to go?” and using techniques like portfolio analysis and market-product analysis 5. The strategic marketing process involves an organisation allocating its marketing mix resources to reach its target market using three phases: planning, implementation and control 6. The planning phase of the strategic marking process has three steps, each with more specific elements: situation (SWOT) analysis, market-product focus and goal setting and marketing program 7. The implementation phase of the strategic marketing process has four key elements: obtaining resources, designing the marketing organisation, developing schedules and executing the marketing program 8. The control phase of the strategic marketing process involves comparing results with the planned targets to identify deviations and taking actions to correct negative deviations and exploit positive ones. Jessica King BSB126 –Marketing Semester 1, 2009 16 LECTURE 4: INTRODUCTION TO MARKETING AND THE MARKETING CONCEPT LECTURE NOTES Finding Information • Don’t have to do market research to find out information • Use of databases/data warehouses Marketing Research • Reduces the guesswork but never eliminates the need for judgement • Can be misleading due to problems with: - marketing objectives - research problem definition - understanding the results • Is necessary due to: - competitive pressures - changing complex markets both foreign and domestic - the cost of strategic mistakes - changing customer expectations Marketing research has a lot of pitfalls but is necessary and has to be done because with mistakes are larger without it Limitations of marketing research • consumer behaviour is complex and difficult to predict • what people say and do may be different Four Step Marketing Approach 1. Define the problem (most important) - set research objectives - identify possible marketing actions 2. Develop a research plan - identify data needed for marketing actions - determine how to collect data 3. Collect relevant information - primary/secondary data 4. Deliver the final report - analyse data - present findings - make recommendations Data for research projects comes from: • Primary sources: specifically gathered for the issue at hand • Secondary sources: data already gathered eg. news media, government agencies, marketing research firms Secondary Data (always start with this!) Advantages • Saves time and money if relevant • Aids determination of direction for primary data • Pinpoints the kind of people to approach • Serves as a basis of comparison Jessica King BSB126 –Marketing Semester 1, 2009 17 Disadvantages • May not be on target with the specific issue at hand • Is it comparable? • Quality and accuracy of data? • Is it current? • Is it impartial? Primary Data Advantages • Answers specific questions • Current data • Source of data is known • Secrecy can be maintained Disadvantages • Expensive • Quality may decline if interviews are lengthy • Reluctance to participate Gathered using • Surveys eg. phone, mail, internet, focus groups • Observation eg. personal, mechanical • Experiments eg. laboratory, field • Qualitative eg. focus groups, online forums Focus groups: group of approximately 12 who participate in a group discussion led by a moderator Marketing Research ↓ Primary Data/Research Secondary Data/Research ↓ ↓ Qualitative Data Quantitative Data Qualitative Data Quantitative Data (how they think – (survey) Do first!) A Question of Sampling • Representative of the group it is drawn from • Improper sample can lead to error in study • Therefore make a choice between the two types: probability or non-probability Probability • Simple random sample: known and equal change of selection • Stratified random sample: population divided into mutually exclusive groups (eg age) • Cluster (area) sample: population divided into mutually exclusive groups and draw a sample Non-probability • Convenience sample: most accessible population • Judgement sample: uses judgement to select population member who has food prospects for accurate information • Quota sample: interviews a prescribed number of people in several categories Jessica King BSB126 –Marketing Semester 1, 2009 18 Observation Research • People watching people eg. mystery shoppers • People watching activity eg. audits • Machines watching people eg. traffic counters Motivational Research/Projective Techniques • Uses ambiguous stimuli to explore subconscious motives and values • Eg. Thematic apperception tests and drawings – drawings are used and not photos because photos lead to assumptions Predicting behaviour is an inexact science Research is a process, not a project – needs to be ongoing, not a one-shot deal. TEXTBOOOK NOTES: Chapter 7 Turning Marketing Information into Action Definitions Marketing research: process of collecting and analysing information in order to recommend actions to improve marketing activities Objectives: specific, measureable goals to achieve in solving a problem Measures of success: criteria or standards used in evaluating proposed solutions to a problem Data: facts and figures related to a problem Secondary data: facts and figures that have already been recorded before the project at hand Primary Data: facts of figures that are newly collected for a project Observational data: facts and figures obtained by watching either mechanically or in person how people behave Questionnaire data: facts or figures obtained by asking people about their attitudes, awareness, intentions and behaviours Sales forecast: total sales of a produce that a form expects to sell during a specified time period under specified conditions What is marketing research? • Process of defining a marketing problem and opportunity, systematically collecting and analysing information and recommending actions to improve an organisation’s marketing activities. • It can reduce risk and uncertainty in order to take more effective marketing actions Step1: Define the Problem Set the research