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Western University
Management and Organizational Studies
Management and Organizational Studies 1021A/B
Kevin Thompson

MOS 1021 Chapter 1 MARKETING FUNDAMENTALS • The essence of marketing is discovering consumer insights • Product must be relevant and engaging enough for the consumers to choose your product or service. Marketing Mix: • Product- What? • Price – how much? • Place – where? • Promotion - How to attract? o Public Relations o TV advertisement  Shows/celebrities watched by the target market o Print-based advertising o Online advertising o Point-of-sale materials The Essence of Marketing Success is rooted in focusing on consumers and providing them with value through products and services that meet their needs Objective: realize a profit, or, if working in the non-profit sector, to generate revenue to fund their programs and run their operations. Customer Needs • Encourage consumer loyalty • At times can get wrong information (can ask wrong questions, target market doesn’t know what their want/need is) Creating Customer Value • Is the unique combination of benefits received by targeted buyers that includes quality, price, convenience, on-time delivery, and both before-sale and after-sale service. • Achieved after carefully managing every element of marketing mix • On-going marketing encourages consumers to become long-term loyal consumers Gaining customer loyalty, providing the consumer with value: • Pricing strategy • Product design • Service elements Appealing to Target Market • Target market: a specific group of people that have the same needs/wants • One company may have several products for different target markets Coordinating the Marketing Mix Elements: • Product o All attributes that make up a good/service/idea. Including the physical features (color/shape) and incentives (warrantee) • Price o Expected retail and sale price • Place o Distribution channels and retailers required to sell the product • Promotion o Communication tools to help reach to the target market (advertising, sales promotion, public relations, direct marketing, and personal selling) The Marketing Process It involves: • Identifying consumer needs • Managing the marketing mix to meet these needs • Realizing profits Marketing- describes the process of planning goods, services, or ideas to meet consumer needs and organization objectives Exchange- trade of things of value between buyers and sellers so that each benefits (usually money/volunteer) Market- describes the potential consumers who have both willingness and ability to buy a product. Identify consumer Manage the Realize profits for needs marketing mix to the company manage the needs The Evolution of Business Philosophies st 1 stage: Production orientation- focused on manufacturing. Short in supply, so manufactures goods sold regardless of quality. • 1930s • Model T, sold in black • Engineering-driven 2 stage: Sales orientation- focused on selling as many products as possible. Market became more competitive, production became more efficient, and products were in abundance. • 1960s • Postwar prosperity • Baby boom 3 stage: marketing orientation- organization to strive to satisfy the needs of consumers while trying to achieve organizations goal. (Marketing concept follows this idea) 4 stage: relationship marketing- when organizations create long-term links with customers, employees, suppliers, and other partners to increase loyalty and customer retention. • The Progression of Marketing and Evolving Areas Some of the latest evolving areas: • Customer Relationship Management (CRM)  The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction • Air miles, rewards, points card • High cost of obtaining new customers and database marketing help create the focus  on CRM [13]  • Experiential Marketing  Creating opportunity for consumers to directly interact with brands • Create an occasion for a few consumers to interact personally with the brand • BMW provides a test track with prospective customers can test drive the cars under  the supervision of a professional driver and test the superior handling and  performance of the vehicles • Corporate Social Responsibility (CSR)  Is a concept where organizations voluntarily consider the well-being of society by taking responsibility for how their businesses impact consumers, suppliers, employees, shareholders, communities, the environment, and society in general  Societal marketing concept- focusing on the consumer and the well-being of society A Focus on Ethics • Requires financial commitment and long-term support from the organization and its employees. • For e.g.: “the national do not call list” blocks telemarketers. LECTURE: What’s so difficult about marketing research? [5] • Problem of getting good data to answer our questions • Problem of equivocal (not very clear/certain what it means) data • Problem of finding target groups, getting into their heads • Some Innovative examples: play labs; diaper changing parents wearing video recorders; chain restaurants varying the menu in test markets What can be marketed? [9] • Goods (tangible), services (intangible), ideas (concept you can support) Chapter 2 THE MARKETING ENVIRONMENT • Constantly monitor the marketing environment with a view to capitalizing on new opportunities and thwarting potential threats. • Marketers scan the marketing environment in 6 key areas, looking for factors that are important or changing • Demographic force • Socio-cultural forces • Economic forces • Technological forces • Competitive forces • Regulatory forces Marketing Environment Scan • The process of continually acquiring information on events occurring outside the organization to identify trends, opportunities, and threats to a business • Knowledge ensures that products, services and ideas are relevant and meaningful Demographics • The statistical data on population according to characteristics such as • Age • Gender • Ethnicity • Income • Occupation • Canadian population is: • growing older  health-related products/ healthcare  travel • contains diverse generations • settling in the suburbs of large cities • more ethnically mixed • increasingly living in non-traditional families  decrease in birth rate (2 or 1 child per family)  same-sex marriage • Diverse Generation • Baby Boomers (1946-1965)  Average of 4 children per family  Now accounts for approx. 