The Marketing Program 6C H A P T E R 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Marketing ProgramThe strategic combination of the four marketing mix elementsThe product receives the most attention because it is most responsible for fulfilling the customers needs and wants.Involves creating an offering that is an array of physical (tangible), service (intangible), and symbolic (perceptual) attributes designed to satisfy customers needs and wantsDue to commoditization, the core product typically becomes incapable of differentiating the offering.Most organizations work to enhance the service and symbolic elements of their offerings to stand out in a crowded market.Typically done by changing price, distribution, or promotion.The Marketing Program2 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Defines what the organization does and why it existsA product offerings real value comes from its ability to deliver benefits that enhance a customers situation or solve a customers problems.Products fall into two general categoriesConsumer products for personal use and enjoymentBusiness products for resale, use in making other products, or use in a firms operationsProduct Strategy3 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Convenience ProductsShopping ProductsSpecialty ProductsUnsought ProductsTypes of Consumer Products(Exhibit 6.1)4 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Raw MaterialsComponent PartsProcess MaterialsMaintenance, Repair, and Operating ProductsAccessory EquipmentInstallationsBusiness ServicesTypes of Business Products(Exhibit 6.1)5 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Product LineA group of closely related product itemsProduct Mix or PortfolioThe total group of products offered by the firmStrategic DecisionsVariety number of product lines offeredAssortment depth of each product lineThe Product Portfolio6 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.P&Gs Portfolio of Household Care Products (Exhibit 6.2)7

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Economies of ScalePackage UniformityStandardizationSales and Distribution EfficiencyEquivalent Quality BeliefsPotential Benefits of Offering a Large Product Portfolio8 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Consider the number of product choices available in the U.S. consumer market. In virtually every product category, consumers have many options to fulfill their needs.Are all of these options really necessary? Is having this many choices a good thing for consumers? Why or why not?Is it a good thing for marketers and retailers that have to support and carry all of these product choices? Why or why not?9 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Balancing supply (capacity) with demandTime and place dependency of demandDifficulty of evaluating service quality prior to purchaseInconsistency of service qualityDifficulty in tying offerings to customers needs (i.e., the need is not always apparent to customers)The Challenges of Service Products10 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.IntangibilitySimultaneous Production and ConsumptionPerishabilityHeterogeneityClient-Based RelationshipsUnique Characteristics of Services(Exhibit 6.3)11 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.A vital part of a firms effort to sustain growth and profitsDepends on the firms ability to create a differential advantage for the new productCustomer perception of newness is criticalDeveloping New Products12 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.New-to-the-World Products (Discontinuous Innovations)New Product LinesProduct Line ExtensionsImprovements or Revisions of Existing ProductsRepositioningCost ReductionsStrategic Options for Newness of a Product13 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Idea GenerationScreening and EvaluationDevelopmentTest MarketingCommercializationNew Product Development Process14 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Is a key factor in producing revenue for the firmIs the easiest of all marketing variables to changeIs an important consideration in competitive intelligenceIs considered to be the only real means of differentiation in highly commoditized marketsPricing Strategy15 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Firms Cost StructurePerceived ValueThe Price/Revenue RelationshipPricing ObjectivesPrice ElasticityKey Issues in Pricing Strategy16 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Breakeven in Units

Total Fixed CostsUnit Price - Unit Variable Costs

Selling Price

Average Unit Cost1 - Markup Percent (decimal)

The Firms Cost Structure17 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Value is a customers subjective evaluation of benefits relative to costs to determine the worth of a firms product offering relative to other product offerings.Benefits everything the customer obtains from the offeringCosts everything the customer must give upValue is intricately tied to every element in the marketing program.Perceived Value18 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Myth #1 When business is good, a price cut will capture greater market share.Myth #2 When business is bad, a price cut will stimulate sales.