objectives Identify possible marketing actions • If objectives are too broad, the problem may not be researchable • If they are too narrow, the value of research results may be seriously lessened Step 2: Develop the Research Plan Identify Data needed for marketing decisions • Focus on collecting data that helps to make a clear choice Determine how to collect data • Often as important as actually collecting the data. • Can be broken into two categories: concepts and methods • Concepts: ideas about how products or services Jessica King BSB126 –Marketing Semester 1, 2009 19 • Methods: approaches that can be used to collect data. Two methods included sampling – by selecting a group of distributions, customers or prospects and asking questions and treating answers as typical for all. The other method is statistical inference – generalise the results from the sample to much larger groups to decide on marketing actions Step 3: Collect Relevant Information Secondary Data • Facts and figures previously recorded • Internal eg. financial statements, research reports • External eg. ABS census reports, government figures Primary Data • Facts and figures newly collected for the project • Observational eg. mechanical and electronic approaches • Questionnaire eg. mail, online, telephone or focus groups Step 4: Deliver the Final Report Analysing Data Presenting Findings Making Recommendations Summary 1. Marketing research is the process of defining a marketing problem and opportunity, systematically collecting and analysing information and recommending actions to improve an organisation’s marketing activities. The chapter uses a four-step marketing research sequence that can lead to better decisions 2. Defining the problem, step 1 in the sequence, involves setting the research objectives and identifying possible marketing actions 3. Developing the research plan, step 2, requires identifying the data needed and determining how to collect it 4. Collecting relevant information, step 3, includes considering pertinent secondary and primary data. Secondary data have been recorded prior to the project and include those pieces of information internal and external to the organisation. Primary data are collected specifically for the project and are obtained by either observing or questioning people 5. Information technology enables massive amounts of marketing data to be stored, processed and accessed. Databases can be queried using data mining to find statistical relationships useful in marketing 6. Delivering the final report is step 4. It involves analysing data, presenting finds and making recommendations to decision makers 7. three sales forecasting techniques are judgements of individuals, surveys of groups and statistical methods Jessica King BSB126 –Marketing Semester 1, 2009 20 LECTURE 5: CONSUMER BEHAVIOUR LECTURE NOTES The consumer decision making process • Needs recognition • Information search • Evaluation of alternatives all are effected by cultural and social factors • Purchase • Post purchase behaviour Need Recognition • Internal and external stimuli • 5 senses – sensual marketing: using all 5 senses in marketing products Information search • Evoked set: groups of brands, resulting from an information search, from which a buyer can choose. Information accrued over time regarding specification/likes/dislikes • Sources can be internal or external eg. choice magazine Evaluation Alternatives • Evaluation of products • Analyse product attributes • Rank attributes by importance Evoked Set ↓ Purchase Post-purchase behaviour • Post-purchase anxiety or tension experienced after an inconsistency between behaviour and values/opinions • The consumer asks, did I make a good decision/buy the right product/get good value for money? Marketing can minimise this through: • Effective communication • Follow-up • Guarantees/warranties Psychological influences on consumer behaviour: • Motivation • Perception • Lifestyle • Personality Motivation • Marketers try t understand why a consumer behaves in such a way – reason is he/she is motivated to • Motive: a need sufficiently stimulated that an individual is moved to seek satisfaction • A purchase is often the result of multiple motives • Motives may conflict each other • Conscious vs. unconscious – Freudian theory Jessica King BSB126 –Marketing Semester 1, 2009 21 • Psychoanalytic theory has caused marketers to realise that they must appeal to buyer’s dreams, hopes and fears • They must also provide buyers with socially acceptable rationalisations for many purchases Maslow’s hierarchy of needs Self actualisation ↓ Esteem ↓ Social ↓ Safety ↓ Physiological Perception • Selective exposure/attention: consumer notes certain things and ignores others • Selective comprehension/distortion: changes or distortions information that conflicts with feelings or beliefs • Selective retention: remembers only information that supports personal believes • Perceive: the meaning given to something sensed – depends on the object and experiences • Selective exposure: notice messages consistent with attitudes and beliefs. Paradigms – mindset/filter • Subliminal perception: registers on the subconscious mind • Proximity influences perception ie. other things being equal, things near each other tend to be perceived as belonging together. Proximity used in ads to suggest a relationship between a product advertised and other desirable products/situations. Lifestyle Mode of living that is identified by: • How people spend their time and resources/activities • What they consider important/interests • What they think of themselves and the world around them (self-concept) Socio-cultural influences on consumer behaviour • Personal influences • Culture • Reference groups • Family • Subculture • Social class TEXTBOOOK NOTES: Chapter 7: Consumer Behaviour, Organisational Markets and Buyer Behaviour Definitions Consumer behaviour: actions a person takes in purchasing and using products