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WHITE SIDE COMPANY
INTRODUCTION
White side co. had been established in 2008 in Dubai by Mr.Usman Bashir a biuionaire in Dubai. Mr. Usman is basically an industrialist. In the year of 2008in the month of July, he felt a great need forgetter infrastructure of health soap for health purpose boom in his country. So he decided to launch VALENCIA SOAP.
In the start, it was a single person company but afterward general public from all over the world was invited for subscription. Many Pakistani now has a reasonable share in White side co.
In the earlier stages, it only worked in UAE states successfully, but as time passes, Mr.Usman with the consultation of his Directors of the company agreed that Pakistan is Worlds best place at that time for VALENCIA SOAP Boom.
So now VALENCIA SOAP is in Pakistan since Sep 2008. It is working in almost all the cities of Pakistan with best available packages and services.
COMPANY OBJECTIVES
TRUST OF THE CUSTOMER ON OWN SERVICES IS the pride of the VALENCIA SOAP. We always tried to arrange best possible services to our customer which any other company does not offer. We really value the customer. A right word is customer have the status of order perception is that we are contribution in the health progress of Pakistan. We will be all the time with Pakistan this process as our motto is “Sari Zindgi Sath Sath”
The mystery of soap making
I always wanted to be one of those Suzy homemakers that did a lot of Canning and jarring and making my own soap and candles! All that stuff sounded so great to me. I never tried because I thought it was too hard! As of late however at the ripe old age of 45 I have decided it's now or never so I am going on some exploits and I am taking you with me (if you want to come!)We are now entering the twilight zone of 'Country gal 101' Today’s lesson is Wonderful and healthy soap making made easy! There is
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a list of 'soap making' sites at the end visit them for soap making in different degrees of difficulty. I don't know about you but the easy way works for me! I think I might advance one day but not today! I am a beginner myself but soap making, like I said, has always interested me!
Add some Spice to your soap!
Ways to make your soap great!
As shown below there are many ways to make your soap uniquely yours!
Scented oils and healthy skin oils and butters herbs such as eucalyptus and
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Mint, Cinnamon, Aloe and Green tea just to name a few. You can scent with
Fragrance oils and molds them into anything you want with soap molds! You can
Even add sand or crunched up nuts to give the soap texture and 'scrub' qualities :)
((((TIP))))
Put them in the freezer for an hour and they will come out of the molds easier!
It works well to spray your mold with cooking spray! You can also add color to
Make the soap beautiful! This stuff makes GREAT gifts! People love it!
Unit Price Qty. Cost
COCONUT SOAP BASE, 1 LB BLOCK
[Remove] $5.49 $5.49
LIQUID SOAP SCENTS: GARDENIA, LIQUID SOAP SCENT
[Remove] $4.99 $4.99
LIQUID SOAP SCENTS: LAVENDER, LIQUID SOAP SCENT
[Remove] $4.99 $4.99
Subtotal: $15.47
Total: $15.47
Keep Shopping
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Related items:
LIQUID SOAP COLORS: BLUE, LIQUID SOAP COLOR
Price: $1.99
GLYCERIN SOAP BASE, 5 LB BLOCK
Price: $18.99
LIQUID SOAP COLORS: YELLOW, LIQUID SOAP COLOR
Price: $1.99
An Easy Soap recipe!
This should be a family affair! Get yo' Mama or Yo' Granny and get in that kitchen together! Nothing brings a family closer than making something together!
What you'll need:
Glycerin soap, clear or white (This only works with glycerin soap - transparent Neutrogena bars will work fine.)
Soap dye in colors or your choice
Soap or candy molds
Microwave safe liquid measuring cup
Spoon
Popsicle stick or coffee stirrer
Knife (adults only)
How to make it:
1. If using bars of soap, cut into three pieces. If using purchased glycerin blocks, cut off 2-3 pre-measured chunks.
2. Put glycerin soap into a measuring cup, microwave according to package directions (or 20 seconds), then in 10-second intervals until melted.
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3. If you want colors, this is the time to add the dye. Add a few drops and stir with a spoon. If you want the color darker, simply add more dye. If you want fragrance add fragrance oil. If you want a 'scrubbing side' to your soap add sand or crushed nuts. If you want healthy soap add aloe or olive oil now!
4. Slowly pour the liquid soap into the mold. Set aside to harden for 45 minutes to an hour. Some soap may harden sooner than others.
5. Rinse out measuring cup and repeat process for other colors.
6. After soap has cooled completely, pop them out of the molds. If you find this difficult, you can place the soap into the freezer for ten minutes and try again.
Tips:
For a tie dye effect, don't add dye until after you have poured white soap into the molds. Add random drops of dye into white soap in mold and swirl with a coffee stick or toothpick.
For multicolor layers, pour the first color in and allow it to cool enough to form a skin (about 5 minutes). Carefully and very slowly add the second color over that.
For pastel shades, add only a couple drops of dye. For more bold colors, add more drops.
Make your own colors by mixing the dyes, or create a tie dye effect by using two or more colors instead of just one.
Have fun with it! That’s what life is about discovering and inventing!
MARKET SEGMENTATION
INTRODUCTION: What we are seeing here is that within the some
general market there are groups or customers __marker segments __ with
different wants, buying preferences, of product-use behavior. In some
markets these differences are relatively minor, and the benefits sought by
consumers can be satisfied with a single marketing mix. In other markets,
some customers are unwilling to make the compromises necessitated by
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a single marketing mix. As a result, the segments must be targeted
individually with different marketing mixes. A specific market segment
(people or organizations) for which the seller designs a particular
marketing mix is a target market. Using the marketing mix, a firm
attempts to attractive position for offering in the minds of the target
market.
SEGMENTATION The variation in customers’ responses to a
marketing mix can be traced to differences in buying habits, in ways in
which the good or services is used, or in motives for buying. Customer
oriented marketers take these differences into considerations, but they
usually cannot afford to design a different marketing mix for every
customer. Consequently, most marketers operate between the extremes
of one marketing mix for all and a different one for each customer. To do
so involves market segmentation. A process of dividing the total market
for a good or service into several smaller, internally homogeneous groups.
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The essence of segmentation is that the members of each group are
similar with respect to the factors that influence demand. A major
element in a company’s success is the ability to segment its market
effectively. Segmentation, Targeting, and Positioning
Segmentation, targeting, and positioning together comprise a three stage process. We first (1) determine which kinds of customers exist, then (2) select which ones we are best off trying to serve and, finally, (3) implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.
Segmentation involves finding out what kinds of consumers with different needs exist. In the auto market, for example, some consumers demand speed and performance, while others are much more concerned about roominess and safety. In general, it holds true that “You can’t be all things to all people,” and experience has demonstrated that firms that specialize in meeting the needs of one group of consumers over another tend to be more profitable.
Generically, there are three approaches to marketing. In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really can’t offer much that another one can’t. Usually, this is the case only for commodities. In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low
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prices. In contrast, most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. These travelers—usually business travelers—pay high fares but can only fill the planes up partially. The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over.
Note that segmentation calls for some tough choices. There may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly cumbersome to work with more than a few at a time. Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers. We might thus decide, for example, that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—willingness to pay for brand names; and (4) heavy vs. light consumers. We now put these variables together to arrive at various combinations. Several different kinds of variables can be used for segmentation.
Demographic variables essentially refer to personal statistics such as income, gender, education, location (rural vs. urban, East vs. West), ethnicity, and family size. Campbell’s soup, for instance, has found that Western U.S. consumers on the average prefer spicier soups—thus, you get a different product in the same cans at the East and West coasts. Facing flat sales of guns in the traditional male dominated market, a manufacturer came out with the Lady Remington, a more compact, handier gun more attractive to women. Taking this a step farther, it is also possible to segment on lifestyle and values.”
Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd.
Another basis for segmentation is behavior. Some consumers are “brand loyal”—i.e., they tend to stick with their preferred brands even when a competing one is on sale. Some consumers are “heavy” users while others are “light” users. For example, research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers—presumably a rather intoxicated group.
One can also segment on benefits sought, essentially bypassing demographic explanatory variables. Some consumers, for example, like scented soap (a segment likely to be attracted to brands such as Irish Spring), while others prefer the “clean” feeling of unscented soap (the “Ivory” segment). Some consumers use toothpaste
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primarily to promote oral health, while another segment is more interested in breathe freshening.
In the next step, we decide to target one or more segments. Our choice should generally depend on several factors. First, how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers? Firms may already have an established reputation. While McDonald’s has a great reputation for fast, consistent quality, family friendly food, it would be difficult to convince consumers that McDonald’s now offers gourmet food. Thus, Mud’s would probably be better off targeting families in search of consistent quality food in nice, clean restaurants.
Positioning involves implementing our targeting. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a lot through its advertising to promote itself, through its unintimidating icons, as a computer for “non-geeks.” The Visual C software programming language, in contrast, is aimed a “techies.”
Michael Treaty and Fred Wiremen suggested in their 1993 book The Discipline of Market Leaders that most successful firms fall into one of three categories:
Operationally excellent firms, which maintain a strong competitive advantage by maintaining exceptional efficiency, thus enabling the
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firm to provide reliable service to the customer at a significantly lower cost than those of less well organized and well run competitors. The emphasis here is mostly on low cost, subject to reliable performance, and less value is put on customizing the offering for the specific customer. Wal-Mart is an example of this discipline. Elaborate logistical designs allow goods to be moved at the lowest cost, with extensive systems predicting when specific quantities of supplies will be needed.
Customer intimate firms, which excel in serving the specific needs of the individual customer well. There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer. Reliability is also stressed. Nordstrom’s and IBM are examples of this discipline.
Technologically excellent firms, which produce the most advanced products currently available with the latest technology, constantly maintaining leadership in innovation. These firms, because they work with costly technologies that need constant refinement, cannot be as efficient as the operationally excellent firms and often cannot adapt their products as well to the needs of the individual customer. Intel is an example of this discipline.
Tracy and Wireman suggest that in addition to excelling on one of the three value dimensions, firms must meet acceptable levels on the other two. Wal-Mart, for example, does maintain some level of customer service. Nordstrom’s and Intel both must meet some standards of cost effectiveness. The emphasis, beyond meeting the minimum required level in the two other dimensions, is on the dimension of strength.Repositioning involves an attempt to change consumer perceptions of a brand, usually because the existing position that the brand holds has become less attractive. Sears, for example, attempted to reposition itself from a place that offered great sales but unattractive prices the rest of the time to a store that consistently offered “everyday low prices.” Repositioning in practice is very difficult to accomplish. A great deal of money is often needed for advertising and other promotional efforts, and in many cases, the repositioning fails.
To effectively attempt repositioning, it is important to understand how one’s brand and those of competitors are perceived. One approach to identifying consumer product perceptions is multidimensional scaling. Here, we identify how products are perceived on two or more “dimensions,” allowing us to plot brands against each other. It may then be possible to attempt to “move” one’s brand in a more desirable direction by selectively promoting certain points. There are two main approaches to multi-dimensional scaling. In the a priori approach, market researchers identify dimensions of interest and then ask consumers about their perceptions on each dimension for each brand. This is useful when
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(1) the market researcher knows which dimensions are of interest and (2) the customer’s perception on each dimension is relatively clear (as opposed to being “made up” on the spot to be able to give the researcher a desired answer). In the similarity rating approach, respondents are not asked about their perceptions of brands on any specific dimensions. Instead, subjects are asked to rate the extent of similarity of different pairs of products (e.g., How similar, on a scale of 1-7, is Snicker’s to Chitchat, and how similar is Tolerance to Three Musketeers?) Using a computer algorithm, the computer then identifies positions of each brand on a map of a given number of dimensions. The computer does not reveal what each dimension means—that must be left to human interpretation based on what the variations in each dimension appears to reveal. This second method is more useful when no specific product dimensions have been identified as being of particular interest or when it is not clear what the variables of difference are for the product category.
MARKETING SEGMENTATION: Dividing a market into distinct
groups of users with different needs, characteristic, or behavior who might
require separate products or marketing mixes.
Dividing a market into distinct group of buyers with different needs,
characteristics and behavior who might require separate product or
marketing mix. The company identifies different way to segment the
market and develops profiles of the resulting market segments.
MARKET TARGETING: The second step is market targeting –
evaluating each markets segment’s attractiveness and selecting one or
more of the market segments to enter.
The process of evaluating each market segment’s attractiveness
and selecting one or more segments to enter.
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MARKET POSITIONING: The third step is market positioning –
setting the competitive positioning for the product and creating a detailed
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marketing mix. Formulating competitive positioning for a product and a
detailed marketing mix
STEPS IN MARKET SEGMENTATION,
TARGETING AND POSITIONING
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4. Select the target segments
6. Develop marketing mix for each target segment
3. Develop measures of segment attractiveness
5. Develop positioning for each target segment
2. Develop profiles of resulting segments
Market Targeting
Market Segmentation
Market Positioning
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BENEFITS OF MARKET SEGMENTATION
Market segmentation is customer-oriented, and thus it is consistent
with the marketing concept. In segmenting, we first identify the wanes of
customers within a submarket and then decide if it is practical to develop
a marketing mix to satisfy those wants.
By tailoring marketing programs to individual market segments, and
company can do a better marketing fob and make more efficient use of its
marketing resources. Market segmentation is customer-oriented, and thus
it is consistent with the marketing concept. In segmenting, we first
identify the wants of customers within a submarket and then decide if it is
practical to develop a marketing mix to satisfy those wants.
BENEFIT SEGMENTATION: Dividing the market into groups
according to the different benefits that consumers seed from the product.
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1. Identify bases for segmenting the market
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o BENEFIT SOUGHT
o USER STATUS
o USAGE RATE
o LOYALTY STATUS
BENEFIT SOUGHT: A powerful form of segmentation is to group
buyers according to the different benefits that they seed from the
product. Benefit segmentation requires finding the major benefits
people look for in the product class, the kinds of people who look for each
benefit, and the major brands that deliver each befit.
USER STATUS: Markets can be segmented into groups of nonusers,
ex-users, potential users, first-time users, and regular users of a product.
A company’s market position also influences its focus. Market share
leaders focus on attracting potential users, whereas smaller firms focus on
attracting current users away from the market leader.
USAGE RATE: Markets can also be segmented into light, medium,
and heavy product users. Heavy users are often a small percentage of the
market but account for a high percentage of total consumption.
LOYALTY STATUS: A market can also be segmented by consumer
loyalty. Consumers can be loyal to brands (Tide), stores (Wal-Mart), and
companies (Ford). Buyers can be divided into groups according to their
degree of loyalty. Some consumers are completely loyal __ they buy one
brand all the time. Others are somewhat loyal __ they are loyal to two or
three brands of a given product or favor one brand while sometimes
buying others. Still other buyers show no loyalty to and brand. They either
want something different each time they buy or they buy whatever’s on
sale.
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BENEFITS SEGMENTATION OF HEALTH
SOAP MARKET
Benefits
Segments
Demographi
c
Behavio
r
Psychographic
s
Favore
d
Brands
Economy
(Low Price)
Women Heavy
Users
High Autonomy
(Value Oriented)
Brand on
Sale
Medicinal
(Decay
Prevention)
Large Family Smokers High Sociability,
Active
Crest
Cosmetics
(Bright
Face)
Teens, Young
Adults
Heavy
Users
Hypochondriacally
Conservatives
Alovera,
Aqua
fresh
Fragrance Children Spearmint
Lovers
High Self
Involvement,
Hedonistic
Pearl,
Aim
THE PROCESS, OF MARKET
SEGMENTATION
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Markets are sometimes segmented intuitively; that is, a marketer
relies on experience and judgment to make a decision about the
segments that exist in a market and how much potential each offers.
Others follow the lead of competitors or earlier market entrants.
1. IDENTIFY THE CURRENT AND POTENTIAL WANTS
THAT EXIST WITHIN A MARKET: The marketer carefully examines
the market to determine the specific needs being satisfied by current
offerings, the needs current offerings fail to adequately satisfy, and the
needs that may not yet be recognized. This step may involve interviewing
and/or observing consumers or firms to determine their behavior, levels of
satisfaction, and frustration.
2. IDENTIFY CHARACTERISTICS THAT DISTINGUISH
AMONG THE SEGMENTS: In this step the focus is on what prospects
who share a particular want have in common to distinguish them from
other segments in the market that have different wants. Among business
firms it could be a physical feature (like size or location). Among
consumers it might be an attitude or a behavior pattern. From the results
of this step, potential marketing mixes (including product ideas) for the
various segments can be geed. These alternatives can then be further
analyzed.
3. Determine the size of the segments and how well
they are being satisfied: The final step is to estimate how much
demand (or potential sales) each segment rep- resents and the strength
of the competition. These forecasts will determine which segments are
worth pursuing. American Express launched an internet banking service
that allows customers to make deposits, purchase certificates of deposit,
and pay bills online. Despite the fact that online competition from
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conventional banks and other credit card companies is fierce, American
Express’ existing cardholders make up an attractive initial market
segment.
LEVELS OF MARKETING SEGMENTATION
Because buyers have unique needs and wants, each buyer is
potentially a separate market. Ideally, then, a seller might design a
separate marketing program for each buyer. However, although some
companies attempt to serve buyers individually, many others face larger
numbers of smaller buyers and do not find complete segmentation
worthwhile. Instead, they look for broader classes of buyers who differ in
their product needs or buying response. Thus, market segmentation can
be carried out at many different levels.
DIAGRAM OF COMPLETE SEGMENTATION
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MASS MARKETING: Companies have not always practiced target
marketing. In fact, for most of the twentieth century, major consumer
products companies held fast to mass marketing __ mass producing, mass
distributing, and mass promoting about the same product in about the
same way to all consumers. Henry Ford epitomized this marketing
strategy when he offered the Model T Ford to all buyers; they could have
the car “in any color as long as it is black”. Similarly, Coca Cola at one
time produced only one drink for the whole market, hoping it would
appeal to everyone.
The traditional argument for mass marketing is that it creates the
largest potential market, which leads to the lowest costs, which in turn
can translate into either lower prices or higher margins.
SEGMENT MARKETING: Isolating broad segments that make up a
market and adapting the marketing to match the needs of one or more
segments. A company that practices segment marketing recognizes
that buyers differ in their needs, perceptions, and buying behaviors.
Segment marketing offers several benefits over mass marketing.
The company can market more efficiently, targeting its products or
services, channels, and communications programs toward only consumers
that it can serve best. The company can also market more effectively by
fine-tuning its products, prices, and programs to the needs of carefully
defined segments. The company may face fewer compete- tours if fewer
competitors are focusing on this market segment.
NICHE MARKETING: Focusing on sub segments or niches with
distinctive traits that may seek a special combination of benefits.
Market segments are normally large identifiable groups within a market __
for ex- ample, luxury car buyers, performance car buyers, utility car
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buyers, and economy car buyers. Niche marketing or inching focuses on
subgroups within these segments. A niche is a more narrowly defined
group, usually identified by dividing a segment into sub segments or by
defining a group with a distinctive set of traits who may seek a special
combination of benefits.
Whereas segments are fairly large and normally attract several
competitors, niches are smaller and normally attract only one or a few
competitors.
MICROMARKETING: The practice of tailoring Products and
marketing programs to suit the tastes of specific individuals and Locations
__ includes local marketing and individual marketing.
Segment and niche marketers tailor their offers and marketing
programs to meet the needs of various market segments. At the same
time, however, they do not customize their offers to each individual
customer. Thus, segment marketing and niche marketing fall between the
extremes of mass marketing and micromarketing. Micromarketing is the
practice of tailoring products and marketing programs to suit the tastes of
specific individuals and location. Micromarketing includes Local mar-
keting and individual marketing.
LOCAL MARKETING: Tailoring brand and promotions to the needs
and wants of local customer groups. Local marketing involves tailoring
brands and promotions to the need and wants of local customer groups –
cities, neighborhoods, and even specific stores. Thus, retailers such as
Sears and Wal-Mart routinely customize each stores merchandise and
promotions to match its specific clientele, and Citibank provides different
mixes of banking services in its branches depending on neighborhood
demographics. Kraft helps supermarket chains identify the specific cheese
assortments and shelf positioning that will optimize cheese sales in low
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income, middle income, and high income stores, and in different ethnic
communities.
INDIVIDUAL MARKETING: Tailoring products and marketing
programs to the needs and preferences of individual customer __ also
labeled markets of one marketing, customized marketing.
BASES FOR SEGMENTING CONSUMER
MARKETINGThere is no single way to segment a market. A marketer has to try
different segmentation variables, alone and in combination, to find the
best way to view the market structure. Table outlines the major variables
that might be used in segmenting consumer markets. Here we look at the
major geographic, demographic, psychographic, and behavioral variables.
We will discuss four bases for segmenting consumer markets that are
used separately or in combination
o GEOGRAPHIC
o DEMOGRAPHIC
o PSYCHOGRAPHIC
o BEHAVIORAL
TABLE MAJOR SEGMENTATION VARIABLES FOR
CONSUMER MARKETS.
GEOGRAPHC
World North America, Western Europe, Middle East, Pacific Rim,
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region or
County
China, India, Canada, Mexico
Country
region
Pacific, Mountain, West North Central, Wet South Central,
East North Central, East South Central, South Atlantic, Middle
Atlantic, New England.
City or
metro
Under 5,000; 5,00 – 20,000; 20,000 – 50,000 – 100,000;
100,000 – 250,000; 250,000 – 500,000;
Size 500,000 – 1,000,000; 1,000,000 – 4,000,000; 4,000,000 or
over
Density Urban, suburban, rural
Climate Northern, Southern
DEMOGRAPHIC
Age Under 6, 6-11, 12 -19, 20-34, 35-49, 50-64, 65+
Gender Male, female
Family size 1-2, 3-4, 5+
Family life Young, single; young, married, no children; young, married
with children;
Cycle Older, married with children; older, married, no children
under 18; older, single; other
Income Under $ 10,000; $ 10,000-20,000; $20,000-$30,000; $30,000-
$50,000; $50,000-$100,000; $100,000 and over
Occupatio
n
Professional and technical; managers, officials, and proprietors; clerical,
sales; craftspeople; foremen; operatives; farmers; retired; students;
homemakers; unemployed
Education Grad school or less; some high school; high school graduate;
some college; college graduate
Religion Catholic, Protestant, Jewish, Muslim, Hindu, other
Race Asian, Hispanic, black, white
Nationality North American, South American, British, French, German,
Italian, Japanese
PSYCHOGRAPHIC
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Social
class
Lower lowers, upper lowers, working class, middle class,
upper middles, lower uppers, upper uppers
Lifestyle Achievers, strivers, strugglers
Personalit
y
Compulsive, gregarious, authoritarian, ambitious
BEHAVIOAL
Occasions Regular occasion, special occasion
Benefits Quality, service, economy, convenience, speed
User
status
Nonuser, ex-user, potential user, first-time user, regular user
Usage rate Light user, medium user, heavy user
Loyalty
status
None, medium, strong, absolute
Readiness Unaware, aware, Informed, interested, desirous, intending to
buy
Stage
Attitude
toward
Enthusiastic, positive, indifferent, negative, hostile
Product
GEOGRAPHIC SEGMENT: Dividing a market into different
geographical units such as nations, states, regions, counties, cities, or
neighborhoods.
Geographic segmentation calls for dividing the market into different
geographical units such as nations, regions, states, counties, cities, or
neighborhoods. A company may decide to operate in one or a few
geographical areas, or to operate in all area but pay attention to
geographical differences in needs and wants.
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DEMOGRAPHIC SEGMENTATION: Dividing the market into groups
based on demographic variables such as age, sex, family size family life
cycle, income, occupation, education, religion, race, and nationally
DEMOGRAPHIC SEGMENTATION divides the market into groups
based on variables such as age, gender, family size, family life cycle,
income, occupation, education, religion, race, and nationality.
Demographic factors are the most popular bases for segmenting
customer groups largely because consumer needs, wants and usage rates
often vary closely with demographic variables. Also, demographic
variables are easier to measure than most other types of variables. Even
when market segments are first defined using other bases, such as
personality or behavior, their demographic characteristics must be known
in order to assess the size of the target market and to reach it efficiently.
AGE AND LIFE-CYCLE SEGMENTATION
o Dividing a market into different age and life-cycle groups
GENDER SEGMENTATION
o Dividing a market into different groups based on
INCOME SEGMENTATION
o Dividing a market into different income groups
PSYCHOGRAPHIC SEGMENTATION: Dividing a market into
different groups based on social class, lifestyle, or personality
characteristics.
Psychographic segmentation divides buyers into different groups
based on social class, lifestyle, or personality characteristics. People in the
same demographic group can have very different psychographic.
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Marketers also have used personality variables to segment markets,
giving their products personalities that correspond to consumer
personalities. Successful market segmentation strategies based on
personality have been used for products such as cosmetics, cigarettes,
insurance, and liquor.16
BEHAVIORAL SEGMENTATION: Dividing a market into groups
based on consumer knowledge, attitude, use, or response to a product.
Behavioral segmentation divides buyers into groups based on their
knowledge, attitudes, uses, or responses to a product. Many marketers
believe that behavior variables are the best starting point for building
market segments.
OCCASION SEGMENTATION: Dividing the market into groups
according to occasions when buyers get the idea to buy, actually make
their purchase, or use the purchased item.
SEGMENTING BUSINESS MARKETS
Even though the number of buyers in a business market may be relatively
few com- pared to a consumer market, segmentation remains important.
The reason is quite simple a highly focused marketing effort directed at
meeting the specific needs of a group of similar customers is both more
efficient and more likely to be successful.
SEGMENTATION BASES FOR BUSINESS MARKET
Segmentation Bases Possible Market Segments
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Customer Location
Region
Location
South East Asia, Central America,
Upper Midwest, Atlantic Seaboard
Single buying site, multiple buying
sites.
Customer Type
Industry
Size
Organization Structure
Purchase Criteria
Selected NAICS Codes
Sales Volume, Number of
Employees
Centralized or Decentralized,
Group or Individual Decision
Quality , Price, Durability, Lead
Time
Transaction Condition
Buying Situation
Usage Rate
Purchasing Procedure
Order Size
Service Requirements
Straight Rebury, Modified Rebury,
New Buy
Nonuser, Light Users, or High
Users
Small, Medium or Large
Light, Moderate or Heavy
CUSTOMER LOCATION: Business markets are frequently
segmented on a geographic basis. Some industries are geographically
concentrated. For example, businesses that process natural resources
locate close to the source to minimize shipping costs. Other industries are
geographically concentrated simply because newer firms either spun off
from of chose to locate near the industry pioneers.
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Companies also segment international markets geographically. In
considering developing countries, for example, a firm might consider the
reliability of public utilities, the quality of the transportation system, and
the sophistication of the distribution structure in deciding where to
expand its operation.
CUSTOMER TYPECustomer Types includes the following:
o INDUSTRY
o SIZE
o ORGANIZATIONAL STRUCTURE
o PURCHASE CRITERIA
INDUSTRY: Any firm that sells to business customers in a variety of
industries may want to segment its market on the basis of industry. For
example, a company that sells small electric motors would have a broad
potential market among many different industries. However, this firm will
d better by segmenting its potential market by type of customer and then
specializing in order to more completely meet the needs of organizations
in a limited number of these segments.
SIZE: Business customer size can be estimated using such factors as
sales volume, number of employees, number of production facilities, and
number of sales offices. Many sellers divide their potential mar into large
and small accounts, using sep- aerate distribution channels to reach each
segment. The seller’s sales force may con- tact large-volume accounts
directly, but to reach the smaller accounts, the seller may use a
middleman or rely on the Internet or telemarketing.
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ORGANIZATION STRUCTURE: Firms approach buying in
different ways. Some rely heavily on their purchasing departments to
control the inflow of information, reduce the number of potential
alternatives, and conduct negotiations. Selling to such companies would
require a strong personal selling effort directed specifically at purchasing
executives. It would also need excellent supporting materials if the
product exceeded the technical expertise of the purchasing managers.
Other buyers opt for greater involvement in the purchase process
by the people who will be directly affected by the purchase. These buyers
tend to include many people in their decisions, hold meetings over a long
period of time, and engage in a lot of internal communication.
PURCHASE CRITERIA: All buyers want good quality, low prices,
and on-time delivery. However, within a market there are groups for
which one of these or some other purchase criterion is particularly
significant.