60% of expenditures on consumers goods and services  Redefining the concept of aging with a keen interest in health, self-image, and retirement. • Generation X (1966-1974)  12% of the population  Not that brand loyal, tend to be more self-reliant, entrepreneurial, and better education • Generation Y (1975-1995)  Echo boom  27.5% of the population  Key products: • Music • Video games • Sports • Computers  As influential as baby boomers Socio-Cultural Forces • Cultural values, ideas, and attitudes, as well as society’s morals and beliefs • Change gradually, over a prolonged period of time, and are sometimes very subtle. • Canadians: trustworthy, family oriented, worldly, organized, reliable, socially conscious, and conservative • Responding to changes as they relate to: o Ethnic food o Health and fitness  The need to remain active and fit has encouraged Canadians demand healthier choices (low-calorie products) o The environment  Global warming  Recycling (smart environment choices)  Encourage to be less wasteful o The changing role of women in society  Women- full time jobs, men – household duties.  Not enough time (prepared food, delivery) • Socio-cultural trends: o Cocooning – staying at home more  Demand for: Home delivery services, Online shopping, homemade meals, home projects, home entertainment  Less demand of theatre-going, traveling, and dining  Best buy commercial: A man sells season tickets… Economic Forces • Economy: the collective income, expenditures, and resources that affect the cost of running a business or a household • Low income/change in economy/unemployment = purchase necessities o Macroeconomic forces – the state of country’s economy as a whole o Key economic indicator  Inflation rate- period when cost to produce and buy products and services gets higher as prices rise  Unemployment rate  Economic growth  Recession- time of slow economic activity with two consecutive periods of negative growth • Production levels decline • unemployment levels rise • less money to spend o Microeconomics - supply and demand of goods and services and how this is impacted by individual, household, and company decisions to purchase.  Gross income – total amount of money made in one year by an individual/business  Disposable income – after-tax income that consumers have left for spending and savings.  Discretionary income – after-tax income that a consumer has left after paying for necessities ( food, clothes, shelter) • What uses up most income? o Answer: food, housing, and transporting Technological Forces • Inventions from applied science or engineering research o Ensure that their products do not become obsolete o Internet changed the way younger generation watches TV (streaming) • How is internet being used in a consumers daily life o The internet and search engines are replacing brick-and-mortar libraries as instant source of information o Email, text, and instant messaging are reducing the need for traditional mail delivery system o Social networking sites such as Facebook are surfacing as new virtual meeting places o Vide-sharing sites such as Youtube are allowing people to create and share their own video content o Music and video download sites such as Itunes are replacing traditional music and DVD retails o Blogs are allowing people to create their own content and voice opinions o High-speed internet connections are facilitating the viewing of TV online o Cellphones are replacing land-line phones Competitive Force • Alternative products that can satisfy a specific marketer’s needs • Direct competitor – similar products sold in the same category (pizza hut -> pizza pizza) • Indirect competitors – products competing for the same buying dollar in a slightly different, but related category (pizza hut -> swiss chalet(provides home delivery service)) • Need to have a clear understanding of the competitive nature of the industry in which they function • Monopolistic competition – type of competition where a large number of sellers compete with each other, offering customers similar substitute products (firms, similar products) • Perfect competitions – type of competition where there are many sellers with nearly identical products and little difference (vegetables, apple farmers, coal) • Oligopoly – type of competition that occurs when a few companies control a market (airlines) (must be aware of competitive move and change in price) • Monopoly – when only one company sells in a particular market. Not illegal in Canada Regulatory Forces • Regulations – restrictions placed on marketing practices by government and industry associations • Protect consumers from corrupt business practices, to set acceptable standards of practice, and to encourage fair competition • Competition Bureau (CB) o Maintain and promote fair competition so that Canadians can benefit from lower prices, product choices, and quality service. o Prohibited: price fixing, predatory pricing, bid-rigging among competitors to inflate prices on government contract. Bait-and-switch advertising, fraudulent adv. Claims, misleading pricing practices • Canadian Radio-television and Telecommunications Commissions (CRTC) o Guidelines for broadcast standards (number of minutes permitted