and services Purchase decision process: stages a buyer passes through in making choices bout which products or services to buy Involvement: personal, social and economic significant of a purchase to the consumer Motivation: energising force that stimulates behaviour to satisfy a need Personality: someone’s consistent behaviours or responses to recurring situations Jessica King BSB126 –Marketing Semester 1, 2009 22 Perception: process by which someone selects, organises and interprets information to create a meaningful picture of the world Perceived risk: anxiety felt when a consumer cannot anticipate possible negative outcomes of a purchase Attitude: tendency to respond to something in a consistently favourable or unfavourable way Beliefs: consumer’s perceptions of how a product or brand performs Opinion leaders: individuals who have social influence over others in their purchase decisions Word of mouth: people influencing each other in personal conversations Reference groups: people to whom an individual looks as a basis for self-appraisal or as a source of personal standards Family life cycle: family’s progression from formation to retirement, each phase bring with it distinct purchasing behaviours Sub-cultures: sub groups within a larger culture that have unique values, ideas and attitudes Purchase decision Process The process has five stages Problem recognition: perceiving a need → information search: seeking value → alternative evaluation: assessing value → purchase decision: buying value → post-purchase behaviour: value in consumption or use Problem Recognition: perceiving a need • The initial step in purchase decision • Realises there is a different between what they currently have and would they would like to have Information Search: seeking value • A consumer beings to search for information about what might satisfy the newly discovered need • Firstly, this may be based on previous experiences with products/brands • A consumer make undertake an external search for information – which is needed when one does not have much past experience or knowledge or the financial risk of making a bad decision is high and the cost of gathering information is low. • This can be done in three ways: personal sources, public sources and marketer-dominated sources Alternative evaluation: assessing value • The information search clarifies the problem for the consumer by suggesting criteria or points to consider for purchase, providing brand names that might meet criteria and developing consumer value perceptions • Evaluative criteria: factors that represent both the objective attributes of a brand and the subjective ones Purchase decision: buying value • Two choices remain: from who to buy and when to buy? • Deciding when to buy is frequently determined by a number of factors Post-purchase behaviour: value in consumption or use • A company’s sensitivity to a customer’s consumption experience strongly affects the value a consumer perceives after the purchase • Studies show that satisfaction or dissatisfaction affects consumer communications and repeat-purchase behaviour Involvement and Problem-Solving variations • High involvement purchase occasions typically have at least of three characteristics: the item to be purchased is expense, can have serious personal consequences or could reflect on one’s social image • Routine problem solving is typically the case for low-price, frequently purchased products Jessica King BSB126 –Marketing Semester 1, 2009 23 • Extended problem solving exists in high-involvement purchase situations for items such as cars, houses, overseas travel and financial investments. Influences on the consumer purchase decision process Motivation • Energising force that stimulates behaviour to satisfy a particular need • Markets try to simulate these needs • Physiological needs: ones which must be satisfied first eg. basic to survival • Safety needs: involve self-preservation and physical well being • Personal needs: the need for achievement, status, prestige and self-respect • Self-actualisation: personal fulfilment Personality • Revealed in a person’s self-concept which is the way people see themselves and the way they believe others see them • How people see themselves vs. how they would like people to see themselves Perception • Selective perception: filters the information so that only some of it is understood or remembered. Occurs when people pay attention to messages that are consistent with their attitudes and believes and ignore those that aren’t. • Selective exposure: post-purchase stage of decision process, when consumers read advertisements for the brand they just bought – also occurs when a need exists. • Selective comprehension: interpreting information so that it is consistent with your attitudes and beliefs • Selective retention: means that consumers do not remember all the information they see, read or hear even minutes after exposure Learning • Consumers learn which sources to use for information about products and services which evaluative criteria to use when assessing alternatives and how to make purchase decisions • Behavioural learning: the process of developing automatic responses to a type of situation built up through repeated exposure to it – drive, cue, response and reinforcement Jessica King BSB126 –Marketing Semester 1, 2009 24 • Cognitive learning: learning without direct experience but through thinking, reasoning and mental problem solving • Brand loyalty: a favourable attitude towards and consistent purchase of a single brand over time, results from positive reinforcement of a brand Values, Beliefs and Attitudes • Attitude formation: a learned predisposition to respond to an object in a consistently favourable or unfavourable way • Shaped by values and beliefs • Attitude change: marketers use through approaches to try to change consumer attitudes towards products and brands 1. Changing beliefs about the extent to which a brand has