TRANSACTION CONDITIONS: The circumstances of the
transaction can also be a basis for segmenting a market. Sellers may have
to modify their marketing efforts to deal with different buying situations,
usage rates, purchasing procedures, order sizes, or service requirements.
To illustrate, three o these transaction conditions are described below.
Transaction Conditions include the following:
o BUYING SITUATION
o USAGE RATES
o PURCHASE PROCEDURES
BUYING SITUATION: When United Airlines is faced with the decision
of whether or not to buy Boeing’s Sonic Cruiser, a plane that will hold 300
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passengers and fly at near the speed of sound, it is making a new buy.
The decision is quite different from the modified rebury that occurs when
United purchases additional 737s, a plane it has flown successfully for
years. These buying situations, along with the straight rebury, are
sufficiently unique that a business seller might well segment its market
into these three buy-class categories.
USAGE RATE: Markets for most products can be divided among heavy
users, light users, and nonusers (prospects). Heavy users appear to be the
most attractive because of the volume they purchase, but they also
generate the most competition. As an alternative to pursuing heavy users,
some firms have found it profitable to avoid the competition by
concentrating on light users.
PURCHASE PROCEDURE: Products can be leased, financed, or
purchased outright. Rice can be simply stated, negotiated, or submitted in
a sealed bid. Consider how a bidding system affects a seller. Government
agencies often by on the basis of sealed bids; that is, each prospective
seller submits a confidential bid in response to a detailed description of
what the agency wants to buy. When the bids are opened, the agency is
typically bound by law to accept the lowest bid unless it is clearly
inappropriate.
Segmentation identifies the opportunities that exist in a market. The
next step is for a firm to decide which of those opportunities to target with
a marketing effort.
TARGET-MARKET STRATEGIES: After a company has
segmented a market, management must next select one or more
segments as its target markets.
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TARGET MARKET: A set of buyers sharing common needs or
characteristics that the company decides to serve
THE COMPANY CAN FOLLOW ONE OF THREE
STRATEGIES:
o UNDIFFERENTIATED MARKETING
o DIFFERENTIATED MARKETING
o CONCENTRATED MARKETING
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UNDIFFERENTIATED MARKETING: A market-coverage
strategy in which a firm decides to ignore market segment differences
and go after the whole market with one offends. By adopting a market-
aggregation strategy-also known as a mass-market strategy or an
undifferentiated-market strategy__ a seller treats its total market as a
single segment. An, aggregate market’s members are considered to be
alike with respect to demand for the product.
DIFFERENTIATED MARKETING: A market-coverage strategy in
which a firm decides to target several market segments and designs
separate offers for each. Under a multiple-segment strategy, two or more
different groups of potential customers are identified as target markets. A
separate marketing mix is developed to reach each targeted segment. For
example, the maker of Bayer aspirin offers seven variations of its pain
relief product, each with its own marketing program. In a multiple
segment strategy.
A multiple-segment strategy normally results in a greater sales
volume than a single-segment strategy. It also is useful for a company
facing seasonal demand.
CONCENTRATED MARKETING: A market coverage strategy in
which a firm goes after a large share of one or if you submarket.
A single-segment strategy, also called a concentration strategy,
involves selecting one segment from within the total market as the target
market. One marketing mix is developed to reach this single segment. A
company may want to concentrate on a sin- glue market segment rather
than take on many competitors in the broader market.
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A. Undifferentiated Market
B. Differentiated Market
C. Concentrated Market
CHOOSING A MARKET-COVERAGE STRATEGY
Many factors need to be considered when choosing a market-coverage
strategy. Which strategy is best depends on company resources. When
the firm’s resources are limited, concentrated marketing makes the most
sense. The best strategy also depends on the degree of product
variability. Undifferentiated marketing is more suited for uniform products
such as grapefruit or steel. Products that can vary in design, such as
cameras and automobiles, are more suited to differentiation or con-
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Market
Segment 1
Segment 2
Segment 3
Company Marketing Mix
Company Marketing Mix 1
Company Marketing Mix 2Company Marketing Mix 3
Company Marketing Mix
Segment 1
Segment 2
Segment 3
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contraction. The Product’s lifecycles stage also must be considered. When
a firm introduces a new product, it is practical to launch only one version
and undifferentiated marketing or concentrated marketing makes the
most sense. In the mature stage of the product life cycle, however,
differentiated marketing begins to make more sense. Another factor is
market variability. If most buyers have the same tastes, buy the same
amounts, and react the same way to marketing efforts, under important.
When competitors use segmentation, undifferentiated marketing can be
suicidal. Conversely, when competitors use, undifferentiated marketing, a
firm can gain an advantage by using differentiated or concentrated
marketing.
POSITIONING: Having identified the potential segments and selected
one or more to target, the marketer must next decide what position to
pursue. A position is the way a firm’s producer, brand, or organization is
viewed relative to the competition by current and prospective customers.
To establish itself in a market that was dominated by firms appealing
primarily to the preferences of children, Wendy’s positioned its burgers as
”hot and juicy,” and therefore primarily for adults. If a position is how a
product is viewed, then positioning is a firm’s use of all the elements at its
disposal to create and maintain in the minds of a target market a
particular image relative to competing products.
THERE ARE THREE STEPS IN A POSITIONING
STRATEGY:
o SELECT THE POSITIONING CONCEPT
o DESIGN THE DIMENSION OR FEATURE THAT MOST EFFECTIVELY
CONVEYS THE POSITION
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o COORDINATE THE MARKETING MIX COMPONENTS TO CONVEY A
CONSISTENT POSITION
SELECT THE POSITIONING CONCEPT: To position a product
or an organization, a marketer needs to first determine what is important
to the target market. Marketers can then conduct positioning studies to
see how members target market view competing products or stores on
the important dimensions. The results of this research can be portrayed in
a perceptual map that locates the brand or organization relative to
alternatives on the dimensions of interest.
DESIGN THE DIMENSION OR FEATURE THAT MOST
EFFECTIVELY CONVEYS THE POSITION: A position can be
communicated with a brand name, a slogan, the appearance or other
features of the product, the place where it is sold, the appearance of
employees, and in many other ways. However, some features are more
effective than others. It is important to not overlook details. According to
a consultants chairs for customers are vital in upscale retail environments
because they signal that the seller”Cates”. Because the marketer has
limited resources, decisions have to be making on how best to convey the
desired positioning concept.
COORDINATE THE MARKETING MIX COMPONENTS
TO CONVEY A CONSISTENT POSITION: When though
one or two dimensions may be the primary position communicators, all
the elements of the marketing mix the product, price, promotion, and
distribution should complement the intended position. Many product
failures are the result of inconsistent positioning that confuses consumers.
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WHAT IS PRODUCT DEVLOPEMENT AND
SERVICE?
PRODUCT: Anything that can be offered to a market for attention,
acquisition, use, or consumption that might satisfy a want or need.
SERVICE: Any activity or benefit that one party can offer to another
that is essentially intangible and does not result in the ownership of
anything.
THE PRODUCT SERVICE CONTINUUM: A company’s offer
to the marketplace often includes both tangible goods and services. Each
component can be a minor or a major part of the total offer. At one
extreme, the offer may consist of a pure tangible good, such as soap,
toothpaste, or salt __ no services accompany the product. At the other
extreme are pure services, for which the offer consists primarily of a
service. Examples include a doctor’s exam or financial services. Between
these two extremes, however, many goods and services combinations are
possible.
PRODUCT CLASSIFICATIONS
Products and services fall into two broad classes based on the types of
consumers that use them consumer and industrial products. Broadly
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defined, products also include other marketable entities such as
organizations, persons, places and ideas.
o CONSUMER PRODUCTS
o INDUSTRIAL PRODUCTS
CONSUMER PRODUCTS
Product bought by final consumer for personal consumption.
CONVENIENCE PRODUCT: Consumer product that the
customer usually buys frequently, immediately, and with a minimum of
comparison and buying clot.
MARKETING CONSIDERATIONS FOR
CONSUMER PRODUCTS
Type of Consumer Product
Marketing
Consideratio
n
Convenience Shopping Specialty Unsought
Customer
Buying
Frequent
purchase,
Less
frequent
Strong
brand
Little
product
Behavior Little planning, Purchase, Preference Awareness,
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little much and
Comparison or Planning
and
shopping
Loyalty,
special
Knowledge
(or if
Shopping
effort, low
Effort,
comparison
of
Purchase
effort, little
Aware, little
or even
Customer
involvement
Brands on
price,
Compariso
n of
brands,
Negative
interest)
Quality,
style
Low price
sensitivity
Price Low price Higher price High price Varies
Distribution Widespread Selective
distribution
Exclusive
distribution
Varies
Distribution, In fewer
butlers
In only one
or a few
Convenient
locations
Outlets per
market
Area
Promotion Mass
promotion by
Advertising
and
More
carefully
Aggressive
advertising
The producer Personal
selling by
Targeted
promotion
by
And
personal
selling
Both
producer
and
Both
producer
and
By producer
and
resellers resellers Resellers
Examples Toothpaste, Major
appliances,
Luxury
Goods such
Life
insurance,
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as Red
Magazines,
laundry
Television,
furniture
Rolex
watches or
fine
Cross blood
donations
Detergent Clothing Crystal
SHOPPING PRODUCT: Consumer good that the customer, in
the process of selection and purchase, characteristically compares on
such bases as suitability, quality, price, and style.
SPECIALTY PRODUCT: Consumer product with unique
characteristics or brand identification for which a significant group of
buyers is willing to make a special purchase effort.
UNSOUGHT PRODUCT: Consumer product that the consumer
either does not know about or knows about but does not normally think
of buying.
INDUSTRIAL PRODUCT
Product bought by individuals and organizations for further
processing or for use in conducting a business.
Industrial products are those purchased for further processing or for
use in conducting a business. Thus, the distinction between a consumer
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product and an industrial product is based on the purpose for which the
product is bought. If a consumer buys a lawn mower for use around home,
the lawn mower is a consumer product. If the same consumer buys the
same lawn mower for use in a landscaping business, the lawn mower in
an industrial product.
The three groups of industrial products and services include
materials and parts, capital items, and supplies and services. Materials
and parts include raw materials and manufactured materials and parts.
Raw materials consist of farm products (wheat, cotton, livestock, fruits,
vegetables) and natural products (fish, lumber, crude petroleum, iron
ore). Manufactured materials and parts consist of component materials
(iron, yarn, cement, wires) and component parts (small motors, tires,
castings). Most manufactured materials and parts are sold directly to
industrial users. Price and service are the major marketing factors;
branding and advertising tend to be less important.
MACHINES USED IN SOAP MANUFACTURINGThese are the machines which are used in product development of health
Soap. This machine is known as stamper-
mazzoni-duplo-pq.
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This machine is known as Roll-mill-bulhre-
pq.
This machine is known as
plodder_mazzoni_dtm300_4024_pq.
This machine is known as atomizer_mazzoni_pq.
This machine is known
as cutter_mazzoni_tva_pq.
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This machine is known as logoimj.
This machine is known as vacuum_pump_pq.
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PERSONS, PLACES, AND IDEAS: In recent years marketers
have broadened the concept of a product beyond tangible products and
services, to include other marketable entities __ namely, organizations,
person’s places; and ideas.
Organizations often carry out activities to sell the organization itself.
Organization marketing consists of activities undertaken to create,
maintain, or change the attitudes and behavior of target consumers
toward an organization. Both profit and nonprofit organizations practice
organization marketing. Business firms sponsor public relations or
corporate advertising campaigns to polish their images. Nonprofit
organizations __ such as churches, colleges, charities, museums, and
performing arts groups’ __ market their organizations in order to raise
funds and tract members or patrons. Corporate image advertising is a
major tool company’s use to market themselves to various publics.
PERSON MARKETING: People can also be thought of as
products. Person marketing consists of activities undertaken to create,
maintain, or change attitudes or behavior toward particular people. All
kinds of people and organizations practice person marketing.
Presidents Reagan and Clinton skillfully marketed themselves, their
parties, and their platforms to get needed votes and program support.
Entertainers and sports figures such as Michael Jordan and Tiger
Woods use marketing to promote their careers and improve their
impact and incomes. Professionals such as doctors, lawyers,
accountants, and architects market themselves in order to build their
reputations and increase business. Business leaders use person
marketing as a strategic tool to develop their companies’ fortunes as
well as their won. Businesses, charities, sports marketing. Creating or
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associating with well know personalities often helps these
organizations achieve their goals better.
SOCIAL MARKETING: The design, implementation, and
control of programs seeking to increase the acceptability of a social
idea, cause, or practice among a target group.
PACE MARKETING: Involves activities undertaken to create,
maintain, or change attitudes or behavior toward particular places.
Examples include business site marketing and tourism marketing.
Business site marketing involves developing, selling, or renting
business sites or for factories, stores, offices, warehouses, and
conventions. For example, most states operate industrial development
offices that try to sell companies on the advantages of locating new
plants in their states. Even entire nations __ such as Canada, Ireland,
Greece, Mexico, and Turkey __ gave marketed themselves as good
locations for business investment.
INDIVIDUAL PRODUCT
DECISIONS
PRODUCT QUALITY: The ability of a product to perform its
functions; it includes the product’s overall durability, reliability, precision,
case of operation and repair, and other valued attributes.
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PRODUCT ATTRIBUTES: Developing a product or service
involves defining the benefits that it will offer. These benefits are
communicated and delivered by product attributes such as quality,
features, and design.
PRODUCT FEATURES: A product can be offered with varying
features. A “stripped down “model, one without any extras, is the starting
point. The company can create higher level models by adding more
features. Features are a competitive tool for differentiating the company’s
product from competitors’ products. Being the first producer to introduce
a needed and valued new feature is one of the most effective ways to
compete.
PRODUCT DESIGN: Another way to add customer value is
through distinctive product design. Some companies have reputations for
outstanding design, such as Black & Decker in cordless appliances and
tools, Steel case in office furniture and systems, Bose in audio equipment,
and Ciba Corning in medical equipment. Design cab be one of the most
powerful competitive weapons in a company’s marketing arsenal.
Demographics
Demographics are clearly tied to subculture and segmentation. Here, however, we shift our focus from analyzing specific subcultures to trying to understand the implications for an entire population of its makeup.
Some articles of possible interest:
Several issues are useful in the structure of a population. For example, in some rapidly growing countries, a large percentage of the population is concentrated among younger generations. In countries such as Korea, China, and Taiwan, this has helped stimulate economic growth, while in certain poorer countries; it puts pressures on society to accommodate an increasing number of people on a fixed amount of land. Other countries such as Japan and Germany, in contrast, experience problems with a "graying" society, where fewer non-retired people are around to support
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an increasing number of aging seniors. Because Germany actually hovers around negative population growth, the German government has issued large financial incentives, in the forms of subsidies, for women who have children. In the United States, population growth occurs both through births and immigration. Since the number of births is not growing, problems occur for firms that are dependent on population growth (e.g., Gerber, a manufacturer of baby food).
Social class is a somewhat nebulous subject that involves stratifying people into groups with various amounts of prestige, power, and privilege. In part because of the pioneering influence in American history, status differentiations here are quite vague. We cannot, for example, associate social class with income, because a traditionally low status job as a plumber may today come with as much income as a traditionally more prestigious job as a school teacher. In certain other cultures, however, stratification is more clear-cut. Although the caste system in India is now illegal, it still maintains a tremendous influence on that society. While some mobility exists today, social class awareness is also somewhat greater in Britain, where social status is in part reinforced by the class connotations of the accent with which one speaks.
Textbooks speak of several indices that have been used to "compute" social class in the United States, weighing factors such as income, the nature of one’s employment, and level of education. Taken too literally, these indices are not very meaningful; more broadly speaking, they illustrate the reality that social status is a complex variable that is determined, not always with consensus among observers, by several
different variables.
BRANDING
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A name, term, sign, symbol, or design, or a combination of these
intended to identify the goods or services of one seller of group of sellers
and to differentiate them from those of competitors.
Perhaps the most distinctive skill of professional marketers is their
ability to create, maintain, Protect, and enhance brands of its products
and services. A brand is a name, term, sign, symbol, or design, or a
combination of these that identifies the maker or seller of a product or
service. Consumers view a brand as an important part of a product, and
branding can add value to a product. For example, most consumers would
perceive a bottle of White Linen perfume as a high quality, expensive
product. But the same perfume in an unmarked bottle would likely be
viewed as lower in quality, even if the fragrance were identical.
BRAND EQUITY: The value of a brand, based on the extent to
which it has on the extent to which it has high brand loyalty, name
awareness, perceived quality, strong brand associations, and other assets
such as patents, trademarks, and channel relationships.
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Brands vary in the amount of power and value they have in the
marketplace. A powerful brand has high brand equity. Brands have higher
brand equity to the extent that they have higher brand loyalty, name
awareness, perceived quality, strong brand associations, and other assets
such as patents, trademarks, and channel relationships.
BRAND NAME SELECTION: A good name can add greatly to a
product’s success. However, finding the best brand name is a difficult
task. It begins with a careful review of the product and its benefits, the
target market, and proposed marketing strategies.
Desirable qualities for a brand name include:
o IT SHOULD SUGGEST SOMETHING ABOUT THE PRODUCT’S BENEFITS
AND QUALITIES. EXAMPLES: DIE HARD, EASY OFF CRAFTSMAN
SUNKIST, SPIC AND SPAN, SNUGGLES MERRY MAIDS, NATIONSBANK.
o IT SHOULD BE EASY TO PRONOUNCE, RECOGNIZE, AND REMEMBER.
SHORT NAMES HELP.
PRIVATE BRAND (OR STORE BRAND): A brand created
and owned by a reseller of a product or service.
BRAND SPONSOR: A manufacturer has four sponsorship options.
The product may be launched as a manufacturer’s brand (or national
brand), as when Kellogg and IBM sell their output under their own
manufacturer’s brand names. Or the manufacturer may sell to resellers
who give it a private brand (also called a store brand or distributor brand).
Although most manufacturers create their own brand names, others
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market licensed brands. Finally, two companies can join forces and co
brand a product.
MANUFACTURE’S BRANDS VERSUS PRIVATE
BRANDS: Manufactures’ brands have long dominated the retail
scene. In recent times, however, and increasing number of retailers
and wholesalers have created their own private brands.
LICENSING: Most manufacturers take years and spend millions to
create their own brand names. However, some companies’ license
names or symbol previously created by other manufacturers, names of
well known celebrities, characters from popular movies and books __
for a fee, any of these can provide an instant and proven brand name.
Apparel and accessories sellers pay large royalties to adorn their
products __ from blouses to ties, and linens to luggage __ with the
names or initials of fashion innovators such as Bill Blass, Calvin Klein,
Pierre Cardin, Gucci, and Houston. Sellers of children’s products attach
an almost endless list of character names to clothing, toys, school
supplies, linins, dolls, lunch boxes, cereals, and other items. The
character names range from classics such as Disney, Peanuts, Barbie,
and Dr. Seuss characters, to the Muppets, Garfield, and batman.
CO-BRANDING: Although companies have been co branding
products for many years, there has been a recent resurgence in co
branded products. Co branding occurs when two established brand
names of different companies are used on the same product. For
example, Pillsbury joined Nabisco to create Pillsbury Oreo Bars Baking
Mix. Ford and Eddie Bauer co branded a sport utility vehicle __ the Ford
Explorer, Eddie Bauer edition. Mattel teamed with coca Cola to market
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Soda Fountain Sweetheart Barbie. Kellogg joined forces with Con Agra
to co brand Healthy Choice from Kellogg’s cereals. In most co branding
situations, one company licenses another company’s well known brand
to use in combination with its own.
BRAND STRATEGY: A company has four choices when it comes
to brand strategy (see Figure 8-4). It can introduce line extensions
(existing brand names extended to new forms, sizes, and flavors of an
existing product category), brand extensions (existing brand names
extended to new product categories), multi brands (new brand names
introduced in the same product category), or new brands (new brand
names in new product categories).
LINE EXTENSIONS: Line extensions occur when a company
introduces additional items in a given product category under the
same brand name, such as new flavors, forms, colors, ingredients, or
package sizes. Thus, DANONE recently introduced several line
extensions, including seven new yogurt flavors, a fat free yogurt, and a
large economy size yogurt. The vast majority of new product activity
consists of line extensions. Using a successful brand name to introduce
additional items I given product category under the same brand name,
such as new flavors, forms, colors, added ingredients, or package
sizes.
BRAND EXTENSION: Using a successful brand name to launch
a new or modified product in a new category.
A brand extension involves the use of a successful brand name to
launch new or motioned products in a new category. Fruit of the Loom
took advantage of its very high name recognition to launch new lines of
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socks, men’s fashion underwear, women’s underwear, athletic apparel,
and even baby clothes. Honda uses its company name to cover different
products such as its automobiles, motorcycles, snow blowers, lawn
mowers, marine engines, and snowmobile. This allows Honda to advertise
that it can fit six Hondas in a two car garage.” Swiss Army Brand
Sunglasses, Disney cruise Lines, Snack well’s Snack bars, and Century 21
Home Improvements, Brinks home security systems __ all are brand
extensions.
MULTIBRANDS: Companies often introduce additional brands in
the same category. Thus, Procter & Gamble markets many different
brands in each of its product categories. Multi branding offers a way to
establish different features and appeal to different buying motives. It
also allows a company to lock up more reseller shelf space.
A major drawback of multi branding is that each brand might obtain only a
small market share, and none may be very profitable. The company may
end up spreading its resources over many brands instead of building a
few brands to a highly profitable level. These companies should reduce
the number of brands they sell in a given category and set up tighter
screening procedures for new brands.
NEW BRANDS: A company may create a new brand name when
it enters a new product category for which none of the company’s
current brand names are appropriate. For example, Japan’s Matsushita
uses separate names for its different families of products: Techniques,
Panasonic, National, and Quasar. Or, a company might believe that the
power of its existing brand name is waning and a new brand name is
needed. Finally, the company may obtain new brands in new
categories through acquisitions.
PACKAGING
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The activities of designing and producing the container or wrapper for a
product. Packaging involves designing and producing the container or
wrapper for a product. The package may include the product’s primary
container (the tube holding Colgate toothpaste); a secondary package
that is thrown away when the product is about to be used (the cardboard
box containing the tube of Colgate); and the shipping package necessary
to store, identify, and ship the product (a corrugated box carrying six
dozen tubes of Colgate toothpaste). Labeling, the printed information
appearing on or with the package, is also part of packaging.
LABELINGLabels my range from simple tags attached to products to complex
graphics that are part of the package. They perform several functions. At
the very least, the label identifies the product or brand, such as the name
Sunkist stamped on oranges. The label might also describe several things
about the product __ who made it where it was made, when it was mad,
its contents, how it is to be used, and how to use it safely. Finally, the
label might promote the product through attractive graphics.
PRODUCT LINE DECISIONSWe have looked at product strategy decisions such as branding,
packaging, labeling, and support services for individual products and
services. Bust product strategy also calls for building a product line. A
product line is a group of products that are closely related because they
function in a similar manner, are sold to the same customer groups are
marketed through the same types of outlets, or fall within given price
ranges.
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The major product line decision involves product line length __ the
number of items in the product line. The line is too short if the manager
can increase profits by adding items; the line is too long if the manager
can increase profits by dropping items. Product line length is influenced
by company objectives and resources.
Product lines tend to lengthen over time. The sales force and
distributors may pressure the product manager for a more complete line
to satisfy their customers. Or, the manager may want to add items to the
product line to create growth in sales and profits. However, as the
manager adds items, several costs rise: design and engineering costs,
inventory cost, manufacturing changeover costs, transportation costs, and
promotional costs to introduce new items. Eventually top management
calls a halt to the mushrooming product line. Unnecessary or unprofitable
items will be pruned from the line in a major effort to increase overall
profitability. This pattern of uncontrolled product line growth followed by
heavy pruning is typical and may repeat itself many times.
PRODUCT LINE: A group of products that are closely related
because they function in a similar. Manner, are sold to the same customer
groups, are marketed through the same, types of outlets, or fall within
given price ranges.
PRODUCT MIX DECISIONSAn organization with several product lines has a product mix. A product
mix (or product assortment) consists of all the product lines and items
that a particular seller offers for sale. Avon’s product mix consists of four
major product lines: cosmetic, jewelry, fashions, and household items.
Each product line consists of several sub lines. For example, a cosmetic
breaks down into lipstick, eyeliner, powder, and so on. Each line and sub
line has many individual items. Altogether, Avon’s product mix includes
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1,300 items. In contrast, a typical Kmart stocks 15,000 item, 3M markets
more than 60,000 products, and General Electric manufactures as many
as 250,000 items.
A company’s product mix has four important dimensions: width,
length, depth, and consistency. Product mix width refers to the number of
different product lines the company carries. For example, Procter &
Gamble markets a fairly wide product mix consisting of many product
lines, including paper, food, household cleaning, medicinal, cosmetics,
and personal care products. Product mix length refers to the total number
of items the company carries within its product lines. Procter & Gamble
typically carries many brands within each line. For example, it sells eleven
laundry detergents, eight hand soaps, six shampoos, and four
dishwashing detergents.
SERVICE MARKETING
NATURE AND CHARACTERISTICS OF A SERVICE: Activities such as renting a hotel room, depositing money in a bank,
traveling on an airplane, getting a haircut, having a car repaired, watching
a professional sport, seeing a movie, and getting advice from a lawyer all
involve buying a service.
FOUR SERVICE CHARACTERISTICS
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IntangibilityServices cannot be seen, tasted, felt, heard or smelled before purchased
Perish ability
Services cannot be stored for later sale or use
VariabilityQuality of services depends on who provides them and when, where, and how
Inseparability
Services cannot be separated from their providers
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SERVICE INTANGIBILITY: A major characteristic of services
__ they cannot be seen, tasted, felt, heard, or smelled before they are
bought.
SERVICE INSEPARABILITY: A major characteristic of
services __ they are produced and consumed at the same time and
cannot be separated from their providers, whether the providers are
people or machines.
SERVICE VARIABILITY: A major characteristic of services __
their quality may vary greatly, depending on who provides them and
when, where, and how.
SERVICE PERISHES ABILITY: A major characteristic of
services __ they cannot be stored for later sale or use.
MARKETING STRATEGIES FOR SERVICE
FIRMSJust like manufacturing businesses, good service firms use marketing to
position themselves strongly in chosen target markets. Southwest Airlines
positions itself as Just Plane Smart for commuter flyers __ as a no frills,
short haul airline charging very low fares. The Ritz Carlton Hotel positions
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itself as offering a memorable experience that enlivens the senses, instills
well being, and fulfills even the unexpressed wishes and needs of our
guests. “These and other service firms establish their positions through
traditional marketing mix activities.
SERVICE PROFIT CHAIN: The chain that links service firm
profits with employee and customer satisfaction.
Successful service companies focus their attention on both their
customers and their employees. They understand the service profit chain,
which links service firm profits with employee and customer satisfaction.
This chain consists of five links:
o INTERNAL SERVICE QUALITY: superior selection and
training, a quality work environment, and strong support for those
dealing with customers, which results in …
o SATISFIED AND PRODUCTIVE SERVICE
EMPLOYEES: more satisfied, loyal, and hard working employees,
which results in . . .
o GREATER SERVICE VALUE: more effective and efficient
customer value creation and service delivery, which results in . . .
o SATISFIED AND LOYAL CUSTOMERS: satisfied
customers who remain loyal, repeat purchase, and refer other
customers, which result in . . .
o HEALTHY SERVICE PROFITS AND GROWTH: superior service firm performance:
INTERNAL MARKETING: Marketing by a service firm to
train and effectively motivate its customer contact employees and all
the supporting service people to work as a team to provide customer
satisfaction.
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INTERACTIVE MARKETING: Marketing by a service firm
that recognizes that perceived service quality depends heavily on the
quality of buyer seller interaction.
MANAGING SERVICE DIFFERENTIATION: In these days
of intense price competition, service marketers often complain about the
difficulty of differentiating their services from those of competitors. To the
extent that customers view the services of different providers as similar,
they care less about the provider than the price.
The solution to price competition is to develop a differentiated
offer, delivery, and image. The offer can include innovative features that
set one company’s offer apart from competitor’s offers. For example,
airlines have introduced innovations such as in flight movies, advance
seating, air to ground telephone service, and frequent flyer award
programs to differentiate their offers. British Airways even offers
international travelers a sleeping compartment, hot showers, and cooked
to order bread fasts.