hourly) o Approval of tele/radio license • Advertising Standards Canada o Non-government agency, self-regulating (no government ideas) o Safety, accuracy, comparative advertising, etc. • Canadians Marketing Association (CMA) o Voice of Canadian Marketers and deals with issues such as privacy, identify theft, mobile marketing, spam, fraud prevention. o Members must follow Code of Ethics and Standards of Practice • Better Business Bureau (BBB) o Has no Laws, self-regulatory o Volunteer o Extensive selection of services for its members, business , and the general public How Do companies respond to marketing environment? • Passively o Track and respond to large- scale forces that cannot be managed • (pro-) actively o Anticipating changes and acting to pre-empt them o Example: regulatory change, industry associations and voluntary regulation o Consider: online attacks against large companies with customer service operations Direct and indirect competitors • Direct competition = “very similar products in the same category” • Indirect competitor = “compete for the same buying dollar in a slightly different market CHAPTER 3 CONSUMER BEHAVIOUR • Actions a person takes when purchasing and using products and services • Understand consumers clearly • Internet- central to marketing communications programs, and imp. Role with aging consumers • Television advertisement 20% more influential in Asia Pacific region than in North America Consumer purchase decision process • Stages that a buyer passes through when making choices about which products or services to buy • Steps: Problem Information search: Evaluation of Purchase Post-purchase recognition: alternatives: decision: behaviour: Seeking value Perceiving a Assessing value Buying value Value in need consumption or use Realization Research about what Clarifies the Three choices After purchase, between what product/service might options by remain: consumer you have and satisfy the newly suggesting compares it with what you want is discovered need. criteria, or point tothe chosen their expectations brand big enough to consider, for the and is either actually do - Internal research: purchase (brand, satisfied or something about memory from consumer value) - from whom to dissatisfied previous experience. buy? it. -Evaluation - when to buy? cognitive - External research: criteria: brand or dissonance: the does not have quality? post-purchase experience. psychological - Marketer-dominated -Evoked set: tension or anxiety group of brands (did I buy the right sources (Consumers that consumer will reports/government consider product? Should’ve agencies): bought the other acceptable choice.) advertising, among all the salesperson etc. others. Involvement and Problem- Solving Variations • Involvement – personal, social, and economic significance of a purchase to the consumer o Soft drinks, toothpaste and etc have minimal involvement (low-level) o Automobile, and anything expensive has high-level involvement  Can have serious personal consequences  Reflect on one’s personal image • Routine Problem Solving o Low priced, frequently purchased products • Limited Problem Solving o Seek for information, ask a friend to help them evaluate alternatives • Extended Problem Solving o All the five stages of consumer purchase decision process are used, including considerable time and effort on external information and evaluating alternatives o High-level involvement Situational Influences • Five situational influences: 1. Purchase task – who is the product for? (Is this gift, or for my own use? (search and evaluation driven by social visibility) 2. Social surroundings – people present during a purchase may affect your decision (Say Yes to the Dress) 3. Physical surroundings – the store ambiance may affect your purchase 4. Temporal effects - time of the day or the amount of time available for the purchase 5. Antecedent states - consumer’s mood and the amount of cash on hand. Psychological Influences on Consumer Behaviour • Helps marketers understand why and how consumers behave as they do. Choices • Would you rather have $40 or a chance to win $100 based on a coin flip? o If you chose $40, then you’re risk averse. The risk premium in this case is the difference between the expected value and this choice:  50 – 40 = $10 • Would you rather have $50 or a chance to win $100 based on a coin flip? o Perhaps you are indifferent to this choice. In this case, you’re risk neutral o If this amount is >$50, then you are risk seeking Motivations and Personality o Motivation  Energizing force that stimulates behaviour to satisfy a need  Maslow’s hierarchy of needs: 1. Psysiological needs – food, shelter, clothing (basic needs) 2. Safety needs – well being (safety from harm, financial security) 3. Social needs – feeling of belonging, friendship 4. Personal needs – achievement, status, prestige, self respect 5. Self-Actualization needs – involve personal fulfilment o Personality • A person’s consistent behaviour or responses to recurring situations • Assertiveness, extroversion, compliance, dominance, and aggression Perception o Process by which someone selects, organizes, and interprets information to create a meaningful picture of the world o Selective Perception  Filters the information so that only some of it is understood or remembered or even available to the conscious mind.  Occurs in the post-purchase stage  Selective exposure – paying attention to messages that are consistent with their attitudes and beliefs and ignore messages that are inconsistent  Selective comprehension- interpreting information so that it is consistent with your attitude and beliefs.  