Chapter 8 - Marketing PDF

8 CHAPTER Marketing SPECIFIC EXPECTATIONS After completing this chapter, you will be compare the advantages and able to disadvantages of the major types explain the role and the impact of of advertising marketing...

8 CHAPTER Marketing SPECIFIC EXPECTATIONS After completing this chapter, you will be compare the advantages and able to disadvantages of the major types explain the role and the impact of of advertising marketing design an advertisement appropriate for identify the four Ps (product, price, a specific good, service, or event place, and promotion) and the two Cs identify and describe different types of (competition and consumer) of marketing marketing research tools and apply the concepts by developing design and implement, using appropriate a strategy to market a good, service, tools, a marketing research plan for a or event good, service, or event, and produce a report on the results 226 UNIT 2 Functions of a Business NEL PROFILE Research In Motion Limited What is that strange, flat, handheld device that everyone seems to be using? It’s a BlackBerry—the first successful handheld electronic device that integrates e-mail, phone, SMS, and organizer features. Research In Motion Limited (RIM) is among the leading designers and manufacturers of wireless technologies currently serving the market of mobile communications. Located in Waterloo, Ontario, RIM was founded in 1984 by Mike Lazaridis in partnership with Douglas Fregin. The pair viewed the business for wireless technology 10 years before their vision as an opportunity to invest presented the company with of success would begin to in a technology that was such an unparalleled business be realized. Since then, the still very poorly understood. opportunity that RIM would company has erupted in size. It Mike felt that the potential continue to invest in it for now employs 3500 people and BlackBerry is the first successful handheld electronic device that integrates e-mail, phone, SMS, and organizer. NEL CHAPTER 8 Marketing 227 has offices located in Canada, and Mail. with the corporate sector the United States, Europe, Hong BlackBerry was launched constituting the bulk of RIM’s Kong, Australia, and Singapore. in North America in January clients. In order to appeal to a The monetary success of RIM 1999 and gets its name from a diverse market, RIM offers its is apparent from its 2005 fiscal chance remark that its keyboard customers a variety of products earnings of more than resembled the seeds of a berry. from which to choose. $200 million. Not only did RIM supply the Despite the BlackBerry’s Mike Lazaridis and James exterior product, they were tremendous success, it is not L. Balsillie are the current co- also responsible for every other without competition. In 1996, CEOs of RIM. Mike is also the component—from writing the Palm Computing launched the company’s president. Mike began operating software to providing first handheld computer, the RIM while still an undergraduate, the servers required for e-mail. PalmPilot. Although PalmPilot and now holds an honorary Indeed, RIM even leased airtime set the innovative precedent as Doctor of Engineering degree from phone carriers, truly the first wireless computer to from the University of Waterloo. making themselves the sole hit the market, many customers He has earned more than 30 producers of the impressive have opted for RIM’s more recent patents and numerous awards device. BlackBerry. Where the PalmPilot for his innovative wireless RIM markets BlackBerry to requires a pen-based mode technology and software, a range of customers, including of data entry, the BlackBerry including being named Canada’s the individual, small- to utilizes a built-in keyboard; Nation Builder of the Year medium-sized businesses, as well a feature that has largely for 2002 by readers of the Globe as enterprises and government, contributed to its success. QUESTIONS 1. How is RIM’s manufacturing and marketing of the BlackBerry product different from any other company’s efforts? 2. Why did RIM expand to countries outside of Canada? 3. What are some of the interesting accomplishments of Mr. Lazaridis? What is an honorary degree? 228 UNIT 2 Functions of a Business NEL The Role and Impact of Marketing Keep in Mind 1. branding Have you ever tasted Diet Rite Cola? It was the first diet cola 2. the product life cycle ever sold. It was made by the RC Cola Company and was 3. non-traditional product life cycles introduced to consumers in 1958. That was 24 years before the Coca-Cola Company introduced Diet Coke. Diet Rite Cola is still sold as a Cadbury Before You Begin Schweppes Americas Beverage. So why aren’t Describe your favourite you drinking Diet Rite Cola? Probably because advertisement. Explain why you like it. What is your favourite Coca-Cola launched Diet Coke in July 1982 store? Why do you prefer that with a US$100-million advertising campaign and store to other stores? What has kept on marketing the brand very aggressively soft drink do you consume most often? Why that product