certain attributes 2. Changing the perceived importance of attributes 3. Adding new attributes to the product Lifestyle • The way of living identified by how people spend their time and resources (activities), what they consider important (interests) and what they think of themselves and the world around them (opinions) • Psychographics: analysis of consumer lifestyles which has produce many insights into consumer behaviour • VALS program – identifies 8 interconnected categories of adult lifestyles based on a person’s self- orientation and resources. Socio-cultural Influences on Consumer Behaviour • Opinion leadership: more likely to be important for products that provide a form of self-expression eg. cars and clothing • Word of mouth: perhaps the most powerful information source for consumers because it typically involves friends whoa re viewed as trustworthy • Reference groups: people to whom an individual looks on as a basis for self appraisal eg. Comparing yourself to your peers. They affect consumer purchases because they influence the information, attitudes and aspiration levels that help set a consumer’s standards. They have an important influence on the purchase of luxury products but not necessities. Broken into three groups, membership group, aspiration group and dissociative group. • Family group - consumer socialisation: children learn how to purchase by interacting with adults in purchase situations and through their own experiences - family life cycle: the distinct phases that a family progresses through bringing with it identifiable purchasing behaviours - family decision making: two decision making styles exist – spouse-dominant and join decision- making • Culture and Subculture - Culture refers to a set of values, ideas and attitudes that learned and shared amongst a group - Subcultures within the larger group exist with unique values, idea sand attitudes all of which affect buying patterns. Summary 1. When a consumer buyers a product, it is not an act but a process. There are five steps in the purchase decision process: problem recognition, information search, alterative evaluation, purchase decision and post purchase behaviour Jessica King BSB126 –Marketing Semester 1, 2009 25 2. Consumers evaluate alternatives on the basis of attributes. Identifying which attributes are most important to consumers, along with understanding consumer beliefs about how a brand performs on those attributes, can make the difference between successful and unsuccessful products 3. Consumer involvement with what is bought affects whether the purchase decision process involves, routine, limited or extended problem solving. Situational influences also affect the process 4. Perception is important to markets because of the selectivity of what a customer sees or heads, comprehends and retains 5. Much of the behaviour that consumers exhibit is learned. Consumers learn from repeated experience and reasoning. Brand loyalty is a result of learning 6. Attitudes are learned predispositions to respond to an object or class of objects in a consistently favourable or unfavourable way. Attitudes are based on a person’s values and beliefs concerning the attributes of products or services 7. Personal influence takes two forms: opinion leadership and work-of mouth. A specific type of personal influence exists in the from of reference groups 8. Family influences on consumer behaviour result from two sources: family life cycle and decision making within the household 9. Within Australia and NZ, there are subcultures that affect a consumer’s values and behaviour. Marketers must be sensitive to these influences when developing a marketing mix. Jessica King BSB126 –Marketing Semester 1, 2009 26 LECTURE 6: PRICING LECTURE NOTES Steps in Setting Price • Pricing constraints & objectives • Demand • Costs • Approximate pricing level • List price • Adjustments to list price Identify Pricing Constraints and Objectives • Demand for the Product Class, Product, and Brand • Newness of the Product: Stage in the Product Life Cycle • Single Product versus a Product Line • Cost of Producing and Marketing the Product 1. Selecting Price Objective • Survival • Maximum current profit / share • Max sales growth / volume • Meeting competition • Prestige (allows you to sell at a higher price)/ Price quality leadership (charge top dollar to send a message to consumers) • Market skimming • Social responsibility 2. Determining Demand, Revenue and Expectations • Analyse target market expectation or evaluation of price & quality o e.g. lower price with higher quality product seems wrong to customers • Forecast market demand o Boeing believes future customers will want reduced travel time over sleeping berths etc. o Price elasticity of demand Price Elasticity of Demand • The percentage change in quantity demanded relative to a percentage change in price. • Petrol demand is elastic and inelastic – in the short term there is little that can be done Price sensitivity • Unique value • Aware of substitutes • % of total spending • Difficult to compare • P.E.D. formula eg. A lot of Australians say they care about buying Australian owned in surveys but more often than not they buy the cheapest. Importance of PED to marketing managers • PED not same over all possible prices of a product. (e.g. in text) Jessica King BSB126 –Marketing Semester 1, 2009 27 • PED not same for product classes & brands within product class. How to estimate a demand curve • Existing data (longitudinal or cross section) • Price experiments • Ask buyers what if 3. Determine, cost, volume and profit relationships The Importance of Controlling Costs i. Total cost ii. Fixed cost: do not change with the quantity of the product that is produced and sold. iii. Variable cost: vary directly with the quantity of the product that is produced and sold. iv. Marginal cost Break-even analysis • The break-even point is the quantity at which total revenue and total cost are