Selective retention – consumers do not remember all the information they see, read or hear. o Perceived Risk  Anxiety felt when a consumer cannot anticipate possible negative outcomes of a purchase  Strategies used to make consumers feel more at ease about purchase: 1. Obtaining seals of approval (good housekeeping seal) 2. Securing endorsements from influential people (“got milk” adv. Campaign) 3. Providing free trials of the product 4. Giving extensive usage instructions (hair coloring) 5. Providing warranties and guarantees Learning • Behaviours that result from repeated experiences and reasoning Behavioural Learning • Process of developing automatic responses to a type of situation built up through repeated exposures to it. 1. Drive – need, such as hunger, that moves an individual to action (being hungry) 2. Cue – stimulus or symbol that one perceives (a billboard) 3. Response – action taken to satisfy the drive (buys a hamburger) 4. Reinforcement – the reward (It tastes great) If stimulus is not pleasant – negative reinforcement occurs (I feel sick now!) • Stimulus generalization o A response brought about by one stimulus (cue) is generalized to another stimulus o Using same brand name and launching a new product o Coca- Cola and PC Soda (same colors cans) Cognitive Learning • Involves making connections between two or more ideas or simply observing the outcomes of others’ behaviours and adjusting your own accordingly. Brand Loyalty • Favourable attitude toward and consistent purchase of a single brand over time Values, Beliefs, and Attitudes • Attitude Formation o Attitude – tendency to respond to something in a consistently favourable or unfavourable way o Beliefs – consumer’s perception of how a product or brand performs • Attitude Change o Use 3 approaches to change consumers attitude  Changing beliefs about the extent to which a brand has certain attributes  Changing the perceived importance of attributes (Pepsi made freshness a priority in advertisement)  Adding new attributes to the product (colgate added a new anti-bacterial ingredient) Lifestyle • Way of living identified by how people spend their time and resources (activities), what they consider important in their environment (interests), and what they think of themselves and the world around them(opinions) • Psychographics – analysis of consumer lifestyles (VALS Program) Socio-Cultural Influences on Consumer Behaviour • Personal Influence: o Opinion leadership: have social influence over others (Automobiles, clothing, and club membership are products affected by opinion leaders) o Word of mouth: influencing each other in personal conversation  Buzz marketing – product becoming famous because of word-of-mouth  Internet version – viral marketing. (Blogs etc.) • Reference Groups o People to whom an individual looks as a basis for self-appraisal or as a source of personal standards (takes a person for reference of what to wear and etc) o Membership Group: a group a person actually belongs to (frat/sororities, clubs, etc.) o Aspiration group: wishes to be a member of or to be identified with (professional society) o Dissociative group: one wants to maintain a distance from because of different values or behaviours • Family influence o Consumer socialization: process by which people acquire the skills, knowledge, and attitudes necessary to function as consumers (need to know how to buy) o Family Life Cycle: a family’s progression from formation to retirement, with each phase bringing distinct needs and purchasing behaviour o Family decision making • Culture and Subculture o Culture – a set of values, ideas, and attitudes that are learned and shared among the members of a group o Subcultures – subgroups within a larger culture that have unique values, ideas, and attitudes Global Cultural Diversity • Cross-culture analysis: study of similarities and differences among consumers in two or more societies • Values: socially preferable modes of conduct or states of existence that tend to persist over time • Customs: Norms and expectations about the way people do things in a specific country or culture • Cultural Symbols: objects, ideas, or processes that represent a particular group of people or society (“thumbs up” positive in Canada, but offensive in Russia and Poland; do’s and don’ts) • Language: English, French, and Spanish are the principal languages used in global diplomacy and commerce. o Back translation: retranslating a word or phrase back into the original language by a different interpreter to catch errors. CHAPTER 6 SEGMENTATION AND TARGETING • Basic driving forces in marketing: target marketing, market segmentation, and product positioning Marketing Segmentation • Involves aggregation of prospective buyers into groups that have common needs and respond similarly to marketing programs • Successes: finding the ideal balance between satisfying customer’s individual wants and being able to do this profitably • Two Factors: o Consumers have diverse needs, single product cannot satisfy everyone o Spend money effectively and efficiently on target market • Consumer Market o Consists of products, ideas, and services that a person can purchase for personal use • Business Market o Products purchase to either run a business or to be used as a component in another product/service • Product differentiation o Involves positioning a product apart from the competition in the eyes of consumers Forms of Market segmentation • Mass Marketing o Marketing of a product to the entire market with no differentiation at all (propane) o Due to competitiveness and specifically satisfying your consumers need, this marketing segmentation is barely used • Segment Marketing o The most common followed by large companies o Involves designing different products/services to meet the needs of different target groups. o Each product caters to each consumers needs and also has its own marketing program to ensure the target groups’ needs are properly met (e.g. Kellogg’s cereal) o Business-to-business market: a pickle company might make pickles for a large restaurant. (it would meet their specifications) • Niche marketing o Allows a company to focus its efforts on a limited segment in the market o E.g. Kashi does not try to sell to all market segments like Kellogg’s, instead sells to health conscious people o Business-to-business: a career transition firm (Miller Dallas), only services the niche market of executives and professionals who have lost their jobs. • Individualized marketing o Involves customising offers and, in some cases, products that fit individual needs o Starbucks app for smarthphone, store locator feature. Steps in Market Segmentation • Analytical skills, sound strategic thinking, an understanding of a consumer, a vision 1. Review company objectives: clear and quantifiable (incl. sales, revenue, profit targets, qualitative element) 2. Identify consumer/customer needs and common characteristics in the market: a. what future trends b. what drives the target market 3. Cluster common consumers/consumer variables to create meaningful market segment: a. clusters help identify consumers interest, b. usage patterns c. prevailing attitudes 4. Conduct a SWOT analysis on the segments to determine: a. S- strengths b. W- weakness c. O- Opportunity d. T – threat 5. Identify the segment that best meets company objectives: goes through facts, ideas and SWOT analysis and assess the opportunities and threats in relation to company objectives. 6. Identify marketing programs and budget requirements needed for this segment 7. Create a sales forecast for this segment 8. Conduct a profit-and-financial analysis for this segment Target market profiles • 4 ways of defining target market: o Geographics  Where a target market lives using variables such as country, region, province, city size, and types of locations such as urban, suburban, or rural o Demographics  Ranges for age, gender, family life-cycle, income, occupation, education, ethnic background (country of origin), and home ownership o Psychographics  Understanding consumer attitudes to life, their personalities, general interests, opinions, and activities  ( allows customers to visit its website and design a sneaker to their own personal  specifications. This website would particularly appeal to people who exercise regularly and are  very aware of what shoe styles fit comfortably on their feet.) o Behaviouristic  Why consumers buy a product, the product benefit, how they use it, and whether they are brand loyal in their purchase behaviour.  (Nyquil advertises that it alleviates "the night time, sniffling, sneezing, coughing, aching, stuffy  head, fever" and helps you get the rest you need to get better) Product Positioning • The image of the product u want to establish in consumers’ minds relative to the competition • Positioning statement: a tool that identifies the main reasons the target market buys a product and what sets it apart in the market o Clear and focused o Consists of 4 elements:  Product name  The category in which it competes  One or two reasons of why may the target market buy the product (product benefit)  What sets it apart from the competition Repositioning • A revamping of the product and its marketing mix to more accurately meet consumer needs (repositioning your company to meet the consumer needs) o E.g. Cadillac changed their philosophy with the introduction of new cars accompanied by an aggressive advertising campaign to reach a younger market. Positioning Maps (perceptual maps) • Visual representations of how products are positioned in a category to consumers • Reveals gaps in the market here consumers may be under-served, while also highlighting the competitive nature of the category • Need to clearly identify the two most important attributes that drive purchases in a category Market Segmentation, Target Markets, and Product Positioning in Practice • Concepts central to how marketers run their business • Market segmentation – helps marketers place their product offerings in the context of a competitive market (shows bigger picture from consumers perspective) o Market segmentation analysis also allows a marketer to identify gaps in the market, and determine where future opportunities may lie Chapter 7 PRODUCTS AND BRANDS Types of Products • Managing and developing products that meet the needs of a target market • Product – a good, service, or an idea consisting of a bundle of tangible (physical characteristics (color, sweetness)) and intangible (aspects that can’t be “touched” (make you healthier, driving a car has a feel)) attributes. • Divided into 3 categories: o Non-durable goods – items that do not last and that are consumed only once, or for a limited number of times (food products, fuel) o Durable goods- a product that lasts for an extended period of time and encompasses items such as appliances, automobiles, and stereo equipment o Services – intangible activities, benefits, or satisfactions offered for sale, such as banking, visits to a doctor, taking a vacation, going to a movie, or taking an educational course.  In service industry, it is useful to distinguish between a company’s primary service and supplementary service  E.g a Bank Company • Primary service – providing bank accounts • Supplementary – providing parking space, monthly statements etc. • Service continuum – a range from tangible goods to intangible services. The uniqueness of Services • 4 unique elements to services: o Intangibility –  Services cannot be touched.  Cannot be tried before purchase.  