Cap 1-3, 5, 7-11: Marketing Concepts PDF

**Chapter 1: Basic concepts of marketing** Simply put, marketing is managing profitable relationships, by attracting new customers by superior value and keeping current customers by delivering satisfaction. Marketing must be understood in the sense of satisfying customer needs. Marketing can be def...

**Chapter 1: Basic concepts of marketing** Simply put, marketing is managing profitable relationships, by attracting new customers by superior value and keeping current customers by delivering satisfaction. Marketing must be understood in the sense of satisfying customer needs. Marketing can be defined as the process by which companies create value for customers and build strong customer relationships to capture value from customers in return. A five-step model of the marketing process will provide the structure of this chapter. **Understanding the marketplace and customer needs** There are five different core customer and marketplace concepts. 1. Customer needs, wants and demands. Human needs are states of felt deprivation and can include physical, social and individual needs. Wants are the form human needs take as they are shaped by culture and individual personality. Demands are human wants that are backed by buying power. 2. Market offerings are a combinations of products, services and experiences offered to a market to satisfy a need or want. These can be physical products, but also services -- activities that are essentially intangible. The phenomenon of marketing myopia is paying more attention to company products, than to the underlying needs of consumers. 3. Value and satisfaction are key building blocks for customer relationships. 4. Exchanges are the acts of obtaining a desired object form someone by offering something in return. Marketing consists of actions trying to build an exchange relationship with an audience. 5. A market is the set of all actual and potential buyers of a product or service. Marketing involves serving a market of final consumers in the face of competitors. **Designing a customer-driven marketing strategy** Marketing management is the art and science of choosing target markets and building profitable relationships with them. The aim is to find, attract, keep and grow the targeted customers by creating and delivering superior customer value. The target audience can be selected by dividing the market into customer segments (market segmentation) and selecting which segments to go after (target marketing). A company must also decide how to serve the targeted audience, by offering a value proposition. A value proposition is the set of benefits or values a company promises to deliver. There are five alternative concepts that companies use to carry out their marketing strategy. 1\. The production concept: the idea that consumers will favour products that are available and highly affordable and that the organisation should therefore focus on improving production and distribution efficiency. 2\. The product concept: the idea that consumers will favour products that offer the most quality, performance, and features and that the organisation should therefore devote its energy to making continuous product improvements. 3\. The selling concept: the idea that consumers will not buy enough of the firm's product, unless it undertakes a large-scale selling and promotion effort. 4\. The marketing concept: the idea that achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. It can be regarded as an "outside-in view". 5\. The societal marketing concept is the idea that a company's marketing decisions should consider consumer wants, the company's requirements, consumers' long-term interests and society's long-term interests. Companies should deliver value in a way that maintains consumers and society's well-being. **Constructing an integrated marketing plan** A marketing strategy outlines which customers it will serve and how it will create value. The marketer develops an integrated marketing plan that will deliver value to customers. It contains the marketing mix: the tools used to implement the strategy, which are the four Ps: product, price, place and promotion. **Building customer relationships** The first three steps all lead to this one: building profitable customer relationships. **Customer relationship management** (CRM) is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. The crucial part here is to create superior **customer-perceived-value**, which is the customer's evaluation of the difference between all the benefits and all the costs of a marketing offer, in relation to those of competing offers and superior **customer satisfaction**, which is the extent to which a product's perceived performance matches a buyer's expectations. Customer delight can be achieved by delivering more than promised. Customer relationships exist at multiple levels. They can be basic relationships or full partnerships and everything in between. In current times, companies are choosing their customers more selectively. New technologies have paved the way for two-way customer relationships, where consumers have more power and control. The marketing world is also embracing **customer-managed relationships**: marketing relationships in which customers, empowered by today's new digital technologies, interact with companies and with each other to shape their relationships with brands. A growing part of this dialogue is **consumer-generated marketing**: brand exchanges created by consumers themselves, by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers. Today's marketers often work with a variety of partners to build consumer relationships. **Partner relationship management** means working closely with partners in other company departments and outside the company to jointly bring greater value to customers. These partners can be inside the company, but also outside the firm. **The supply chain** is a channel, from raw material to final product, and the companies involved can be partners through supply chain management. **Capturing customer value** The final step of the model involves capturing value. **Customer lifetime value** is the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Companies must aim high in building customer relations, to make sure that customers are coming back. Good CRM can help increase the share of customer, the portion of the customer's purchasing that a company gets in its product categories. **Customer equity** is the total combined customer lifetime values of all of the company's customers. It is the future value of the company's customer base. When building relationships, it is important to build the right relationships with the right customers. Customers can be high- or low-profitable and short-term or long-term oriented. When putting these on two axes, a matrix of four terms appears. 