Price cutting is generally not in the best interests of the firm unless sales volume will increase.A better strategy is to build value into the product offering at the same (or even a higher) price.The Price/Revenue Relationship19 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Common Pricing Objectives(Exhibit 6.4)20

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Refers to customers sensitivity to changes in priceThe relative impact on the demand for a product, given specific increases or decreases in the price charged for that productPerhaps the most important overall consideration in setting effective prices.Price Elasticity21 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Availability of Substitute ProductsCustomers are more sensitive to price changes when they can choose among a number of substitute products.Higher Total ExpenditureThe higher the total expense, the more elastic the demand.Noticeable Price DifferencesProducts having heavily promoted prices tend to experience more elastic demand.Easy Price ComparisonsCustomers are more price sensitive if they can shop around for a better price.Situations That Increase Price Sensitivity22 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Lack of SubstitutesCustomers are less price sensitive when they have fewer options.Real or Perceived NecessitiesThese products have very inelastic demand because customers have to have them.Complementary ProductsIf the price of one product falls, customers will be less sensitive to the price of complementary products.Situations That Decrease Price Sensitivity23 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Perceived Product BenefitsSometimes, products are just worth it to consumers.Situational InfluencesCustomers are less price sensitive in certain situations (time pressure, emergencies, gift giving, etc.)Product DifferentiationDifferentiation reduces the number of perceived substitutes.The goal is to differentiate the product so well that customers perceive that no competing product can take its place.Situations That Decrease Price Sensitivity (continued)24 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Service pricing is critical because price may be the only cue to quality in advance of purchase.Service pricing becomes more important and difficult when:Service quality is hard to detect prior to purchaseCosts are difficult to determineCustomers are unfamiliar with the service processBrand names are not well establishedCustomers can perform the service themselvesAdvertising within the service category is limitedThe total price of the service is difficult to state beforehandPricing Service Products25 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Pricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues?26 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Service pricing becomes a key issue in balancing supply and demand during peak and off-peak demand times.Yield management allows the firm to simultaneously control capacity and demand.Control capacity by limiting available capacity at certain price pointsControl demand through price changes and overbooking capacityYield management also allows service firms to segment markets based on price elasticity.Service Pricing and Yield Management27 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Yield Management for a Hypothetical Hotel (Exhibit 6.5)28

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Price SkimmingPrice PenetrationPrestige PricingValue-Based Pricing (EDLP)Competitive MatchingNon-Price StrategiesBase Pricing Strategies29 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.DiscountingReference PricingPrice LiningOdd PricingPrice BundlingAdjusting the Base Price30 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Adjusting Prices in Business MarketsTrade discountsDiscounts and allowancesGeographic pricingTransfer pricingBarter and countertradePrice discriminationPricing Strategies in Business Markets31 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Marketing ChannelsAn organized system of marketing institutions through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user.Physical DistributionCoordinating the flow of information and products among members of the channel to ensure that products are available in the right places, in the right quantities, at the right times, and in a cost-efficient manner.Supply ChainThe connection and integration of all members of the marketing channelSupply Chain Strategy32 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.ConnectivityInformational and technological linkages among firmsCommunityCompatible goals and objectives among firmsCollaborationRecognition of mutual independence among firmsThe most seamlessly integrated supply chains blur the boundaries between firms.Supply Chain Integration33 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Factors in Successful Supply Chain Integration (Exhibit 6.6)34

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Contact EfficiencyChannel FunctionsSortingBreaking bulkMaintaining inventoriesMaintaining convenient locationsProvide servicesAll channel functions must be performed regardless of who does themStrategic Supply Chain Issues:Marketing Channel Functions35 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Some manufacturers and retailers advertise that customers should buy from them because they eliminate the middleman. Evaluate this comment in light of the functions that must be performed in a marketing channel. Does a channel with fewer members always deliver products to customers at lower prices? Defend your position.36 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Breakdown of Total Distribution Costs (Exhibit 6.7)37