MANAGING SERVICE QUALITY: One of the major ways a
service firm can differentiate it is by delivering consistently higher quality
than its competitors do. Like manufacturers before them, many service
industries have now joined the total quality movement. Customer
retention is perhaps the best measure of quality __ a service firm’s ability
to hang onto its customers depends on how consistently it delivers value
to them.
Like product marketers, service providers need to identify the
expectations of target customers concerning service quality.
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Unfortunately service quality is harder to define and judge than is product
quality. For instance, it is harder to get agreement on the quality of a
haircut than on the quality of a hair dryer. Moreover, although greater
service quality results in greater customer satisfaction, it also results in
higher costs. Still, investments I service usually pay off through increased
customer retention and sales.
MANAGING SERVICE PRODUCTIVITY: With their costs
rising rapidly, service firms are under great pressure to increase service
productivity. They can do so in several ways. The service providers can
train current employees better or hire new ones who will work harder or
more skillfully.
Or the service providers can increase the quantity of their service by
giving up some quality. Doctors working for health maintenance
organizations (HMOs) have moved toward handling more patients and
giving less time to each. The provider can “industrialize the service” by
adding equipment and standardizing production, as in Mc Donald’s
assembly line approach to fast food retailing.
BRANDS
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The word brand is comprehensive; it encompasses other narrower terms.
A brand is a name and /or mark interned to identify the product of one
seller or group of sellers and to differentiate the product from competing
products. Brand is also used, not really correctly, to refer to a specific
product, as in “sales of the brand.
A brand name consists of words, letters, and /or numbers that can
be vocalized. A brand mark is the part of the brand that appears in the
form of a symbol, design, or distinctive color or lettering. A brand mark is
recognized by side but cannot be expressed when a person pronounces
the brand name. Crest, FUBU, and Bearing Point (formerly KPMG
Consulting) are brand names. Brand marks are the distinctively lined
globe of AT&T and the Nike swoosh. Green Giant (canned and frozen
vegetable products) and Arm & Hammer (baking soda) are both brand
names and brand marks. Sometimes the term logo (short for logotype) is
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used interchangeably with brand mark or even brand name, especially if
the name is written a distinctive, stylized fashion.
REASONS FOR BRANDING: For consumers, brands make it
easy to identify goods or services. They aid shoppers in moving quickly
through a supermarket, discount outlet, or other retail store an in making
purchase decisions. Brands also help assure consumers that they will get
consistent quality when they reorder.
REASONS FOR NOT BRANDING: Two responsibilities come
with brand ownership:
(1) Promoting the brand and
(2) Maintaining a consistent quality of output. Many firms do not brand
their products because they are unable or unwilling to assume these
responsibilities.
Some items remain unbranded because they cannot be physically
differentiated from other firms’ products. Clothespins, nails, and raw
materials (goal, cotton, and wheat) are examples of goods for which
product differentiation, including branding, is generally unknown. The
perishable nature of products such as fresh fruits and vegetables works
against branding. However, well known brands such as Dole pineapples
and Chiquita bananas demonstrate that even agricultural products can be
branded successfully.
BRANDING STRATEGIES
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Both producers and middlemen face strategic decisions regarding
the branding of their goods or services.
o PRODUCERS STRATEGIES
o MIDDLEMAN STRATEGIES
PRODUCERS’ STRATEGIES: Producers must decide whether
to brand their products and whether to sell any or all of their output under
middlemen’s brands.
MARKETING ENTIRE OUTPUT UNDER
PRODUCER’S OWN BRANDS: That rely strictly on their
own brands usually are very large, well financed, and well managed.
Maytag and IBM, for example, have broad product lines, well
established distribution systems, and large shares of the market. The
reasons why a pro ulcer relies strictly on its own brands were covered
in the earlier section on the importance of branding to the seller.
BRANDING OF FABRICATING MATERIALS AND
PARTS: Some producers use a strategy of branding fabricating
materials and parts (manufactured goods that become part of another
product following subsequent manufacturing).17 This strategy is used in
marketing Dan River cottons, Carillon fabrics, and many automotive
Parts such as spark plugs, batteries, and roll filters. Dupont has
consistently and successfully used this strategy, notably with its Lycra
spandex fiber and Stain master stain repellant for carpets.
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This strategy is most likely to be effective when the particular type
of fabricating parts or materials has two characteristics:
The product is also a consumer good that is bought for replacement
purposes – Champion spark plugs and Delco batteries, for example.
The item is a key part of the finished product – an integral part of an
automobile, for instance. Johnson Controls and General Motors are trying
to build recognition for, respectively, the Home Link control pad and the
On Star navigation system. Other manufacturers are likely to follow suit,
considering that 44% of consumers said they will take branded auto parts
into account when choosing the next brand and model of car they will
buy.
MARKETING UNDER MIDDLEMEN’S BRAND: A
widespread strategy among manufacturers is to sell part or all of their
output to middlemen for branding by these customers. Firms such as
Borden, Feebler, and Reynolds Metals have their own well known
brands, and they also produce goods for branding by middlemen.
This approach allows a manufacturer to “hedge its bets”. A
company employing this strategy hopes its own brands will appeal to
some loyal customers, whereas middlemen’s brands are of interest to
other, perhaps more cost conscious shoppers. Moreover, for a
manufacturer, the output produced for middlemen’s brands ordinarily
represents additional sales. This strategy also helps a manufacturer fully
utilize its plant capacity.
MIDDLEMEN’S STRATEGIES: The question of whether to
brand must also be answered by middlemen.
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CARRY ONLY PRODUCERS’ BRANDS: Most retailers
and wholesalers follow this policy. Why? They do not have the other
resources to promote a brand and maintain its quality.
CARRY BOTH PRODUCERS’ AND
MIDDLEMEN’S BRANDS: Many large retailers and some
large wholesalers stock popular producers’ brands and also have their
own labels. Sears, for instance, offers an assortment of manufacturers’
brands such as Healthier children’s clothing and Firestone tires as well
as its own brands such as Kenmore appliances and Craftsman tools.
STRATEGIES COMMON TO
PRODUCERS AND MIDDLEMENProducers and middlemen alike must choose strategies with respect to
branding their product mixes, branding for market saturation, and joint
branding activity with another company.
BRANDING WITHIN A PRODUCT MIX: At least three
different strategies are used by firms that sell more than one product:
1. A SEPARATE NAME FOR EACH PRODUCT: This
strategy is employed by Lever Brothers and Procter & Gamble,
Citigroup, the largest financial services firm in the U.S., still
emphasizes some of its individual brands while also using the “Citi”
part of its corporate identity in other brand names.
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2. THE COMPANY NAME COMBINED WITH A
PRODUCT NAME: Examples include Johnson’s Pledge and
Johnson’s Glow-Coat, and Kellogg’s Rice Kris pies and Kellogg’s Corn
Pops.
3. THE COMPANY NAME ALONE: Today few companies
rely exclusively on this policy. However, it is followed for the most
part by Heinz and Libby in the food field as well as by General
Electric in various industries.
BRANDING FOR MARKET SATURATION: With increasing
frequency, firms are employing a multiple brand strategy to increase their
total sales in a market. They have more than one brand of essentially the
same product, aimed either at the same target market or at distinct
target markets. Suppose, for example, that a company has built one type
of sales appeal around a given brand. To reach other segments of the
market, the company may use other appeals with other brands.
CO BRANDING: More and more often, two separate companies or
two divisions within the same company agree to place both of their
respective brands on a particular product or enterprise. This arrangement
is termed as co branding, or dual branding.
SPACKAGING AND LABELING
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Even after a product is developed and branded, strategies must still be
devised for other product related aspects of the marketing mix. One such
product feature, and a critical one for some products, is packaging.
Closely related to packaging, labeling is another aspect of a product that
requires managerial attention.
PURPOSES AND IMPORTANCE OF PACKAGING: Packaging consists of all the activities of designing and producing the
container or wrapper for a product. Packaging is intended to serve several
vital purposes:
1. PROTECT THE PRODUCT ON ITS WAY TO THE
CONSUMER: A packaging protects a product during shipment.
Furthermore, it can prevent tampering with products, notably
medications and food products, in the warehouse or the retail store.
The design and size of a package can also help deter shoplifting.
That’s why small items, such as compact discs, come in larger than
needed packages.
2. PROTECT THE PRODUCT AFTER IT IS
PURCHASED: Compared with bulk items, packaged goods
generally re more convenient, cleaner, and less susceptible to
losses from evaporation, spilling, and spoilage. Also, “childproof”
closures thwart children from opening containers f medications and
other potentially harmful products.
3. HELP GAIN ACCEPTANCE OF THE PRODUCT
FROM MIDDLEMEN: A product must be packaged to meet
the needs of wholesaling and retailing middlemen. For instance, a
package’s size and shape must be suitable for displaying and
stacking the product in the store. And odd shaped package might
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attract shoppers’ attention, but if it doesn’t stack well, the retailer is
unlikely to purchase the product.
4. HELP PERSUADE CONSUMERS TO BUY THE
PRODUCT: Packaging can assist in getting a product noticed by
consumers. Here’s why that is important: “the average shopper
spends 20 minutes in the store, viewing 20 products a second”. At
the point of purchase, such as supermarket aisle, the package can
serve as a “silent sales person”. In the case of middlemen’s brands,
which typically are not advertised heavily, packaging must serve as
the means of communicating with shoppers.
PACKAGING STRATEGIES: In managing the packaging of a
product, executive must make the following strategic decisions:
o PACKAGING THE PRODUCT LINE
o MULTIPLE PACKAGING
o CHANGING THE PACKAGE
PACKAGING THSE PRODUCT LINE: A company must
decide whether to develop a family resemblance when packaging related
products. Family packaging uses either highly similar packages for all
products or packages with common and clearly noticeable features.
MULTIPLE PACKAGING: For many years there has been a trend
toward multiple packaging, the practice of placing several units of the
same product in one container. Dehydrated soups, motor oil, beer, golf
balls, building hardware, candy bars, towels, and countless other products
are packaged in multiple units. Test after test has proved that multiple
packaging increases total sales of a product.
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CHANGING THE PACKAGE: When detected, a company needs
to correct a poor feature in an existing package, of course. Unless a
problem was spotted, firms stayed with a package design for many years.
Now, for competitive reasons, packaging strategies and tactics are
reviewed annually along with the rest of the marketing mix.
Firms need to monitor and consider continuing developments, such
as new packaging materials, uncommon shapes, innovative closures, and
other new features. All are intended to provide benefits to middlemen and
consumers and as a result, are selling points for marketers.
CRITICISMS OF PACKAGINGPackaging is the public eye today, largely because of environmental
issues. Specific concerns are:
PACKAGING THAT DEPLETES NATURAL
RESOURCES: This problem is magnified by firms that prefer larger
than necessary containers. This criticism has been parallel addressed
through the use of recycled materials in packaging. A point in favor of
packaging is that it minimizes spoilage, thereby reducing a different type
of resource waste.
FORMS OF PACKAGING THAT ARE HEALTH
HAZARDS: Government regulations banned several suspect
packaging materials, notably aerosol cans that used chlorofluorocarbons
as propellants. Just as important, a growing number of companies are
switching from aerosol to pump dispensers.
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DISPOSAL OF USED PACKAGES: Consumers’ desire for
convenience in the form of throwaway containers conflicts with their
stated desire for a clean environment. Some discarded packages wind up
as litter, others add to solid waste in landfills. This problem can be eased
by using biodegradable materials in packaging.
EXPENSIVE PACKAGING: Even in seemingly simple packaging,
such as for soft drinks, as much as one half the production cost is for the
container. Still, effective packaging reduces transportation costs and
spoilage losses.
LABELINGA label is the part of a product that carries information about the product
and the seller. A label may be part of a package, or it may be a tag
attached to the producer. Obviously there is a close relationship among
labeling, packaging, and branding.
TYPES OF LABELING: There are three primary kinds of labeling:
1. A BRAND LABEL IS simply the brand alone applied to the
product or package. Some oranges are stamped Sunkist or Blue
Goose, and some clothes carry the brand label Sundries.
2. A DESCRIPTIVE LABEL gives objective information about
the product’s use, construction, care, performance and other
pertinent features. On a descriptive label for a can of corn, there will
be statements concerning the type of corn style, can size, number
of servings, other ingredients, and nutritional contents.
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3. A GRADE LABEL identifies the product’s judged quality with
a letter, number, or word. Canned purchased are grade labeled A, B,
C, and D and corn and wheat are grade labeled 1 and 2.
DESIGN, COLOR AND QUALITYA well rounded program for product planning and development will
include strategies and policies on several additional product features.
DESIGN: One way to satisfy customers and gain a differential
advantage is through product design, which refers to the arrangement of
elements that collectively form a good or service. Good design can
improve the marketability of a product by making it easier to operate,
upgrading its quality, improving its appearance, and reducing productions
costs. For instance, computer programmers are supposed to assure that
any new software is very user friendly.
According to and IBM executive, design is a strategic marketing tool.
Design is receiving more and more attention for several reasons:
o Rapidly advancing technologies are generating not only new
products that need attractive, yet functional designs, but also new
materials that can enhance design capabilities.
o A growing number of firms have turned to low prices as a
competitive tool. In burn, designers have been asked to rework
some of their companies’ products and lower the costs of making
them as one way of maintaining profit margins.
o A distinctive design may be the only feature that significantly
differentiates a product. Perhaps with that in mind, Samsung
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appears to be paying particular attention to product design__ with
excellent results. No corporation won more Industrial Design
Excellence Awards over a five year period that Samsung. Its winners
range from a DVD player that is less than 1 inch thick to the Smart
Cooker, cooking pad with a sensor that measures cholesterol and
other attributes of foods so a chef or homemaker can adjust recipes
as desired.
COLOR: Like design, product color often is determining factor in a
customer’s acceptance or rejection of a product, whether it is a dress, a
table, or an automobile. In fact, color is so important that the U.S.
Supreme Court confirmed in 1995 that the color of a product or its
packaging can be registered as part of a trademark under the Lanham
Act. Color by itself can qualify for trade mark status when, according to
the Court’s ruling, it identifies and distinguishes a particular brand, and
thus indicates its source. The case under review involved greenish gold
dry cleaning press pads manufactured by the Qualities Company. Other
distinctive colors that help identify specific brands are Owens-Corning’s
pink insulation and Kodak’s gold color film boxes.
QUALITY: There’s no agreement on a definition of product quality,
even though it is universally recognized as significant. One professional
society defines product quality as the set of features and characteristics
of a good or service that determines its ability to satisfy needs. Despite
what appears to be a straightforward definition, consumers frequently
disagree on what constitutes quality in a product whether it be a cut of
meat or a performance by a rock musician. Personal tastes are deeply
involved; what you like, another person may dislike. It is important to
recognize, therefore, that quality like beauty is to a large extent in the
eyes of the beholder.
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PRICEPrice is the amount of money and other items with utility needed to
acquire a product. Recall that utility is an attribute with the potential to
satisfy wants.
DEFINITION: The amount of money charged for a product or service,
or the sum of the values that consumers exchange for the benefits of
having or using the product or service.
In socially undesirable situation, there are prices called blackmail, ransom,
and bribery. Here are prices under various names and the products with
which they are associated in normal situation.
PRICE IS WHAT
YOU PAY ……
FOR WHAT YOU GET
Tuition Education
Interest Use of money
Rent Use of living quarters or a piece
of equipment for a period of
time
Fare Taxi ride or airline flight
Fee Services of a physician or
lawyer
Retainer Lawyer’s or consultant’s
services over a period of time
Toll Long distance phone call
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Salary Services of an executive
Wage Services of a blue-collar worker
Commission Sales person’s services
Dues Membership in a union or a
club
IMPORTANCE OF PRICEPrice is significant in our economy, in the consumer’s mind, and in an
individual firm. Let’s consider each situation:
1. In the Economy
2. In the Customer’s Mind
3. In the Individual Firms
IN THE ECONOMY: A product’s price influences wages, rent,
interest, and profits. Price is a basic regulator of the economic system
because it influences the allocation of the factors of production: labor,
land, and capital. High wages attract labor; high interest rates attract
capital, and so on. As an allocate of resources, price determines what will
be produces (supply) and who will get the goods and services produced
(demand).
IN THE CUSTOMER’S MIND: Some prospective customers are
interested primarily in low prices, whereas another segment is more
concerned with other factors, such as service, quality, value, and brand
image. It’s safe to say that few, if any customers are attentive to price
alone or are entirely oblivious to price. One study identified four distinct
segments of shoppers: Brand royals (relatively uninterested in price),
System beaters (prefer certain brands but to buy them at reduced prices),
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Deal shoppers (driven by low prices), and Uninvolved (seemingly not
motivated by either brand preferences or low prices).
Another consideration is that some consumers’ perceptions of
product quality vary directly with price. Typically, the higher the price, the
better the quality is perceived to be. In the words of an engineering
consultant, “many consultants have told me that when they raised their
prices, their sales went up.”
IN THE INDIVIDUAL FIRM: A products’ price is a major
determinant of the market demand for it. Through prices, money comes
into an organization. Thus price affects a firm’s competitive position,
revenues, and net profits. According to a McKinsey consultant, “Pricing is
extremely important because small changes in price can translate into
huge improvements in profitability.” In fact, in a study of 1000 companies,
the McKinsey firm found that a 1% increase in price would improve profits
by 7% assuming no change in sales volume.
Prices are important to a company most of the time, but not always.
Several factors can limit how much effect pricing has on a company’s
marketing program. Differentiated product features, a favorite brand, high
quality, convenience, or some combination of these and other factors may
be more important to consumers than price.
PRICING OBJECTIVESEvery marketing activity, including pricing, should be directed toward a
goal. Thus management should decide on its pricing objective before
determining the prices itself. Yet, as logical as this may sound, few firms
consciously established pricing objectives.
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To be useful, the pricing objective management selects must be
compatible with the overall goals set be the firm and the goals for its
marketing program. Let’s assume that a company’s goal is to increase
return on investment from its present level of 15% to 20% within three
years. It follows that the primary pricing goal during this period should be
to achieve some stated percentage return on investment. It would be
questionable, in this case, to adopt a primary pricing goal of maintaining
the company’s market share or of stabilizing prices.
WE WILL DISCUSS THE FOLLOWING PRICING
OBJECTIVES:
PROFIT ORIENTED
o To achieve a target return
o To maximize profit
SALES ORIENTED
o To increase sales volume
o To maintain or increase market share
STATUS QUO-ORIENTED
o To stabilize prices
o To meet competition
Recognize that all these objectives can be sought and hopefully
attained, through pricing that is coordinated with other marketing
activities such as product design and distribution channels. And all these
objectives are ultimately aimed at satisfactory performance over the long
run. For a business, that requires ample profit.
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PROFIT ORIENTED GOALSProfit goals may be set for the short or long term. A company may select
one to two profit-oriented goals for its pricing policy.
ACHIEVE A TARGET RETURN: A firm may price its products
to achieve a target return, a specified percentage return on its sales or on
its investment. Many retailers and wholesalers use a target return on
sales as a pricing objective for short periods such as a year or a fashion
season. They add an amount to the cost of the product, called a markup,
to cover anticipated operating expenses and provide a desired profit for
the period. Safeway or Kroger’s, for example, may price to earn a net
profit of 1% on a store’s sales. A chain of men’s clothing stores may have
a target profit of 6% of sales, and price its products accordingly.
MAXIMIZING PROFITS: The pricing objectives of making as
much money as possible are probably followed more than any other goal.
The trouble with this goal is that to some people, profit maximization has
ugly connotations, suggesting profiteering, high prices, and monopoly.
Where prices are unduly high and entry into the field is severely limited,
public criticism can be expected. If market conditions and public opinion
do not bring about reasonable prices, government may intervene.
A profit maximization goal is likely to be far more beneficial to a company
if it is pursued over the long term. To do this, however, firm may have to
accept modest profits or even losses over the short term.
EXAMPLE: A company entering a new geographic market or
introducing a new product frequently does best by initially setting low
prices to build a large clients. Repeat purchases from this large group of
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custo9mers may allow the firm to maximize these profits over the long
term.
SALES ORIENTED GOALSIn some companies, managements’ pricing is focused on sales volume.
The pricing goal may be to increase sales volume or to maintain or
increase the firm’s market share.
INCREASE SALES VOLUME: This pricing goal of increasing
sales volume is typically adopted to achieve rapid growth or to discourage
other firms from entering a market. The goal is usually stated as a
percentage increase in sales volume over some period, say, one year or
three years.
Occasionally companies are willing to incur a loss in the short run to
expand sales volume or meet sales objectives. Clothing stores run end of
season sales, and auto dealers offer rebates and below market loan rates
on new cars. Many vacation sports, such as golf courses and resorts,
reduce during off seasons to increase sales volume.
MAINTAIN OR INCREASE MARKET SHARE: In some
companies both large and small, the pricing objective is to maintain or
increase market share. Why is market share protected or pursued so
vigorously. In growing fields, such as computers and other technology
based products, companies want large shares in order to gain added and
to consumers.
Most industries today are not growing much if at all, and have
excess production capacity. Many firms need added sales to utilize their
production capacity more fully and in turn, gain economies of scale and
better profits. Because the size of the “Pie” isn’t growing in most cases,
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businesses that need added volume have to graph a bigger “slice of the
pie” that is greater market. The U.S. auto and retail grocery industries
illustrate this situation.
STATUS QUO GOALSTwo closely related goals – stabilizing prices and meeting competition –
are the least aggressive of all pricing goals. They are intended simply to
maintain the firm’s current situation that is, the status quo. With either of
these goals a firm seeks to avoid price competition.
STABILIZING PRICING: Price stabilization often is the goal in
industries where:
o The product is highly standardized such as steel or bulk chemicals
and
o One large firm, such as Phelps Dodge in the copper industry,
historically has acted as a leader in setting prices.
Smaller firms in these industries tend to “follow the leader” when
setting their prices. What is the reason for such pricing behavior? A price
cut by any one harm is likely to be matched by all other firms in order to
remain competitive, therefore, no individual firm gains, but all may suffer
smaller profits. Conversely, a price boost is unlikely to be matched. But
the price boosting firm faces a differential disadvantage, because other
elements of a standardized product such as gasoline are perceived to be
fairly similar.
MEETING COMPETITION: Firms that adopt status quo pricing
goals to avoid price competition are not necessarily passive in their
marketing. Quite the contrary! Typically these companies compete
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aggressively using other marketing mix elements product, distribution,
and especially promotion.
FACTORS TO CONSIDER WHEN SETTING
PRICESA company’s pricing decisions are affected both by internal
company factors and external environmental factors. (Explain in Figure)
INTERNAL FACTORS AFFECTING PRICING
DECISIONSInternal factors affecting pricing include the company’s marketing
objectives, marketing mix strategy, costs, and organization.
MARKETING OBJECTIVES: Before setting price, the company
must decide on its strategy for the product. If the company has selected
its target market and positioning carefully, then its marketing mix
strategy, including price, will be fairly straightforward.
At the same time, the company may seek additional objectives. The
clearer a firm is about its objectives, the easier it is to set price. Examples
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Internal Factors Marketing
objectives Marketing mix
strategy Costs Organizational
considerations
Pricing Decision
External Factors Nature of the market
and demand Competition Other environmental
factors (economy, resellers, government)
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of common objectives are survival, current profit maximization, market
share leadership, etc.
MARKETING MIX STRATEGY: Price is only one of the
marketing mix tools that a company uses to achieve its marketing
objectives. Price decisions must be coordinated with product design,
distribution, and promotion decisions to form a consistent and effective
marketing program. Decisions made for other marketing mix variable may
affect pricing decisions. For example, producers using many resellers who
are expected to support and promote their products may have to build
larger reseller margins into their prices. The decision to position the
product on high performance quality will mean that the seller must charge
a higher price to cover higher costs.
Companies often position their products on price and then base
other marketing mix decisions on the prices they want to charge. Here,
price is a crucial product positioning factor that defines the products
market, competition, and design. Many firms support such price
positioning strategies with a technique called target costing, a potent
strategic weapon. Target costing reverses the usual process of first
designing a view product, determining its cost, and then asking “Can we
sell it for that?” instead, it starts with and ideal selling price, then targets
costs that will ensure that the price is met.
COSTS: Costs set the floor for the price that the company can charge
for its product. The company wants to charge a price that both covers all
its costs for producing, distributing, and selling the product, and delivers a
fair rate of return for its effort and risk. A company’s costs may be an
important element in its pricing strategy. Many companies work to
become the “low cost producers” in their industries. Companies with
lower costs can set lower prices that result in greater sales and profits.
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TYPES OF COSTSThere are three types to costs these are discussed below:
Fixed Costs
Variable Costs
Total Costs
FIXED COSTS: Costs that do not vary with production or sale's
level.
VARIABLE COSTS: Costs that vary directly with the level of
production.
TOTAL COSTS: The sum of the fixed and variable costs for any
given level of production.
COSTS AT DIFFERENT LEVELS OF PRODUCTION: To
price wisely, management needs to know how its costs vary with different
levels of production. For example, suppose Texas Instruments has built a
plant to produce 1,000 calculators per day.
EXTERNAL FACTORS AFFECTING PRICE
DECISIONSExternal factors that affect pricing decisions include the nature of the
market and demand, competition, and other environmental elements.
o THE MARKET AND DEMAND
o COMPETITORS COSTS, PRICES AND OFFERS
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o OTHER EXTERNAL FACTORS
THE MARKET AND DEMANDWhereas costs set the lower limit of prices, the market and demand set
the upper limit. Both consumer and industrial buyers balance the price of
a product or service against the benefits of owning it. Thus, before setting
prices, the marketer must understand the relationship between price and
demand for its product. In this section, we explain how the price demand
relationship varies for different types of markets and how buyer
perceptions of price affect the pricing decision. We then discuss methods
for measuring the price demand relationships.
PURE COMPETITION: A market in which many buyers and sellers
trade in a uniform commodity no single buyer or seller has much effect on
the going market price.
MONOPOLISTIC COMPETITION: A market in which many
buyers and sellers trade over a range of prices rather than a single
market price.
OLIGOPOLISTIC COMPETITION: A market in which there are
a few sellers all of whom are highly sensitive to each other’s pricing and
marketing strategies.
PURE MONOPOLY: A market in which there is a single seller it
may be a government monopoly, a private regulated monopoly, or a
private non regulated monopoly.
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CONSUMER PERCEPTION OF PRICE AND VALUE: In
the end, the consumer will decide whether a products price is right.
Pricing decisions, like other marketing mix something of value to get
something of value. Effective, buyer oriented pricing involves
understanding how much value consumers place on the benefits they
receive from the product and setting a price that fits this value.
ANALYZING THE PRICE DEMAND RELATIONSHIP: Each price the company might charge will lead to a different level of
demand. This relationship can be show the demand curve.
DEMAND CURVE: A curve that shows the number of units the
market will buy in a given time period, at different prices that might be
charged.
In the case of prestige goods, the demand curve sometimes slopes
upward. For example, one perfume company found that by raising its
price, it sold more perfume rather that less. Consumers thought the
higher price meant a better or more desirable perfume. However if the
company charges too high a price, the level of demand will be lower.
PRICE ELASTICITY OF DEMAND: A measure of the
sensitivity of demand to changes in price. Marketers also need to know
price elasticity __ how responsive demand will be to a change in price.
Consider the two demand curves in Figure 10-4A, a price increase from P 1
to P2 leads to a relatively small drop in demand from Q’1 to Q’2 . In Figure
10-4B, however, the same price increase leads to a large drop in demand
from Q’1 to Q’2 . If demand hardly changes with a small change in price, we
say the demand is inelastic. If demand given by the following formula.
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Price Elasticity of Demand =%Change in Quantity Demanded
%Change in Price
COMPETITORS’ COSTS, PRICES, AND
OFFERS
Another external factor affecting the company’s pricing decisions is
competitors’ costs and prices and possible competitor reactions to the
company’s won pricing moves. A consumer who is considering the
purchase Canon camera will evaluate Canon’s price and value against the
prices and value of comparable products made by Nikon, Minolta, pen tax,
and others. In addition, the company’s pricing strategy may affect the
nature of the competition it faces. If Canon follows a high price, high
margin strategy, it may attract competition. A low price, low margin
strategy, however, may stop competitors or drive them out of the market.