It is important to demonstrate the benefits of using the service o Inconsistency  Developing, pricing, promoting, and delivering services is challenging because the quality of a service is often inconsistent as it depends on the people who provide it. o Inseparability  E.g. in the non-profit industry, the quality of an education institution may be high, but if a student as difficulty interacting with certain instructors, the student may not be satisfied with the educational experience. o Inventory  Issues arise due to the fluctuating demand for services throughout the day and the difficulty in assessing the manpower needed to service these needs.  Idle production capacity – refers to when the supply of the service exceeds its demand (hence, hiring many part time employees) PRODUCT ELEMENTS The Total Product Concept • Marketers view products as having three different layers: o The core product  What the product does for the customer- the benefits derived from using the product  Bicycle – provides transportation and leisure activity o The actual product  The physical good or service, including the branding, design, and features that the consumer receives  Branding is included  Bicycle – a branded product, with a metal frame, two wheels, and a seat o The augmented product  Additional features or benefits that accompany the product, such as a warranty, s service contract, delivery options, installation, or a website  Where the positioning opportunities are  Bicycle – warranty or repair contract Packaging • A package and label provide purchasers with detailed information and face-to-face communication at the time when a purchase is being made. Product lines and Product mixes • Product line – a group of products with the same product and brand name that are directed at the same general target market and are marketed together (Gatorade (one product but has 4 flavours)) • Product mix – refers to the combination of product lines marketed by a company o Nike divides product mix intro three main categories: clothes, shoes, accessories o Each product grouping may contain a number of product lines marketed under different brand names. • Width of a company’s product mix – the number of different categories offered by the company • Depth – variety of product offering within a product category, product group, or product line THE CLASSIFICATION OF CONSUMER AND BUSINESS PRODUCTS • Consumers products o Purchased by the ultimate consumer for their own personal use o convenience products- inexpensive items that a consumers purchases frequently with a minimal shopping effort o Shopping products – items for which the consumers, comparison-shops, assessing the attributes and prices of different products and brands.  More expensive  More shopping time is given  Great assurance of purchase satisfaction o Specialty products – items for special occasions that require a specific brand and considerable time and effort to purchase  Expensive products  For special occasions  Require high purchase satisfaction o Unsought products  Unknown items or those of no interest to the purchaser  E.g. diapers for a person who does not have a baby • Business products (industrial goods/organizational products) – purchased either to run a business or to be used as a component in another product/service. o Production goods  Items used in the manufacturing process that become part of the final product are production goods (raw materials) o Support goods  Items used to assist in producing other goods/services. • Installations – building and fixed equipment • Accessory equipment – tools and office equipment and is usually purchased in small-order sizes by buyers. • Supplies – business equivalent to consumer convenience goods and consist of products that are used continually (stationary, paper clips, brooms) • Services – intangible activities needed to assist the business in its operations and in producing goods/services. (transportation services, maintenance and repair, advisory services) BRANDING • A name or a phrase uniquely given by a company to identify its product(s) and to distinguish the product(s) from the competition. • Brand equity – the favourable associations and experiences that a consumer has with a brand resulting from the consumer’s exposure and interaction with the brand over time. o Patents, copyrights, and trademarks are to be used to keep a company’s products protected o Patents – legally protect new technologies, unique processes, or formulations from usage by other companies for a period of 20 years o Copyrights – used to legally protect the written word, sound recording, or form of communication from being copied by others (slogan, jingle, etc) o Trademarks – used to legally protect brands and their images from usage by others (brand name, logo, colors, fonts, etc.) Brand Loyalty • Degree of consumer attachment to a particular brand Brand personality • Set of human characteristics associated with a brand name • Assign personality traits to products – traditional, romantic, rugged sophisticated, rebellious – and chose brands that are consistent with their own or desired self-image. Brand Name • The name should suggest the product benefits o E.g. Easy Off (over cleaner), American Idol o Make sure when translated it is not offensive • The Name should be memorable, distinctive and positive • The name should fit the company or product image o Ipod – suggests high-tech and small o Google – fun, casual word, associated with creativity • The name should have the ability to be legally protected o Must be “trademarkable” to protect a company’s investment o E.g. cannot trademark the name “bottled water” not unique enough to warrant a trademark • The name should be simple Types of Brands • Manufacturer’s brand o Owned and produced by the manufacturer • A private label brand (store brand) o Owned by a retailer that contracts its manufacturing to major suppliers, and then sells the product at its own retail stores o Usually sold at a lower price than the manufacturer brand o E.g. shoppers drug