1\. Butterflies are profitable, but not loyal and have a high profit potential. 2\. True friends are both profitable and loyal and the firm should invest in a continuous relationship. 3\. Barnacles are loyal, but unprofitable. If they can't be improved, the company should try to get rid of them. 4\. Strangers are not loyal and unprofitable, the company should not invest in them. Today's world is moving and changing fast. The economic crisis resulted in an uncertain economic environment, where consumers are more careful when spending their money. The technology boom of the digital age leads to an increase in connectedness and information. It provides marketers with new ways to track customers and create products based on their needs. It brought a new way of communicating and advertising. The most dramatic change in technology is the **Internet**, a vast public web of computer networks that connects users of all types all around the world to each other and an amazingly large information repository. Web 1.0 connects people with information, Web 2.0 connected people with people and the upcoming Web 3.0 puts information and people connections together into a more usable Internet experience. Because of globalisation, companies are now globally connected with their customers. Current times also involve more sustainable marketing practices, involving corporate ethics and social responsibility. **Chapter 2: Strategic marketing partners** **Strategic planning** is the process of developing and maintaining a strategic fit between the organisation's goals and capabilities and its changing marketing opportunities. It is the base for the long term planning of the firm. At a corporate level, the firm starts defining the company's mission. A **mission statement** is a statement of the organisation's purpose. The mission leads to a hierarchy of goals. Based on this, the management must plan the **business portfolio**: the collection of businesses and products that make up the company. **Portfolio analysis** is the process by which management evaluates the products and businesses that make up the company. The first step is identifying the strategic business units (SBU) that are vital to the company. The well-known model of the Boston Consulting Group (BCG) sorts the SBUs into a **growth-share matrix**, leading to four types of SBUs: 1\. [Stars]: high growth and high share units, in need of investment. 2\. [Cash cows]: low-growth, high share units, producing cash. 3\. [Question marks]: low-share units, in high-growth markets. Require cash, but can turn out to be unprofitable. 4\. [Dogs]: low-growth, low-share units, which are not very profitable. After the units are classified, the company should determine in which units to build share, hold share, harvest the profits or divest the SBU. Designing the business portfolio also means looking at future businesses. The product/market expansion grid is a portfolio-planning tool for identifying company growth opportunities through: - **[Market penetration]**: company growth by increasing sales of current products to current market segments without changing the product. - **[Market development]**: company growth by identifying and developing new market segments for current company products. - **[Product development]**: company growth by offering modified or new products to current market segments. - **[Diversification]**: company growth through starting up or acquiring businesses outside the company's current products and markets. Companies also need strategies for **downsizing**, which means reducing the business portfolio by eliminating products or business units that are not profitable or that no longer fit the company's overall strategy. Marketing provides a philosophy, input and strategies for the strategic business units. Besides customer relationship management, marketers must also invest in partner relationship management to form an effective **value chain**: the series of internal departments that carry out value-creating activities to design, produce, market, deliver and support a firm's products. When trying to create customer value, a firm must go beyond the internal value chain and partner up with others in the **value delivery network**. T[he value delivery network] is the network composed of the company, its suppliers, its distributors and ultimately its customers who partner with each other to improve the performance of the entire system. **Marketing strategy** Marketing strategy is the marketing logic by which the company hopes to create customer value and achieve profitable customer relationships. The company must choose which customers to serve and how to serve them. This process involves four steps: 1**. Market segmentation**: dividing a market into distinct groups of buyers who have different, needs, characteristics or behaviour and who might require separate products or marketing programmes. A market segment is a group of consumers who respond in a similar way to a given set of marketing efforts. 2\. **Market targeting** is the process of evaluating each market segment's attractiveness and selecting one or more segments to enter. 3\. **Positioning** is arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of consumers. 