instead ever since (Coca-Cola Limited’s marketing of any others? budget was US$400 million in 2005). Marketing made Diet Coke a success; lack of marketing keeps Diet Rite Cola a minor brand. Marketing has two fundamental roles: to sell what a business makes and to manage a business’s brand or brands. Marketing is the term used to describe all the activities involved in getting goods and services from the businesses that produce them to the consumers who wish to purchase them. Marketing includes research, development, sales, distribution, advertising, and promotion. It does not include the production of goods and services. Without marketing, not much would get sold. Consumers wouldn’t know what goods and services were available. They wouldn’t know about new trends or fashions, or how products have been improved. Manufacturers wouldn’t have research to know what to make. Importers, wholesalers, and retailers wouldn’t have channels of distribution to get their products into the hands of consumers all over the world. Figure 8.1 Roles of Marketing Roles of Marketing 1. sell what a business makes 2. manage a business’s brands research promotion development sales advertising distribution NEL CHAPTER 8 Marketing 229  Business Fact Marketing is important to all businesses. Producers use it to sell products to stores. Stores use it to sell products to consumers. In 1929, the Howdy Company introduced its new soft drink, Service businesses use it to let people know where they are and Bib-Label Lithiated Lemon-Lime what they offer. Non-profit organizations use it to promote Soda. They later changed this their services. Politicians use it to spread their ideas. If you have very long and very confusing name, for marketing purposes, something you want others to buy or believe in, you will use to 7-Up. It remains a mystery, marketing, too. however, why they picked the name 7-Up. Branding Some businesses spend hundreds of thousands of dollars to create an image. Others spend very little. In either case, three things can be part of the image: a brand name, a logo or trademark, and a slogan. Brand Name A brand name is a word or group of words that a business c E-ACTIVITY uses to distinguish its products from competitors’ products. Visit www.nelson.com/WOB and follow the links to learn more about The brand name is the most important part of a product or logos and brand recognition. company’s image because it is how the company is identified. If you buy a Roots cap for the first time and feel stylish in it, the company will want you to remember the name for a number of reasons. It may want you to purchase other Roots items. If you can’t recall the name, you could easily buy a competitor’s product instead. If you’re talking to friends about style preferences and mention Roots to them, you’re giving the company free publicity. Brand names should be distinctive and stand out from the competition. They should also be easy to remember. Some very popular fast-food brand names 230 UNIT 2 Functions of a Business NEL Logo or Trademark Business Fact Many products combine their name with a special symbol that What do these drink brands have is associated with the product. This symbol is called a logo or in common: Dr Pepper, Snapple, trademark. The logo or trademark helps the product compete Mott’s, Hawaiian Punch, 7 Up, for consumer awareness. Peter Pan peanut butter, for example, Yoo-Hoo, A&W, Sunkist, Diet Rite, Canada Dry, Schweppes, has a cartoon of Peter Pan on the label. Its logo indicates that Nantucket Nectars? They are all the product is aimed at young people. owned by Cadbury Schweppes. Logos take one of three possible forms. The first is a monogram, which is a stylized rendering of the company’s initials or a combination of initials and numbers. IBM (International Business Machines), KFC (Kentucky Fried Chicken), and 3M (Minnesota Mining and Manufacturing Company) are all examples of monogrammatic trademarks. Some companies use monograms to update an image that has become outdated or undesirable. KFC wanted to de-emphasize the word “fried” in its original name; IBM wanted consumers to associate its name with computers rather than adding machines; and 3M had moved far from its roots as a sandpaper manufacturer. Other companies use visual symbols as logos. These are usually line drawings of people, animals, or things, such as Apple Computer’s apple, the United Way’s hand and rainbow, and Kellogg’s Frosted Flakes’ Tony the Tiger. The logo is seen everywhere and becomes directly associated with the brand name. Almost any child who sees Ronald McDonald thinks about McDonald’s restaurants, for example. Many companies select an abstract symbol as a logo. Abstract symbols are shapes that carry a visual message but are not representative of actual things. Some symbols seek to The creation of an identifiable image through logos or trademarks, communicate a company’s initials but are obscure enough to monograms, and visual symbols are be considered abstract. Often these types of logos are difficult popular ways in which