equal and beyond which profit occurs Average Costs • And economies of scale: U shaped AC curve if high fixed costs • LAC v SAC • Used by H.P. to drive down prices • But risk if overbuild or new technology eg. HP use cost understanding to dominate the market 4. Select an Approximate Price Level Demand-Oriented Approaches a. Skimming Pricing: • The highest initial price that customers really desiring the product are willing to pay. • Situations to support this strategy: (1) Enough prospective customers are willing to buy the product immediately at the initial high price to make these sales profitable, (2) The high initial price will not attract competitors, (3) Lowering price has only a minor effect on increasing the sales volume and reducing the unit cost, and (4) Customers interpret the high price as signifying high quality b. Penetration Pricing • Setting a low initial price on a new product to appeal immediately to the mass market • Conditions supporting a penetration strategy include: (1) Many segments of the market are price sensitive, (2) A low initial price discourages competitors from entering the market, and (3) Unit production and marketing costs fall dramatically as production volumes increase. c. Prestige Pricing • Setting a high price so that status-conscious consumers will be attracted to the product and buy it. d. Price Lining • Setting the price of a line of products at a number of different specific pricing points. e. Odd-Even Pricing Jessica King BSB126 –Marketing Semester 1, 2009 28 • Odd-even pricing involves setting prices with a few dollars or cents under an even number, with the assumption that demand might drop off dramatically if the price were raised to the even number, e.g. $19.95 f. Target Pricing • Manufacturer deliberately adjusting the composition and features of a product to achieve the target price to consumers, e.g. Japanese electronics. g. Bundle Pricing • The marketing of two or more products in a single “package” price. (PC’s – screen, mouse keyboard) h. Yield Management Pricing • The charging of different prices to maximize revenue for a set amount of capacity at any given time. • Used by airlines effectively i. Perceived or lifetime value • Relatively high price reflects total costs over product lifetime. • E.g. Caterpillar – give no apologies for having a higher cost but the cost of running the truck over time is lower due the reliability of the brand. Cost-Oriented Approaches o Standard Markup Pricing o Cost-Plus Pricing: practice of summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price, eg client pays ad agency a fee based on costs plus agreed profit, based on cost (was used in the music industry before iTunes) o Experience Curve Pricing o Standard markup pricing entails adding a fixed percentage to the cost of all items in a specific product class, e.g. large # items in dept stores & supermarkets means estimating demand for each is impossible. Profit-Oriented Approaches • Target Profit Pricing (e.g. PTO) • Target Return-on-Sales Pricing • Target Return-on-Investment Pricing Competition-Oriented Approaches • Customary Pricing (based on tradition) • Above/At/or Below- Market Pricing • Loss-Leader Pricing - Loss-leader pricing is used to attract customers in hopes they will buy other products as well 5. Set the List of Quoted Price a. One price vs. flexible pricing i. One price for all buyers ii. Different prices for different buyers & situations, e.g. yield management, Dell, online incl. Amazon b. Price Lining c. Captive product pricing, e.g. razors or car parts or restaurant wines Jessica King BSB126 –Marketing Semester 1, 2009 29 6. Make Special Adjustments to the List or Quoted Price • Discounts (qty, season, cash) • Legal and Regulatory Aspects of Pricing o Price Fixing (conspiracy, e.g. vitamins) o Price Discrimination o Deceptive Pricing, e.g. bait & switch o Predatory Pricing (cement) - Charging a very low price for a product with the intent of driving competitors out of business. TEXTBOOOK NOTES: Chapter 11: Pricing Products and Services Definitions Price: money or other considerations exchanged for the ownership of a good or service Profit equation: profit = total revenue – total cost Demand curve: graph relating quantity sold and price, which shows how many units will be sold at a given price Total revenue: total money received from the sale of the product Total cost: total expenses incurred by a firm in producing and marketing a product, total cost is the sum of fixed costs and variable costs. Fixed cost: firm’s expenses that are stable and do not change with the quantity of product that is produced and sold Variable cost: sum of the expenses of the firm that vary directly with the quantity of products that is produced and sold Break-even analysis: examines the relationships between total revenue and total cost to determine profitability at different levels of output Pricing objectives: expectations that specify the role of price in an organization’s marketing and strategic plans Pricing constraints: factors that limit the range of price a firm may set Nature and Importance of Price • New tactic is ‘special fees’ and ‘surcharges’ – drive by consumer’s zeal for low prices combined with the ease of marking price comparisons on the Internet • Price influences customer’s perception of overall quality – the higher the price, the higher the quality • Value pricing: the practice of increasing a product’s benefits while maintaining or decreasing price eg. Supersizing • Profit = total revenue – total cost General Pricing Approaches 1. Demand-oriented 2. Cost-oriented 3. Profit-oriented 4. Competition-oriented Demand-Oriented Approaches • Approaches emphasis factors underlying expected customer tastes and preferences more than such factors as cost, profit and competition when selecting a price level • Skimming pricing: setting the highest initial price that customers really desiring the product are willing to pay. As the