4\. **Differentiation** is actually differentiating the market offering to create superior -customer value. The **marketing mix** is the set of tactical marketing tools: product, price, place and promotion, that the firm blends to produce the response it wants in the target market. *Product* refers to the combination of goods and service the firm offers. Price is the amount the customer pays to obtain the product. *Place* refers to the availability of the product. Promotion relates to the activities that communicate the benefits of the product. Managing the marketing process requires four marketing management functions. The first is **marketing analysis**, starting with a **SWOT analysis**. A SWOT analysis is an overall evaluation of the company's strengths (S -- internal capabilities), weaknesses (W -- internal limitations), opportunities (O -- external factors that can be profitable) and threats (T -- external factors that might challenge the company). Secondly, marketing planning involves choosing the right marketing strategies. Third is **marketing implementation**: turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives. And finally, there is **marketing control**: measuring and evaluating the results of marketing strategies and plans and taking corrective action to ensure that the objectives are achieved. Operating control refers to checking the performance against the annual plan, while strategic control involves looking at the match between strategies and opportunities. Nowadays, marketers need to back up their spending by measurable results. The **return on marketing investment** (marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. The marketing ROI measures the profits generated by investments in marketing activities and can be a helpful tool, but is also difficult to measure. **Chapter 3: The marketing environment** The **marketing environment **consists of the actors and forces outside marketing that affect marketing management's ability to build and maintain successful relationships with target customers. It consists both of the micro and macro environment. **The microenvironment** The **microenvironment **consists of the actors close to the company that affect its ability to serve its customers, such as: the company itself and its subdivisions and suppliers that provide the resources the firm needs to produce its products. But also of **marketing intermediaries**, which are firms that help the company to promote, sell and distribute its goods to final buyers. *Resellers* are distribution channel firms. *Physical distribution firms* help the company stock goods, while *marketing service agencies* are marketing research firms. *Financial intermediaries* include banks and credit companies. Other factors are competitors that operate in the same markets as the firm and the **public**: any group that has an actual or potential interest in or impact on an organisation's ability to achieve its objectives. These can be financial publics, media publics, government publics, local publics, general public and internal publics. Finally, customers are the most important actors. *Consumers* *markets* consist of individuals that buy goods for personal consumption. *Business* *markets* buy goods for usage in production processes, while *reseller* *markets* buy to resell at a profit. *Government* *markets* consist of buyers who use the product for public service, and *international* *markets* consist of all these types of markets across the border. **The macroenvironment** The **macroenvironment **consists of the larger societal forces that affect the microenvironment and consists of multiple factors. **Demography: **the study of human populations in terms of size, density, location, age, gender, face, occupational and other statistics. Changes in demographics result in changes in markets. There are some important demographic trends in today's world, such as the world population growth and the changing age structure of the world population, where some parts of the world are aging and others have younger populations. In the developed world, there are often generational differences to be found. **Baby boomers **are the 78 million people born during the years following the Second World War and lasting until 1964. **Generation X **are the 45 million people born between 1965 and 1976 in the "birth death" following the baby boom. **Generation Y **or the **Millennials** are the 83 million children of the baby boomers born between 1977 and 2000. They are characterized by a high comfort in technology. Changes can also be found in the family structure. The traditional western household (husband, wife and children) is no longer typical. People marry later and divorce more. There is an increased number of working women and youngsters tend to stay at home longer. The workforce is also aging, because people need to work beyond the previous retirement age. There are also geographic shifts, such as migration. These movements in population lead to opportunities for marketing niche products and services. There are also migration movements within countries, namely from the rural to urban areas, also called urbanisation. The **economic environment **consists of economic factors that affect consumer purchasing power and spending patterns. Countries vary in characteristics, some can be considered industrial economies, while others can be subsistence economies, consuming most of their own output. In between are developing economies that offer marketing opportunities. The BRIC (Brazil, Russia, India, China) countries are a leading group of fast expanding nations. There are also changes in customer spending patterns, such as the recent recessions, which can lead to lifestyle changes. Marketers should also pay attention to income distribution and income levels. The **natural environment **involves natural resources that are needed as inputs by marketers or that are affected by marketing activities. Changes in this environment involve an increase in shortage of raw materials, increased pollution and increased governmental intervention. **Environmental sustainability **involves developing strategies and practices that create a world economy that the planet can support indefinitely. The **technological environment **consists of forces that create new technologies, creating new product and market opportunities. It can provide great opportunities, but also comes with certain dangers. The **political environment **consists of laws, government agencies and pressure groups that influence and limit various organisation and individuals in a given society. Current trends in our world today are increasing legislation affecting businesses globally and thus an increase in governmental influence over businesses. There is also an increase in emphasis on ethics and operating socially responsible. *Cause-related marketing *refers to companies linking themselves to meaningful causes, to improve company image. The **cultural environment **involves instructions and other forces that affect society's basic values, perceptions, preference and behaviour. Cultural factors influence how people think and consume. *Core beliefs *are fundamental and passed on by parents and reinforced by the environment. *Secondary beliefs *are more open to change. People