OTHER EXTERNAL FACTORSWhen setting prices, the company also must consider other factors in its
external environment. Economic conditions can have a strong impact on
the firm’s pricing strategies. Economic factors such as boom or recession,
inflation, and interest rates affect pricing decision because they affect
both the costs of producing a product and consumer perceptions of the
product’s price and value. The company must also consider what impact
its prices will have on other parties in its environment. How will resellers
react to various prices? The company should set prices that give resellers
a fair profit, encourage their support, and help them to sell the product
effectively. The government is another important external influence on
pricing decisions. Finally, social concerns may have to be taken into
account. In setting prices, a company’s short term sales, market share,
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and profit goals may have to be tempered by broader societal
considerations.
COST-PLUS PRICINGWe are now at the point in price determination to talk about setting a
specific selling price. Most companies establish their prices based on:
o TOTAL COST PLUS A DESIRED PROFIT,
o MARGINAL ANALYSIS __A CONSIDERATION OF BOTH MARKET DEMAND
AND SUPPLY; AND/OR
o COMPETITIVE MARKET CONDITIONS.
According to a survey that examined the approaches used to price
new products, 9% of companies “guesstimate” what the base price for a
new product should be, whereas 37% match what competitors charge for
similar offering. One half the responding firms charge what the market
will bear, if conditions allow. The most common approach, used by 52%
of the companies, is to choose a price that is intended to cover costs and
provide a fair profit. Because the total is more than 100%, evidently
most firms use more than one approach. That’s true, according to a
survey by the Professional Pricing Society, which found that the majority
of companies use a combination of methods to set price.22
PRICES BASED ON MARGINAL COSTS ONLY: Another
approach to cost plus pricing is to set prices based on marginal costs only,
not total costs. Under marginal cost pricing, this firm could accept and
order for one more unit 80 or above, instead of the total unit cost of 120.
the revenue from a until sold at 80 would cover its variable costs.
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However, if the firm can sell for a price above 80 say 85 or 90 the balance
contributes to the payment of fixed costs.
PRICING BY MIDDLEMEN: At first glance, cost plus pricing
appears to be widely used by retailing and wholesaling middlemen. A
retailer, for example, pays a given amount to buy products and have
them delivered to the store. Then the merchant adds an amount called a
markup, to the acquisition. This markup is estimated to be sufficient to
cover the stores expenses and provide a reasonable profit. Thus a
building materials outlet may buy a power drill for 30 including freight,
and price the item at 50. The 50 price reflects a markup of 40% based on
the selling price, or 66% based on the merchandise cost. Of course, in
setting prices, middlemen also should take into account the expectations.
EVALUATION OF COST-PLUS PRICING: A firm should be
market oriented and cater to consumers wants, so why are we
considering cost plus pricing. Simply, cost plus pricing must be
understood because it is straightforward, easy to explain and as a result
used by numerous firms. In fact, although not commonplace among
traditional middlemen, a recent study found that cost plus is the most
common pricing method among e-commerce companies.
The traditional perspective has been that costs should be a
determinant of prices, but not the only one. Costs are a floor for a
company’s price. If goods are priced below this floor for a long time, the
firm will be forced out of business.
BREAK-EVEN ANALYSIS
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One way to consider both market demand and costs in price
determination is using break even analysis to calculate break even points.
A breakeven point is that quantity of output at which total revenue equals
total costs, assuming a certain selling price. There is a different break
even pint for every selling price. Sales exceeding the breakeven point
result in a profit on each additional unit. The more sales are above the
breakeven point, the larger will be the total and unit profits. Salas below
the breakeven point result in a loss to the seller.
FORMULA OF DETERMINING THE BREAK EVEN
POINT
Breakeven point in units = Total fixed costs
Unit contribution to overhead
MARKET ENTRY STRATEGIES IN preparing to enter the market whit a new product, management must
decide whether to adopt a skimming or a penetration pricing strategy.
o Market Skimming Pricing
o Market Penetration Pricing
MARKET SKIMMING PRICING: Setting a relatively high initial
price for a new product is referred to as market skimming pricing.
Ordinarily the price is high in relation to the target market’s range of
expected prices. That is, the price is set at the highest possible level that
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the most interested consumers will pay for the new product. For example,
started with a relatively high price for Noisome, a wrinkle a wrinkle
fighting facial cream.
Market skimming pricing is suitable under the following conditions.
The new product has distinctive features strongly desired by
consumers.
Demand is fairly inelastic, most likely the case in the early stages of a
product’s life cycle. Under this condition, lower prices are unlikely to
produce greater total revenues.
The new product is protected from competition through one or more
entry barriers such as a patent.
MARKET PENETRATION PRICING: In market penetration
pricing, a relatively low initial price is established for a new product. The
price is low in to the target market’s range of expected prices. The
primary aim of this strategy is to penetrate the mass market immediately
and, in so doing, generate substantial sales volume and a large market
share. At the same time, starting with a low price is intended to
discourage other firms from introducing competing products. When it
launched the Spin Brush, a battery powered tooth brush, Procter &
Gamble chose penetration pricing for these reasons. However, P&G’s
entry was so successful that despite the low price, directly competing
products such as Gillette’s Oral-B Cross Action Power have been
introduced.12
Market penetration pricing makes the most sense under the following
conditions:
A large market exists for the product.
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Demand is highly elastic, typically in the later stages of the life cycle
for a product category.
Substantial reductions in unit costs can be achieved through
operations. In other words, economies of scale are possible,
Fierce competition already exists in the market for this product or can
be expected soon after the products introduced.
DISCOUNTS AND ALLOWANCESDiscounts and allowances result in a deduction from the base (or list)
price. The dedication may be in the form of a reduced price or some other
concession, such as free merchandise or advertising allowances.
Discounts and allowances are common in business dealing.
o Quantity Discounts
o Trade Discounts
o Cash Discounts
o Other Discounts and Allowances
QUANTITY DISCOUNTS: Quantity discounts are deductions
from a seller’s list price intended to encourage customers to buy in larger
amounts or to buy most of what they need from the seller offering the
deduction. Discounts are based on the size of the purchase, either in
dollars or in units.
Quantity discounts can help a producer achieve real economies in
production as well as in selling. On the one hand, large orders (motivated
by a non cumulative discount) can result in lower production and
transportation costs. On the other hand, frequent orders from a single
customer motivated by a cu8mulative by a discount can enable the
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producer to make much more effective use of production capacity. Thus
the producer might benefit even though individual orders are small and
do not generate savings in marketing costs.
TRADE DISCOUNTS: Trade discounts, sometimes called
functional discounts, are reductions from the list price offered to buyers in
payment for marketing functions the buyers will perform. Sorting,
promoting, and selling the product are examples of these functions. A
manufacturer may quote a retail price of $400 with trade discounts of
40% and 10% The retailer pays the wholesaler $240 ($400 less 40%), and
the wholesaler pays the manufacturer $216 ($240 less 10%). The
wholesaler is given the 40% and 10% discounts. The wholesaler is
expected to keep the 10% to cover costs of wholesaling functions and on
the 40% discount to retailers. Sometimes, however4, wholesalers keep
more than the 10% __ and it’s not illegal for them to do so.
CASH DISCOUNTS: A cash discount is a deduction granted to
buyers for paying, their bills within a specified time. The discount is
computed on the net amount due after first deducting trade and quantity
discounts from the base price.
o THE PERCENTAGE DISCOUNT.
o THE PERIOD DURING WHICH THE DISCOUNT MAY BE TAKEN.
o THE TIME WHEN THE BILL BECOMES.
There are almost as many different cash discounts as there are
industries. For example, in women’s fashions, large discounts and short
payment periods have been common; thus a cash discount of 5/5, n/15
would not be surprising. Such differences persist not so much for business
reasons but because of tradition in various industries.
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Most buyers are eager to pay bills in time to earn cash discounts. The
discount in a 2/10, n/30 situation may not seem like very much. But this
2% is earned just for paying 20 days in advance of the date the entire bill
is due. If buyers fail to take the cash discount in a 2/10, n/30 situation,
they are, in effect, borrowing money at a 36% annual rate of interest.
Here’s how we arrived at that rate: In a 360 business year, there are 18
periods of 20 days. Paying 2% for one of these 20days periods is
equivalent to paying 36% for an entire year.
OTHER DISCOUNTS AND ALLOWANCES: To stimulate
sales, some sellers offer rebates to prospective customers. A rebate is a
discount on a product that a customer obtains by submitting a form or
certificate provide by the seller. There are two kinds of rebates:
1. A coupon, which is a small printed certificate that the customer
presents when purchasing the product in order to obtain a discount
equal to the value shown on the certificate.
2. A mail in rebate, in which the customer fills out a short form,
encloses proof of the purchase, and sends the paperwork to a
specified address. If all goes well, a rebate check arrives in the mail
a short while later. Marketers favor mail ins not only because they
stimulate sales and can be offered for quite short periods, but
redemption.
A manufacturer of goods su8ch as air conditioners or toys purchased
on a seasonal basis may consider granting a seasonal discount. This
discount of, say, 5% 10%, or 20% is given to a customer who places an
order during the slack season. Off season orders enable manufacturers to
better use their production facilities and/or avoid inventory carrying cost.
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Many services firms also offer seasonal discount. For example, Club Med
and other vacation resorts lower their prices during the off season.
SPECIAL PRICING STRATEGIES AND
SITUATIONS
1. ONE PRICE AND FLEXIBLE PRICE STRATEGIES
2. PRICE LINING
3. ODD PRICING
4. LEADER PRICING AND UNFAIR PRACTICES ACTS
5. HIGH LOW PRICING AND EVERYDAY LOW PRICING
6. RESALE PRICE MAINTENANCE
7. REACTIVE AND PROACTIVE CHANGES
ONE PRICE AND FLEXIBLE PRICE STRATEGIES: Early
in its pricing deliberations, management should decide whether to adopt a
one price or a flexible price strategy. Under a one price strategy, a seller
charges the same price to all similar customers who buy identical
quantities of a product, under a flexible price strategy, also called variable
price strategy similar customers may pay different prices when buying
identical quantities of a product. Although you may think otherwise, this
practice is normally legal.
A variable price strategy abounds in buying situations involving
trading. With flexible pricing, buyer seller bargaining often determines the
final price. Both factors, trade ins and bargaining, are common automobile
retailing. Thus, even though window sticker prices may suggest a one
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price may suggest a one price policy, variable pricing has been the norm
in selling cars.
PRICE LINING: Price lining involves selecting a limited number of
prices at which a business will sell related products. It is used extensively
by retailers of apparel. The Athletic Store, for instance, sell several styles
of shoes at $29.88 a pair, another group at $59.95, and a third
assortment at $79.99.
For the consumer, the main benefits of price lining are that it
simplifies buying decision. For the retailer, price lining helps in planning
purchases. The buyer for the athletic Store can go to market looking for
shoes that can be sold at one of its three price points.
Rising costs can put a real squeeze on price lines. That’s because a
company hesitates to change its price line every time its costs go up. But
if costs rise and prices are not increased accordingly, profit margins shrink
and the retailer may be forced to seek products with lower costs.
ODD PRICING: Earlier, we briefly discussed pricing strategies that
might be called psychological pricing: Pricing above competitive levels,
raising an unsuitably low price to increase sale, and price lining. All these
strategies are intended to convey desirable images about products.
Odd pricing, another psychological strategy, is commonly used in
retailing. Odd pricing sets prices at uneven (or odd) amounts, such as 49
cents or $19.95, rather than at even amounts. Autos are priced at
$13.995 rather than $14,000, and houses sell for $119,500 instead of
$12,000. Odd pricing is often avoided in prestige stores or on higher
priced items. Expensive men’s suits, for example, are priced at $750, not
$749.95.
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LEADER PRICING AND UNFAIR PRACTICES ACTS: Many firms, primarily retailers, temporarily cut prices on a few items to
attract customer. This strategy is called leader pricing. The items on
which prices are cut are termed leaders; if the leader is priced below the
store’s cost, it’s a loss leader.
Leaders should be well known, heavily advertised products that are
purchase that are purchased frequently. For example, for a while,
Amzon.com cut the base price of currently popular books by 50%. As
stated in one article, “Amazon may be able to treat bestselling books as
loss leaders that attract customer’s into9 its online store where they can
be tempted by other merchandise that isn’t priced so cheaply.”29 But, to
improve profit margins, Amazon and other bookseller eventually scaled
back the discounts on best sellers.
More than 20 states have unfair practices acts, sometimes called
unfair sales acts, to regulate leader pricing. Typically, these laws prohibit
a or wholesaler from selling an item below invoice cost plus some
stipulated amount. Varying from to state “cost plus is usually defied as
either a markup of several percent of the firm’s cost of doing business.
HIGH LOW PRICING AND EVERYDAY LOW
PRICING: Many retailers, especially supermarkets and department
stores that want to engage in price competition rely on high low pricing.
This strategy entails alternating between regular (high) and “sale” (low)
prices on the most visible products offered by a retail firm. Frequent price
reductions are combined with aggressive promotion to convey an image
of very low prices. By starting with relatively high prices, retailers can
boost their profits through sales to the segment of shoppers that really
wants the product and is not very price sensitive.
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Given the need to change prices frequently, high low pricing can be
costly. It also may cause some consumers to not purchase products at
regular prices, but always wait for reduced prices. Further, some
consumer advocates have criticized high low pricing, asserting that it
misleads shoppers. The concern is that most transactions are made at
decreased prices, which means that the so-called low prices are normal
rather than real bargains.
RESALE PRICE MAINTENANCE: Some manufacturers want to
control the prices at which middlemen resell their products this is termed
resale price maintenance. Manufacturers seek to do this to protect the
brand’s image. Publicly, they state that their control of prices and
avoidance of discounted prices provides middlemen with ample profit
margins. In turn, consumers should be able to expect sales help and other
services when they buy the manufacturers products from middlemen.
Critics, however, claim that control over prices leads to inflated prices and
excessive profits.
Other manufacturer tries even harder to control their products retail
prices. Such effort is worthwhile only for a producer selling to relatively
few retailers that want very much to carry the product. A manufacturer
may even threaten to stop shipment of products to retailers that price
products substantially below suggested list prices.
REACTIVE AND PROACTIVE CHANGES: After an initial
price is set, a number of situations may prompt a firm to change its price.
As costs increase, for instance, management may decide that raising
price is preferable to maintaining price and either cutting quality or
promoting the product aggressively. According to a pricing consultant,
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“Small companies are more reluctant to raise prices than their large
counterparts. “40 “Obviously, it’s wise to raise prices gradually and with
little fanfare. The “art” of raising pricing is discussed further in the nearby
You Make the Decision box.
Any firm can safely assume that its competitors will change their
prices__ sooner or later. Consequently, every firm should have guidelines
on how it will react. If a competitor boosts price, a short delay in reacting
probably will not be pillions, however, if a competing firm reduces price, a
prompt response normally is required to avoid losing customers.
In the short term, consumers benefit from price wars through
sharply lower prices. But over the longer term the net effects on
consumers are not clear cut. Ultimately, a smaller number of competing
firms might translate to fewer product choices and/or higher prices for
consumers
GENERAL PRICING APPROACHESThe price the company charges will be somewhere between one that is
too low to produce a profit and one that is too high to produce any
demand. Figure 10-5 summarizes the major considerations in setting
price. Product costs set a floor to the price; consumer perceptions of the
product’s value set the ceiling. The company must consider competitors’
prices and other external and intern factors to find the best price between
these two extremes.
Companies set prices by selecting a general pricing approach that
includes one or more of these here sets of factors. We will examine the
following approaches: the cost based approach (cost plus pricing,
breakeven analysis, and target profit Pricing); the buyer based approach
(value based pricing); and the competition based approach (going rate
and sealed bid pricing.)
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COST BASED PRICING
COST PLUS PRICING: The simplest pricing method is cost plus
pricing __ adding a standard markup to the cost of the product.
Construction companies, for example, submit fob bids by estimating the
total project cost and adding a standard markup for profit. Lawyers,
accountants, and other professionals typically price by adding a standard
markup to their costs. Some sellers tell their customers they will charge
cost plus a specified markup; for example, aerospace companies price this
way to government.
Variable $10
Fixed cost $300,000
Expected unit sales $50,000
Then the manufacturer’s cost per toaster is given by:
Unit cost = Variable Cost + Fixed Costs = $10 + $3000,000 = $16
Unit Sales 50,000
Now suppose the manufacturer wants to earn a 20 percent markup
on sales. The manufacturer’s markup price is given by:9
Markup Price = Unit Cost = Cost =$20
(1 _ Desired Return on Sales) 1 _ 0.2
BREAKEVEN ANALYSIS AND TARGET PROFIT
PRICING: Setting price to break even on the costs of making and
marketing a product; or setting price to make a target profit is called
breakeven pricing.
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Another cost oriented pricing approach is breakeven pricing, or a
variation called target profit pricing. The firm tries to determine the price
at which it will break even or make the target profit it is seeking. Such
pricing is used by General Motors, which prices its automobiles to achieve
a 15 to 20 percent profit on its investment. This pricing method is also
used by public utilities, which are constrained to make a fair return on
their investment.
Breakeven Volume = Fixed Cost_____
Price – Variable Cost
= $300,000___
$20 - $10
= $30,000
VALUE BASED PRICING: Setting price based on buyers’
perceptions of value rather than on the seller’s cost.
An increasing number of companies are basing their prices on the
products perceived value. Value based pricing uses buyer’s perceptions of
value, not the sellers cost, as the key to pricing. Value based pricing
means that the marketer cannot be sign a product and marketing
program and then set the price. Price is considered along with the other
marketing mix variables before the marketing program is set.
COMPETITION BASED PRICING
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Consumers will base their judgments of a products value on the prices
that competitors charge for similar products. Here, we discuss two forms
of competition based pricing.
GOING RATE PRICING: Setting price based largely on following
competitor’s prices rather than on company costs or demand.
In Going Rate Pricing, the firm bases its price largely on competitors
prices with less attention paid to its own costs or to demand. The firm
might charge the same, more, or less than its major competitors. In
oligopolistic industries that sell a commodity such as steel, paper, or
fertilizer, firms normally charge the same price.
SEALE BID PRICING: Setting price based on how the firm thinks
competitors will price rather than on its own costs or demand used when
a company bids for jobs.
Competition based pricing is also used when firms bid for jobs.
Using sealed bid pricing a firm bases its price on how it thinks competitors
will price rather than on its own costs or on the demand. The firm wants
to win a contract, and winning the contract requires pricing lower than
other firms.
PRODUCT MIX PRICING
STRATEGIES
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The strategy for setting a products price often has to be changed when
the product is part of a product mix. In this case, the firm looks for a set of
prices that maximizes the profits on the total product mix. Pricing is
difficult because the various products have related demand and costs and
face different degrees of competition. We now take a closer look at five
product mix pricing situations summarized in table.
STRATEGY DESCRIPTION
Product line pricing Setting price steps between
product line items
Optional product
pricing
Pricing optional or accessory
products sold with the main
product
Captive product
pricing
Pricing products that must be
used with the main product
By product pricing Pricing low value by products
to get rid of them
Product bundle pricing Pricing bundles of products
sold together
PRODUCT LINE PRICING: Setting the price steps between
various products in a product line based on cost differences between the
products, customers evaluations of different features, and competitors
prices.
OPTIONAL PRODUCT PRICING: The pricing of optional or
accessory products along with a main product.
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CAPTIVE PRODUCT PRICING: Setting a price for products
that must be used along with main products, such as blades for a razor
and film for a camera.
BY PRODUCT PRICING: Setting a price for by products in order
to make the main products price more competitive.
PRODUCT BUNDLE PRICING: Combining several products
and offering the bundle at a reduced price.
RETAILINGAll activities involved in selling goods or services directly to final
consumer for their personal non business use.
RETAILER: Business whose sales come primarily from retailing
STORE RETAILING: Retail stores come in all shapes and sizes and
new retail style keeps emerging. Retail store can be classified in term of
several characteristics including the amount of services they offer, the
breadth and depth of their product lines and the relative prices they
change
AMOUNT OF SERVICE: Different products require different
amount of services and customer services preferences vary. Retailer may
offer one of three levels of services—self-services, limited services and full
services.
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PRODUCT LINE: Retailers also can be classified by the length and
breadth of their product assortment. Some retailers, such as specialty
stores, carry narrow product lines with deep assortment within those
lines. Today, specialty stores are flourishing The increasing use of market
segmentation, market retailing, and product specialization has resulted in
a greater need for stores that focus on specific products and segments.
SPECIALTY STORES: A retail store that carries a narrow product
line with a deep assortment within that line.
DEPARTMENT STORES: A retail organization that carries a wide
variety of product lines –typically clothing, home furnishing and house
hold goods, each line is operated as separate department managed by
specialist buyers or merchandisers.
SUPERMARKET: Large, low- cost, low- margin, high-volume, self-
service store that carries a wide variety of food, laundry and house hold
product.
CONVENIENCE STORE: A small store located near a residential
area, that is open hours seven days a week and carries a limited lines of
high- turnover convenience goods.
SPECIALTY: Carry narrow product line within deep assortment within
that line; apparel stores, sporting-goods store, furniture stores, florists,
and bookstores. Specialty stores can be sub classified by the degree of
narrowness in their product line. A clothing store would be a single line
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store; a men’s clothing store would be a limited-line store; and a men’s
custom-shirt store would be a super specialty store.
EXAMPLE: Athlete foot (sport shoes only); tail men(tail men’s
clothing); the limited(women’s clothing); the body shop(cosmetics and
bath supplies)
DEPARTMENT STORE: Carry several product lines- typically
clothing, home furnishing, and house hold goods- with each line is
operated as separate department managed by specialist buyers or
merchandise.
EXAMPLE: Sears, Sakes Fifth Avenue, Marshall Fields, etc
SUPERMARKETS: Relatively large, low-cost, low-margin, high-
volume, self-service operations designed to serve the consumer total
needs for food, laundry, and household maintenance products.
EXAMPLE: Safeway, Kroger, A and P, Publics
CONVENIENCE STORES: Relatively large, low cost, low margin,
high-volume, self-service operation designed to serve the consumer total
need for food, laundry, and household maintenance product.
SUPER STORES: Larger stores that aim at meeting consumer total
need for routinely purchase food and nonfood item. They include super-
centers, combined super markets and discount stores, which feature cross
merchandising. They also include so- called “category killer” that carry a
very deep assortment of particular line. Another superstores variation
hyper markets, huge stores that combine supermarket, discount, and
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warehouse retailing to sell routinely purchase goods as well as furniture,
large and small appliances, clothing and many other item
EXAMPLE: Super centers: Wal-Mart super centers, and super Kmart
Center;
DISCOUNT STORES: Sell standard merchandise at low prices by
accepting lower margins and selling higher volumes. A true discount store
regularly sells it merchandise at lower prices, offering most national
brands, not inferior goods. Discount retailer include both general
merchandise and specially and specially merchandise stores
EXAMPLE: General discount store: Wal-Mart, K mart
OFF PRICE RETAILERS: Sell a changing and un- stable
collection of higher quality of merchandise, often leftover goods,
overruns, and irregular retain at reduced prices from manufacturers or
other retailers. They buy at less than regular wholesale prices and charge
consumer less than retail.
THEY INCLUDE THREE MAIN TYPES:
INDEPENDENCE OFF PRICE RETAILERS: Owned
and run either by entrepreneurs or by division by large retail
corporations.
EXAMPLE: T. J. Max, Filenes Basement, Lehman’s, and Hit or Miss
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FACTORY OUTLET: Owned and operate by manufacturers
and normally carry the manufacturer surplus, discontinued, or
irregular goods. Such outlets increasingly group together in factory
outlet malls, where dozens of outlet stores offer prices as much as
50 percent below retail on a broad range of items.
EXAMPLE: Mikes, Dexter, Ralph Lauren and Liz Claiborne
WAREHOUSE CLUBS: Sell a limited selection of brand name
grocery items, appliances, clothing, and hodgepodge of other goods at
deep discount to members who pay $25 to $50 annual membership fee.
They serve small businesses and other club me3mbers out of huge, low-
overhead, warehouse like facilities and offer few frills or services
EXAMPLE: Wall-Mart-owned Sam’s Club, Max Club, Price-Costco,
CATALOG SHOWROOMS: Sell a broad selection of high –
markup, fast- moving, brand name goods at discount prices. These
include jewelry, power tools, cameras, luggage, small appliances, toys,
and sporting goods. Customers order his goods from the catalog in the
showroom, and then pick them up from a merchandise pick- up area in
the store.
SUPERSTORE: A store almost twice the of a regular supermarket
that carries a large assortment of routinely purchased food and nonfood
items and offers service such as dry cleaning, post offices, photo finishing,
check cashing, bill paying, lunch counters, car care, and pet care.
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EXAMPLE: Safeway’s Pak `N Pay and Path mark Super centers
CATEGORY KILLER: Giant specialty store that carries a very deep
assortment of a particular line and is staffed by knowledgeable
employees.
CORPORATE CHAIN STORE: Two or mare outlet that
commonly owned and controlled, employ central buying and
merchandising, and sell similar lines of merchandise. Corporate chains
appear in all types of retailing, but they are strongest in department
store, variety store, food stores, drugstore, shoe store, and women
clothing store.
EXAMPLE: Tower Records, Fauve, Pottery Barn
VOLUNTARY CHAIN: Wholesaler-sponsored groups of
independent retailers engaged in bulk buying and common
merchandising.
EXAMPLE: Independent grocer alliance, Sentry Hardware, Western
Auto, True Value
RETAILER COOPERATIVES: Groups of independent retailers
who set up a central buying organization and conduct joint promotion
efforts.
EXAMPLE: Associate Grocer, ACE
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FRANCHISE ORGANIZATION: Contractual association
between a (franchiser manufacturer, wholesaler, or service organization )
and franchisees. Franchise organizations are based on some unique
product, service, or method of doing business, or on a trade name or
patent, or on good will that the franchiser has developed.
EXAMPLE: McDonald’s, subway, Pizza Hut, Jiffy Lube,
NON STORE RETAILING Although most goods and services are sold through stores, non-store
retailing has been growing much faster than has store retailing.
Traditional store retailers are facing increasing competition from non-
store retailers who sell through catalogs, direct mail, telephone, home
television shopping shows, online computer shopping services, home and
office parties, and other direct retailing approaches. Non- store retailing
now accounts for more than 14 percent of all consumer purchase, and it
may account for a third of all sales by the year 2000. Non-store retailing
includes direct marketing, direct selling, and automatic vending.
DIRECT MARKETING: “Direct communication with carefully
targeted individual consumer to obtain an immediate response”
Mass marketing and advertising typically reach an unspecified
number of people, most of who are not in market of product or will not
buy it until some future date. Direct marketing is used to obtain
immediate order from targeted customer. Although direct marketing
initially consisted mostly of direct mail and mail order catalogs, it has
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taken on several additional forms in recent years, including telemarketing,
and online and internet shopping.
DIRECT SELLING: “Selling door to door, office to office, or at
home sale parties “
Door to door retailing which started centuries ago roving peddlers,
has grown into a huge industry. The pioneers in door to door selling are
the Fuller Brush company, vacuum cleaner companies such as Electrolux,
and bookselling co0panies such as World Book and South western.
AUTOMATIC VENDING: “Selling through vending machines”
Automatic vending is not new—in 215B.C. Egyptians could buy
sacrificial water from coin operated dispenser. But this method of selling
soared after Second World War. There are about 4.5 million vending
machines in America—one machine for every 55 people. Today’s
automatic vending using space age and computer technology to sell a
wide variety of convenience and impulse goods beverages, candy,
newspapers, foods and snacks, hosiery , cosmetic, paperback books, T-
shirts, insurance policies, pizza, CD’S and videocassettes, and shoeshine
and finishing warms. Vending machines are very popular in Japan, where
they dispense everything from $100 Armani ties, boxer shorts, beer, and
sausage3s to pearls, stuffed animals, and $8 health drink.
RETAIL MARKETING DECISIONSRetailers are searching for new marketing strategies to attract and hold
customers in the past, retailers attract customer with unique products,
more or better services than their competitors offered, or credit cards.
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Today, nationals brand manufacturers, in their drive of volume, have
placed tier branded goods everywhere. Thus, store offer more similar
assortment national brands are found not only departmental store, but
also in mass merchandise and off price discount store. As a result stores
are looking more and more alike; they have become “commoditized.” In
any city a shopper can find many stores but few assortments.
