Management of the Enterprise
Chapter 15: Managing the Marketing Mix: Product, Price, Place And Promotion
Product Development and the Total Product Offer
- International competition today is so strong that Canadian businesses could lose some part of
the market to foreign producers if they are not careful, and the only way to prevent such losses
is to design and promote better products.
- 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.
Developing a Total Product Offer
- Total Product Offer (Value package) everything that consumers evaluate when deciding
whether to buy something.
- When people buy a product, they may evaluate and compare total product offers on all of these
- A successful marketer must begin to think like a consumer and evaluate the total product offer
as a collection of impressions created by all of the factors.
Product Lines and the Product Mix
- A product line a group of products that are physically similar or are intended for a similar
- Product Mix the combination of product lines offered by a manufacturer.
- Mix may include both goods and services to ensure that all of the customer’s needs are being
met, and would minimize the risks associated with focusing all of a firm’s resources on only one
- 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 image. Packaging 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.
- Many products that were once sold by salespeople are now being sold in self-service outlets,
and the package has been given more sales responsibility.
- The package communicates information about the contents and the benefits of the product.
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 Manager a manager who has direct responsibility for one brand or one product line;
called a product manager in some firms.
- Many large consumer product companies created the position of brand manager to have
greater control over new-product development and product promotion.
- Make marketing decisions (as they apply to the four Ps) throughout the life cycle of each
product and service.
- When a well-known brand name fades in sales, you can :
Reinvent the product to satisfy the needs of loyal customers in the form of a
new and improved version
Introduce new products and services to satisfy customers’ needs or risk having
competitors steal their business.
Might abandon the product or service and focus on other areas.
Branding and Brand Equity
- For the 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. Need to be protected from other companies that may want to trade on the
trademark holder’s reputation and image.
Companies often sue other companies for tooo closely matching brand names.
- Popular objectives include the following:
Achieving a Target return on Investment or profit
o Goal of marketing is to make a profit by providing goods and
services to others.
o Often advertise certain products at or below cost to attract
people to the store. These products are called Loss Leaders.
o The long-run is to make profits by following the short-run
objective of building a customer base.
Achieving greater market share
o Offer low finance rates (ex. Zero percent financing ), low lease
rates, or rebates.
Creating an Image
o Socially visible products are priced high to give them an image
of exclusivity and status.
Furthering social objectives
o A firm may want to price a product low so that people with little
money can afford the product.
- Pricing objectives should be influenced by other marketing decisions regarding product design,
packaging, branding, distribution, and promotion.
- It is one of the most difficult of the four Ps for a manager to control
- This is important because price is a critical ingredient in consumer evaluations of the product.
Major Approaches to Pricing
- People believe intuitively that the price charged for a product must bear some relation to the
cost of producing the product.
- 3 major approaches to pricing:
Competition-based Pricing Cost-based Pricing
- Producers often use cost as a primary basis for setting price.
- Develop elaborate cost accounting systems to measure production costs (including materials,
labour, and overhead), add in some margin of profit and come up with a price.
- In the long run, the market determines what the price will be.
- This strategy considers factors underlying customer tastes and preferences when selecting the
price. (example: bundling, psychological pricing, and target costing.)
- 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.
Makes the final price an input to the product development process, not an
outcome of it.
- 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.
- 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 the process used to determine profitability at various levels of sales.
- Is the point where revenues from sales equals all costs.
- Total Fixed Costs all expenses that remain the same no matter how many products are made
- Variable cost costs that change according to the level of production. Pricing Strategies for New Products
- Skimming Price Strategy a strategy in which a new product is priced high to make optimum
profit while there’s little competition.
- Penetration Price Strategy A strategy in which the product is priced low to attract many
customers and discourage competitors
Retailer Pricing Strategies
- Everyday low pricing (EDLP) Setting prices lower than competitors and then not having any
- The idea is to have consumers come to those stores whenever they want a bargain rather than
waiting until there is a sale, as they do with most department stores.
- High-low Pricing Strategy set prices that are higher than EDLP stores, but have many special
sales where prices are lower than competitors
- The problem is that consumers will be able to find better prices on the internet and begin
buying more and more from online retailers.
How Market Forces Affect Pricing
- Recognizing the fact that different consumers may be willing to pay different prices, marketers,
sometimes price on the basis of consumer demand rather than cost or some other calculation.
That’s called demand-oriented pricing.
- Marketers are facing a new pricing problem: customers can now compare prices of many goods
and services on the internet.
- Marketers tend to stress product image and consumer benefits such as comfort, style,
convenience, and durability.
- The idea is that good service will enhance a relatively homogeneous product.
- Other strategies to avoid price wars include adding value (ex. Home delivery from a drugstore),
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. - Chanel of Distribution a set of marketing intermediaries, such as agents, brokers,
wholesalers, and retailers, that join together to transport and store goods in their path (or
channel) from producers to consumers.
- Agents and brokers marketing intermediaries that bring buyers and sellers together and
assist in negotiating an exchange, but don’t take title to the goods – that is, at no point do they
own the goods.
- Wholesaler a marketing intermediary that sells to other organizations.
- Retailer an organization that sells to ultimate consumers
- Channels of distribution ensure communication flows and the flow of money and title to goods.
Also help ensure that the right quantity and assortment of goods will be available when and
Why Marketing Needs Intermediaries: Creating Exchange Efficiency
- Manufacturers don’t always need marketing intermediaries to sell their goods to consumer and