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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Description for all your exam review needs! Page 1 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 Chapter 6: Developing and Promoting Goods and Services Promoting Products and Services  Promotion: any technique for selling a product.  Communication mix: total message about a product sent to the consumer.  Sales promotions add value beyond obvious benefits in the product.  The purpose of these promotions is to: o Make consumers aware of the product; o Make them knowledgeable of the product; o Persuade them to like the product; and o Persuade them to purchase the product. o Ultimate objective: increase sales.  Uses of promotion: o Communicating information through different mediums about the product or related things such as new developments and new availabilities. o Product Positioning: establishing an easily identifiable image or the product in consumer’s minds. Appeals to a specific segment of the market. o Adding value. o Controlling Sales Volume: seasonal sales patterns can be smoothed through year-wide promotion (Eg: Hallmark card sales).  Promotional strategies developed to meet these objectives: o Push strategy: company pushes the product to wholesalers and retailers, who then persuade consumers to buy. o Pull strategy: appeals directly to customers. Customers then influence the retails and wholesalers to offer the product, product is pulled to the market.  Promotional Mix: choosing the best combination of advertising. The target audience influences what the promotional mix will be, it is matched to the 5 steps in the buyer decision process: o Buyers recognize the need to purchase; buyers learn about available products; compare competing products; choose and purchase; and evaluate the product after purchase. Advertising Promotions  Advertising: paid, non-personal communication, sponsor informs audience about product.  Information advertising: appropriate to introduction stage of product life cycle, makes consumers aware of the product.  Persuasive advertising: appropriate to growth stage of product life cycle, influences customers to buy the firm`s product.  Comparative advertising: appropriate to the maturity stage, influences customers to switch from a competitor to their product.  Reminder advertising: appropriate to late maturity stage of the product life cycle, keeps product`s name in the minds of customers.  Advertising Media: specific communication vehicles to carry a firm`s message such as TV and radio. Form the `media mix` (combination of media through which a firm advertises). Each has pros and cons (10 items): o Newspapers: short life, poor production quality, not targeted, reach a large audience. o Television: appeals to all viewer`s senses, brief (poor for informing customers), many commercials compete for viewer`s attention. o Direct mail: printed ads mailed to consumer`s homes or places of businesses, can be targeted and allows for large amounts of information to be conveyed. `Fax attacks`: sending advertising message via fax for better chance of impact. o Radio: programmed locally so consumer`s can be targeted, short, used as background music so people rarely pay attention. o Magazines: high level of targeting, space for detail, tend to be passed from person-to-person. o Outdoor advertising: billboards, signs, high repeat exposure, little control over who sees the ads. for all your exam review needs! Page 2 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 o Word of Mouth: opinions about the value of products passed informally through social interaction. Free, but firm cannot choose what is said. o The Internet: ecommerce (buying and selling through electronic technology) and internet marketing (advertising to consumers over the internet).  The internet offers buyers: convenience, privacy (no face-to-face pressure), selection (limitless variety of products), useful information, and control (consumer can customize products through web applications).  The internet offers sellers: reach (global accessibility), direct distribution (eliminating intermediates), reduced expenses (no operating of `brick and mortar` physical stores), relationship building (customers interact with websites), flexibility (quickly change terms of sale), and feedback (measuring page conversions and effectiveness).  Problems: profitability problems, information overload, and limited markets restricted to highly educated people who typically use the internet.  Spyware problem, security is a top concern among consumers. o Virtual advertising: digitally superimposed ads on live or taped television programming. For example, an image of coke superimposed on the field during a football game. Consumers pay more attention. o Other Advertising Channels: telephone calls, Yellow Pages, door-to-door, etc. Types of Advertising (8 types)  Brand advertising: promotes a specific brand of products by reinforcing the brand`s identity.  Product advertising: promotes general type of product (Eg: dairy farmers of Ontario advertising milk).  Advocacy advertising: promotes a candidate`s position (usually politics).  Institutional Advertising: advertising a firm`s long-term image, not a specific product.  Retail advertising: retailers reaching end-users of consumer products (general public).  Co-operative advertising: manufacturer teams up with retailer or wholesaler to reach customers.  Trade advertising: advertising by manufactures to reach potential wholesalers and retailers.  Industrial advertising: advertising by manufacturers to reach other manufactures which buy raw materials. Preparing the Campaign with and Advertising Agency  Advertising campaigns: the arrangement of ads, as a whole, in media to reach a target audience.  Six steps: 1) identify target audience; 2) establish budget; 3) define objectives of the message; 4) creating the messages; 5) selecting the appropriate media; and 6) evaluating ad effectiveness.  Advertising agencies: firms that specialize in creating and placing advertisements. Personal Selling  Personal selling: using a salesperson to communicate one-on-one with potential customers.  