demand of these customers is satisfied, the firm lowers the price to attrach another, more price-sensitive segment. • Penetration pricing: setting a low initial price on a new product to appeal immediately to the mass market – in some situations this may follow skimming pricing. Jessica King BSB126 –Marketing Semester 1, 2009 30 • Prestige pricing: involves setting a high price so that quality-or-status conscious consumers will be attracted to the product and buy it • Odd-even pricing: involves setting prices a few dollars or cents under an even number eg. $19.99 • Target pricing: manufactures will sometimes estimate the price that the ultimate consumer would be willing to pay for the product and then work backwards through the markups to determine what price they should charge. This results in target pricing, results in the manufacturer deliberately adjusting the composition and features of a product to achieve the target price to consumers. • Bundle pricing: the marketing of two or more products as a single package • Yield Management Pricing: the charging of different prices to maximize revenue for a set amount of capacity at any given time. • Economic value pricing: demand-oriented approach as it is set based on the customer perception of value for money over the life of a product including all ancillary costs. Cost-oriented Approaches • A price setter stresses the cost side of the pricing problem, not the demand side. • Standard Markup Pricing: involves adding a fixed percentage to the cost of all items in a specific product class – high volume products have a smaller markup than low volume products. • Cost-Plus Pricing: involves summing the total unit cost of proving a product or service and adding a specific amount to the cost to arrive at a price Profit-Oriented Approaches • A price setter may choose to balance both revenues and costs to set prices using profit-oriented approaches • Target Profit Pricing: when a firm sets an annual target of a specific dollar amount of the profit • Target Return-on-Sales Pricing: set prices that will give a profit a specific percentage eg. 1% of sales volume • Target Return-on-Investment Pricing: set prices to achieve a return on investment target such as a percentage that is mandated by the board of directors or regulators - used by electricity providers. Competition-Oriented Approaches • Rather than emphasis demand, cost or profit factors, a price setter can stress what competitors or ‘the market’ is doing • Customary Pricing: a standardized channel of distribution or other competitive factors dictate the price • Above/At/Below Market Pricing: the ‘market price’ of a product is what customers are generally willing to pay, not necessarily that price that the firm sets – marketing managers often have a subjective feel for the competitors price or the market prices and using this has a benchmark they may deliberately choose to set their price above, at or above. • Loss-leader Pricing: deliberately sell a product below its customary price to attract attention – not to increase sales but to attract customers in the hope they will buy other products The Demand Curve • Three key factors effect consumer demand: Consumer taste, price and availability of similar products and consumer income. • Movement along a demand curve eg. When price is lowered, demand increases assumes that other factors remain unchanged • Price elasticity – a key consideration related to the product’s demand curve and refers to how sensitive consumer demand and the firm’s revenues are the changes in the product’s price. Jessica King BSB126 –Marketing Semester 1, 2009 31 • A product with elastic demand is one in which a slight decrease in price results in a relatively large increase in demand or units sold. In contrast, a product with inelastic demand means that slight increases or decreases in price will now significantly affect the demand or units sold for the product. Fundamentals of Estimating Revenue • Total Revenue (TR) = Unit Price (P) x Quantity Sold (Q) Break-even Analysis • Break-even Point (BEP) is the quantity at which total revenue and cost are equal • Total cost (TC) is the total expense incurred by a firm in producing and marketing • Fixed cost (FC) the sum of the expenses of the firm that are stable and do not change with the quantity of product that is produced and sold • Variable cost (VC) is the sum of the expenses of the firm that vary directly with the quantity of product that is produced and sold. • TC = FC + VC Identifying Pricing Objectives • Profit or Return on Investment (ROI). There are three types: - Managing for long-run profits: gives up immediate profit in exchange for achieving a higher market share - Maximizing current profit: eg. For a quarter of the year as targets an cab set and performance measured quickly - Target return: objective occurs when a firm sets a profit goal • Sales • Market Share • Unit Volume • Survival • Social Responsibility Identifying Pricing Constraints • Demand for the Product Class, Product and Brand • Newness of the Product: Stage in the Product Life Cycle • Cost of Producing and Marketing the Product • Competitors’ Prices • Legal and Ethical Considerations Setting a final price • Price must be high enough to cover the cost of providing the product and meet the objectives of the company yet must be low enough that customers are willing to pay it but not too low or customers may think they are purchasing an inferior product. • Setting a price is given in the following steps: 1. Select an Approximate Price Level - You must understand the market environment, the features and customer benefits of the particular product and the goals of the firm 2. Set the List or Quotes Price - One-price Policy: involves setting one price for all buyers of a product or service - Flexible Price Policy: involves setting different prices for products and services depending on individual buyers and purchase situations in light of