can vary in their views of themselves, of others, of organisation, but also in their views of society, nature and the universe. In conclusion, firms should be pro-active rather than observing in respect to the marketing environment. **Chapter 5: Consumer buyer behaviour** **Consumer buyer behaviour **is the buying behaviour of final consumers: individuals and households that buy goods and services for personal consumption. All these consumers add up to the **consumer market**: all the households and individual that buy or acquire goods and services for personal consumption. Consumers make buying decisions every day, but it can be difficult to determine why they make certain decisions. Consumer purchases are influenced by different characteristics. ***[Cultural factors]*** **Cultural factors **have an influence on consumer behaviour. **Culture **is the set of basic values, perceptions, wants and behaviours learned by a member of society from family and other important institutions. A **subculture **is a group of people with shared value systems based on common life experiences and situations. They are distinct, but not necessarily mutually exclusive. **Social classes **are relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviours. ***[Social factors]*** Another influence is **social factors. Groups** are two or more people who interact to accomplish individual or mutual goals. Many small groups influence a person's behaviour. Membership groups are groups in which a person belongs, while reference groups serve as direct points of comparison. Word-of-mouth influence of friends and other consumers can have a strong influence on buying behaviour. An **opinion leader** is a person within a reference group who, because of skills, knowledge, personality or other characteristics, exerts social influence on others. Marketers try to identify the opinion leader and aim their marketing efforts towards this person. *Buzz marketing *involves creating opinion leaders to serve as brand ambassadors. **Online social networks **are online communities, such as blogs, social networking sites or even virtual worlds, where people socialize or exchange information and opinions. **Family **can have a strong influence on buying behaviour as well. Buying role patterns in families change with evolving consumer lifestyles. A person belongs to many groups beside the family, also clubs, organisation and online communities. The position of a person in a group is defined in terms of role and status. A *role* consists of the expected actions of a person. People usually choose products appropriate to their role and status. ***[Personal factors]*** Personal characteristics also have an influence on consumer buyer behaviour. These characteristics can be the person's age and life-cycle stage, the person's occupation and economic situation, but also lifestyle and personality. **Lifestyle **is a person's pattern of living as expressed in his or her activities, interests and opinions. **Personality** is the unique psychological characteristics that distinguish a person or group. It can be said that brands also have personalities. A *brand personality *is the mix of human traits that may be used to describe the brand. There are five general brand personality traits: sincerity, excitement, competence, sophistication and ruggedness. ***[Psychological factors]*** Buying behaviour is influenced by four major psychological factors: motivation, perception, learning and beliefs and attitudes. **Motive** (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction of the need. Motivation research refers to qualitative research designed to find consumer's hidden motivations. *Maslow's hierarchy of needs* categorizes needs into a pyramid, consisting of psychological needs, safety needs, social needs, esteem needs and self-actualisation needs. **Perception **is the process by which people select, organise and interpret information to form a meaningful picture of the world. People form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion and selective retention. **Learning **describes changes in an individual's behaviour arising from experience. A *drive* is a strong stimulus that calls for action. *Cues* are minor stimuli that determine how a person responds. A **belief **is a descriptive thought that a person holds about something. An **attitude **is a person's consistently favourable or unfavourable evaluations, feelings and tendencies toward an object or idea. Attitudes can be difficult to change, because they are usually part of bigger pattern. There are different types of buying decision behaviour. **Complex buying behaviour **is characterized by high consumer involvement in a purchase and significant perceived differences among brands. The buyer will pass through a learning process, developing beliefs and attitudes and then a purchase choice will follow. **Dissonance-reducing buying behaviour** is consumer buying behaviour characterised by high involvement, but few perceived differences among brands. **Habitual buying behaviour **is consumer buying behaviour characterized by low consumer involvement and few significantly perceived differences. Repetition of advertisements can create brand familiarity (but not conviction), which can lead to habitual purchases. **Variety-seeking buying behaviour **is consumer buying behaviour characterised by low consumer involvement, but significant perceived brand differences. The buyer decision process has five stages. 1. **Need recognition **is the first stage, in which the consumer recognises a problem or need. 2. **Information search **is the stage in which the consumer is aroused to search for more information, the consumer may simply have heightened attention or may go into active information search. Information can be obtained from personal sources, commercial sources, public sources and experiential sources. 3. Evaluation of alternatives. **Alternative evaluation** is the process in which the consumer uses information to evaluate alternative brands in the choice set. 4. **Purchase decision **is the buyer's decision about which brand to purchase. Both the attitude of others and unexpected situational factors can influence the ultimate decision. 5. **Post-purchase behaviour **is the stage of the buyer decision process in which consumers take further action after purchase based on their satisfaction or dissatisfaction with a purchase. **Cognitive dissonance** is buyer discomfort caused by post-purchase conflict.   