Most expensive form, but most personal form. Telemarketing is less expensive and cuts the cost of personal sales.  Sales force management: setting sales goals at high management levels which translate into practical periodic goals for salespeople, implementing strategies to meet those goals.  Personal selling situations: o Retail selling: selling product for buyer`s personal use (buyer comes to salesperson). o Industrial selling: selling to other businesses (salesperson comes to buyer).  Personal selling Tasks (3 basic tasks): o Order processing: personal sales, receiving and follow-through of an order by a salesperson. o Creative selling: techniques designed to persuade a potential customer to buy using benefits that are not obvious in the product. Crucial for high-priced products. o Missionary selling: indirect promotion of a product by offering technical assistance or promoting a relationship or image. For example, drug companies inform doctor`s of new drugs they can prescribe.  Personal selling process (6 steps): for all your exam review needs! Page 3 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 o 1) Prospecting: determining potential customers, Qualifying: determine if they have the authority and money to make a purchase. o 2) Approaching: few minutes, the first impression of the seller in very important. o 3) Presenting and Demonstrating: links benefits to prospect`s needs and helps them visualize using the product. o 4) Handling Objections: often customers object to the price, salesperson must be practiced in differing or fixing objections. They tell the salesperson what the customer thinks is important and how to sell to them. o 5) Closing: asking customer to buy the product, most infective when indirect. Eg: “Are you free Tuesday for delivery?” Places burden of rejecting the sale on the prospect, and they find it hard to say no. o 6) Following up: good impression to be made in terms of delivery time and product support, determines repeat orders. Sales Promotion  Short-term promotional activities designed to stimulate consumer buying or co-operation from other members of the trade (distributors, for example).  5 Major Types: o Coupons: entitles barer to certain savings, incentive to buyer. o POP (Point-of-purchase) displays: a special product display in a retail store that gets prominent attention, encourages buying. o Premiums: some items are offered for free or at a bargain price to induce buyer purchasing. Usually given as a reward for the buyer’s first purchase. May not always work, may buy just to get premiums and then not buy again. o Trade shows: members of an industry gather and rent booths to display their products. o Contests and sweepstakes can add incentives to salespeople to increase sales. Publicity and Public Relations  Publicity: information about a company made available to consumers through news media, not controlled by the company, but it is free.  Public relations: public-service announcements made by the company to enhance the company’s image. Chapter 7  Pricing: deciding how much to sell products for  Pricing objectives: goals that producers strive to reach in pricing o To sell the number of units that generates that highest total profits o Ebusiness: comparison shopping and direct link between buyers and sellers influence pricing  Market Share objectives: set prices low in order to increase customer base o Market share: percent of total sales in a market made b the company.  Loss containment/survival strategy: Eg: cutting prices on obsolete products to recover an investment Price-setting tools  Cost-oriented pricing: o Markup is the difference between manufacturing price and selling price that takes into account additional costs o Markup percentage = Markup/Sales Price (as a percent of revenue)  Break-even analysis o Considers variable costs (costs that change with number of units sold) and fixed costs (unaffected by number of units sold) to perform a break-even analysis (determining the number of units that are required to sell in order to cover costs). o Break-even point (in units) = Total fixed costs/(Price-Variable cost) [know how to do this for the exam] for all your exam review needs! Page 4 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 Pricing Strategies  Price leadership: dominant firm in the industry that establishes prices and other companies follow  Price-skimming strategy: to pricing as high as possible to maximize profit per unit (only works if the product is marketed as truly unique)  Penetration-pricing strategy: price a new product very low to move units and build customer loyalty  Price lining: setting price points for items in categories, limiting the number of price points adds simplicity  Psychological pricing: setting prices to take advantage of consumer perceptions of certain types of prices o Odd-even psychological pricing: Eg: $99.99 (not an even dollar amount) perceived lower than $100  Discounting: price reductions on set prices to persuade consumers to buy o Cash discounts, seasonal discounts, trade discounts (in return for being a distributor), quantity discount (in return for buying in bulk)  International pricing: pricing a product lower in a foreign market than in a home market is called ‘dumping’ (it is illegal). Involves taking a loss to drive competitors out of business. Distribution  The distribution mix is just as important as the marketing mix discussed earlier  Intermediaries/middlemen: help distribute a producer’s goods o Wholesalers: sell products to other businesses who then sell to consumers o Retailers: sell directly to consumers  Non-direct distribution (using intermediaries) adds to the cost, but also adds value by doing their specific jobs more efficiently than the producer can.  8 Primary Distribution Channels: o Direct channel: no intermediaries o Retail distribution of consumer products o Wholesale distribution (wholesaler between producer and retailer) o Distribution through sales agents and brokers: independent business person receives commissions for distributing merchandise o Distribution by agents to consumers and businesses: Agents are the only intermediary, sell directly to consumers or to businesses that consume the product (Eg: travel agents)  Distribution of businesses products used in a manufacturing follow he following 3 channels: o Direct distribution of business products: manufacturer maintains a sales office o Wholesale distribution of industrial products: manufacturers produce in large quantity and buyers purchase in small quantities, requires wholesalers to break orders into smaller units o Wholesale distribution to businesses retailers: Eg: stores such as Staples, warehouse-like retailers come after wholesalers in the distribution.  