Service differentiation among retailers has also eroded. Many
department stores have trimmed their services, whereas discount has
increased theirs. Customers have become smarter and more price
sensitive. They see no reason to pay more for identical brands, especially
when service differences are shrinking. Because bank credit cards are
now accepted at most stores, consumer no longer needs credit from
particular store. For all these reasons, many retailers today are re-thinking
their market strategies.
TARGET MARKETING AND POSITIONING
DECISION: Retailer must first define their target markets and then
decide how they will position themselves in these markets. Should the
store focus on up-scale, mid-scale, or down-scale shoppers? Do target
shoppers want variety, depth of assortment, convenience, or low price?
Until they define and profile their markets, retailers cannot make
consistent decision about product assortment, services, pricing,
advertising, store décor, or any of other decision that mist support their
positions.
PRODUCT ASSORTMENT AND SERVICE DECISION: Retailers must decide on three major product variables product
assortment services mix, and store atmosphere.
The retailer product assortment should match target shoppers
expectations. The retailers must determine both the product assortment
width and its depth. Thus, restaurant can offer a narrow and deep
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assortment, a narrow and deep assortment, a wide a shallow assortment,
or a wide and deep assortment. Another product assortment element is
quality of the goods. The customer is interested not only in the range of
choice but also in the quality of product available.
PROMOTION DECISION: Retailers use the normal promotion
tools—advertising, personal selling, sales promotion, and public relation—
to reach consumers. They advertise in news papers, magazines, radio,
and television. Advertising may be supported by a news paper insert and
direct mail pieces. Personal selling require careful; training of sale people
in how to greet customers, meet their need, and handle their complaints.
Sales promotion include in- store demonstrations, displays, contests, and
visiting celebrities. Public relations activities, such as press conferences
and speeches, store openings, special events, newsletters, magazines,
and public service activities, are always available to retailers.
PLACE DECISION: Retailers often cite three critical factors in
retailing success: location, location, and location! A retailer’s location is
key to its ability to attract customers. The costs of building or leasing
facilities have a major impact on retailer’s profits. Thus, site- location
decision s are among the most important the retailer makes. Small
retailers may have to settle for whatever locations they can find or afford.
Large retailers usually employ specialists who select location using
advance methods. Two of the savviest location experts in recent year
have been the off- price retailer T.J. Max and toy- store giant Toy’s” Us.
Both put the majority of their location in rapidly growing areas where the
population closely matches their customer base. The undisputed winner in
the “place race” has been Wal-Mart, whose strategy of being the first
mass merchandiser to locate in small and rural markets has been one of
the key factors in its phenomenal success.
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SOPPING CENTER: “A group of retailer businesses planned,
developed, owned, and managed as a unit”
A regional shopping center, the largest and most dramatic shopping
center, contain from 40 to over 200 stores. It us like a covered mini-
downtown and attract customers from a wide area. Large regional malls
often have several department stores and a wide variety of specialty
stores on several shopping levels. A community shopping center contains
15 and 40 retail stores. It normally contains a branch of a department
store or variety store, a supermarket, specialty stores, professional
offices, and sometimes a bank. Most shopping centers are neighborhood
shopping centers or strip malls that generally contain “between” 5 to 15
stores. They are close and convenient for customer. They usually contain
a super market, perhaps a discount store, and several services stores –
dry cleaner, self services laundry, drugstore video-rental outlet, barber or
beauty shop, hardware stores.
CHANNEL OF DISTRIBUTION“A distribution channel consists of the set of people and firms involved in
the transfer of title to a product as the product moves from producer to
ultimate consumer or user.”
Basic principles of relationship between dealer and
caterpillar
o DEALER PROFITABILITY
o EXTRAORDINARY DEALER SUPPORT
o COMMUNICATION
o DEALER PERFORMANCE
o PERSONAL RELATIONSHIPS
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DISTRIBUTION CHANNEL
FUNCTIONS A distribution channel moves goods from producer to consumers.
Members of a marketing channel perform many key functions some are
given below.
INFORMATION: Gathering and distributing marketing research and
intelligence information about factors and forces in marketing
environment needed for planning and aiding exchange.
PROMOTION: Developing and spreading persuasive communication
about an offer.
CONTACT: Finding and communicating with prospective buyers.
MATCHING: Shaping and fitting the offer to the buyer’s needs
including activities such as manufacturing, grading, assembling, and
packaging.
NEGOTIATION: Reaching an agreement on price and other terms of
the offer so that ownership or possession can be transferred.
PHYSICAL DISTRIBUTION: Transporting and storing goods.
FINANCING: Acquiring and using funds to cover the costs of the
channel work.
RISK TAKING: Assuming the risks of carrying out the channel work.
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CHANNEL LEVELS “A layer of intermediaries that performs some work in bringing the
product and its ownership closer to the final buyer”.
o Direct marketing channel
o Indirect marketing channel
DIRECT MARKETING CHANNEL
“A marketing channel that has no intermediary levels”
INDIRECT MARKETING CHANNEL: “A marketing channel
containing one or more intermediary levels”
SELECTING THE TYPE OF
CHANNEL
Firms may rely on existing channels or they may devise new channels to
better serve the existing customers and to reach new prospects. The most
common channels for consumer goods, business goods, and services are
given below.
DISTRIBUTION OF CONSUMER GOODS: Five channels
are widely used in marketing tangible product ultimate consumer.
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1. PRODUCER—CONSUMER: The shortest, simplest distribution
channel for consumer goods involves no middlemen. The producer
may sell door to door or by mail.
2. PRODUCER—RETAILER—CONSUMER: In this many large
retailers buy directly from manufacturer and agricultural producer.
3. PRODUCER—WHOLESALER—RETAILER—CONSUMER:
If there is any traditional channel for consumer goods, this is it.
Small retailers and manufacturers by the thousands find this
channel the only economically feasible choice.
4. PRODUCER—AGENT—RETAILER—CONSUMER: Instead
of using wholesalers, many producers prefer to rely on agent
middlemen to reach the retail market.
5. PRODUCER—AGENT—WHOLESALER—RETAILER—
CONSUMER: To reach the small retailers, producers often use
agent as a middlemen, who in turn call on wholesalers
DISTRIBUTION OF BUSINESS GOODS: A variety of
channels available to reach organizations that incorporate the products
into their manufacturing process or use them in their operations.
1. PRODUCER—USER: this direct channel account for greater
dollar volume of business products than any other distribution
structure.
2. PRODUCER—INDUSTRIAL DISTRIBUTOR—USER:
producers of operating supplies and small accessory equipment
frequently industrial distribution to reach their markets.
3. PRODUCER—INDUSTRIAL DISTRIBUTOR—RESELLER—
USER: this channel has been common for computer products and
related high-tech item. Distributor, which usually are large, national
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companies, buy varies products from manufacturers and than
handle them with related products for resale. Resellers, which are
usually smaller, local firms, work closely with the end user to meet
the buyers’ needs.
4. PRODUCER—AGENT—USER: firms without their own
sale departments find this channel desirable. Also a company that
wants to introduce a new product or enter a new market may prefer
to use agents rather than its own sales force.
5. PRODUCER—AGENT—INDUSTRIAL DISTRIBUTOR—
USER: this channel is similar to the preceding one. It is use when,
some reasons, it is not feasible to sell through agents directly to the
business user.
DISTRIBUTION OF SERVICES: The intangible service creates
special distribution problems and requirements. There are only two
common channels for services.
1. PRODUCER—CONSUMER: because a service is intangible,
the production process and/or sales activity often require
personal contact between a producer and customer. Thus a
direct channel is used.
2. PRODUCER—AGENT—CONSUMER: although direct
distribution often is required or necessary for the performance of
a service, producer-consumer contact may not be required for
distribution activities. Agents frequently assist a services
producer with transfer of ownership. Many services notably
travel, lodging, advertising media, entertainment, and insurance,
are sold through agents.
MULTIPLE DISTRIBUTION CHANNELS: Many, perhaps
most, producer are not connect with only one distribution channel.
Instead, for reason such as reaching two or more target markets or
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avoiding total dependence on a single arrangement, they employ multiple
distribution channels.
Use of multiple channels occurs in several distinct situations. A
manufacturer is likely to use multiple channels to reach different types of
markets when selling.
The same product to both consumer and business markets
UNRELATED PRODUCT: Many channels are also used to reach
different segments within a same market.
Size of the buyers varies greatly. Geographical concentration differs
across parts of the market.
CONVENTIONAL DISTRIBUTION CHANNEL: “A channel
consisting of one or more independent producers, wholesalers, and
retailers, each a separate business seeking to maximize its own profit
even at the expense of profits for the system as a whole”
VERTICAL MARKETING SYSTEM (VMS) “A distribution channel structure in which producers, wholesalers, and
retailers act as a unified system”
TYPESo CORPORATE VMS
o CONTRACTUAL VMS
o ADMINISTERED VMS
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CORPORATE VMS: “A vertical marketing system that combines
successive stages of production and distribution under single ownership-
channel leadership is established through common ownership”
CONTRACTUAL VMS: “A vertical marketing system in which
independent firms at different level of production and distribution join
together through contracts to obtain more economies or sales impact
than they could achieve alone”
o Wholesaler sponsored voluntary chain
o Retailer cooperatives
o Franchise organization
WHOLESALER SPONSORED VOLUNTARY CHAIN:
“Contractual vertical marketing system in which wholesalers organize a
voluntary chain of independent retailers to help them compete with large
corporate chain organization”
RETAILER COOPERATIVE: “Contractual vertical marketing
system in which retailers organize a new, jointly owned business to carry
on wholesaling and possibly production”
FRANCHISE ORGANIZATION: “A contractual marketing
system in which a channel members, called a franchiser, links several
stages in the production and distribution process”
ADMINISTERED VMS: “A vertical marketing system that
coordinates successive stages of production and distribution, not through
common ownership or contractual ties, but through the size and power of
one of the party”
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HORIZONTAL MARKETING SYSTEM “A channel arrangement in which two or more companies at one level
join together to follow a new marketing opportunity”
HYBRID MARKETING CHANNELS
“Multi channel distribution system in which a single firm sets up
two or more customer segments”
FACTORS AFFECTING CHOICE OF CHANNELS:
o MARKET CONSIDERATIONS
o PRODUCT CONSIDERATIONS
o MIDDLEMEN CONSIDERATIONS
o COMPANY CONSIDERATIONS
MARKET CONSIDERATIONS
A logical starting point is to consider the target market, its needs,
structure, and buying behavior.
TYPES OF MARKET Because ultimate consumers behave differently than business user,
they are reached through different distribution channel. Retailer, by
definition, serve ultimate consumer, so they are not in channels for
business goods.
1. NUMBER OF POTENTIAL CUSTOMER: A manufacturer
with few potential customers may use its own sales force to sell
directly to ultimate consumers or business users. Conversely, a
manufacturer with many prospects would likely use middlemen.
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2. GEOGRAPHICAL CONCENTRATION OF THE MARKET:
When most of a firm’s prospective customers are concentrated in a
few geographical areas, direct sale is practical. When customers are
geographical dispersed, direct sale is likely to be impractical
because of high travel costs.
3. ORDER SIZE: When either order size or total business volume is
large, direct distribution is economical. Thus a food products
manufacturer would sell directly to large supermarket chains.
PRODUCT CONSIDERATIONS: Although there are numerous
product-related factors to consider, we will highlight three.
1. UNIT VALUE: The price attached to each unit of a product affects
the amount of funds available for distribution.
2. PERISH ABILITY: Some goods, including many agricultural,
physically deteriorate fairly quickly. Other goods, such as clothing,
perish in a fashion sense. Perishable products require direct or very
short channels.
3. TECHNICAL NATURE: A highly technical business product is
often distributed directly to business users. This product sales force
must provide considerable presale and post sale service,
wholesalers normally cannot do this.
MIDDLEMEN CONSIDERATIONS: Here we begin to see that
a company may not be able to arrange exactly the channels it desires.
1. SERVICES PROVIDED BY MIDDLEMEN: Each producer
should select middlemen offering those marketing services that the
producer either unable to provide or cannot economically perform.
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2. AVAILABILITY OF DESIRED MIDDLEMEN: The middlemen
preferred by a producer may not be available. They may carry
competing products and, as a result, not want to add another line.
3. PRODUCER’S AND MIDDLEMAN’S POLICIES: When
middlemen are unwilling to join a channel because they consider a
producer’s policies to be unacceptable.
COMPANY CONSIDERATIONS: Before choosing a distributing
channel for a product, a company should consider its own situation.
1. DESIRE FOR CHANNEL CONTROL: Some producers
establish direct channels because they want to control their
product’s distribution, even through a direct arrangement may be
more costly than an indirect one. By controlling the channel,
producers can achieve more aggressive promotion, assure the
freshness of merchandise stocks, and set their products’ retail
prices.
2. SERVICES PROVIDED BY SELLER: Some producers make
decisions about their channels based on the distribution functions
desired by middlemen.
3. ABILITY OF MANAGEMENT: The marketing experience and
managerial capabilities of a producer influence decisions about
which channel to use. Many companies lacking marketing know how
turn the distribution job over to middlemen.
4. FINANCIAL RESOURCES: A business with adequate finances
can establish its own sales force, grant credit to its customers,
and/or store its own products. A financially weak firm uses
middlemen to provide these services.
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IDENTIFY MAJOR ALTERNATIVESWhen the company has defined its channel objectives, it should next
identify its major channel alternatives in terms of types of intermediaries,
number of intermediaries, and the responsibilities of each channel
member.
TYPES OF INTERMEDIARIES: A firm should identify the types
of channel members available to carry out its major channel work. For
example, suppose a manufacturer of test equipment has developed an
audio devise that detects poor mechanical connections in machines with
moving parts. Company executives think this product would have a
market in all industries in which electric, combustion, or steam engines
are made or used. This market includes industries such as aviation,
automobile, railroad, food canning, construction, and oil. The company’s
current sales force is small, and the problem is how best to reach these
different industries. The following channel alternatives might emerge from
management discussion.
1. COMPANY SALES FORCE: Expand the company’s direct sales
force. Assign salespeople to territories and have them contact all
prospects in the area or develop separate company sales forces for
different industries.
2. MANUFACTURER’S AGENCY: Hire manufacturer’s agents—
independent firms whose sales forces handle related products from
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many companies—in different regions or industries to sell the new
test equipment.
3. INDUSTRIAL DISTRIBUTORS: find distributors in the
different regions or industries who will buy and sell the new line.
Give them exclusive distribution, good margins, product training,
and promotional support.
Sometimes a company must develop a channel other than the one it
prefers because of the difficulty or cost of using the preferred channel.
Still, the decision may turn out extremely well.
NUMBER OF MARKETING INTERMEDIARIES
Company must also determine the number of channel members to
use at each level. Three strategies are available: intensive distribution,
exclusive distribution, and selective distribution.
INTENSIVE DISTRIBUTION: “Stocking the product in as many
outlets as possible”
Producers of convenience products and common raw materials
typically seek intensive distribution. These goods must be available where
and when consumers want them. For example, toothpaste, candy, and
other similar items are sold in millions of outlets to provide maximum
brand exposure and consumer convenience.
EXCLUSIVE DISTRIBUTION: “Giving a limited number of
dealers the exclusive right to distribute the company’s products in their
products. Some producers purposely limit the number of intermediaries
handling their products. Exclusive distribution is often found in the
distribution of new automobiles and prestige women’s clothing.
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SELECTIVE DISTRIBUTION
“The use of more than one, but fewer than all, of the intermediaries
who are willing to carry the company’s products”
Selective distribution lies between the exclusive and intensive
distribution. Most television, furniture, and small appliance brands are
distributed in this manner.
RESPONSIBILITIES OF CHANNEL MEMBERS: The
producer and intermediaries need to agree on the terms and
responsibilities of each channel member. They should agree on price
policies, conditions of sale, territorial rights, and specific services to be
performed by each party. The producer should establish a list price and a
fair set of discounts for intermediaries. It must be define each channel
member’s territory, and it should be careful about where it places new
resellers. Mutual services and duties need to be spelled out carefully,
especially in franchise and exclusive distribution channels.
EVALUATING THE MAJOR ALTERNATIVES: Suppose a
company has identified several channel alternatives and wants to select
the one that will best satisfy its long-run objectives. Each alternative
should be evaluated against economic, control, and adaptive criteria.
Using economic criteria, a company compares the likely profitability
of different channel alternatives. It estimates the sales that each channel
produces and the costs of selling different volumes through each channel.
The company must also consider control issues. Using
intermediaries usually means giving them some control over the
marketing of the product, and some intermediaries take more control
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than others other things being equal, the company prefers to keep as
much control as possible.
Finally, the company must apply adaptive criteria. Channels often
involve long-term commitment to other firms, making it hard to adapt the
channel to the changing marketing environment. The company wants to
keep the channel as flexible as possible. Thus, to be considered, a
channel involving long-term commitment should be greatly superior on
economic and control grounds.
DESIGNING INTERNATIONAL DISTRIBUTION
CHANNELS: International marketers face many additional
complexities in designing their channels. Each country has its own unique
distribution system that has evolved over time and changes very slowly.
These channels vary widely from country to country. Thus, global
marketers must usually adapt their channel strategies to the existing
structures within each country. In some markets, the distribution system
is complex and hard to penetrate, consisting of many intermediaries and
large numbers of layers.
CHANNEL MANAGEMENT DECISIONS: Once the company
has reviewed its channel alternatives and decided on the best channel
design, it must implement and manage the chosen channel. Channel
management calls for selecting and motivating individual channel
members and evaluating their performance over time.
SELECTING CHANNEL MEMBERS: Producers vary in their
ability to attract qualified marketing intermediaries. Some producers have
no trouble singing up channel members. For example, Toyota had no
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trouble attracting new dealers for its Lexus line. In fact, it had to turn
down many would-be resellers. In some cases, the promise of exclusive or
selective distribution for a desirable product will draw plenty of applicants.
When selecting intermediaries, the company will want to evaluate
each channel member’s years in business, other lines carried, growth and
profit record, cooperativeness, and reputation. If the intermediaries are
sales agents, the company will want to evaluate the number and
character of other lines carried, and the size and quality of the sales force.
If the intermediary is a retail store that wants exclusive or selective
distribution, the company will want to evaluate the store’s customers,
location, and future growth potential.
MOTIVATING CHANNEL MEMBERS: Once selected,
channel members must be continuously motivated to do their best; the
company must sell not only through the intermediaries, but to them. Most
producers see the problem as finding ways to gain intermediary
cooperation. They use the carrot-and-stick approach: at times they offer
positive motivators such as higher margins, special deals, premiums,
cooperative advertising allowances, display allowances, and sales
contests. At other times they use negative motivators, such as
threatening to reduce margins, to slow down delivery, or to end the
relationship altogether. A producer using this approach usually has not
done a good job of studying the needs, problems, strengths, weaknesses
of its distributors.
More advanced companies try to forge long-term partnerships with
their distributors. This involves building a planned, professionally
managed, vertical marketing system that meets the needs of both the
manufacturer and the distributors.
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EVALUATING CHANNEL MEMBERS: The producer must
regularly check the channel member’s performance against standards
such as sales quotas, average inventory levels, customer delivery time,
treatment of damaged and lost goods, cooperation in company promotion
and training programs, and services to the customer. The company should
recognize and reward intermediaries who are performing well. Those who
are performing poorly should be assisted or, as a last resort, replaced.
PHYSICAL DISTRIBUTION AND LOGISTICS
MANAGEMENT: In today’s global marketplace, selling a product is
sometimes easier then getting it to customers. Companies must1 decide
on the best way to store, handle, and move their product and services so
that they are available to customers in the right assortments, at the right
time, and in the right place. Logistics effectiveness has a major impact on
both customer satisfaction and company costs. A poor distribution system
can destroy an otherwise good marketing effort.
PHYSICAL DISTRIBUTION: “The task involved in planning,
implementing, and controlling the physical flow of materials, final goods,
and related information from point of origin to point of consumption to
meet consumer requirements at a profit”
WHOLESALING“All activities involved in selling goods and services to those buying for
resale or business use.”
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A retailer bakery is engaged in wholesaling when it sells
pastry to the local hotel. We call wholesalers those firms engaged
primarily in wholesaling activities.
WHOLESALER: “A firm engaged primarily in wholesaling activity”
Wholesalers buy mostly from producers and sell mostly to retailers,
industrial consumer, and other wholesalers. But why are wholesalers used
at all? For example, why would a producer use wholesaler rather than
selling directly to retailers or consumer? Quite simply, wholesalers are
often better at performing one or more of the following
CHANNEL FUNCTIONS
1. SELLING AND PROMOTING: Wholesalers’ sales forces help
manufacturers reach many small customers at low cost. The
wholesaler has more contact and is often more trusted by the buyer
than the distant manufacturer.
2. BUYING AND ASSORTMENT BUILDING: Wholesaler can
select items and build assortment needed by their customers,
thereby saving the consumers much work.
3. BULK BREAKING: Wholesalers save their customers money by
buying in carload lots and breaking bulk.
4. WAREHOUSING: Wholesaler hold inventories, thereby reducing
the inventory costs and risks of suppliers and customers.
5. TRANSPORTATION: Wholesaler can provide quicker delivery to
buyers because they are closer than the producers.
6. FINANCING: Wholesaler finance their customer by giving credit,
and they finance their suppliers by ordering early and paying bills
on time.
7. RISK BEARING: Wholesaler absorb risk by taking title and
bearing the cost of theft, damage, spoilage, and obsolescence.
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8. MARKET INFORMATION: Wholesaler gives information to
suppliers and customers about competitors, new producers, and
price development.
9. MANAGEMENT SERVICES AND ADVICE: Wholesaler often
help retailers train their sales clerks, improve store layouts and
displays, and set up accounting and inventory control systems.
TYPES OF WHOLESALINGWholesalers fall into three groups.
1. Merchant wholesalers
2. Brokers
3. Agent
4. Manufacturers’ sales branches and offices
MERCHANT WHOLESALER
“Independently owned business that takes title to the merchandise
it handles”
Merchant wholesalers are the largest single group of wholesalers,
accounting roughly 50 percent of all wholesaling.
MERCHANT WHOLESALERS ARE BROADLY TWO
TYPES:
o FULL SERVICES WHOLESALERS
o LIMITED SERVICES WHOLESALER
FULL SERVICE WHOLESALER: Full service wholesaler provide full
set of services
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LIMITED SERVICES WHOLESALER: Limited service wholesaler
offer few services to their suppliers and customers. The several different
types of limited services wholesalers perform varied specialized functions
in distribution channel.
BROKER: “wholesalers who does not take title to goods and whose
function is it bring buyers and sellers together and assist negotiation”
AGENT: “Wholesalers who represents buyers or sellers on a relatively
permanent basis, performs only a few functions, and does not take title to
goods.”
BROKER AND AGENT DIFFER FROM MERCHANT
WHOLESALER IN TWO WAYS: They do not take title to goods, and
they perform only a few functions. Like merchant wholesalers, they
generally specialize by product line or customer type. A broker brings
buyers and sellers together and assists in negotiation. Agents represent
buyers or sellers on a more permanent basis. Manufacturers’ agents are
the most common type of agent wholesaler. Together, broker and agents
account for 11 of the total wholesale volume.
MANUFACTURERS’ SALES BRANCHES AND
OFFICES: “Wholesaling by sellers or buyers themselves rather than
through independent wholesalers”
The third major type of wholesaling is that done in manufacturers’
sales branches and offices by sellers or buyers themselves rather than
through independent wholesalers. Manufacturers’ offices and sales
branches account for about 31 percent of all wholesale volume.
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MERCHANT WHOLESALERS: Independently owned business
that take title to the merchandise they handle. In different trades they are
called jabbers, distributors, or mill supply houses. Include full services
wholesalers and limited services wholesaler.
FULL SERVICES WHOLESALER: Provide a full line of
services: carrying stock, maintaining a sale force, offering credit, making
deliveries, and providing management assistance.
THERE ARE TWO TYPES:
1. WHOLESALE MERCHANTS
Sell primarily to retailers and provide a full range of services. General
merchandise wholesalers carry several merchandise lines, whereas
general lines wholesaler carry one or two lines in greater depth. Specialty
wholesalers specialize in carrying only part of line.
2. INDUSTRIAL DISTRIBUTORS
Sell to manufacturer rather than to retailers. Provide several services.
Such as carrying stock, offering credit, and providing delivery. May carry a
broad range of merchandise, a general line, or a specialty line.
LIMITED SERVICES WHOLESALERS
Offer fewer services than full services wholesalers. Limited services
wholesalers are of several types.
o CASH AND CARRY WHOLESALERS
Carry a limited line of fast moving goods and sell to smart retailer
for cash. Normally do not deliver. Example: A small fish store retailer may
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drive to cash-and- carry fish wholesaler, buy fish for cash, and bring the
merchandise back to the store.
o TRUCK WHOLESALER
Perform primarily a selling and delivering function. Carry a limited
line of semi perishable merchandise, which they sell for cash as they
make their round to super markets, small groceries, hospital, restaurant,
factory cafeteria, and hotels
o DROP SHIPPERS
Do not carry inventory or handle the product. On receiving an order,
they select a manufacturer, who ships the merchandise directly to the
customer. The drop shipper assumes title and risk from the time the order
is accepted to its delivery to the customer. They operate in bulk industrial.
o RACK JOBBERS
Serve grocery and drug retailers, mostly in non food items. They
sent delivery trucks to stores, where the delivery people set up toys,
paper backs, hard ware items, health and beauty aids, or other items.
They price the goods, keep them fresh, set up point of purchase displays,
and keep inventory records. Rack jobbers retain title to goods and bill the
retailers only for the goods sold to the consumers.
o PRODUCERS’ COOPERATIVES
Owned by farmer members and assemble farm produce to sell in
local market. The co-op’s profits are distributive to members at the end of
the year. They often attempt to improve product quality and promote a
co-op brand name, such as Sun Maid raisins, Sunkist oranges, or Diamond
walnuts.
o MAIL ORDER WHOLESALERS
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Send catalogs to retail, industrial, and institutional customers
featuring jewelry, cosmetics, specialty food, and other small items.
Maintain no outside sales force. Main customers are businesses in small
outlying area. Orders are filled and sent by mail, truck, or other
transportation.
BROKERS AND AGENTSDo no take the title to goods. Main function is to facilitate buying
and selling, for which they earn commission on the selling price.
BROKERS: Chief function is bringing buyers and sellers together and
assisting in negotiation. They are paid by the party who hired them, and
do not carry inventory, get involved in financing, or assume risk.
EXAMPLES: food brokers, real estate brokers, insurance brokers, and
security brokers.
AGENTS: Represents either buyers or sellers on a more permanent
basis than brokers do.
THERE ARE SEVERAL TYPES:
o MANUFACTURERS’ AGENTS: Represent two or more
manufacturers of complementary lines. A formal written agreement
with each manufacturer covering price, territories, order- handling,
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delivery services and warranties, and commission rates. Often used
in such lines as apparel, furniture and electrical goods. Most
manufacturers’ agents are small businesses with only a few skilled
sales people as employees. They are hired by small manufacturers
who cannot afford their own field forces, and by large
manufacturers who use agents to open new territories or to cover
territories that cannot support full time sales people.
o SELLING AGENTS: Have contractual authority to sell a
manufacturer’s entire output. The manufacturer either is not
interested in selling function or feels unqualified. The selling agent
serves as a sales department and has significant influence over
prices, terms and condition of sales. Found in product area such as
textile, industrial machinery, and equipment, coal and cook,
chemicals and metals.
o PURCHASING AGENTS: Generally have long term relation
with buyers and make purchases for them, often receiving,
inspecting, warehousing, and shipping the merchandise to the
buyers
o COMMISSION AGENTS: Take physical possession of the
product and negotiate sales. Normally, they are not employed on
long term basis. Used most often in agricultural marketing by
farmers who do not want to sell their own output and don’t belong
to producer’s cooperatives. The commission merchant takes a
truckload of commodities to a central market, sells it for the best
price, deducts a commission and expenses, and remits the balance
to the producer.
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MANUFACTURERS’ AND RETAILERS BRANCHES
AND OFFICES: Wholesaling operations conduct by the sellers or
buyers themselves rather than through independent wholesalers.
Separate branches and offices can be dedicated to either sales or
purchasing.
SALES BRANCHES AND OFFICES: Set up by manufacturers
to improve inventory control, selling, and promotion. Sales branches carry
inventory and are found in industries such as lumber and automotive
equipment and parts. Sales offices do not carry inventory and are most
prominent in dry- goods and notions industries.