The buyer decision process can be different for new products. A **new product **is a good, service or idea that is perceived by some potential customers as new. The consumer must decide to adopt them or not. The **adoption process **is the mental process through which an individual passes from first hearing about an innovation to final adoption. There are five stages in the adoption process: awareness, interest, evaluation, trial and adoption. **Chapter 7: Customer-driven strategy** Today, most companies moved from mass marketing to target marketing: identifying market segments and selecting a few to produce for. There are four major steps in designing a customer-**driven** marketing strategy. ***[Market segmentation]*** **Market segmentation **means dividing a market into smaller segments with the distinct needs, characteristics or behaviour that might require separate marketing strategies or mixes. There are different ways to segment a market: 1. **Geographic segmentation: **dividing a market into different geographical units, such as nations, states, regions, counties, cities or even neighbourhoods. 2. **Demographic segmentation:** dividing the market into different segments based on variables such as age, gender, family size, family life cycle, income, occupation education, religion, race, generation and nationality. *Age and life-cycle segmentation* is dividing a market into different age and life-cycle groups. *Gender segmentation* means dividing a market based on gender, while *income segmentation *divides a market based on income levels. 3. **Psychographic segmentation:** dividing a market into different segments based on social class, lifestyle or personality characteristics. 4. **Behavioural segmentation:** dividing a market into segments based on consumer knowledge, attitudes, uses or responses to a product. This can be done via **occasion segmentation**: dividing the market according to occasions when buyers get the idea to buy, actually making their purchase or use the purchased items. **Benefit segmentation: **dividing the market according to the benefits that customers seek from the product. Markets can also be segmented based on user states, usage rate and loyalty status. Marketers often use multiple segmentation bases to identify a well-defined target group. For segmentation to be effective, market segments must be measurable, accessible, substantial, differentiable and actionable. Business markets can be segmented with the same variables, but also with additional ones, such as customer operating characteristics, purchasing approaches and situational factors. International markets can be segmented using a combination of variables. **Intermarket segmentation **(cross-market segmentation): forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries. ***[Market targeting]*** **Market targeting **is the process of evaluating each market segment's attractiveness and selecting one or more segments to enter. When evaluating segments, a marketer must look at segment size and growth, segment structural attractiveness and company objectives and resources. A **target market **consists of a set of buyers sharing common needs or characteristics that the company decides to serve. There are several forms of market targeting. \-        **Undifferentiated (mass) marketing**: a marketing coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. \-        **Differentiated marketing **or segmented marketing: a market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each. \-        **Concentrated marketing **(niche): a market-coverage strategy in which a firm goes after a large share of one or a few segments or niches. **Micromarketing **is tailoring products and marketing programmes to the needs and wants of specific individuals and local customer segments. It includes **local marketing**: tailoring brands and promotions to the need and wants of local customer segments; cities, neighbourhoods and even specific stores. It also includes **individual marketing**: tailoring products and marketing programmes to the needs and preferences of individual customers, also called one-to-one marketing, customized marketing and markets-of-one marketing. Companies need to consider a lot of factors when deciding upon a targeting strategy, such as available resources, market variability and competitors' marketing strategies. ***[Differentiation and positioning]*** **Differentiation **means differentiating the market offering to create superior customer value. **Positioning **is arranging for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the mind of target consumers. A **product position** is the way the product is defined by consumers on important attributes: the place the product occupies in the consumers' minds relative to competing products. *Perceptual positioning maps* show consumer perceptions of brands versus competing products. To build profitable relationships, marketers must understand customer needs. When a company is differentiated by superior customer value, this can create a **competitive advantage: **an advantage over competitors gained by offering greater customer value, either by having lower prices or providing more benefits that justify high prices. The company can differentiate itself via product differentiation, service differentiation, channel differentiation, people differentiation or image differentiation. When a company has multiple difference to promote, many marketers think the company should focus on one *unique selling point* (USP), while some others think they can promote more. Differences worthy to promote need to be important, distinctive, superior, communicable, not easily copied, affordable and profitable. The **value proposition **is the full positioning of a brand: the full mix of benefits on which it is positioned. There are multiple possible value propositions, of which five can be "winning": 1. More for more: upscale products and higher prices. 2. More for the same: used to attack competitors by offering quality at a low price. 3. The same for less: a good deal. 4. Less for much less: a less optimal performance for a low price. 