mart’s Life brand Acetaminophen. PC • A generic brand o Product that has no branding is produced as a cheap alternative to manufacturer’s and private label brands • Individual Brand o When a company uses a brand name solely for a specific product category o E.g. Category Yop, the yogurt drink produced by Yoplait, Ultima Foods Inc. • Family brand o When a company uses a brand name to cover a number of different product categories o E.g. Crest, owned by Procter & Gamble, originally just used for toothpaste, but now is used for toothbrushes, mouthwash, teeth-whitening products. A PRACTICAL LOOK AT MARKETING PRODUCTS AND BRANDS • Marketer’s responsibility is to market products and brands to bring revenue into a company Chapter 9 Pricing • Analytic and strategic thinking • The success of Nearly Famous Enterprise stems from the passion of the owner and the company president to keep the product lines fresh, relevant, and competitively priced to cover their costs, profits, retailer requirements, and consumer expectations. NATURE AND IMPORTANT OF PRICE • Tuition – education • Interest – bank credit card • Premium – car insurance • Clothes or haircut – price What is Price? • Money or other considerations exchange for the ownership of use of a good/service • The amount paid is not always the same as the list, or quoted price, because of: o Discounts o Allowances o Rebated • “special fees” “surcharges” – practice driven by consumers’ zeal for low prices combined with the ease of making price comparisons on the internet. • Don’t mind paying “add-on charges” but mind paying high list price • The Price Equation FINAL PRICE = LIST PRICE – (INCENTIVES – ALLOWANCES) + EXTRA FEES Price as an indicator of value • Value – the ratio of perceived benefits to price VALUE = PERCEIVED BENEFITS/ PRICE • For a given price, as perceived benefits increase, value increases • Value practice – practice of increasing a product’s benefits while maintaining or decreasing price. Price in Marketing Mix • Price has direct effect on a firm’s profits • quantity sold also affects unit cost o Making changes to a standard house plan can be really expensive!! PROFIT = TOTAL REVENUE – TOTAL COST = (UNIT PRICE * QUANTITY SOLD) – TOTAL COST GENERAL PRICING APPROACHES • Need to find an “approx price level” prior to the final price Demand-Oriented Approaches • Emphasize factors underlying expected customer tastes and preferences more than such factors as cost, profit, and competition when selecting a price level o Skimming Pricing  Setting the highest initial price (people who are desiring the product will buy no matter what)  As the product gets older the price goes down as the demand decreases  Introducing a new product  Technology o Penetration Pricing  Setting a low initial price and make your way up  Attracts the mass market  E.g. Nintendo o Prestige pricing  Setting a high price so that the quality/status conscious consumer will be attracted to the product and buy it.  Cartier jewellery, Chanel perfume o Odd-Even Pricing  Odd pricing – 0.99 • Makes the product look cheaper, worse quality  Even pricing – 1.00 • Makes it look high-end, good quality o Target Pricing  Manufacturer deliberately adjusting the composition and features of a product to achieve the target price to consumers  E.g. Canon o Bundle Pricing  Frequently used  Marketing two or more products in a single “package” price  Provides a lower total cost to buyers and lower marketing cost to sellers o Yield Management Pricing  Charging a different price to maximize revenue for a set amount of capacity at any given time  Car rental firms and airlines Cost-Oriented Approaches • A price is more affected by the cost side of the pricing problem than the demand side • Price is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit o Standard Markup Pricing  Markup – difference between the selling price of an item and its cost  Standard markup - Commonly expressed as a % of cost (markup) divided by cost Manufacturer’s cost $50.00 Markup % (based on cost) 40% Markup $ $20.00 Selling Price to wholesaler $70.00 Wholesaler cost $70.00 Markup % (based on cost) 15% Markup $ $12.25 Selling price to retailer $82.35 Retailer cost $82.35 Markup % (based on cost) 35% Markup $ $44.34 Retailer selling price $126.69 o Cost- plus pricing  Summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price  Most commonly used  Legal fees, advertising agency fees Profit- Oriented Approaches • Might involve setting a target of a specific volume of profit or expressing this target profit as a percentage of sales or investment • Balance both revenue and costs o Target Profit Pricing [164]  When a firm sets an annual target of a specific dollar amount of a profit  Produces unit price  Requires an accurate forecast of demand o Target return on sales  Supermarkets  Set price that will give them a profit that is a specific percentage  Difficult to establish a benchmark of sales or investment  Examples of profit of 1% of sales volume o Target return on investment  Set a price to achieve ROI target, such as a % that is mandated by its board of directors or regulations  General motors  Utility example Competition-oriented approaches • Company’s approach maybe based on an analysis of what competitors are doing o Customer pricing  Chocolate bars from the vending machine have a customary price of a dollar o Above-, at-, or below-market pricing  Pricing above, -at, or below the “market price” (price people are generally willing to pay)  Rolex – emphasizes the fact that it is one of the most expensive watches you can buy  Holt Renfrew o Loss-leader pricing  Supermarket flyers Estimating demand and revenue • Demand curve is a function predicting number of units sold at a given price o Customer tastes (wants to buy) o Pricing and availability of similar