Chapter 15 Marketing II Textbook Notes

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University of Waterloo
Accounting & Financial Management
AFM 131
Robert Sproule

Chapter15-MarketingII Product Development and the Total Product Offer Value: good quality at a fair price, see how much has the benefits exceeded the costs  Marketing is always focused on the value of a product  Marketers must learn to listen better and constantly adapt to changing market demands o Including adapting products to new competition and new markets o Ex: changing fast food menus  Product Development is key in any modern business Developing a Total Product Offer Total Product Offer: everything each consumer assesses when buying a good or service  Basic product is the core product and the total product is the augmented product  Wise to talk with customers to lean which feature are important  Value enhancers: price, brand name, package, convenience, service, guarantee, speed of delivery, advertising  Different consumers may want different total product offers, company must develop a variety of offerings 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, several competing brands Product Mix: combination of product lines offered by an organization  Product lines and mixes allow a company to address differing individual consumer total product offers o May include both goods and services to ensure all customer’s needs are met o Good mix would minimize the risk associated with focusing all of a firm’s resources on one target Product Differentiation Product Differentiation: creation of real or perceived product differences  Unique value enhancers used by a company to create differences when compared to competitors' products o Actual difference may be small, using a creative mix to create a unique image Packaging Changes the Product  Product packaging is an important part of the product offer to both consumers and retailers: o Consumers – attract attention, protect the goods, easy to open, describes the contents, explain the benefits, provides warnings and other information, price o Retailers - use of UPC codes and RFID chips  Helps with inventory control  RFID more high tech, can be tracked at all times and read all at once  Bundling - multiple products and/or services sold for a single price Branding and Brand Equity Brand: a name, symbol, or design that identifies the goods or services of one seller and distinguishes them from the gods and services of competitors  For buyer: assures quality, reduces search time, adds prestige to purchases  For seller: new product introductions, help promotion, and add to repeat purchases, differentiate products so that prices can be set higher product life cycle  Trademark: exclusive legal protection for both its brand name and its design o Needs to be protected since competitors might try to destroy the holder’s reputation and image Generating Brand Equity and Loyalty Brand Equity: value of brand name and associated symbols  Measure of earning power  Coupons and price discounts erode consumers’ commitment to brand names Brand Loyalty: Degree to which customers are satisfied, enjoy the brand, and are committed to further purchase  Core of brand equity  Loyal customers represents substantial value to a firm o Brand Value: how much profit the brands are likely to generate for their owners o Trying to create more brand value by highlighting green initiatives Brand Awareness: how quickly or easily a brand name comes to mind when a product category is mentioned  Advertising builds strong brand awareness  Sponsorship of events also improves brand awareness Brand Management Brand Managers: a manager with direct responsibility for one brand or product line, sometimes called product managers  Manages all elements of the marketing mix throughout the life cycle of each product o Kind of like the president of a one product firm The Product Life Cycle Product life cycle: a theoretical model of what happens to sales and profits for a product class over time  Four stages: introduction, growth, maturity, and decline  May vary depending on product; some goes through very fast and some stay classics and never decline  Extremely important for marketers to recognize what stage a product is in in order to make intelligent decisions  Each stage calls for different marketing mix decisions Life Cycle Stage Product Price Place Promotion Introduction Test market product High or Low Selective distribution Heavy investment Improve product Adjust to meet Increased distribution Competitive Growth demand advertising Maturity Differentiate producFurther reduce Intensify distribution Brand name Decline Develop new product Adjust to remain Consolidate distribution,Reduce advertising profitable Drop outlets Competitive Pricing Pricing Objectives Popular objectives include:  Achieving a target return on investment or profit  Building traffic o Use of loss leaders to attract customers  Short run: build a customer base  Long run: make a profit  Achieving greater market share o Through lowering the price, comes at a cost  Creating an image o Branding, gives exclusivity and status to buyers  Furthering social objectives o Lowering prices for social or ethical reasons  Government subsidies on basic foods  All decisions should have long term and short term objectives, also related with other Ps Approaches to Pricing  Cost-based pricing o Using cost of manufacturing as a primary basis for setting prices o May be significantly different than the market equilibrium price  Demand-based pricing o Target Costing: designing a product so that it satisfies customers and meets the profit margins desired by the firm  Makes final price an input to the product development process  Competition-based pricing o Based on what other competitors are doing  Based on customer loyalty, perceived differences and competitive environment o Price Leadership: 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: process used to determine profitability at various levels of sales  Where revenue from sales equals all costs  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  BEP Formula: TFC/(P-TVC) Pricing Strategies for New Products Skimming Price Strategy: high price, to make optimum profit while there’s little competition  Make back research and development costs quickly Penetration Price Strategy: low price, to attract many customers and discourage competitors  Quickly captures a large market share Retail Pricing Strategies Everyday Low Pricing: setting prices lower than competitors and then not having any special sales  Bring customers whenever they want a bargain rather than wait for a sale  Ex: Home Depot and Walmart High-Low Pricing: set prices higher than EDLP stores, have many special sales where prices are lower than competitors  Encourages customers to wait for sales, cutting into profit o Less and less stores do this due to online shopping on the rise  Ability to find better prices  Ex: Large department stores Psychological Pricing: price goods at price points that make the product appear less expensive than it is How Market Forces Affect Pricing  Different consumers willing to pay different prices, price set based on consumer demand o Demand-oriented pricing  Internet made comparing prices of competitors much more easily o More access to price information o Naming their price to sellers  Rise in the non-price competition Non-Price Competition  Compete on product attributes other than price o Stressing product images and consumer benefits  Ex: comfort, style, convenience, durability, service, adding value, educating consumers on how to use the product, and establishing relationships The Importance of Channels of Distribution  Marketing Intermediaries: organizations that assist in moving goods and services from producers to business and consumer users o Channel of Distribution: a set of marketing intermediaries such
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