PURCHASING OFFICES: Perform a role similar to that of brokers
or agents but are part of the buyer’s organization. Many retailers sat up
purchasing offices in major market centers such as New York and Chicago.
INTEGRATED MARKETING
COMMUNICATIONS
THE ROLE OF PROMOTION IN MARKETING
A feature of a free-market system is the right to use communication as a
tool of influence as well as information. Let’s examine how promotion
works from an economic perspective and from marketing perspective.
PROMOTION AND IMPERFECT COMPETATION: The American
marketplace operates under conditions of imperfect competition,
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characterized by incomplete market information, product differentiation,
and emotional buying behavior. As a result, companies use promotion to
provide information for the decision maker’s buying-decision process, to
assist in differentiating their products, and to persuade potential buyers.
In economic terms, the role of promotion is to change the location
and shape of the demand (revenue) curve for a company’s product.
Through promotion a company strives to increase its product’s sale
volume at any given price; that is, the firm seeks to shift its demand curve
to the right. Simply stated, promotion is intended to make a product more
attractive to prospective buyers. A firm also hopes that promotion will
affect the demand elasticity for its product’s intent is to make demand
more in elastic when price increases and more elastic when price
decreases. In other words, management wants promotion to increase the
attractiveness of product so the quantity demanded will decline very little
if price goes up (inelastic demand), and sales will increase considerably if
price goes down (elastic demand).
PROMOTION AND MARKETING: From a marketing perspective
promotion is intended to further if no further the objectives of an
organization. It makes use of various tools of perform three essential
promotional roles-informing, persuading, and reminding targets
audiences. The relative importance of these roles depends on the
circumstances faced by the firm. Let’s consider each of them separately.
The most useful product will be a failure if no one knows it exists, so
the first task of promotion is to inform. Beyond simply being aware of a
product of brand, customers must understand what benefits it’s provided,
how it works, and how to get it. These are just a few examples of
information promotion provides channel members and consumers. In the
electronic appliance industry, for example, palm uses advertising to
educate the market about the operation and features of each new
generation of handhelds. In other instance, when a small Canadian firm
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was faced with consumers who couldn’t understand its toy called x- zoylo
a gyroscopic cylinder that can be thrown 100 yards, the inventor informed
retailers and consumers about it with demonstrations at fairs, in company
packing lots, and on school playing fields.
Another purpose of promotion is persuasion. Intense completion
among firms puts tremendous pressure on the promotional programs of
sellers. In an economy with an abundant supply of products, consumers
have many alternatives ways of satisfying even basic physiological needs.
As a result, persuasive promotion is essential .Campbell soup company
has been marketing condensed soup for over 100 years, and accounts for
80 % of all soup sales in the U.S .it is one of the most recognized some
Campbell’s soup in the pantry. Yet the firm spends over $100 million a
year advertising soup. Why? partly because it regularly introduces new
flavors but, more important, because its primary products are condensed
soups that require some minimal preparation .and as one industry analyst
quipped,” if you’re under 70 year old, you buy ready-to serve soup”. Thus,
Campbell’s, faced with intense competition from alternative easier-to-
prepare foods, uses promotion to persuade soup buyers.
Consumers also must be reminded about a product’s availability and
its potential to satisfy. Sellers bombard the marketplace with thousands of
messages everyday in hopes of attracting new consumers and
establishing markets for new products. Given the intense competition for
consumers’ attention even an established firm must constantly remind
people about its brand to retain a place in their minds. It is unlikely that a
day goes by, for example, in which you don’t see some form of promotion
for coca-cola. In fact the company spends over $200 million a year in the
U.S just advertising coca-cola and diet cola soft drinks. Because there is
little new to inform consumers about coke, much of this promotion is
intended simply to off-set competitor’s marketing activity by keeping its
brand in front of the consumers.
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Recognizing that it is both important and varied, we define promotion
as all person al and impersonal efforts by seller or the seller’s
representative to inform, persuade or remind a target audience.
PROMOTION METHODS: Promotion, to whomever it is directed, is
an attempt to influence. There are four forms of promotion which are
given as under:
o PERSONAL SELLING
o ADVERTISING
o SALES PROMOTION
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o PUBLIC RELATIONS
PERSONAL SELLING: Personal selling is the direct presentation of a
product to prospective customer by representative of the organization
selling it. Personal selling takes place face-t-face or over the phone, and it
may be directed to a business person or a final consumer. We list it first
because, across all organizations, more money is spent on personal
selling than on any other form of promotion.
ADVERTISING: Advertising is non-personal communication paid for by
a clearly identified sponsor promoting ideas, organizations, or products.
The most familiar outlets for ads are Broadcast (TV and radio) and print
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(Newspaper and magazines) media. However; there are many other
advertising vehicles, from Billboards to T-Shirts and, more recently, the
internet.
SALES PROMOTION: Sales promotion is sponsor-funded, demand-
stimulating activity designed to supplement advertising and facilitate
personal selling. It frequently consists of a temporary incentive to
encourage a sale or purchase. Many sale promotions are directed at
consumers the premiums offered by fast-food outlets in conjunction with
popular movies are examples. The majority, however, designed to
encourage the company’s sales force or other members of a distribution
channel to sell products more aggressively. When sales promotion is
directed to the members of distribution channel, it is called trade
promotion. Included in sales promotion are wide spectrum of activities,
such as event sponsorships, frequency programs, contests trade shows,
in-store displays, samples, premiums, discounts, and coupons.
PUBLIC RELATIONS: A public relations encompasses a wide variety
of communication efforts to contribute to generally favorable attitudes
and opinions toward an organization and its products. Unlike most
advertising and personal selling, it does not include a specific sale
message. The targets may be customers, stockholders, a government
agency; or a special-interest group. Public relations can take many forms,
including newsletters, annual reports, lobbying and support of charitable
or civic events. The Fuji and Goodyear blimps and the Oscar Mayer
Wiener-mobiles are familiar examples of public relation devices.
INTEGRATED MARKETING COMMUNICATIONS
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Marketers have a variety of promotional tools at their disposal. To make
effective use of them, a company’s personal selling, advertising, and
other promotional activities should form a coordinated promotional
program within its total marketing plan. However, these activities are
fragmented in many firms, with potentially damaging consequences. For
example, advertising directors and sales-force managers may come into
conflict over resources, or the sales may not be adequately informed
about the details of a particular sales promotion were part of an
integrated marketing communication (IMC)
Efforts, a strategic business process used to plan, develop, execute, and
evaluate coordinated communication with an organization’s public.
IMC begins with strategic planning effort designed to coordinate
promotion with product planning, pricing and distribution, the other
marketing-mix elements. Promotion is influenced, for instance, b how
distinctive a product is and whether planned price is is above or below the
competition. A manufacturer or middleman must also consider its
promotional links with other firms in distribution channel
o While the marketing mix refers to promotions, today we refer to IMC
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o It is broader than promotions and includes advertising, promotions,
publicity, personal selling and direct marketing
o IMC refers to a co-coordinated communications program that is
customer-focused and internally consistent
CUSTOMER FOCUS
o talking in “Consumer speak”
o Using communication channels that your target
segment refers to
CONSISTENCY refers to all aspects of your IMC strategy (channel,
message) being consistent with one another
AN AUDIENCE PRERSPECTIVE: An IMC approach adopts the
position that a customer or prospect is exposed to many bits and pieces
of information about a company or brand. Certainly some of these are
designed and presented by the marketers, but many, possibly the
majority, come from other sources. These sources can include personal
experiences, the opinions of friends, and comparisons made by
competitors in their advertising the basis of all this information, an
individual makes an evaluation and forms a judgment. With so little
control over the information an audience use, or how the information is
used, a marketer’s promotional efforts must be highly coordinated and
complementary to have an impact .That means anticipating the
opportunities when the target audience will be exposed to information
about the company or brand, and effectively communicating the
appropriate message in those “windows of opportunity.” Usually this
involves utilizing several promotional methods, and requires a high
degree of coordination.
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IMC STRATEGY: The use of an IMC approach to promotion is reflected
in how managers think about the information needs of the message
recipients. Organizations that have adopted an IMC philosophy tend to
share several characteristics, notably:
o An awareness of the target audience’s information sources, as well
as their media habits and preferences.
o An understanding of what the audience knows and believes that
relates to the desired response.
o The use of a mix of promotional tools, each with specific objectives
but all linked to a common overall goal.
o A promotional effort in which personal selling, advertising, sales
promotion, and public relations are coordinated in order to
communicate a consistent message.
o A carefully timed, continuous flow of information adapted to the
audience’s information needs.
The different IMC elements are
o ADVERTISING
o SALES PROMOTION
o DIRECT MARKETING
o PERSONAL SELLING
o PUBLICITY
ELEMENTS OF THE IMC MIX
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The type of IMC strategy selected usually depends on
o TYPE OF PRODUCT MARKET
o CHANNEL OBJECTIVES
o BUYER READINESS STAGE
o PLC
o FOCUS
o COST
IMPLEMENTING IMC: By definition IMC embraces entire promotional
program, in developing integrated communications, a company
coordinated its advertising, personal selling, sales promotion, public
relations, and direct marketing to accomplish specific objectives. To be
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successful the promotion required the coordinated efforts of dozens of
internal and external departments and functions.
An IMC program may incorporate several different promotional
campaigns, with some even running concurrently. Depending on
objectives and available funds, a firm may undertake simultaneous local,
regional, national, and international programs. Moreover, a firm may have
one campaign aimed at consumers, and another at wholesalers and
retailers.
EVALUATING IMC: The last step in is IMC programs is evaluation. A
program can be evaluated in a number of ways. One is to examine how it
is implemented. For example, if the promotion by a large manufacturer of
consumer goods is being carried out in a manner consistent with the
notion of IMC, we would expect to find:
o An advertising program consisting of series of related, well-timed,
carefully placed ads that reinforce personal selling and sales
promotion efforts.
o A personal selling effort that is coordinated with the advertising
program. The firm’s sales force would fully informed about the
advertising portion of the campaign-the theme, media used, and the
schedule for the appearance of ads. The sales people would be able
to explain and demonstrate the product benefits stressed in ads,
and be prepared to transmit the promotional message and
supporting material to middlemen so they can take part in
campaign.
o Sales promotional devices, such as point-of-purchase display
materials that are coordinated with other aspects of the program.
Incentives for middleman would be clearly communicated and
understood. Retailers would be briefed about consumer promotions
and adequate inventories would be in place.
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o Public relations efforts scheduled to consider with the other mix
components and emphasizing the same theme.
More rigorous evaluation examines the results of the program. The
outcome of each promotional component is compared with the
objectives set for it to determine if the effort was successful. Listed
below are some typical promotion objectives and some common
measures associated with each of them.
AWARENESS OF A COMPANY OR BRAND: Competitive brand
position studies, focus groups with distributors at trade shows, and
website “hits”.
INTEREST IN PRODUCT OR BRAND: Number of broachers or
other company publications distributed attendance at company-sponsored
seminars, and website traffic on specific pages.
ACTIONS: Usage of sales support tools by distributors and retailers,
responses to direct mail, customer inquires or store visits and sales.
To be meaningful, most of these measures need to be taken before
and after the promotional effort, with the difference between the two
measures indicating its effect.
BARRIERS TO IMC: Despite its intuitive attractiveness, an IMC
approach to promotion is not universally supported. In some organizations
the promotional functions are in different departments. For examples the
sales-force may be in a unit apart from where advertising decisions are
made. As a result, there is lack of internal communication and
coordination. In other companies there is a belief that promotion is such
an imprecise activity that efforts to carefully designed objectives and
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coordinate efforts would be unproductive. In still other firms there is
history of relying on a particular form of promotion and a resistance to
consider alternatives.
Fully utilizing and IMC approach would likely require a firm to make
several changes. One involves restructuring internal communication to
ensure that all relevant parties involved in promotion are working
together. Some firms have approached this by creating a marketing
communications (or Marcum) manger who oversees the planning and
coordination of promotional efforts. A second change entails conducting
research to gather the necessary information about the target audience.
Firms extensive customer database for this purpose, but they are costly to
create and expensive to maintain. Finally, and most important, top
management must support the effort to integrate promotion. Strong
leadership is essential in order to gain communication from the entire
organization.
Next we will examine how communication, the core of promotion,
actually works. Then we will move to the key managerial issues in a
promotion program.
THE COMMUNICATION PROCESS & PROMOTION
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Communication is the verbal or non-verbal transmission of information
between someone wanting to express an idea someone else expected or
expecting to get the idea. Because promotion is a form of communication,
much can be learned about structuring effective promotion by examining
the communication process.
Fundamentally, communication requires only four elements:
o A MESSAGE
o A SOURCE O THE MESSAGE
o A COMMUNICATION CHANNEL
o RECEIVER
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In practice, however, important additional components come to play.
What does a communication process tell us about promotion? First, the
act of encoding reminds us that message can take many forms. Messages
can be physical (a sample, a premium) or symbolic (verbal, visual) and
there are myriad of options within each of these categories. For example,
the form of the verbal message can be factual, humorous, or even
threatening.
Second, the number of channels or methods of transmitting a message
are limited only by the imagination and creativity of the sender. Consider
that promotional messages are transmitted by the voice of a sales person,
the air waves of radio, the, mail, the side of a bus, a website on the
internet, and the lead into a feature in a movie theater. Each channel has
its own characteristics in terms of audience reach, flexibility, permanence,
credibility and cost. In selecting a channel, marketer must have clearly
defined objectives and familiarity with the features of the many
alternatives. For example, how would you promote organic foods &
beverages? Africa, a small firm competing with food marketing giants,
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faces two problems. First, is has to get notice by consumers. Because
competitors have millions more to spend on communications it is easy for
the firm’s messages to be overlooked. Second, Africa has to educate
consumers about the benefits of its products because most have little
more than a general awareness of what organic means. To gain attention
and provide information, the firm has created organic gardens “on 20 foot
flatted trucks that visits school, corporate campuses, fairs and various
retail sites to explain the concept and handover samples. In a year the
trucks have made it possible for the firm to put samples in the hands of
the million consumers.
Third, how the messages decoded or interpreted depends on its form
(encoding & transmission) and the capability and interest of the recipient.
In designing and sending messages, marketers must be sensitive to the
audience. What is there vocabulary and level of verbal sophistication?
What are other messages have they received? What experiences have
they had? What will get and hold their attention?
Finally, every promotion should have a measure able objective. The
response and feedback provided by the recipients can used to determine
if the objective is accomplished. Feedback may be collected in many
forms-changes in sales, recall of advertising messages, more favorable
attitudes, and increased awareness of a product or an organization-
depending on the objective of the promotion. For some promotional
activities the objective may be modest-For example, an increase in the
audience’s awareness of a brand. For others, such as direct mail
solicitation, the objective would be particular level of sales. Without
objective, there is no way of evaluating the effectiveness of a message.
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DETERMINING THE PROMOTIONAL MIX
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A promotion mix is an organization’s combination personal selling,
advertising, sales promotion, and public relation. An effective promotional
mix is a critical part of virtually all marketing strategies. Product
differentiation, positioning, trading up and trading down, and branding all
require effective promotion. Designing an effective promotional mix
involves a number of strategic decisions about five factors:
o TARGET AUDIENCE
o OBJECTIVE OF THE PROMOTION EFFORT
o NATURE OF THE PRODUCT
o STAGE IN THE PRODUCTS LIFE CYCLE
o AMOUNT OF MONEY AVAILABLE FOR PROMOTION
TARGET AUDIENCE: As it is true most areas of marketing, decisions
on the promotional mix will be greatly influenced by the target audience.
The target may be final consumers, who could be further defined as
existing customers or new prospects. Some marketers direct much of
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their efforts at decisions makers rather than the actual purchasers. In
some cases the target consists of middleman in order to gain their
support in distributing a product, or in case of a company about to make a
stock offering, the investment community. Final consumers and
middleman sometimes buy the same product, but require different
promotion.
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PUSH VS. PULL STRATEGY
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“A PROMOTION PROGRAM AIMED
PRIMARILY AT MIDDLEMAN IS
CALLED A PUSH STRATEGY, AND A
PROMOTION PROGRAM DIRECTED
PRIMARILY AT END-USER IS CALLED
A PULL STRATEGY”.
Push through communications target channel intermediaries to
motivate them to become more aggressive in customer
communications. The overall objective is to increase reseller
support and market coverage.
o Brands that may be undifferentiated in the marketplace
or in categories where consumer brand preferences are
difficult to generate and sustain.
o Where the distributor plays an important role by
providing information or some expertise.
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Pull through communications are used to target final consumers and
to create consumer demand (pull). The objective is to move goods
and services forward in the distribution channel by pre-selling final
consumers.
o Brands that are strongly differentiated or in categories
where final consumer preference can be generated and
sustained.
PUSH THROUGH COMMUNICATIONS
o Trade promotions and allowances
o Sales force
o Publicity
PULL THROUGH COMMUNICATIONS
o Advertising
o Consumer sales promotions
o Direct marketing
o Publicity
PROMOTION OBJECTIVE: A target audiences can be in any one of
six stages of buying readiness. The stages-awareness, knowledge, liking,
preferences, conviction, and purchase- are called the hierarchy of effects
because they represents stages a buyer goes through in moving toward a
purchase, with each also describing a possible goal effect of promotion.
The objective of promotion is to get the prospect to the final, or purchase
stage, but in most cases that is not possible until the person has moved
through the earlier stage. Thus, a promotion effort may have what
appears to be a modest but essential objective, such as creating
knowledge, about a product advantages.
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PRE PURCHASE
o Advertising, sales promotion
PURCHASE
o Personal selling, sales promotion
POST PURCHASE
o Personal selling, advertising
AWARENES: At the awareness stage the seller’s task is to let buyers
know that the product or brand exists. Here the objective is to build
familiarity with the product the brand name. The government has recently
endorsed the health claim that soy protein helps reduce the risk heart
diseases. However, few consumers know what food product contains soy.
To increase awareness, Archer Daniel Midland Company, the world’s
leading processor of soy, has form an alliance with food makers to label
products that contains soy proteins. The logo, similar to the one use to
indicate the presence of NutraSweet in a product, is employed to make
consumers aware of the presence of soy as an ingredient. In this situation
the marketer must focus promotion to:
o EFFECTIVELY REACH CUSTOMERS
o TELL THE MARKET WHO THEY ARE AND WHAT THEY HAVE TO
OFFER.
KNOWLEDGE: Knowledge goes beyond awareness to learning about
products features. The concept of fractional aircraft ownership unfamiliar
to many potential buyers, so Net jets, one of the firms in the industry has
developed a buyer guide booklet to explain it. Because the booklet is
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more extensive than an advertisement, a prospect can gain a
considerable amount of knowledge and have many basic questions
answered.
LIKING: Liking refers to how the market feels about the product
promotion can be used to move knowledgeable audience from being
indifferent to liking a brand. A common technique is to associate the item
with an attractive symbol or person. The sporting goods company, Adidas,
has partnering relationship with the athletic programs of seven
universities including Arizona State, north western, university of
Tennessee, and the University of Notre Dame, as well as the new York
Yankees major league baseball team. By providing uniforms and
equipment to the players and coaches that include its company’s logo,
Adidas hopes to create a favorable impression on the fans of these teams.
PRODUCT LIFE CYCLE: All products and services have certain
life cycles. The life cycle refers to the period from the product’s first
launch into the market until its final withdrawal and it is split up in phases.
During this period significant changes are made in the way that the
product is behaving into the market i.e. its reflection in respect of sales to
the company that introduced it into the market. Since an increase in
profits is the major goal of a company that introduces a product into a
market, the product’s life cycle management is very important. Some
companies use strategic planning and others follow the basic rules of the
different life cycle phase that are analyzed later.
The understanding of a product’s life cycle, can help a company to
understand and realize when it is time to introduce and withdraw a
product from a market, its position in the market compared to
competitors, and the product’s success or failure.
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For a company to fully understand the above and successfully manage a
product’s lifecycle, needs to develop strategies and methodologies, some
of which are discussed later on.
PART 1: PRODUCT LIFE CYCLE MODEL DESCRIPTION: The
product’s life cycle - period usually consists of five major steps or phases:
Product development, Product introduction, Product growth, Product
maturity and finally Product decline. These phases exist and are
applicable to all products or services from a certain make of automobile to
a multimillion-dollar lithography tool to a one-cent capacitor. These
phases can be split up into smaller ones depending on the product and
must be considered when a new product is to be introduced into a market
since they dictate the product’s sales performance.
1. PRODUCT DEVELOPMENT PHASE: Product development
phase begins when a company finds and develops a new product
idea. This involves translating various pieces of information and
incorporating them into a new product.
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2. INTRODUCTION PHASE: The introduction phase of a product
includes the product launch with its requirements to getting it
launch in such a way so that it will have maximum impact at the
moment of sale.
3. GROWTH PHASE: The growth phase offers the satisfaction of
seeing the product take-off in the marketplace. This is the
appropriate timing to focus on increasing the market share. If the
product has been introduced first into the market, (introduction into
a “virgin”1market or into an existing market) then it is in a position
to gain market share relatively easily.
4. MATURITY PHASE: When the market becomes saturated with
variations of the basic product, and all competitors are represented
in terms of an alternative product, the maturity phase arrives. In
this phase market share growth is at the expense of someone else’s
business, rather than the growth of the market itself. This period is
the period of the highest returns from the product. A company that
has achieved its market share goal enjoys the most profitable
period, while a company that falls behind its market share goal,
must reconsider its marketing positioning into the marketplace.
During this period new brands are introduced even when they
compete with the company’s existing product and model changes
are more frequent (product, brand, Model). This is the time to
extend the product’s life.
5. DECLINE PHASE: The decision for withdrawing a product seems
to be a complex task and there a lot of issues to be resolved before
with decide to move it out of the market. Dilemmas such as
maintenance, spare part availability, service competitions reaction
in filling the market gap are some issues that increase the
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complexity of the decision process to withdraw a product from the
market.
PART 2: ANALYSIS OF PRODUCT LIFE CYCLE MODEL: There
are some major product life cycle management techniques that can be
used to optimize a product’s revenues in respect to its position into a
market and its life cycle.
These techniques are mainly marketing or management strategies that
are used by most companies worldwide and include the know-how of
product upgrade, replacement and termination. To comprehend these
strategies one must first make a theoretical analysis of the model of
product life cycle.
In the mid 70’s the model of product life cycle described in “Part 1”, was
under heavy criticism by numerous authors. The reasons behind this
criticism are described below:
a. The shift changes in the demand of a product along a period of time
makes the distinction of the product life cycle phase very difficult, the
duration of those almost impossible to predict and the level of sales of the
product somewhat in the realm of the imagination.
b. There are many products that do not follow the usual shape of the
product life cycle graph.
c. The product life cycle does not entirely depend on time as shown in fig.
1. It also depends on other parameters such as management policy,
company strategic decisions and market trends. These parameters are
difficult to be pinpointed and so are not included in the product life cycle
as described in “Part 1”.The model of product life cycle also depends on
the particular product. There would-be different models and so different
marketing approaches. There are basically three different types of
products: a product class (such as a car), a product form (such as a
station wagon, coupe, family car etc of a particular industry) and a
product brand of that particular industry (such as Ford Escort). The life
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cycle of the product class reflects changes in market trend and lasts
longer than the life cycle of the product form or brand. In the other hand
the life cycle of a product form or brand reflects the competitiveness of a
company (i.e. sales, profits) and therefore follows more closely the
product life cycle model.
Nevertheless, a product manager must know how to recognize which
phase of its lifecycle is a product, regardless of the problems in the model
discussed above. To do that a good method is the one, suggested by
Donald Clifford in 1965, which follows.
• Collection of information about the product’s behavior over at least a
period of
3 – 5 years (information will include price, units sold, profit margins,
return of investment – ROI, market share and value).
• Analysis of competitor short-term strategies (analysis of new products
emerging into the market and competitor announced plans about
production increase, plant upgrade and product promotion).
• Analysis of number of competitors in respect of market share.
• Collection of information of the life cycle of similar products that will
help to estimate the life cycle of a new product.
• Estimation of sales volume for 3 – 5 years from product launch.
• Estimation of the total costs compared to the total sales for 3 – 5 years
after product launch (development, production, promotion costs). The
estimate should be in the range of 4:1 in the beginning to 7:1 at the stage
where the product reaches maturity.
Strategies that must be applied as soon as the phase of product life cycle
is recognized
PART 3: PRODUCT LIFE CYCLE TECHNIQUE EXAMPLE:
PRODUCT
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CANNIBALISM: Product cannibalization occurs when a company
decides to replace an existing product and introduce a new one in its
place, regardless of its position in the market
(I.e. the product’s life cycle phase does not come into account). This is
due to newly introduced technologies and it is most common in high tech
companies. As all things in life there is negative and positive
cannibalization.
In the normal case of cannibalization, an improved version of a product
replaces an existing product as the existing product reaches its sales peak
in the market. The new product is sold at a high price to sustain the sales,
as the old product approaches the end of its life cycle. Nevertheless there
are times that companies have introduced a new version of a product,
when the existing product is only start to grow. In this way the companies
sustain peak sales all the time and do not wait for the existing product to
enter its maturity phase. The trick in cannibalization is to know when and
why to implement it, since bad, late or early cannibalization can lead to
bad results for accompany sales.
1. UNFAVORABLE CANNIBALIZATION: Cannibalization should
be approached cautiously when there are hints that it may have an
unfavorable economic effect to the company, such as lower sales and
profits, higher technical skills and great retooling. The causes of such
economic problems are given bellow.
• The new product contributes less to profit than the old one: When the
new product is sold at a lower price, with a resulting lower profit than the
old one, then it does not sufficiently increase the company’s market share
or market size.
• The economics of the new product might not be favorable: Technology
changes can force a product to be cannibalized by a completely new one.
But in some cases the loss of profits due to the cannibalization is too
great. For example a company that produced ready business forms in
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paper was forced to change into electronic forms for use in personal
computers. Although the resulting software was a success and yield great
profits, the sales of the paper forms declined so fast that the combined
profit from both products, compared to the profits if the company did not
cannibalize the original product showed a great loss in profits.
• The new product requires significant retooling: When a new product
requires a different manufacturing process, profit is lower due to the
investment in that process and due to the write-offs linked to retooling the
old manufacturing process.
• The new product has greater risks: The new product may be profitable
but it may have greater risks than the old one. A company cannot
cannibalize its market share using a failed or failing product. This can
happen in high-tech companies that do not understand enough of a new
technology so that to turn it into a successful and working product. As a
result an unreliable product emerges and replaces a reliable one, that can
increase service costs and as a result decrease expected profits.
2. OFFENSIVE CANNIBALIZATION STRATEGIES:
Cannibalization favors the attacker and always hurts the market leader.
For companies that are trying to gain market share or establish them into
a market, cannibalization is the way to do it5. Also cannibalization is a
good way to defend market share or size. A usual practice is the market
leader to wait and do not cannibalize a product unless it has to. It is
thought that a company should acquire and develop a new technology
that will produce a newer and better product than an existing one and
then wait. Then as competitor’s surface and attack market share,
cannibalization of a product is ripe. Then and only then quick introduction
of a new product into the market will deter competition, increase profits
and keep market share.
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But this strategy does not always work since delays will allow the
competition to grab a substantial piece of the market before the market
leader can react.
3. DEFENSIVE CANNIBALIZATION STRATEGIES: Controlled
cannibalization can be a good way to repel attackers as deforesting can
repel fire. A market leader has many defensive cannibalization strategies
that are discussed bellow.
• Cannibalize before competitors do: Cannibalization of a company’s
product(s) before a competitor does, is a defensive strategy to keep the
competitor of being successful. Timing is the key in this strategy. Do it too
soon and profits will drop, do it to late and market share is gone.
• Introduction of cannibalization as a means of keeping technology edge
over competition: A good strategy is for a company that is the market
leader, to cannibalize its products as competitors start to catch up in
terms of technology advancements. (For example “Intel Corporation”
cannibalized its 8088processor in favor of the 80286 after 2 ½ years, the
80286 in favor of the 386after 3 years, the 386 in favor of the 486 after 4
years, the 486 in favor with the Pentium after another 4 ½ and so on). So
the market leader dictates the pace and length of a product’s life cycle.
(In the case on Intel the replacement of 486 to Pentium took so long
because competitors had not been able to catch up).