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Exclusive DistributionGiving one merchant or outlet the sole right to sell a product within a defined geographic regionSelective DistributionGiving several merchants or outlets the right to sell a product within a defined geographic regionIntensive DistributionMaking a product available in the maximum number of merchants or outlets to gain as much exposure and sales opportunities as possibleStrategic Supply Chain Issues:Marketing Channel Structure38 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Basis of Conflict in the Supply ChainEach firm is different, and has its own goals and objectivesMutual interdependence goes against the natural tendency of firms to seek their own self-interests.Sources of Power in a Supply ChainLegitimate powerReward powerCoercive powerInformation powerReferent powerStrategic Supply Chain Issues:Power in the Supply Chain39 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Technological ImprovementsE-commerceRadio frequency identification (RFID)Outsourcing Channel FunctionsOutsourcing vs. offshoringGrowth of Non-Traditional ChannelsCatalog and direct marketingDirect sellingHome shopping networksVendingDirect response advertisingTrends in Supply Chain Strategy40 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Trend in Outsourcing(Exhibit 6.8)41

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Integrated Marketing Communications (IMC)The strategic, coordinated use of promotion to create one consistent message across multiple channels to ensure maximum persuasive impact on the firms current and potential customersTakes a 360-degree view of the customerThe Importance of IMCFosters long-term relationshipsReduces or eliminates promotional redundanciesTechnology allows better targeting of customersIntegrated Marketing Communications42 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Components of IMC Strategy(Exhibit 6.9)43

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.IMC must have clear promotional goals and objectivesThe AIDA ModelAttentionInterestDesireActionPromotional Goals Regarding the Supply ChainPull strategy focus promotional efforts toward consumersPush strategy focus promotional efforts toward the supply chainStrategic Issues in Integrated Marketing Communications44 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Review the steps in the AIDA model. In what ways has promotion affected you in various stages of this model? Does promotion affect you differently based on the type of product in question? Does the price of the product (low versus high) make a difference in how promotion can affect your choices? Explain.45 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Can be used to reach a mass audience or a precisely defined market segmentVery cost efficient when used to reach a mass audienceTraditional mass audiences are fragmenting due to increasing media optionsDigital communication (Internet, mobile) is the fastest growing form of advertising.Traditional media (newspapers, radio, magazines) are struggling for relevance.Advertising46 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Change in U.S. Measured Ad Spending, 2010-2011 (Exhibit 6.10)47

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Internet Ad Revenues by Advertising Format, 2011 (Exhibit 6.11)48

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Corporate AffairsA collection of strategic activities aimed at marketing an organization, its issues, and its ideals to potential stakeholders (consumers, general public, shareholders, media, government, and so on).Goal of Public RelationsTo track public attitudes, identify issues that may elicit public concern, and develop programs to create and maintain positive relationships between a firm and its stakeholdersUse of Public RelationsTo promote the firm, its people, its ideas, and its imageTo create an internal shared understanding among employeesPublic Relations49 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Publicity is a part of public relations, but is more narrowly focused on gaining media attentionPublic Relations MethodsNews (or Press) releasesFeature articlesWhite papersPress conferencesEvent sponsorshipEmployee relationsPublic Relations Methods50 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Focused less on sales and more on developing long-term, personal relationships with buyersThe most precise form of communication, but with very high cost per contactHas evolved to take on elements of customer service and marketing researchThe frontline knowledge held by the sales force is one of the most important assets of the firm.Personal Selling and Sales Management51 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.The Sales Management ProcessDeveloping sales force objectivesDetermining sales force sizeRecruiting and training salespeopleControlling and evaluating the sales forceThe Impact of Technology on Personal SellingIntegrated supply chains and e-procurement have reduced the size of the sales force.How can firms use new technology to reduce costs and increase productivity while maintaining personalized, one-to-one client relationships?Sales Management52 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Sales Force Compensation Methods (Exhibit 6.12)53

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Accounts for the bulk of promotional spending in many firmsActivities that create buyer incentives to purchase a product or that add value for the buyer or the tradeHas one universal goal: to induce product trial and purchaseTypically used to support other promotional activities rather than as a stand-alone promotional elementSales Promotion54 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Consumer Sales Promotion

Business (Trade) Sales PromotionConsumer and Trade Sales Promotion Coupons Point-of-purchase Rebates Premiums Samples Contests and sweepstakes Loyalty programs Direct mail Trade allowances Cooperative advertising Free merchandise Training assistance and sales incentives55 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Growth in Mobile Coupon Users (Exhibit 6.13)56

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.