Distribution strategies: o Intensive distribution: product is distributed through every possible outlet using as many channels as possible  Works for low-involvement products such as candy where nothing but a visual presence is needed to sell the product o Exclusive distribution: only one retailer or wholesaler in a geographic area sells the product, good for high-cost product that maintain an image o Selective distribution: mix of the above two strategies, company selects only the wholesalers and retailers that will give the product the attention it requires (Eg: sales floor space, knowledgeable salespeople). Wholesaling  Merchant wholesalers: takes legal possessions of goods before selling to customers. o Full-service merchant wholesalers provide credit, marketing, and merchandising services. o Limited-function wholesalers can be drop shippers: do not carry inventory, but arrange shipments from the producer. o Rack jobbers: limited function wholesalers that market directly to retail stores  Agents and Brokers: useful primarily due to their knowledge of markets and merchandising expertise for all your exam review needs! Page 5 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 Retailing  Product line retailers o Department stores: carry a wide variety of product lines, often high-quality items o Supermarkets: carry a variety of food and food-related items divided into specialized apartments o Specialty stores: small retail stores that carry one line of related products  Bargain retailers: emphasize low prices as a means of attracting customers o Discount houses: offer major items such as large appliances at discount prices o Catalogue showrooms: customers place orders from catalogues and pick them up from on-premise warehouses o Factory outlets: retailers owned by the manufacturers of the products they sell o Warehouse/wholesale club: membership-only combined retailers and wholesalers o Convenience stores: high accessibility attracts customers  Non-store retailing: o Direct-response retailing: firms contact customers directly to receive sales orders o Direct selling: companies selling door-to-door, directly to consumers o Mail order: customers place orders in catalogues and orders are shipped o Telemarketing o Electronic retailing: online shopping  Internet-based stores can be high in value but small in size Physical Distribution  Warehousing is concerned with storing goods. o Private warehouses are owned by just one company while Public warehouses are independently owned and operated and rent space to many firms. o Storage warehouses hold seasonally-demanded goods over extended periods of time while Distribution centers acts as brief storage for high-demand goods being shipped to retail stores o The costs of warehousing include inventory control (the cost of keeping track of what is on hand and keeping it in equilibrium) and materials handling (moving and arranging goods within the warehouse).  Major modes of Transportation o Trucks: flexibility and fast service, limited in volume, good for short-distances o Planes: fastest mode, needed for goods that spoil, most expensive form o Railroads: heavy materials o Water Carriers: least expensive, slowest, used for bulky materials that are not time sensitive (Eg: oil and sand). o Pipelines: slow in terms of delivery time, completely inflexible, provide dependable constant flow for only liquids and gases.  Trends in transportation operations: o Intermodal transportation: combining different modes for maximum efficiency o Containerization: standardized containers to seal many items at the point of shipment o Order fulfillment (providing purchaser with product) through ecommerce channels: recently online sellers have had trouble with fulfillments of orders, big online sellers maintain their own warehouses to increase fulfillment efficiency.  Distribution as a business strategy involves streamlining all a company’s activities. o Hubs (central distribution outlets) control most of a firm’s distribution activates  Supply-side hubs: make sense when there a large influx of industrial goods, located very near to the manufacturer  Pre-staging hubs: manage incoming supplies to meet production schedules  Distribution-side hubs: finished products are sent to customers around the globe, can be located far from manufacturing plant and nearer to consumers Chapter 8  Money is an object generally accepted as payments for products, has 4 key qualities: for all your exam review needs! Page 6 of 11 nd MGTA04 Chapters 6-10 from Business 2 Ed. Vol. 2 o Portability o Divisibility o Durability o Stability o (difficult to counterfeit)  Barter economies, where goods are exchanged directly for each other, are inefficient compared to money economies. Money has three function: o Medium of exchange o Store of value o Unit of account, all products can be valued in terms of the money  Money substitutes such as credit cards also exist for convenience.  Purpose of financial institutions is to ease money flow from sectors with surpluses to those with deficits.  Previously, there were 4 key legal elements of the financial system, this distinction began to erode in 1980. Financial Pillar 1: Chartered Banks  Privately owned firms that serve as financial intermediaries in an economy, are profit-seeking.  Schedule A banks are the major banks we hear about (Eg: Royal, TD, Scotia), the 1980 Bank Act requires that no more than 10% of voting shares be controlled by a single interest.  Schedule B banks are usually foreign entities set up in Canada, and are not required to follow the 10% rule mentioned above.
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