5. More for less: ultimately winning, but difficult to actually achieve. A **positioning statement **is a statement that summarises company or brand positioning. It takes this form: *To (target segment and needs) our (brand) is (concept) that (point of difference). *Once a position is chosen, a company must take action to deliver and communicate the position to its target customers. **Chapter 8: Building customer value** A **product **is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. A **service **is an activity, benefit or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything. Products are key in the overall market offering. The market offer might exist of only pure tangible goods, pure services and everything in between. Product planners need to consider three levels when deciding on services and products. The first one is the core customer value level. Secondly, the core benefit must be turned into an actual product. Finally, an augmented product must be built around the actual product by offering services. ***[Consumer and industrial products]*** Products and services fall into two broad classes: consumer products and industrial products. **Consumer products **are products bought by   final consumers for personal consumption. \-        **Convenience products** are a type of consumer product that consumers usually buy frequently, immediately and with minimal comparison and buyer effort. \-        **Shopping products **are consumer products that the customer, in the process of selecting and purchasing, usually compares on such attributes as suitability, quality, price and style. \-        **Speciality products** are a type of consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. \-        **Unsought products** are consumer products that the consumer either doesn't know about, or knows about but does not normally consider buying.   **Industrial products **are products bought by individuals and organisations for further processing or for use in conducting a business. *Materials and parts *include raw materials (farm products, natural products) and manufactured parts (component materials and parts). Organisation marketing consists of activities to create, maintain or change the attitudes and the behaviour of target customers. Corporate image advertising campaigns can be used to improve the image of a firm. *Person marketing* consists of activities to change attitudes of specific people*. Place marketing* involves activities to create, maintain or change attitudes towards particular places. **Social marketing **is the use of commercial marketing concepts and tools in programmes designed to influence individuals' behaviour to improve their well-being and that of society. Decisions regarding products and services are made at three levels: 1. **Individual product and service decisions** Developing a product or service involves defining the benefits. **Product quality **are the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs. *Total quality management* (TQM) is an approach where the whole company is involved in constantly improving the overall quality. Product quality is based on the quality level and consistency. Other product and service attributes are product features and the product style (appearance) and the design (heart of the product). A **brand **is a name, term, sign, symbol, design or a combination of these that identifies the products or services of one sell or group of sellers and differentiates them from those of competitors. **Packaging** involves the activities of designing and producing the container or wrapper for a product. Innovative packaging can give a competitive advantage. The final product and service decisions include labels that help identifying a product or brand and supporting services of the product. 1. **Product line decisions** 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. Major decisions include the product line length, which can be adjusted by product line filling (adding more items within present range) and line stretching (lengthen beyond current range). 1. **Product mix decisions** A **product mix** (product portfolio) is the set of all product lines and items that a particular seller offers for sale. Product mix width is the number of different product lines, while length refers to the total number of items within the product lines. The product mix depth refers to the number of versions offered for each product in the line. ***[Services marketing]*** Firms must decide upon four service characteristics when designing marketing programmes. **Service intangibility: **services cannot be seen, tasted, felt, heard or smelled before they are bought. **Service inseparability: **service are produced and consumed at the same time and cannot be separated from their providers. **Service variability: **the quality of services may greatly vary depending on who provides them and when, where and how. **Service perishability**: services cannot be stored for later sale or use. The **service profit chain** is the chain that links service firm profits with employee and customer satisfaction. This chain consists of five links: internal service quality, satisfied and productive service employees, greater service value, satisfied and loyal customers and ultimately healthy service profits and growth. Service marketing is more than traditional external marketing, it also consists of internal and interactive marketing. **Internal marketing **involves orienting and motivating customer contact employees and supporting service people to work as a team to provide customer satisfaction. **Interactive marketing** involves training services employees in the fine art of interacting with customers to satisfy their needs. Service marketers need to manage service differentiation, making sure that they stand out amongst competitors. They also need to manage service quality, which can be harder to define than product quality. Lastly, they need to manage service productivity by ensuring employees are skilful and implementing the powers of technology. ***[Branding]*** **Brand equity** is the differential effect that knowing the brand name has on customer response to the product or its marketing. Brand equity can be a powerful asset. Brand valuation is the process of estimating the total financial value of a brand. In order to build a strong brand, there are some major brand strategy decisions to be made. Brand positioning involves positioning the brand in the mind of the consumer. Brand name selection is important in order to select a good name. The brand name should say something about the service benefits and should be easy to pronounce and remember. It needs to be distinctive and extendable, easily translated and should be capable of