Chapter 9 – Managing the Marketing Mix.docx

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11 Apr 2012
Commerce Textbook March 5th, 2012
Chapter 9 Managing the Marketing Mix: Product, Price, Place, and Promotion
Product development and the total product offer
Value: good quality at a fair price. When consumers calculate the value of a product, they
look at the benefits and then subtract the cost to see if the benefits exceed the costs.
To satisfy consumers, marketers must learn to listen better than they do now and to adapt
constantly to changing market demands.
Product development is a key activity in any modern business, anywhere in the world.
Developing a total product offer
Total product offer (value package): everything that consumers evaluate when deciding
whether to buy something.
Product lines and the product mix
Product line: a group of products that are physically similar or are intended for a similar
market. Usually face similar competition.
Product mix: the combination of product lines offered by a manufacturer.
Companies must decide what mix is best. The mix may include both goods and services to
ensure that all of the customer’s needs are being met. A diversified mix would minimize
the risks associated with focusing all of a firm’s resources on only one target market.
Product differentiation
Product differentiation: the creation of real or perceived product differences.
Actual product differences are sometimes quite small, so marketers must use a creative mix
of pricing, advertising and packaging (value enhancers) to create a unique and attractive
Packing changes the product
Consumers evaluate many aspects of the total product offer, including the brand.
Packaging can also help make a product more attractive to retailers.
Universal Product Code (UPC) bar code and a preset number that gives the retailer
information about the product.
Packaging changes the product by changing its visibility, usefulness, or attractiveness.
Packaging now has more promotional burden.
Services can also be packaged.
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Commerce Textbook March 5th, 2012
Branding and brand equity
Brand names give products a distinction that tends to make them attractive to consumers.
For buyer: brand name assures quality, reduces search time and adds prestige to
For seller: brand names facilitate new-product introductions, help promotional efforts, add
to repeat purchases and differentiate products so that prices can be set higher.
Trademark: a brand that has been given exclusive legal protection for both the brand
name and the pictorial design.
Generating brand equity and loyalty
Brand equity: the combination of factors such as awareness, loyalty, perceived quality,
images and emotions that people associate with a given brand name.
Brand loyalty: the degree to which customers are satisfied, enjoy the brand, and are
committed to further purchase.
Brand awareness: how quickly or easily a given brand name comes to mind when a
product category is mentioned.
Brand management
Brand manager: a manager who has direct responsibility for one brand or one product
line; called product manager in some firms.
This responsibility includes all elements of the marketing mix. Thus, the brand manager
might be thought of as president of a one-product firm.
Many large consumer product companies created the position of brand manager to have
greater control over new-product development and product promotion.
Brand managers typically make marketing decisions throughout the life cycle of each
product and service.
Competitive pricing
Pricing is the only P that generates revenue.
It is one of the most difficult of the four Ps for a manager to control.
Pricing objectives
A firm may have several pricing objectives over time, these include:
1. Achieving a target return on investment or profit
2. Building traffic loss leaders are the products supermarkets advertise at or below
cost to attract people to the store
3. Achieving greater market share one way to capture a larger part of the market is to
offer low finance rate, low lease rates, or rebates.
4. Creating an image
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Commerce Textbook March 5th, 2012
5. Furthering social objectives a firm may want to price a product low so that people
with little money can afford the product.
Major approaches to pricing
Prices and cost aren’t always related. Next are the three major approaches to pricing
Cost-based pricing
Cost is usually a primary basis for setting price.
Pricing should take into account costs, but it should also include the expected costs of
product updates, the objectives for each product, and competitor prices.
Demand-based pricing
This considers factors underlying customer tastes and preferences when selecting the
Bundling: grouping two or more products together and pricing them as a unit.
Psychological pricing: pricing goods and services at price points that make the product
appear less expensive than it is.
Target costing: designing a product so that it satisfies customers and meets the profit
margins desired by the firm.
Target costing makes the final price an input to the product development process, not an
outcome of it.
Competition-based pricing
Competition-based pricing: a pricing strategy based on what all the other competitors are
doing. The price can be set at, above, or below competitor’s prices.
Pricing depends on customer loyalty, perceived differences, and the competitive climate.
Price leadership: the procedure by which one or more dominant firms set the pricing
practices that all competitors in an industry follow.
Break-even analysis
Break-even analysis: the process used to determine profitability at various levels of sales.
The break-even point is the point where revenue from sales equals all costs.
Total fixed cost (FC)
Break-even point (BEP) = -----------------------------------------------------------
Price of one unit (P) Variable cost (VC) of one unit
Total fixed costs: all expenses that remain the same no matter how many products are
made or sold.
Variable costs: costs that change according to the level of production.
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