• Management of cannibalization rate through pricing: When
cannibalization of a product is decided, the rate at which this will happen
depends on pricing.
The price of the new product should be at a level that encourages a
particular mix of sales of the old and new product. If the price of the new
product is lower than the price of the old then cannibalization rate slows
down. If the opposite happens then the cannibalization rate is increased.
Higher prices in new products can reflect their superiority over the old
ones.
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• Minimization of cannibalization by introducing of the new product to
certain market segments: Some market segments are less vulnerable to
cannibalization to others. This is because there is more or less to lose or
gain for each of them. By choosing the right segments to perform the
cannibalizations of a product a company can gain benefits without loses
and acquire experience on product behavior.
PART 4: PRODUCT LIFE CYCLE IN RESPECT TO THE
TECHNOLOGY
LIFE CYCLE: As a new technology matures so is the product or service
that uses this technology.
The change that occurs during a technology life cycle has a unique
reflection on the customers and so on the product life cycle.
In the early days of a new technology, early adopters and technology
enthusiasts drive a market since they demand just technology. This drive
and demand is translated as the introduction phase of a new product by
many companies. As technologies grow sold, customers become more
conservative and demand quick solutions and convenience. In this case a
product usually enters in the realm of its growth and as time passes its
maturity.
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PART 5: USE OF PRODUCT MANAGEMENT FOR
SUCCESSFUL
PRODUCT LIFE CYCLE: Product management is a middle level
management function that can be used to manage a products life cycle
and enables a company to take all the decisions needed during each
phase of a product’s life cycle. The moment of introduction and of
withdrawal of a product is defined by the use of product management by
a Product Manager.
A Product Manager exists for three basic reasons. For starters he manages
the revenue, profits, forecasting, marketing and developing activities
related to a product during its life cycle. Secondly, since to win a market
requires deep understanding of the customer, he identifies unfulfilled
customer needs and so he makes the decision for the development of
certain products that match the customers and so the markets needs.
Finally he provides directions to internal organization of the company
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since he can be the eyes and ears of the products path during its life
cycle.
To improve a product success during each of its phase of its life cycle
(development -introduction – growth – maturity – decline), a product
manager must uphold the following three fundamentals.
•Understand how product management works: When responsible for a
given new product, a product manager is required to know about the
product, the market, the customers and the competitors, so that he can
give directions that will lead to a successful product. He must be capable
of managing the manufacturing line as well as the marketing of the
product. When the product manager has no specific authority over those
that are involved in a new product, he needs to gather the resources
required for the organization to meet product goals. He needs to know
where to look and how to get the necessary expertise for the success of
the product.
•Maintain a product / market balance: The product manager as the person
that will make a new product to work, needs to understand and have a
strong grasp of the needs of the customer / market and therefore make
the right decisions on market introduction, product life cycle and product
cannibalization. To achieve the above he must balance the needs of the
customers with the company’s capabilities. Also he needs to balance
product goals with company objectives. The way a product’s success is
measured depends on where the product is in its life cycle. So the product
manager must understand the strategic company direction and translate
that into product strategy and product life cycle position.
•Consider product management as a discipline: Managing a product must
note taken as a part time job or function. It requires continuous
monitoring and review. Having said that, it is not clear why many
companies do not consider product management as a discipline. The
answer lies in the fact that product management is not taught as
engineering or accounting i.e. does not have formalized training.
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UNDERSTANDING AND DEVELOPING A
PROMOTION BUDGET
Marketing is often listed as a single line item on a business expense
account. This may infer that expenses for marketing are straight forward
and easy to categorize. To the contrary, marketing is one of the most
misunderstood and complicated areas of planning and running a business.
Marketing is often referred to as a “necessary evil” for a business. Without
it, sales will likely struggle and with it can come significant costs.
Sometimes marketing expenditures are needed just to insure product
awareness and to stay even with the competition rather than greatly
expanding sales.
Marketing experts often prefer to consider expenses for marketing as
investments rather than expenses because successful marketing efforts
will increase sales.
Marketing may be defined as the act of selling, purchasing or sending
goods into a market. Marketing is often thought of as any or all of the
functions involved in transferring title and moving goods from producer to
consumer including buying selling, storing, transporting, standardizing,
financing, risk bearing and supplying market information. The
American Marketing Association’s official definition of marketing provides
a good working definition of the term.
“MARKETING IS THE PROCESS
OF PLANNING AND EXECUTING
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THE CONCEPTION, PRICING,
PROMOTION AND DISTRIBUTION
OF IDEAS, GOODS, AND
SERVICES TO CREATE
EXCHANGES THAT SATISFY
INDIVIDUAL ORGANIZATIONAL
OBJECTIVES.”
Simplistically, marketing can be thought of planning and executing a set
of objectives related to bringing buyers and sellers together so that a sale
can take place. Marketing a product takes planning to be successful. The
marketing plan is a process that identifies the steps necessary to
implement a successful marketing strategy. Promotion, on the other hand,
may be considered activities that are specifically aimed at advancing,
increasing and boosting awareness, interest or sales.
Because marketing can be such a complex issue in the management of a
business, it should not be dealt with lightly. Infect, a thorough
understanding of marketing and promotion options should be one of the
first steps in the evaluation of a new business or enterprise. Once this
understanding is gained, promotion options should be narrowed to those
best suited for a particular project. Then, a promotional campaign should
be planned.
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While a marketing budget is a listing of all the expenses planned for
marketing, a promotional budget is the part of the overall marketing
efforts devoted specifically to promotion. Because marketing is more than
advertising, a marketing budget should include expenses for marketing
personnel, marketing training, marketing consultants, market research,
market development and promotion. A promotion budget should include
those expenses for promotional activities such as advertisements,
brochures, direct mailings, samples, trades shows, displays and
sponsorships.
A promotional budget can be prepared by allocating a certain amount of
expected sales to promotion activities or by planning certain promotion
activities and allocating expenses for them. A promotion budget should be
developed at the beginning of the year. For the existing business, a good
place to start is using the past year’s expenses. There are no rules but
remember to be realistic: it must be affordable!
USEFUL TIP: Allocate your budget wisely; money spent on a bad
promotion is worse than spending no money on promotion. You must also
be able to justify this cost in your business plan.
DECIDE ON SUITABLE TIME SPAN: A decision must be reached
on the time scale of the Promotion campaign. This will depend on the
objectives of the campaign, the medium used and the allocated budget.
The timing of the campaign is also important e.g. advertising fireworks in
January!
DECIDE ON MESSAGE: What to say? How to say it? Where to say it?
The message and the medium used to convey that message will be
affected by the type of product/service, the cost, legislation, what the
competition is doing etc. Most importantly, it will be affected by the
desired response from the consumer and the stage in the buying process
that needs to be influenced.
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The “AIDAS” model can illustrate this buying process:
o ATTENTION
o INTEREST
o DESIRE
o ACTION
o SATISFACTION
Ideally the message should get the attention of the consumer and take
them through the stages until a purchase is made and satisfaction
reached. In practice few messages take a consumer through the whole
process, but are pitched at a certain level that meets the promotion
objective. For example, if the promotion objective was to create
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awareness for the product, the promotion message should be designed to
get the attention of the consumer and so on.
The message content should include a unique selling proposition (USP),
i.e. a benefit, motivation, identification etc. that appeals to the audience.
This appeal could be: -
RATIONAL - appeals to audience's self interest. Show that product
produces claimed benefits such as quality, economy, value, e.g. car ads.
EMOTIONAL - stir up a positive/negative emotion that will motivate
purchase, e.g. Andre puppies.
MORAL - directed to the audience's sense of what is right, e.g. support
for social causes.
The message format should be strong in order to catch the attention of
the audience. The message format depends on the promotional medium
used. For printed ads, careful decision for headline illustration, color etc.
For personal selling, decision as to choice of words, portfolio, dress, body
language.
DECIDE ON PROMOTION MIX: Each promotional element has a
different communication capacity is effective at different stages in the
buying process and we have a different level of control over each one.
Therefore the decision for choice of promotion mix will depend upon:
o TARGET AUDIENCE
o OBJECTIVES
o TIMING
o STAGE OF PRODUCT LIFE CYCLE
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o COMPLEXITY OF PRODUCT
o COMPETITION
o LEGAL RESTRAINTS
o MONETARY RESTRAINTS ETC.
1. ADVERTISING: Effective medium for creating awareness and
interest. Low control over response Suggestion: Most newspapers and
magazines have media packs giving details of readership figures, how
much it costs to advertise and so on. Why not ring or write and ask for
one of these packs: they are free!
TV - reach large number of buyers, allows for repeated message,
combines aural and visual message BUT very expensive, unselective, non-
personal.
Radio - quick production, good for certain targets as more localized and
segmented stations, BUT can be expensive, 16 listens for 80% retention,
sound only.
INTERNET & E-MAIL – the fastest growing medium for ‘business to
business’ advertising. Cheap targeted and effective some organizations
only have an electronic presence. I.e. they are only contactable via the
internet/E-mail.
NEWSPAPER - regular communication, detailed message possible,
reader identification BUT can be expensive, little color production, not
always targeted.
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LOCAL PAPERS - geographical targeting, relatively cheap BUT smaller
audience (may not be a problem), some papers are free - can't be sure of
readership levels. Some days are better for advertising certain products.
JOURNALS/MAGAZINES - good for targeting, good for detailed
message relatively cheap BUT lacks urgency of newspaper, monthly
magazines means long wait for repeat ads.
DIRECTORIES - can be localized e.g. Thompson’s, relatively cheap,
BUT problems with timing ads for future editions, depends on trade as to
whether it is appropriate.
CINEMA - can be good for targeting local market, cheap BUT low
audiences.
HOARDINGS/POSTERS - good for simple message, posters cheap,
used to support other media BUT low audience, hoardings can be
expensive and sometimes no control over site. If using posters, make sure
you put them in locations where your potential customers will see them.
LEAFLETS - can be good for targeting, detailed message, use of color,
cheap BUT high wastage (e.g. pick up and dump).
CARDS IN NEWSAGENTS/SUPERMARKETS - very cheap BUT
low audiences, not detailed.
DESIGNING AN ADVERTISEMENT: Always bear in mind that the
audience and what response you hope to achieve from them. To write a
successful ad: Make the headline for your ad interesting and eye-catching
Decide on the message of the ad and keep it simple; too many messages
will confuse Read through your local paper and see what ads catch your
attention Work out what it is about them that is interesting Use as few
words as possible in the ad: 3 sentences maximum Focus the ad on
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unique benefit or offer Make it sound believable Show it to people whose
opinions you value to get feedback.
2. SALES PROMOTION: Effective medium for creating desire and
decision to purchase. Higher control than with advertising Sales Promotion
is often used to create a quick response by buyer. SP is good for gaining
attention, providing information and usually contains an inducement to
buy now. The effects of SP however, are usually short-term sales rather
than long term growth. Examples: BOGOF, money -off coupons,
competitions, free samples, gifts.
3. PUBLICITY/PR: Effective medium for creating awareness, interest
and credibility. Little control, Publicity can be highly credible if it is well
thought out and it is extremely cheap. A feature in a paper, magazine
sometimes seem more credible to readers than ads BUT it is restricted by
editorial decisions by the media source used.
USEFUL TIP: think of some way in which your business is unique and
try writing to the editor of a local newspaper to see if they would be
willing to write an article about it. There's no harm in trying.
4. PERSONAL SELLING: Effective medium for influencing all stages
of the decision making process, especially the decision to buy. High level
of control. Good for small businesses with local markets complex products
and services.
Useful Tips: Always try and leave the potential customer with something
to remind them of your company and product e.g. business card or leaflet.
5. DIRECT MAIL & E-MAIL: Effective for creating awareness and
interest for markets where the target audience is easily defined. Little
control except the E-mail, Mailing info directly to target customers telling
them about your company and what you have to offer. Relatively cheap
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BUT dependent on very accurate forecast of target market and low
response; 2% response rate if you are lucky. Secrets to success send to
the right people and make them an offer that is hard to refuse. Control is
far greater and targeted using the Internet and E-mail.
6. DIRECT RESPONSE: Used to encourage purchase now! Includes
buying off of the TV, adverts in magazines that ask you to phone up to
place your order e.g. thimble collections in the Sunday Times supplement.
7. WORD OF MOUTH: Effective medium for creating interest and
desire for your product or service and it is extremely cheap. To get people
to tell others about you, you must:
Give excellent service and produce good quality pay attention to pack
aging give customers something to pass on to friends such as business
cards give customers incentive to bring new customers e.g. special
discounts become part of local community activities team up with other
local businesses and pass customers between you
MEASURE AND ANALYSE RESULTS: It is important to measure in
some way the effectiveness of your promotion campaign. This should be
done against your objective. If for example, main objective was to create
100 enquiries or (giving consideration to the effect of the other 3 P’s to
achieve 20 sales, you can measure whether or not this objective was
achieved. If the objective was to create awareness, this is more difficult to
measure. It may involve further research and actually asking people
whether they have heard of your product or service. Measuring and
analyzing the outcome of the promotion campaign will help in the
development of future campaigns. It may be that you need to change the
medium used or the time - span etc, of the next promotion campaign.
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PERSONAL SELLING & SALES
MANAGEMENT
PERSONAL SELLING: PERSONAL:
(ONE (TO ONE/ONE-TO-SMALL GROUP) COMMUNICATION OF
INFORMATION DESIGNED TO PERSUADE SOMEONE TO BUY
IN MANY COMPANIES, PERSONAL SELLING IS THE LARGEST SINGLE
OPERATING EXPENSE-- OFTEN 8 TO 15% OF SALES.
WHEN PERSONAL SELLING WORKS BEST:
THE MARKET IS CONCENTRATED.
THE PRODUCT HAS A HIGH UNIT VALUE, IS TECHNICAL IN NATURE,
AND REQUIRES A DEMONSTRATION.
THE PRODUCT CAN BE TAILORED TO AN INDIVIDUAL CUSTOMER’S
NEED.
THE SALE INVOLVES A TRADE-IN.
THE PRODUCT IS IN THE INTRODUCTORY STAGE OF THE PRODUCT
LIFE CYCLE.
THE ORGANIZATION DOESN’T HAVE ENOUGH MONEY FOR
ADEQUATE AD CAMPAIGN
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STRENGTHS AND WEAKNESSES OF PERSONAL
SELLING
STRENGTHS:
o IT CAN BE ADAPTED FOR INDIVIDUAL CUSTOMERS.
o IT CAN BE FOCUSED ON PROSPECTIVE CUSTOMERS.
o IT RESULTS IN THE ACTUAL SALE, WHILE MOST OTHER FORMS OF
PROMOTION ARE USED IN MOVING THE CUSTOMER CLOSER TO
THE SALE.
WEAKNESSES:
o IT IS COSTLY TO DEVELOP AND OPERATE A SALES FORCE.
o IT MAY BE DIFFICULT TO ATTRACT HIGH-CALIBER PEOPLE.
KINDS OF PERSONAL SELLING: There are two kinds of personal
selling which are given as follows:
THE CUSTOMERS COME TO THE SALESPEOPLE
o MOSTLY INVOLVES RETAIL-STORE SELLING.
o MOST SALESPEOPLE FALL INTO THIS CATEGORY.
THE SALESPEOPLE GO TO THE CUSTOMERS.
o USUALLY REPRESENT PRODUCERS OR WHOLESALING MIDDLEMEN
AND SELL TO BUSINESS USERS.
o SOME OUTSIDE SELLING IS RELYING MORE ON TELEMARKETING.
“CUSTOMERS COME TO
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THE SALES PEOPLE
SALES FORCE GOES TO
THE CUSTOMERS”
INSIDE SELLING:
o ACROSS-THE-COUNTER
o PHONE-IN ORDERS
o PRIMARILY
o RETAIL STORE SELLING
o IN-PERSON
o SALES CALLS
o INSIDE SALES PEOPLE
o CONTACT BY MAIL
o TELEMARKETING
PRIMARILY PRODUCERS AND
WHOLESALING
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MIDDLEMEN SELLING TO BUSINESS
USERS, BUT ALSO
SOME: PRODUCERS HOUSEHOLD
CONSUMERS RETAILERS HOUSEHOL
D CONSUMERS
NOT-FOR-PROFIT BUSINESS USERS
ORGANIZATIONS HOUSEHOLD
CONSUMERS
KINDS OF SELLING
JOBS IN PERSONAL SELLING:
PROFESSIONAL SALESPERSON ENGAGES IN A TOTAL
SELLING JOB.
o MANAGE THEIR TIME, TERRITORIES AND CUSTOMERS.
o WORK CLOSELY WITH CUSTOMERS TO SUPPORT AND TRAIN.
WIDE VARIETY OF SALES JOBS:
o DRIVER-SALESPERSON
o INSIDE ORDER TAKERS (E.G. RETAIL CLERK)
o OUTSIDE ORDER TAKER (BUSINESS DEVELOPMENT)
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o MISSIONARY SALES (SALES SUPPORT)
o SALES ENGINEER
o CONSULTATIVE SALES PERSON
RANGE OF JOBS AND TASKS:
o EXECUTE MARKETING STRATEGIES-- RELATIONSHIPS.
o REPRESENT THEIR COMPANY.
o WORK WITH LITTLE OR NO SUPERVISION.
o OFTEN TRAVEL TO MEET CUSTOMERS
CHANGING PATTERNS IN SALES
The nature of the selling job is changing, reflecting changing market
situations
SELLING CENTERS: To match the expertise of the buying center in
business marketers, an increasing number of firms on the selling side
have adopted the organizational concept of a selling center. A selling
center is a group of people representing a sales department as well as
other functional areas in the firm such as finance, production, and
research and development brought together to meet the needs of a
particular customer. This is sometimes called sales team or team selling.
SYSTEMS SELLING: The concept of system selling means selling a
total package of related goods and services-a system-to-solve a
customer’s problem. The idea is that system will satisfy the buyer’s needs
more effectively than selling individual products separately.
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GLOBAL SALES TEAMS: As companies expand their operating to
far-flung corners of the globe, they expect their suppliers to do the same.
Having products readily available, understanding local conditions, and
proving quick service are essential to maintaining global customers. To
service their largest and most profitable global customers, sellers are
forming global sales teams.
RELATIONSHIP SELLING: Developing a mutually beneficial
relationship with selected customers over time is relationship selling. It
may be an extension of team selling, or it may be developed by individual
sales reps in their dealing with customers. In relationship selling, a seller
discontinues the usual practice of concentrating on maximizing the
number and size of individual transitions. I instead, the seller attempts to
develop a deeper, longer-lasting relationship built on trust with key
customers-usually larger accounts.
o HIGH LEVELS OF TRUST ARE IMPORTANT
o BUYER MUST DEMONSTRATE TRUST IN THE SALESPERSON AS WELL
AS THE SELLING ORGANIZATION
o TRUSTED SALESPEOPLE CAN RETAIN THE BUYER’S COMMITMENT
EVEN IN THE FACE OF POLICIES THAT MAY NOT BE CONSIDERED
SATISFACTORY
o SALES PEOPLE HAVE A MAJOR ROLE IN THE MANAGEMENT OF
CUSTOMER RELATIONSHIPS
TELEMARKETING: Is the innovative use of telecommunication
equipment and systems as part of the “going to the customer” category
of personal selling. Under certain conditions, telemarketing is attractive to
both buyers and seller. Buyers pacing routine reorders or new orders for
standardized products by telephone use less of their time than with in-
person sales calls. Many sellers find that telemarketing increases selling
efficiency. With the high costs of keeping sales people on the road,
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telemarketing reduces the time spend on routine order taking. Redirecting
routine reorders to telemarketing allows the field sales force to devote
more time to create selling, major account selling, and other more
profitable selling activities.
Here are some examples of selling activities that lend themselves
nicely to a telemarketing program.
o SEEKING LEADS TO NEW ACCOUNTS AND IDENTIFYING POTENTIALLY
GOOD CUSTOMERS SALES REPS CAN FOLLOW UP WITH IN-PERSON
CALLS.
o PROCESSING ORDERS FOR STANDARDIZED PRODUCTS.
o DEALING WITH SMALL-ORDER CUSTOMERS, ESPECIALLY WHERE THE
SELLER WOULD LOSE MONEY IF FIELD SALES CALLS WERE USED.
o IMPROVING RELATIONS WITH MIDDLEMAN. MANUFACTURES USE
TELEMARKETING TO ANSWER DEALERS’ QUESTIONS ABOUT
INVENTORY MANAGEMENT, SERVICE AND REPLACEMENT PARTS.
THIS GIVES THE DEALERS AN IMMEDIATE SOURCE FOR ASSISTANCE,
SAVING THEM THE TIME AND EFFORT OF TRYING TO TRACK DOWN A
SALES PERSON.
INTERNET SELLING: Most sales efforts over internet would not be
considered personal, and therefore would not be part of a discussion
about personal selling.
SALES FORCE AUTOMATION (SFA): In recent years
organizations have equipped their sales people with an increasing array of
electronic tools. Pagers, Laptops computers, fax machines, and cellular
phones allow sales people access to internet, e-mail, and various
company data-bases. They also allow sales people to electronically
communicate with their mangers, marketers and others in their
organization by providing such things as market intelligence, calls reports,
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credit applications, and customer questions. Today organizations are
moving beyond using these tools only for communication to integrating
with software that allows as sales person to create customized reports for
customers, develop proposals with prices, discounts, delivery dates, and
other information critical to making a sale, estimate costs for particular
orders, and develop forecasts for customers and territories. This capability
of using electronic function is known as sales force automation (SFA).
SFA has potential to create better-informed sales people who
can more effectively respond to the needs of customers. According to a
sales corning with SFA “They (sales people) become the real managers of
their own business and their own territories”.
Automating a sales force is an expensive proposition that is
likely to require frequent upgrades as new, more sophisticated tools
become available. The experience of firms indicated that implementing
SFA involves several challenges.
o IDENTIFYING WHICH PARTS OF THE SALES PROCESS CAN BENEFIT
THE MOST FROM AUTOMATION.
o DESIGNING A USER FRIENDLY SYSTEM.
o GAINING THE COOPERATION OF THE SALES FORCE THEY
INCORPORATE THE TECHNOLOGY IN THEIR JOBS.
Experience with automation has been mixed as firms sort out what
works and what doesn’t. Typical problems include unrealistic
expectations by managements because of the large investments
required, attempting to implement too much at once instead of
phasing in a program, and resistance by sales people. However, on
the basis of a recent survey in which 835 of the responding
companies indicated plans to upgrade their systems, it is safe to say
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the sales role of the future will include a significant electronic
component.
THE PERSONAL SELLING PROCESS
STEP 1: PROSPECTING AND QUALIFYING
o IDENTIFY POTENTIAL CUSTOMERS.
o QUALIFYING INVOLVES DETERMINING WHETHER PROSPECTS
HAVE THE WILLINGNESS, PURCHASING POWER, AND
AUTHORITY TO BUY.
STEP 2: PREAPPROACH TO INDIVIDUAL PROSPECTS
o SALESPEOPLE MUST LEARN HOW BUYING DECISIONS ARE
MADE.
o SALESPEOPLE SHOULD ALSO TRY TO FIND OUT A PROSPECT’S
PERSONAL HABITS AND PREFERENCES
STEP 3: PRESENTING THE SALES MESSAGE: AIDA
o ATTRACT THE PROSPECT’S ATTENTION.
o HOLD THE PROSPECT’S INTEREST.
o BUILD A DESIRE FOR THE PRODUCT.
o STIMULATE THE ACTION OF CLOSING THE SALE.
STEP 4: MEET OBJECTIONS AND CLOSE THE SALE
o OBJECTIONS HELP CLARIFY CUSTOMER’S CONCERNS.
STEP 5: POSTSALE SERVICES
o DEAL WITH COGNITIVE DISSONANCE.
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o ENSURE EVERYTHING HAPPENED AS IT SHOULD (DELIVERY)
SALES FORCE MANAGEMENT
Effective sales force management starts with a qualified sales
manager.
The tasks that take up the bulk of sales executives’ time include:
o RECRUITMENT AND SELECTION (MATCH CANDIDATES WITH
YOUR NEEDS)
o ASSIMILATION AND TRAINING
o MOTIVATION
o COMPENSATION
o SUPERVISION
o PERFORMANCE EVALUATION
THE SALES MANAGEMENT PROCESS
COMPENSATION
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STRAIGHT SALARY
o WORKS WELL FOR NEW PEOPLE, NEW TERRITORIES.
o GOOD WHERE LENGTHY NEGOTIATIONS TYPICAL.
STRAIGHT COMMISSION
o STRONG INCENTIVE, DIRECT REWARD FOR EFFORT.
o CAN BE HARD TO CONTROL SALESPEOPLE.
A COMBINATION PLAN
o MOST FIRMS DO THIS.
o BEST OF BOTH WORLDS.
PERFORMANCE EVALUATION
Both quantitative and qualitative factors should serve as bases for
performance evaluation.
o QUANTITATIVE BASES ARE SPECIFIC AND OBJECTIVE.
o QUALITATIVE FACTORS ARE LIMITED BY THE SUBJECTIVE
JUDGMENT OF THE EVALUATORS.
Either inputs (or effort) and outputs (or results) should be used.
QUANTITATIVE BASES: Sales performance should be evaluated in
terms of inputs (efforts) and outputs (results). Together, inputs such as
number of sales per day or direct selling expenses, and puts such as sales
volume or gross margin, provide a measure of selling effectiveness.
Useful quantitative input measures include:
o CALL RATE- NUMBER OF CALLS PER DAY OR WEEK
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o NUMBER OF FORMAL PROPOSALS PRESENTED.
o NO SELLING ACTIVITIES- NUMBER OF PROMOTION DISPLAYS SET UP
OR TRAINING SESSIONS HELD WITH DISTRIBUTORS OR DEALERS.
Some quantitative output measures useful as evaluation criteria are:
o SALES VOLUME BY A PRODUCT, CUSTOMER GROUP, AND
TERRITORY.
o SALES VOLUME AS A PERCENTAGE OF QUOTA OR TERRITORY.
o GROSS MARGIN BY PRODUCT LINE, CUSTOMER GROUP, AND
TERRITORY.
o ORDERS-NUMBER AND AVERAGE DOLLAR AMOUNT
o CLOSING RATE-NUMBER OF EXISTING ACCOUNTS RETAINED AND
NUMBER OF NEW ACCOUNTS OPENED.
QUALITATIVE BASIS: In some respect, performance evaluation
would be much easier if it could be based only on quantitative criteria.
The standards would be absolute, and the positive and negative
deviations from the standard could be measured precisely. Quantitative
measures would also minimize the subjectively and personal bias of the
evaluations. However, many qualitative factors must be considered
because they influence a sales person’s performance. Some commonly
used factors are:
o KNOWLEDGE OF PRODUCTS, COMPANY POLICIES, AND
COMPETITORS.
o TIME MANAGEMENT AND PREPARATION FOR SALES CALLS.
o QUALITY OF REPORTS
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o CUSTOMER RELATION
o PERSONAL APPEARANCE
A successful evaluation program will appraise a sales person on all
factors that can be related to performance. Otherwise management
may be misled. A high gaily call rate may look good, but it tells us
nothing about how many orders are being written up. A high closing
rate may be camouflaging a low average order size or a high sale
volume on low-profit items.
ADVERTISING
NATURE AND SCOPE OF ADVERTISING
ADVERTISING is a form of communication that typically attempts to
persuade potential customers to purchase or to consume more of a
particular brand of product or service. Many advertisements are designed
to generate increased consumption of those products and services
through the creation and reinforcement of "brand image" and "brand
loyalty". For these purposes, advertisements sometimes embed their
persuasive message with factual information. Every major medium is used
to deliver these messages, including television, radio, cinema, magazines,
newspapers, video games, the Internet and billboards. Advertising is often
placed by an advertising agency on behalf of a company or other
organization.
Advertisements are seen on the seats of shopping carts, on the walls of
an airport walkway, on the sides of buses. And are heard in telephone
hold messages and in-store public address systems. Advertisements are
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often placed anywhere an audience can easily or frequently access visual,
audio and printed information.
Organizations that frequently spend large sums of money on advertising
that sells what is not, strictly speaking, a product or service include
political parties, interest groups, religious organizations, and military
recruiters. Non-profit organizations are not typical advertising clients, and
may rely on free modes of persuasion, such as public service
announcements.