legal protection. Brand sponsorship can be done via four ways. A product can be launched as a national (manufacturer) brand or as a private brand or store brand. Another way is via licensed brands or a co-brand with another company. A **store brand **is a brand created and owned by a reseller of a product or service. Licensing involves lending the brand name to other manufacturers. **Co-branding **is the practice of using the established brand names of two different companies on the same product. When developing brands, companies have four choices. **Line extensions **occur when extending an existing brand name to new forms, colours, sizes, ingredients or flavours of an existing product category. A **brand extension **extends a current brand name to new product categories. **Multibrands** means offering more than one brand in the same category. **New brands** can be created when believed that the power of existing brands is fading. **Chapter 9: The product life cycle** **New product development **is the development of original products, product improvements, product modifications and new brands through the firm's own product development efforts. New products are essential for the continuation of the company. New products aren't easy to find. There are eight major steps in the product development process. 1. **Idea generation**: the systematic search for new-product ideas. Ideas can be found via internal sources, but also external idea sources. These can be distributors, suppliers, but also competitors. **Crowdsourcing** means inviting broad communities of people -- customers, employees, independent scientists and researchers and even the public at large -- into the new-product innovation process. 2. **Idea screening**: screening new-product ideas to spot good ideas and drop poor ones as soon as possible. 3. Concept development and testing. **Product concept **is a detailed version of the new product idea stated in meaningful consumer terms. **Concept testing** means testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. 4. **Marketing strategy development**: designing an initial marketing strategy for a new product based on the product concept. It consists of three parts: describing the target market and value proposition, outlining the budgets and lastly describing the long-term marketing mix strategy. 5. **Business analysis **is a review of the sales, cost and profit projections for a new product to find out whether these factors satisfy the company's objectives. 6. **Product development: **developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering. 7. **Test marketing:** the stage of new product development in which the product and its proposed marketing programme are tested in realistic market settings. This can be done in both controlled test markets and simulated test markets. 8. **Commercialisation: **introducing a new product into the market. **Customer-centred new product development: **new product development that focuses on finding new ways to solve customer problems and create more customer satisfying experiences. **Team-based new product development **is an approach to developing new products in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness. *Systematic new product development *is preferred over haphazard and compartmentalised development. Innovation can be messy and difficult to manage, especially in turbulent times. The **product life cycle **(PLC) is the course of product's sales and profits over its lifetime. It involves five distinct stages: 1. Product development: development of the idea without any sales. 2. Introduction: slow sales growth when the product is introduced. 3. Growth: period of rapid acceptance. 4. Maturity: period of sale slowdown because of acceptance by most potential buyers. 5. Decline: the period when sales fall and the profit drops. The PLC concept can also be applied to styles, fashions and fads. A **style **is a basic and distinctive mode of expression. **Fashion** is a currently accepted or popular style in a given field. **Fad** is temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity. Companies must continually innovate to keep up with the cycle. There are different strategies for each stage. The ***introduction stage*** is the PLC stage in which a new product is first distributed and made available for purchase. Profits are generally low and the initial strategy must be consistent with product positioning. The ***growth stage* **is the stage in which a product's sales start climbing quickly. Profits increase and the firm faces a trade-off between high market share and high current profit. In the ***maturity stage***, products sales are growing slowly or level off. The company tries to increase consumption by finding new consumers, also known as modifying the market. The company might also try to modify the product by changing characteristics. In the ***decline stage***, the product's sales are declining or dropping to zero. Management might decide to maintain the brand, reposition it or drop a product from the line. When introducing product in international markets, it must be decided which products to offer in which countries and how these product should be adapted. Packaging issues can be subtle, from translating issues to different meanings of logos. **Chapter 10: Pricing strategies** A **price **is the amount of money charged for a product or a service, the sum of the values that customers exchange for the benefits of having or using the product or service. Price is the only element in the marketing mix that produces revenue, all others are costs. Setting the right price is one of the most complex tasks. Good pricing starts with customers and their perception of the value of the product. **Customer value-based pricing: **setting price based on buyer's perceptions of value rather than on the seller's cost. The value customers attach to a product might be difficult to measure, so the company must work hard to establish estimates. There are two other types of value-based pricing: good-value pricing and value-added pricing. **Good-value pricing** means offering the right combination of quality and good service at a fair price. **Value-added pricing **means attaching value-added features and services to differentiate a company's offers and charging higher prices. **Cost-based pricing** means setting prices based on the cost for producing, distributing and selling the product plus a fair rate of return for