companies brand and market their products. to remember. Many are not distinctive enough to stand out from other symbols. However, the Nike “swoosh” is an abstract symbol and is one of the world’s most famous logos. Slogan The third method of brand identification is the slogan—a short, c E-ACTIVITY catchy phrase that is usually attached to the company’s name and Visit www.nelson.com/WOB and logo. MasterCard’s “Priceless,” Canadian Blood Services’ “It’s follow the links to learn more about in You to Give,” and Sprite’s “Obey Your Thirst” are examples advertising slogans. of effective slogans. Each one is also a tagline for both print and broadcast advertisements. Just hearing the slogan will often remind you of the entire ad. A good brand name is helpful. An effective logo is worthwhile. Put them both with an effective slogan: Priceless. NEL CHAPTER 8 Marketing 231  Brand Identification Once a company develops a name, slogan, or logo for a product, everything associated with that product should carry the identification. If the name is written in a distinctive style, such as Coca-Cola or Pepsi, the name should always be written that way. If there are specific colours associated with the brand, these colours should appear on everything associated with the product. Some brands develop a distinctive design for the package. That, too, becomes part of the brand’s identification. No consumer should ever have to guess whether this is the product they want. Competition is so fierce that no company wants its product to get lost on a store shelf, especially after spending a great deal of money promoting the brand. Oops! The Product Life Cycle Here are some foreign brands that The impact of marketing can be measured in two ways. The might not be successful in Canada most obvious way is with a sales analysis. Have sales increased? unless they found another name: Have we sold more than our competitors have sold? The other Looza Orange Juice (France) Skum Candy (Sweden) way is to measure a consumer’s reaction to the brand—a reaction Rasch Dish Detergent (Chile) based on marketing efforts. Effective marketing increases Pocari Sweat Energy Drink (Japan) brand equity: the value of the brand in the marketplace. Good Puke Playing Card (Turkey) marketing develops brand awareness: customers can name your brand as part of a specific category, whether it is a product, service, non-profit organization, or event. Better marketing develops brand loyalty: customers prefer your brand and support it. The best marketing is marketing that develops brand insistence: the customer will accept no substitutes. Some people will drink only Coca-Cola as a soft drink, for example, or insist 232 UNIT 2 Functions of a Business NEL  Figure 8.2 Product Life Cycle Product Life Cycle maturity decline Sales growth decision introduction point Time on a BlackBerry as their personal handheld computer, or buy only a PlayStation, even if they have to wait an extra six months The Coca Cola brand name is to get it. Products that have reached the brand insistence level recognizable in any language. have enormous brand equity. A brand’s equity develops in a predictable way. The progress of the brand can be charted on the product life cycle. The traditional product life cycle consists of five parts: product introduction, growth, maturity, decline, and decision point. A graph of the product life cycle, which can also be called the style curve, illustrates product sales over time. Marketers use the product life cycle to determine what type of marketing efforts they should use on the brand. Product Introduction Business Fact The product enters the marketplace through a product According to Financial World, introduction, often called a launch. Sometimes, businesses Coca-Cola’s brand equity is introduce a product nationally or even internationally. At other valued at $39 billion! times, they introduce their products by city, region, or province. At the introduction stage of the product life cycle, consumers don’t even know the product exists. The business needs to inform them about the product’s features, availability, package design, and brand identification. Usually, curious or adventurous consumers (or consumers who like to be the first to own new products) buy the product first. Marketers often call these first consumers early adopters and focus their selling efforts on them. Other consumers look to early adopters, or trendsetters, for style information. Trendsetters can be celebrities, sports heroes, politicians, or even students in NEL CHAPTER 8 Marketing 233  Stretch Your Thinking your school. Professional athletes often help businesses introduce new products. When a television star wears a new hairstyle, for How do styles become popular in your school? For what new example, fans of that star often copy him or her. Other early product would you be considered adopters copy the clothing and dress styles worn by famous an early adopter? people at celebrity events such as award shows. Many products, however, are introduced to the mass market with