demand, cost and competitive factors 3. Make Special Adjustments to the List of Quoted Price - Discounts – reductions from the list price based on quantity, seasonal, trade or cash factors Jessica King BSB126 –Marketing Semester 1, 2009 32 - Allowances – reductions from list or quoted prices in the form of trade-in or Promotional allowances - Geographical Adjustments – made by manufactures or wholesalers to list or quotes prices to reflect the cost of transportation of products – FOB origin pricing and uniform delivered pricing. Summary 1. Price is the money or other considerations exchanges for the ownership or use of a product or service. Although price typically involves money, the amount exchanges I often different fro the list or quotes price because of allowances and extra fees. 2. Consumers use price as an indicator of value when it is paired with the perceived benefits of a good or service. Sometimes price influences consumers perceptions of quality itself and other times consumer make value assessments by comparing the costs and benefits of substitute items 3. Four general approaches for finding an approximate price level for a product or service are demand- oriented, cost-oriented, profit-oriented and competition-oriented pricing. 4. Demand-oriented pricing approaches stress consumer demand and revenue implications of pricing and include eight types: skimming, penetration, prestige, odd-even, target, bundle, yield management and economic value. 5. Cost-oriented pricing approaches emphasize the cost aspects of pricing and include two types: standard markup and cost-plus pricing 6. Profit-oriented pricing approaches focus on a balance between revenues and costs to set a price and include three types: target profit, target return-on-sales and target return-on-investment 7. Competition-oriented prices approaches emphasis what competitors or the marketplace are doing and include three types: customary, above/at/or below market and loss leader pricing 8. A demand curve shows the maximum number of products consumers will buy at a given price and for a given set of (a) consumer tastes, (b) price and availability of other products and (c) consumer income. When any of these changes there is a shift of the demand curve. An essential revenue concept is total revenue. 9. It is necessary to consider cost behavior when making pricing decisions. Important cost concepts include total cost, variable cost and fixed cost. 10. Break-even analysis shows the relationship between total revenue and total cost at various quantity of output for given conditions of price as well as fixed cost and variable cost. The break-even point is where total revenue and cost are equal 11. Pricing objectives, which specify the role of price in a firm’s marketing strategy, may include pricing for profit, sales revenue, market share, unit sales, survival or some socially responsibly price level 12. Pricing constraints such as demand, product newness, costs, competitors, other products sold by the firm and the type of competitive market restrict a firm’s pricing range 13. Given an approximate price level for a product, a manger must set a list or quotes price by considering factors such as one-price versus a flexible-price policy. 14. List or quoted price is often modified through discounts, allowances and geographical adjustments. Jessica King BSB126 –Marketing Semester 1, 2009 33 LECTURE 7: ITEGRATED MARKETING COMMUNICATION AND ADVERTISING LECTURE NOTES Advertising was once recognized as manipulated and was the pillar of marketing communication Integrated Marketing Communication: A new way to think about advertising • The concept under which a company carefully integrates and coordinates its many communications channels to deliver a clear, consistent and compelling message about the organisation and its product • Integrated marketing communication is a strategic business process used to plan, develop, execute and evaluate coordinated, measurable, persuasive brand communications programs over time with consumers, customers, prospects, employees, associates and other targeted relevant external and internal audiences. The goal is to generate both short-term financial returns and build long-term brand and shareholder value. IMC is about • Measurable, persuasive brand communications. • With consumers, customers, prospects, employees, associates. • Targeted, relevant external and internal audiences. • Generate short-term financial returns. • Build long-term brand and shareholder value. Key Constructs of IMC • Starts with the consumer. • Builds on number of traditional marketing communication disciplines. • Integrates the strategy and the message to maximize the impact. • Chooses the marketing communication discipline based on IMC objectives. • Addresses multiple audiences and builds relationships with them. Database central to all communication. • Continuous, circular, responsive communication as a dialogue. • Shared budgets and evaluation measures. • Measurable and accountable. • Aims to achieve synergy. To get more from the budget. Synergy • an entire structure of messages – with its links and repetition – creates impact beyond the power of any one message on its own and this happens in situations where there might be little attention paid to conventional advertising Growth of IMC • Changes in marketplace. • Changes in organisational structure. • Changes in consumers. • Changes in communication. IMC Disciplines • Advertising – Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future. • Sales promotion – Short term incentives to encourage the purchase of a product or service. • Direct Marketing – An interactive system of marketing which uses one or more advertising media to effect a measurable response or transaction at any location. Jessica King BSB126 –Marketing Semester 1, 2009 34 • Public Relations – Building good relations with the company’s various publics by obtaining favourable publicity, building