products (wants to buy) o Consumer income (can buy) • Movement along the curve, shifting of the curve o To the right: same demand at increased price o Newsweek example • Price elasticity of demand (consumer products) o How sensitive consumer demand and the firm’s revenues are to change in products price o Elastic demand:  When a slight decrease in price results in a relatively large increase in demand, or units sold  Slight increase in price -> relatively large decrease in demand o Inelastic demand:  Slight increase/decrease in price will not significantly affect the demand, or units sold, for the product  Products and services that are considered to be necessities are inelastic  Short phenomenon  High price -> will seek for an alternative or see an opportunity to develop a new product Fundamentals of estimating revenue • Total revenue – an essential revenue concept critical to pricing decisions generated by the demand curve • TR = Unit Price*Quantity Sold Determining Cost, Volume, and Profit Relationships The Importance of Controlling Costs • Balance revenues and cost • 3 cost concepts are important to pricing decisions: TC, FC, VC • Break Even analysis • Technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output • The quantity at which total revenue and total cost are equal • Profit comes after any unit sold after the BEP • Helps answer the “what if” questions about the effect of changes in price and cost on their profit BEP quantity = Fixed cost/ (Unit price – Unit Variable Cost) • Fixed cost – 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 – sum of the expenses of the firm that vary directly with the quantity of product that is produced and sold (direct labour, direct materials used in producing the product) • Total Cost – total expense incurred in a firm producing and marketing the product TOTAL COST = FC + VS Pricing Objectives • Reflect corporate goals, pricing constraints often relate to conditions existing in the marketplace Identifying Pricing Objectives: • Pricing Objectives – expectations that specify the role of price in an organization’s marketing and strategic plan • E.g Heinz pricing objectives vary by country • Profit o Measured by ROI o Different objectives:  Managing for long-run profits (when a company gives up immediate profit in exchange for achieving a higher market share)  Maximizing current profit (targets can be set and performance measured quickly)  Target return (when firm sets a profit goal (e.g 20% on ROI, usually determined by the BOD) • Sales o Cutting price on one product in a firm’s line may increase its sales revenue but refuse those of related products. o Easily translated into meaningful targets for marketing managers responsible for a product line or brand • Market Share o The ratio of the firm’s sales to those of the industry (competitions + the firm itself) o Used when industry sales are relatively flat or declining • Volume o Use volume, the quantity produced or sold, as pricing objective o Sell the same product as several different prices, at different time, or in different places in order to match customer demand with the company’s production capacity o Can be increased by using sales incentives (lowering price, etc) hence, company chooses to lower profits in the short run to sell its products quickly • Survival o Sometimes survival is the most important objective o Air Canada struggled to attract customers with lower air fare and aggressive promotions to improve the firm’s cash flow • Social Responsibility o Focus on customers and society Identifying Pricing Constraints • Factors that limit the range of price a firm may set • Demand for the product class, product, and brnad: o The number of potential buyers for a product class (cars), product (sports cars), and brand (Bugatti Veyron) clearly affects the price a seller can charge • Newness of the product: stage in the product life cycle o The newer the product, the new its life cycle, the higher the price that can usually be charged o Limited competition o Internet has created a very competitive marketplace • Cost of Producing and Marketing the product o Price must cover all the costs of producing and marketing a product o If not covered, the firm will fail • Competitors’ Prices o Consider the price being charged by the competitors o If winning market share is an objective, lower prices may be the solution o If being perceived as the “best brand” is an objective, higher prices may be a part of the answer. Legal and Ethical Considerations • Price fixing: o When competitors collaborate and conspire to set prices, they agree to increase, decrease, or stabilize a price for the benefit of some competitors o Illegal – the competition act prohibits o Occurs when price is the most important factors in the marketing mix • Price Discrimination o If different prices are charged to different customers for the same or very similar goods and the same terms o Illegal – The competition Act prohibits • Deceptive Pricing o Price offers that mislead the consumer o Illegal – the competition act • Predatory Pricing o Charging a very low price for a product with the intent of undercutting competitors and possibly driving them out of the market o When competition is out, the offending firm raises its price Global Pricing Strategy • When prices appear too low in one country, companies can be charged with dumping, a price subject to several penalties and fines • Dumping occurs when a firm sells a product in a foreign company below its domestic price or below its actual cost. • Grey market problem – when companies price their products very high in some countries but competitively in others • Grey market, also called parallel importing, is a situation where products are sold through unauth
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