Advertising spending has increased dramatically in recent years. In 2006,
spending on advertising has been estimated at $155 billion in the United
States and $385 billion worldwide and the latter to exceed $500 billion by
2010.
While advertising can be seen as necessary for economic growth, it is not
without social costs. Unsolicited Commercial Email and other forms of
spam have become so prevalent as to have become a major nuisance to
users of these services, as well as being a financial burden on internet
service providers. Advertising is increasingly invading public spaces, such
as schools, which some critics argue is a form of child exploitation.
All advertisements (ads, for short) have four features:
A verbal and /or visual no personal message.
An identified sponsor.
Delivery through one or more media.
Payment by the sponsor to the medium carrying the message.
Advertising in one form or another is used by the most organizations.
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ADVERTISING AS A PERCENTAGE OF SALES: The
amount of advertising that businesses do seems daunting. For example,
Proctor & Gamble spends more than $4.5 billion a year worldwide.
However, it’s important to put the expenditure in context. When you
consider that Proctor & Gamble has 250 brands that it sells in more than
140 countries and that those brands are targeted at more than 5 billion
consumers, the amount to get its message out (less than $1 per prospect
per year) seems more reasonable.
ADVERTISING COST VERSES PERSONAL SELLING
COST: We do know it far surpasses advertising expenditures. Only a
few manufacturing industries, such as drugs, toiletries, cleaning products,
tobacco and beverage spend more on advertising than on personal
selling. Advertising runs 1% to 3% of net sales in many firms, where as
the expenses of recruiting and operating a sales force are typically 8% to
15% of sales.
Personal selling for wholesalers, however, may run 10 to 15 times more
than their expenditures for advertising.
Q: How can I advertise on a low budget and get a great response? Where
should I advertise to take my business to another level?
A: Paid ad placements are vital marketing sources for some businesses.
When customers refer to a directory or advertising section, they've
already qualified themselves as someone who needs what you and your
competition are selling. Whether you're paying for a display in the phone
book, newspaper or church directory, you need your dollars
to work effectively in steering people's attention over to your message.
Here's how.
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IDENTIFY WHICH ADVERTISING TOOL IS BEST FOR YOUR
TYPE OF BUSINESS: For example, classified ads fuel some
businesses while others use flier distribution effectively. For restaurants,
local newspaper ads are effective because most restaurant patrons live
within a three- to five-mile radius. Local storefront shops find success with
coupon advertising in community mail packs or on the back of
supermarket receipts. Scanning a stack of my own grocery receipts
reveals ads from such neighborhood regulars as a car wash, a dry cleaner,
an auto repair center, a dentist and a storage facility.
TYPES OF ADVERTISING
ADVERTISING CAN BE CLASSIFIED ACCORDING TO:
THE TARGET AUDIENCE, EITHER CONSUMER OF BUSINESSES.
THE OBJECTIVE SOUGHT THE STIMULATION OF PRIMARY OR
SELECTIVE DEMAND.
WHAT’S BEING ADVERTISED, A PRODUCT VERSUS AN INSTITUTION.
THE TARGET: CONSUMER OR BUSINESS: An ad is
directed at consumers or businesses; thus it is either business to
consumer advertising or business-to-business advertising. Retailers by
definition sell only to consumers; therefore, they are the only type of
business not faced with this decision.
On the other hand, many manufacturers and distributors must divide their
advertising between business customers and consumers.
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THE TYPE OF DEMAND: PRIMARY OR SELECTIVE: Primary demand advertising is designed to stimulate the demand for a
generic category of a product such as coffee, electricity pr garments ado
from cotton.
In contrast, selective demand advertising is intended to stimulate demand
for individual brand such as Folgers coffee, American Electric Power
electricity and Liz Claiborne sportswear.
Primary demand advertising is used in either two situations:
FIRST is when the product is in the introductory stage of its life cycle.
This is called pioneering advertising. The main objective of pioneering
advertising is to inform, rather than persuade, the target market.
SECOND use of primary demand advertising occurs thought out the
product life cycle and therefore this considered demand sustaining
advertising, trade associations trying to stimulate or sustain demand for
their industry’s product usually do it.
Selective demand advertising is essentially competitive advertising. Its
pits of brand against the rest of the market. Its emphasizes a brand's
special features and benefits--its differential advantage.
A special case selective demand advertising that makes reference to new
or more competitors is comparison advertising. In this kind of advertising,
the advertiser either directly, by naming the rival brand, or indirectly,
through inferences, claims some point of superiority over the rival.
The message: product or industrial
All selective advertising may be classified as product or institutional.
Product advertising focuses on a particular product or bandits is
subdivided in to two parts;
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DIRECT action advertising seeks a quick response
INDIRECT action adverting is designed to stimulate demand over a
longer period of time. It is intended to inform or remind consumers that
the product exists and to point out its benefits.
Industrial advertising presents information about the advertiser's business
or tries to create a favorable attitude--that is, build goodwill--towards the
organization. Both objectives are to create a particular image for a
company.
The source: commercial or social
The focus here is on commercial messages but the most valued form of
endorsement in noncommercial. In fact, the very reason that it does not
conform to the definition in what makes it so prized.
DEVELOPING AN ADVERTISING
CAMPAIGNAn advertising campaign consists of all the tasks involved in transforming
a theme into a coordinated advertising program to accomplish a special
goal for a product or brand. Typically a campaign involves several
different advertising messages.
An advertising campaign is a series of advertisement messages that
share a single idea and theme which make up an integrated marketing
communication (IMC). Advertising campaigns appear in different media
across a specific time frame.
The critical part of making an advertising campaign is determining a
campaign theme, as it sets the tone for the individual advertisements and
other forms of marketing communications that will be used. The campaign
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theme is the central message that will be communicated in the
promotional activities. The campaign themes are usually developed with
the intention of being used for a substantial period but many of them are
short lived due to factors such as being ineffective or market conditions
and/or competition in the marketplace and marketing mix.
An advertising campaign is planned within the framework of the overall
strategic marketing plan and as part of a broader promotional program.
The framework is established when management:
o IDENTIFIES THE TARGET AUDIENCE.
o ESTABLISHES THE OVERALL PROMOTIONAL GOALS.
o SETS THE TOTAL PROMOTIONAL BUDGET.
o DETERMINES THE OVERALL PROMOTIONAL THEME.
DEFINING OBJECTIVES: The purpose of advertising is to sell
something-- ad good, service, idea, person or place--either now or later.
This goal is reached by setting specific objectives that are reflected in
individual ads incorporated into an advertising campaign.
Typically advertising objectives are to:
o SUPPORT PERSONAL SELLING
o IMPROVE DEALER RELATIONS
o INTRODUCE A NEW PRODUCT
o EXPAND THE USE OF A PRODUCT
o COUNTERACT SUBSTITUTION
ESTABLISHING A BUDGETOnce a promotional budget has been established it must be allocated
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among the various activities comprising the overall promotional program.
In the case of particular brand, a firm may wish to have several ads, as
well as sales promotion and public relations activities, directed at different
target audiences all at the same time.
One method that firms use to extend their budgets is cooperative
advertising, which is a joint effort by two or more firms intended to benefit
each of the participants. There are two types of cooperative ads;
VERTICAL
HORIZONTAL
VERTICAL cooperative advertising involves firms on different levels of
distribution. Another type of vertical cooperative is an advertising
allowance, or cash discount offered by the manufacture we to retailer, to
encourage the retailer to advertise or permanently display a product.
HORIZONTAL cooperative advertising so joint advertising in which two
or more firms on the same level of distribution, such as a group of
retailers, share the costs.
CREATING A MESSAGEWhatever the advertising campaign, to be successful the individual ads
must get and hold the attention of the intended audience and influence
that audience in the desired way. Attention can be achieved in May ways;
o TELEVISION
o RADIO
o PRINT AD
The message has two elements: the appeal and the execution;
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The appeal in an ad is the reason or justification for believing or behaving.
It is the benefit that the individual will receive as a result of accepting the
message.
The execution is combining in a convincing, compatible way the feature or
device that gets attention with the appeal.
SELECTING MEDIABefore selection of the advertising media in which to place the ads in
actually these decisions are usually made simultaneously. Both the
message and the choice of media are determined by the nature of the
appeal and the intended target audience.
Advertisers need to make decisions at each of three successive levels in
selecting the specific advertising medium to use:
WHAT TYPE(S) WILL BE USED--
WHICH CATEGORY OF THE SELECTED MEDIUM WILL BE USED?
WHICH SPECIFIC MEDIA VEHICLES WILL BE USED?
Here are suing general factors that will influence media choice:
o OBJECTIVE OF THE AD
o AUDIENCE COVERAGE
o REQUIREMENTS OF THE MESSAGE
o TIME AND LOCATION OF THE BUYING DECISION
o MEDIA COST
CHARACTERISTICS OF MAJOR MEDIA
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TELEVISION: Televise ads are also expensive to produce. Television
can appear to be a relatively expensive medium, but it had the potential
to provide a large audience. For example, a single 30-second span on the
2002 Super Bowl telecast cost $2.2 million to reach an audience of 138
million viewers. It’s not unusual for a firm to spend $500,000 to create a
30--second commercial.
As a result, fewer ads are being made and they are being kept on the air
longer. Advertisers are also using place-based television to reach
attractive target audience-- young professionals, teenagers, working
women-- who have become less accessible through traditional media.
DIRECT MAIL: Over 60 billion pieces of direct mail advertising are
distributed in the U.S. each year. It can be send in the traditional fashion,
using the Postal service or an overnight delivery, or electronically by fax
or e-mail. Direct mail has the potential of being the most personal
selective of all media. Direct mail is pure advertising. Direct mail response
rate of 1% to 2 % is often viewed successfully.
NEWSPAPERS: Newspapers can be used to reach an entire city, where
regional editions are offered, selected areas. Cost per thousand is
relatively low. The life of newspaper is very short. Especially hard hit is
classified advertising, which accounts for about 40% of newspaper ad
revenue.
Will These Newspaper Advertising Secrets
Work For YOUR Business? Yes! These simple and effective newspaper advertising secrets and
techniques revealed in this course will work for any business, whether
you are selling products, services or both.
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IT DOESN'T MATTER WHAT LINE OF BUSINESS YOU'RE IN
--
PLUMBING
RETAIL
HAIRDRESSING
MANUFACTURING
CLEANING
SELLING FURNITURE
ANTIQUES
TV & VIDEO
LEISURE
LANDSCAPE GARDENING
BUILDERS
RESTAURANTS
PHOTOGRAPHERS
COMPUTERS
CAR-HIRE
PRINTING
and almost every other business you can think of...
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...I guarantee it will work for you -- even if you have never put
together a newspaper ad in your life.
RADIO: Radio has enjoyed a rebirth as an advertising and cultural
medium, with the number of stations increasing at a steady rate. Today
there are over 11,000 stations in the U.S. (60% of the FM). Radio is a low-
cost per thousand mediums because of its broad reach. Radio commercial
can be produced in less than a week, at a cost far between televisions.
Yellow Pages: A printed directory of local business names and phone
numbers organized by type of product, the yellow pages have been
around since the late 1700s. Today there are over 6,000 in the U.S., with
large metropolitan areas commonly having four or five competing
directories. The yellow pages are a source of information with which most
consumers are familiar.
MAGAZINES: Magazines are medium to use when high-quality printing
and color are desired in an ads Magazines can reach a national market at
a relatively low cost per reader. The number of different magazines in the
U.S. has increased from just over 14,000 in 1993 to nearly 18,000 today.
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OUT OF HOME ADVERTISING: This advertising increasing at about
10% a year, amounting to over $5 billion today. At one time category was
obtained by billboards and was called outdoor advertising. One is the
computing painting technology that makes it possible to create high-
quality visual reproductions. Low cost per thousand is the chief advantage
of the out of door media, although prices bray by the volume of traffic
passing a site. Billboards can provide intense market coverage within an
area.
INTERACTION MEDIA: Interactivity refers to a feature that permits
the advertising message recipient to respond immediately using the same
medium. Now, "Internet appliance" is available. Once the connection is
established, the recipient controls the flow of information, selecting with
mouse clicks the pages to examine and how long to certain connected.
Internet is so particularly popular with companies selling products that
involve extensive decision-making. Media decision makers abroad are
faced with different conditions that require local knowledge.
EVALUATING THE ADVERTISING EFFORTTop executives want proof that advertising is worthwhile. They want to
know whether dollars spent on advertising are producing as many sales
as could be reaped from the same dollars spent on other marketing
activities.
DIFFICULTY OF EVALUATION: It is hard to measure the sales
effectiveness of advertising. By the very nature of the marketing mix, all
elements--including advertising--are so intertwined that it is nearly
impossible to measure the effect of any one by itself. Factors that create
difficulty are as follows;
DIFFERENT OBJECTIVES
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EFFECTS OVERTIME
MEASUREMENT PROBLEMS
METHOD USED TO MEASURE
EFFECTIVENESS
Ad effectiveness measures are either direct or indirect;
DIRECTS TESTS while compiles the responses to an ad or a campaign,
can be used only with a few types of ad. Tabulating the number of
redemptions of a reduces-price coupon incorporated in ads
INDIRECT TESTS of effectiveness or measures of something other
than actual behavior. One of the most frequently used measures is
advertising recall. Recall tests are based on the premise that an ad can
have an effect only if it is perceived and remembered.
THREE COMMON RECALL TESTS ARE:
o Recognition
o Aided recall
o Unaided recall
ORGANIZING FOR ADVERTISINGThere are three ways a firm can manage its advertising:
o DEVELOP AN INTERNAL ADVERTISING DEPARTMENT.
o USE AN OUTSIDE ADVERTISING AGENCY.
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o USE A COMBINATION OF AN INTERNAL DEPARTMENT AND AN
OUTSIDE ADVERTISING AGENCY.
INTERNAL DEPARTMENTS
All these advertising tasks, an internal department can perform some of
them, or just overall direction. If the company has adopted the marketing
concept, the advertising department head will report to organization's top
marketing executive.
ADVERTISING AGENCIES: An advertising agency is an independent
company that provides specialized advertising services. Many large
agencies have expended the services they offer to include sales
promotion, public relations and even broader marketing assistance. As a
result, they are frequently called upon to assist to strategic planning,
marketing research, new product development, package design and
selection of product names.
INSIDE DEPARTMENT AND OUTSIDE AGENCY: Many firms
have their own advertising department and also use an advertising
agency. The internal department acts as a liaison with the agency, giving
the company greater control over this major expenditure. The advertising
department approves the agency's plans and ads, is responsible for
preparing and administering the advertising budget and coordinates
advertising with personal selling. It may also handle direct marketing,
dealer displays and other promotional activities if theory is not handled by
the agency.
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SALES PROMOTIONSales promotion is one the most commonly used terms in the marketing
vocabulary. It defines as
"Demand stimulating devices designed to supplement advertising
and facilitate personal selling”. Examples are coupons, premiums, in
score displays, scholarships, tradeshows, samples, in store demonstration
and contests.
SALES PROMOTION is one of the four aspects of promotional mix. (The
other three parts of the promotional mix are advertising, personal selling, and
publicity/public relations.) Media and non-media marketing communication
are employed for a pre-determined, limited time to increase consumer
demand, stimulate market demand or improve product availability.
Examples include:
CONTESTS
POINT OF PURCHASE DISPLAYS
REBATES
FREE TRAVEL, SUCH AS FREE FLIGHTS
Sales promotions can be directed at the customer, sales staff, or distribution
channel members (such as retailers). Sales promotions targeted at the
consumer are called consumer sales promotions.
Sales promotions targeted at retailers and wholesale are called trade
sales promotions. Some sale promotions, particularly ones with unusual
methods, are considered gimmick by many.
Producers and middlemen conduct sales promotion. The target for
producers' sales promotions may be a middleman, end users--households
or business users--or the producers' own sales forces. Middlemen direct
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sales promotion at their sales people or prospects further down the
channel of distribution.
NATURE AND SCOPE: Sales promotion is distinct from the
advertising or personal selling, but these three forms of promotion are
often used together in an integrated fashion.
THERE ARE TWO CATEGORIES OF SALES PROMOTION:
TRADE PROMOTION
CONSUMER PROMOTION
TRADE PROMOTION directed to the members of the distribution
channel.
CONSUMER PROMOTIONS aimed at consumers.
The magnitude of the sales promotion activities is mind-boggling.
Several factors in the marketing environment contribute to the popularity
of sales promotion:
o SHORT TERM RESULTS
o COMPETITIVE PRESSURE
o BUYERS EXPECTATIONS
o LOW QUALITY OF RETAIL SELLING
One problem management faces is that many sales promotion techniques
are short run, tactical actions.
Sales promotion describes promotional methods using special short-term
techniques to persuade members of a target market to respond or
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undertake certain activity. As a reward, marketers offer something of
value to those responding generally in the form of lower cost of ownership
for a purchased product (e.g., lower purchase price, money back) or the
inclusion of additional value-added material (e.g., something more for the
same price).
Sales promotions are often confused with advertising. For instance, a
television advertisement mentioning a contest awarding winners with a
free trip to a Caribbean island may give the contest the appearance of
advertising. While the delivery of the marketer’s message through
television media is certainly labeled as advertising, what is contained in
the message, namely the contest, is considered a sales promotion. The
factors that distinguish between the two promotional approaches are:
whether the promotion involves a short-term value proposition (e.g.,
the contest is only offered for a limited period of time), and
The customer must perform some activity in order to be eligible to
receive the value proposition (e.g., customer must enter contest).
The inclusion of a timing constraint and an activity requirement are
hallmarks of sales promotion.
DETERMINING OBJECTIVES AND
STRATEGIES
Three broad objectives of sales promotion as follows;
o STIMULATING BUSINESS USER OR HOUSEHOLD DEMAND FOR A
PRODUCT.
o IMPROVING THE MARKETING PERFORMANCE OF MIDDLEMEN AND
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SALES PEOPLE.
o SUPPLEMENTING ADVERTISING AND FACILITATING PERSONAL
SELLING.
A single sales promotion technique may accomplish one or two-- but
probably not all--of these objectives.
DETERMINING BUDGETS: Sales promotion budget should be
established as a specific part of the budget for the total promotional mix.
Within the concept of developing an integrated marketing
communications strategy, the amount budgeted for sales promotion
should be determined by the task or objective method. This forces
management to identify specific objectives and the sales promotion
techniques that will be used to accomplish them.
DIRECTING THE SALES PROMOTION EFFORT: Many
marketers plan and implement their sales promotion efforts internally.
Others rely on the specialized agencies. Sales promotion falls into two
primary categories.
FIRST category is called promotional service agencies. They specialize in
executing sales promotion programs such as sampling and composing.
SECOND type of organization, called promotional marketing agency,
provides management advice and static planning of sales promotion as
well as execution of the resulting program.
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Selecting the Appropriate Techniques
A key step in sales promotion management is deciding which device will
help the organization reach its promotional goals.
Factors that influence the choice of promotional devices include:
o NATURE OF THE TARGET AUDIENCE
o NATURE OF THE PRODUCT
o COST OF THE DEVICE
o CURRENT ECONOMIC CONDITIONS
Common sales promotion techniques are divides into three categories
based on the target audience:
o Business users or households
o Middlemen and their sales forces
o Producers’ own sales forces
Several of techniques are described below:
o Sampling composing
o Sponsorships and events marketing
o Trade shows
o Product placements
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PUBLIC RELATIONSPublic relations is a management tool designed to favorably influence
attitudes toward an organization, its products and it’s polices. It is an
often overlooked form of promotion.
There are several reasons for managements' lack of attention to public
relations:
o ORGANIZATIONAL STRUCTURE
o INADEQUATE STRUCTURE
o UNRECOGNIZED BENEFITS
PUBLIC RELATIONS (PR) is the practice of managing the flow of
information between an organization and its public.1 Public Relations,
usually shortened to its acronym "PR", aims to gain an organization or
individual positive exposure to their key stakeholders, while downplaying
any negative exposure and dealing with complaints skillfully. Common
activities include speaking at conferences, winning industry awards,
working with the press and employee communications.
NATURE AND SCOPE: Public relations activities typically are
designed to build or maintain a favorable image for an organization with
its various publics-- customers, prospects, stockholders, employees, labor
unions, the local community and the government.
We are aware that this description is quite similar to our definition of
institutional advertising. They can be achieved in many ways such like
supporting charitable projects, participating in community service events;
sponsoring nonprofessional athletics teams, funding the arts and tours.
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Publicity as a Form of Public Relations
PUBLICITY is a communications about an organization, its products, or
policies through the media not paid for by the organization. Publicity
usually takes the form of a news story appearing in the media or an
endorsement provided by an individual, either informally or in a speech or
interview. This is a good publicity.
There is also, of course bad publicity--a negative story about a firm or its
product appearing the media.
There are three means for gaining good publicity:
o PREPARE AND DISTRIBUTE A STORY (CALLED A NEWS RELEASE) TO
THE MEDIA.
o PERSONAL COMMUNICATION WITH A GROUP
o ONE ON ONE PERSONAL COMMUNICATION OFTEN CALLED
LOBBYING.
It is the deliberate attempt to manage the public's perception of a subject.
The subjects of publicity include people (for example, politicians and
performing artists), goods and services, organizations of all kinds, and
works of art or entertainment.
From a marketing perspective, publicity is one component of promotion. The
other elements of the promotional mix are advertising, sales promotion, and
personal selling. Promotion is one component of marketing.
But the publicist cannot wait around for the news to present opportunities.
They must also try to create their own news.
EXAMPLES OF THIS INCLUDE:
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CONTEST
ART EXHIBITIONS
EVENT SPONSORSHIP
ARRANGE A SPEECH OR TALK
MAKE AN ANALYSIS OR PREDICTION
CONDUCT A POLL OR SURVEY
ISSUE A REPORT
TAKE A STAND ON A CONTROVERSIAL SUBJECT
ARRANGE FOR A TESTIMONIAL
ANNOUNCE AN APPOINTMENT
INVENT THEN PRESENT AN AWARD
STAGE A DEBATE
ORGANIZE A TOUR OF YOUR BUSINESS OR PROJECTS
ISSUE A COMMENDATION
The advantages of publicity are low cost, and credibility (particularly if
the publicity is aired in between news stories like on evening TV news
casts). New technologies such as weblogs, web cameras, web affiliates,
and convergence (phone-camera posting of pictures and videos to
websites) are changing the cost-structure. The disadvantages are lack of
control over how your releases will be used, and frustration over the low
percentage of releases that are taken up by the media.
Publicity draws on several key themes including birth, love, and death.
These are of particular interest because they are themes in human lives
which feature heavily throughout life. In television serials several couples
have emerged during crucial ratings and important publicity times, as a
way to make constant headlines. Also known as a publicity stunt, the
pairings may or may not be truthful.
The main goal of a public relations department is to enhance a company’s
reputation. Staff that work in public relations, or as it is commonly known,
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PR, are skilled publicists. They are able to present a company or individual
to the world in the best light. The role of a public relations department can
be seen as a reputation protector.
The business world of today is extremely competitive. Companies need to
have an edge that makes them stand out from the crowd, something that
makes them more appealing and interesting to both the public and the
media. The public are the buyers of the product and the media are
responsible for selling it.
Public relations provide a service for the company by helping to give the
public and the media a better understanding of how the company works.
Within a company, public relations can also come under the title of public
information or customer relations. These departments assist customers if
they have any problems with the company. They are usually the most
helpful departments, as they exist to show the company at their best.
PR also helps the company to achieve its full potential. They provide
feedback to the company from the public. This usually takes the form of
research regarding what areas the public is most happy and unhappy
with.
People often have the perception of public relations as a group of people
who spin everything. Spin can mean to turn around a bad situation to the
company’s advantage. It is true that part of the purpose of public relations
is to show the company in a positive light no matter what. There are
certain PR experts that a company can turn to for this particular skill.
The public often think of PR as a glamorous job. Public relations people
seem to have been tarred with the image of constant partying and
networking to find new contacts. The reality is usually long hours and hard
work for anyone involved in public relations.
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There are certain skills necessary to work in the world of PR. These
include a very high level of communication skills, written and verbal. The
PR person must also be very adept at multitasking and time management. He
or she may also have some form of media background or training in order
to understand how the media and advertising work. Organizational and
planning skills are also important in public relations.
The PR worker must also be able to cope very well under pressure. He or
she must have the ability to cope with a barrage of questions from the
media and the public. If a company comes under critical attack, it is the
PR department who must take control of the situation. They must
effectively answer the criticism and turn it around in order to protect the
company’s reputation.
A public relations worker usually has some form of relevant college
qualification. Competition for jobs in PR is fierce. A talented public
relations person has the opportunity to work up from a junior account
executive to an account director in around five years. This is not a nine to
five job; the hours are long and can be stressful. However, for successful
PR workers, the pay is good and the perks may be even better.
PUBLICISTS: A publicist is a person whose job is to generate and
manage publicity for a product, public figure, especially a celebrity, or for a
work such as a book or movie. Publicists usually work at large companies
handling multiple clients.
An organization’s reputation, profitability, and even its continued
existence can depend on the degree to which its targeted �publics�
support its goals and policies. Public relations specialists—also referred to
as communications specialists and media specialists, among other titles—
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serve as advocates for businesses, nonprofit associations, universities,
hospitals, and other organizations, and build and maintain positive
relationships with the public. As managers recognize the importance of
good public relations to the success of their organizations, they
increasingly rely on public relations specialists for advice on the strategy
and policy of such programs.
Public relations specialists handle organizational functions such as media,
community, consumer, industry, and governmental relations; political
campaigns; interest-group representation; conflict mediation; and
employee and investor relations. They do more than �tell the
organization’s story.� They must understand the attitudes and concerns
of community, consumer, employee, and public interest groups and
establish and maintain cooperative relationships with them and with
representatives from print and broadcast journalism.
Public relations specialists draft press releases and contact people in the
media who might print or broadcast their material. Many radio or
television special reports, newspaper stories, and magazine articles start
at the desks of public relations specialists. Sometimes the subject is an
organization and its policies toward its employees or its role in the
community. Often the subject is a public issue, such as health, energy, or
the environment, and what an organization does to advance that issue.
Public relations specialists also arrange and conduct programs to keep up
contact between organization representatives and the public. For
example, they set up speaking engagements and often prepare speeches
for company officials. These media specialists represent employers at
community projects; make film, slide, or other visual presentations at
meetings and school assemblies; and plan conventions. In addition, they
are responsible for preparing annual reports and writing proposals for
various projects.
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In government, public relations specialists—who may be called press
secretaries, information officers, public affairs specialists, or
communication specialists—keep the public informed about the activities
of agencies and officials. For example, public affairs specialists in the U.S.
Department of State keep the public informed of travel advisories and of
U.S. positions on foreign issues. A press secretary for a member of
Congress keeps constituents aware of the representative’s
accomplishments.
In large organizations, the key public relations executive, who often is a
vice president, may develop overall plans and policies with other
executives. In addition, public relations departments employ public
relations specialists to write, research, prepare materials, maintain
contacts, and respond to inquiries.
People who handle publicity for an individual or who direct public relations
for a small organization may deal with all aspects of the job. They contact
people, plan and research, and prepare materials for distribution. They
also may handle advertising or sales promotion work to support marketing
efforts.
WORK ENVIRONMENT: Public relations specialists work in busy
offices. The pressures of deadlines and tight work schedules can be
stressful.
Some public relations specialists work a standard 35- to 40-hour week,
but unpaid overtime is common and work schedules can be irregular and
frequently interrupted. Occasionally, they must be at the job or on call
around the clock, especially if there is an emergency or crisis. Schedules
often have to be rearranged so that workers can meet deadlines, deliver
speeches, attend meetings and community activities, and travel.
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EFFECTIVENESS OF PUBLICITY
The theory any press is good press has been coined to describe situations
where bad behavior by people involved with an organization or brand has
actually resulted in positive results, due to the fame and press coverage
accrued by such events.
One example would be the Australian Tourism Board's "So where the Bloody
Hell is you?" Advertising Campaign that was initially banned in the UK, but
the amount of publicity this generated resulted in the official website for the
campaign being swamped with requests to see the banned ads
The popular sitcom, Married... with Children, achieved skyrocketing ratings
after moralist Terry Ricotta attempted to have it removed from the air.
BENEFITS OF PUBLICITY ARE AS FOLLOWS:
o Lower cost
o Increased attention
o More information
o Timeliness
o Publicity has limitations:
o Loss of control over the message
o Limited exposure
o Publicity is not free
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