a good corporate image and handling unfavourable rumours, stories and events. • Personal selling – two way flow of communication between buyer and seller, designed to influence a person or a group’s purchase decision. • Very persuasive communication as it is an immediate, customized message (which can contain complex info) to a select audience. • Very expensive way to communicate. Contributions of IMC disciplines • Advertising - Reaches large audiences quickly and cost effectively, builds image through emotion, symbols, visuals and repetition and can create added value. • Sales Promotion - Provides immediate short-term boost, but can weaken brand loyalty, encourage cost cutting and reduce profitability. • Direct Marketing – Measurable, targeted, accountable, technology driven. • Public relations – Credibility, targeted, cost effective, relationship building. • Personal selling – Persuasive, interactive, builds relationships. Barriers to the implementation of IMC • Organisational structure – most organisations structured vertically in silos. • Turf battles and agency egos – who controls IMC? • Lack of support of top management. • Lack of database development. • Lack of measurement tools. • Marketers reluctance to put all eggs in one basket. • Lack of expertise of IMC. Advertising • Any paid form of non-personal presentation and promotion of ideas, goods and services using mass media by an identified sponsor • Advertising has changed … Still typically paid for but no longer just non personal, doesn’t always use mass media and often has an Identified sponsor • Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future. How is advertising different • Advertising is typically paid communication unlike PR, sales promotion or direct marketing. • Advertising uses mass media and new media, which may be different from direct marketing, sales promotion or PR. • Advertising has an identified sponsor, unlike PR or direct marketing How advertising is the same • Consumers view all communication as advertising – unable to discriminate between sales promotion, direct marketing and public relations. Role of advertising • Makes the prospect familiar with the product. • Reminds the prospect about the product. • Brings news of new products. • Adds values not intrinsic to the product. Jessica King BSB126 –Marketing Semester 1, 2009 35 • Reassures and helps retain customers. • Increases the enthusiasm of those marketing the product. Advertising exists because … • It is part of our communication system. • It advises people of the availability of goods and services. • It assists in making informed decisions. • It advises people of their rights and obligations as citizens. • It informs, guides, directs, persuades and warns us. Advertising contributes to society • As an instrument of marketing communication • As a form of social communication How advertising works • Advertising can produce both communication and behavioural effects • But extensive research into advertising has not established direct relationship between advertising and sales (expect in case of direct response advertising Advertising as communication • Sharing of an idea, exchanging information or the process of developing a commonality of thought between the sender and the receiver o Who o Says what o In which Channel o To whom o With what effect Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action, now or in the future. TEXTBOOOK NOTES: Chapter 14: Integrated Marketing Communications Definitions Receivers: Consumers, who read, hear or see the message sent by a source Encoding: process whereby the sender transforms an idea into a set of symbols Decoding: process whereby the receiver takes a set of symbols and transforms them into an idea Noise: factors that can work against effective communication by distorting the message or feedback received. Advertising: any paid form of non-personal communication about an organisation, good, service or idea by an identified sponsor Personal selling: two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence a person’s or group’s purchase Public relations: form of communication management that seeks to influence the feelings, opinions or beliefs held by customers, potential customers, shareholders, suppliers, employees and others about a company and its products or services Publicity: non-person, indirectly paid presentation of an organisation, good or service Sales promotion: a short-term offer designed to arouse interest in buying a good or service Promotional mix: combination of one or more of the promotional elements – advertising, personal selling, public relations and sales promotion – a firm uses to communicate with consumers Push strategy: directing the promotional mix to channel members to encourage them to order and stock a product Jessica King BSB126 –Marketing Semester 1, 2009 36 Pull strategy: directing the promotional mix at ultimate consumers to encourage them to ask the retailer for the product Integrated marketing communications: concept of designing marketing communications programs that co- ordinate all promotional activities to provide a consistent message across all audiences. Hierarch of effects: sequence of stages a potential buyer goes through: awareness, interest, evaluation, trial and adoption Direct marketing: promotional strategy that uses direct communication with consumers to generate a response in the form of an order or request for further information Direct orders: the result of direct marketing offers that contain all the information necessary for a potential buyer to make a decision to purchase and complete a transaction Lead generation: result of direct marketing offer designed to create interest in a product or a service and a request for additional information Traffic generation: outcome of direct marketing offer designed to motivate people to visit a business Advertising • Doesn’t have imme
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