effort and risk. There are two forms of costs: **fixed costs **(overhead) are costs that do not vary with production or sales level. **Variable costs **are costs that vary directly with the level of production. **Total costs **are the sum of the fixed and variable costs for any given level of production. The **experience curve **(learning curve) is the drop in the average per-unit production costs that comes with accumulated production experience. Put more simply: as workers become more experienced, they become more efficient and costs drop. The simplest pricing method is **cost-plus pricing** or mark-up pricing: it means adding a standard mark-up to the cost of the product. However, this method ignores demand and competitors prices and is therefore unlikely to lead to the best price. **Break-even pricing **(target return pricing) means setting the price to break even on the costs of making and marketing a product or setting price to make a target return. The *break-even volume *is the amount of units that need to be sold to break even. **Competition-based pricing **means setting prices based on competitor's strategies, prices, costs and market offerings. Beyond customer value perceptions, costs and competitor prices, the firm must also think of other factors. Price is only one element of the marketing mix and the overall marketing strategy must be determined first. **Target costing **is pricing that starts with an ideal selling price and then targets costs that ensure the price is met. Good pricing is based on an understanding of the relationship between price and demand for the product. Pricing can differ in different types of markets. In *pure competition markets*, there are numerous buyers and sellers that all have little effect on the price. In *monopolistic competition*, there are many buyers and sellers who trade over multiple prices. In an *oligopolistic competition market, *there are few sellers who are highly sensitive to each other's pricing strategies. In a *pure monopoly*, the company is the only seller and can set any price it desires. The **demand curve **is a curve that shows the number of units the market will buy in a given time period, at different prices that might be charged. The **price elasticity **is a measure of sensitivity of demand to changes in price. It is given by the following formula: price elasticity of demand =. **Chapter 11: Pricing considerations** Pricing strategies can be challenging. There are two broad strategies. **Market-skimming pricing **(price skimming) means setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price, the company makes fewer but more profitable sales. **Market-penetration pricing **means setting a low price for a new product to attract a large number of buyers and a large market share. There are five product mix pricing situations. 1.     **Product line pricing**: setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitor's prices. 2.     **Optional product pricing**: the pricing of optional or accessory products along with a main product. 3.     **Captive product pricing**: setting a price for products that must be used along with a main product. 4.     **By**-**product pricing: **setting a price for by-products to make the main product's price more competitive. 5.     **Product bundle pricing**: combining several products and offering the bundle at a reduced price. There are also seven price adjustment strategies that can be used. 1.     **Discount: **a straight reduction in price on purchases during a stated period of time or of larger quantities. **Allowance **is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way. 2.     **Segmented pricing: **selling a product or service at two or more prices, where the difference in prices is not based on costs. *Customer-segment pricing *involves different types of customers paying different pricing. *Product-form pricing* involves different prices for different versions of the same product. *Location-based pricing* involves different prices for different locations, while *time-based pricing *involves different prices for different moments in time. 3.     **Psychological pricing:** pricing that considers the psychology of prices, not simply the economics, the price says something about the product. **Reference prices** are prices that buyers carry in their minds and refer to when they look at a given product. 4.     **Promotional pricing:** temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. 5.     **Geographical pricing:** setting prices for customers located in different parts of the country or world. This can be **FOB-origin pricing: **a geographical pricing strategy in which goods are placed free on board a carrier, the customer pays the freight from the factory to the destination. **Uniform-delivered pricing: **a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location. **Zone pricing: **the company sets up two or more zones. All customers within a zone pay the same total price, the more distant the zone, the higher the price. **Base-point pricing: **a pricing strategy in which the seller designates some city as a base point and charges all customers the freight cost from that city to the customer. **Freight-absorption pricing** is a strategy in which the seller absorbs all or part of the freight charges to get the desired business. 6.     **Dynamic pricing **means adjusting pricing continually to meet the characteristics and needs of individual customers and situations. 7.     **International pricing: **charging different pricing for customers in different countries. After setting prices, there are often situations in which companies need to change their prices. Sometimes, the company finds it desirable to initiate price cuts, for instance when demand is falling, or price increases to improve profits. Consumers can react differently to changes in prices, as well as competitors. When competitors change prices first, the firm has to respond. There are as many as four responses, namely: the firm can reduce its price, maintain its price but raise the perceived value of the product, improve the quality and increase the price or launch a low-price fighter brand to compete with the price change. There is legislation surrounding price fixing (talking to competitors to set prices), which is illegal. Predatory pricing (selling below costs to punish competitor) is also prohibited. Many countries also try to prevent unfair price discrimination and deceptive pricing.