hopes that some people will become early adopters. In its introductory stage, the advertising campaigns and sales promotions for the new individual serving size of Crystal Light—an instant drink mix now packaged in tubes so it can be added to bottled water—aimed the product at women. (Advertising campaigns and sales promotions will be discussed later in this chapter.) Growth Once early adopters find and use a new product, others soon try it and sales increase rapidly. Samples of Crystal Light’s individual-serving-size packages were sent to millions of householders. Within days, women in fitness clubs, offices, and factory lunchrooms were using the new product (which turned ordinary bottled water into Crystal Light). Other women saw these early adopters using their sample and tried out their own free product. Soon, sales started to rise. During the growth stage, marketers manage their products very carefully. As a product’s popularity increases, competitors enter the market. These competitors modify the original product either by adding features and improving quality or by making a similar product more cheaply and offering it at a lower Although these products are very price. Nestea and Kool-Aid have both introduced individual similar, each product is designed to stand out from and out-compete the serving sizes for their products. Who will be next: Gatorade, other leading brands. Snapple, Lipton? Competition fuels growth. Consumers see the battle for market dominance and become interested in knowing what all the fuss is about. The new product lines are featured in commercials, billboards, print ads, even on talk show interviews and news broadcasts. The line becomes very visible and highly promoted. A buzz surrounds the line, and everybody has to try it. New competitors enter the market and dilute profitability. Others, unsuccessful at making any money or attracting enough customers away from the originators, drop out of the race. Finally, at the top of the growth cycle, only a few winners survive. 234 UNIT 2 Functions of a Business NEL Maturity At the maturity stage, growth is flat—it does not increase or decrease. New consumers replace those who leave to purchase a competing product. Brand equity is at its highest at this point. Companies manage mature products through continued advertising. This advertising keeps the brand in the public eye and reminds consumers of the advantages this product has over the competition. Kellogg’s Corn Flakes, Coca-Cola, and Tide detergent are all products at the maturity stage. By the time a product reaches maturity, the manufacturer Tide detergent is an example of a has long since paid for all the major costs of production and product that has reached the maturity product development. Because a mature product has established stage. an effective distribution method, the costs of sales and distribution are low. As a result, products at the maturity stage usually make large profits. Businesses can use income generated by their mature products, often called cash cows, to develop and fund new products. Decline At some point, most products fail to attract new customers to Stretch Your Thinking replace those who leave to buy other brands. As sales decrease, the product enters the decline stage. Seasonal changes or new Think of a product that has declined in popularity. How competition may cause a temporary decline. But if the decline could you increase sales? continues, businesses research their markets to determine whether consumers are actually rejecting the brand. A small change in price or a new advertising campaign can reverse a temporary decline. If, on the other hand, brand equity drops, then the business has a serious problem. The Decision Point At the final stage of the product life cycle, the decision point, The World of Business DVD marketers make very important brand-management decisions. “Rethinking the Advertising Often, they use what equity they have left in the brand and try Game” to reposition it—that is, they try to make it popular again with from The World of Business DVD a new consumer market. Vespa is making motor scooters in new colours specifically designed for women, for example. Businesses also reformulate, repackage, and re-introduce a “new and improved” product. For example, an old brand of liquid detergent could re-enter the market with a convenient new pour spout. Most often, however, decision-point management involves new promotion and repricing. An advertising agency, for NEL CHAPTER 8 Marketing 235  example, might develop a campaign to target an old product to a new consumer group (Walkman for senior citizens, for example). If the campaign succeeds, the brand becomes more popular. A lower price may also boost the brand’s popularity. If these marketing strategies work, the brand regains its original sales figures and brand equity. If the decline continues in spite of efforts to stop it, the manufacturer discontinues the product and removes it from the market. Often, new technology makes old products obsolete. DVDs have replaced videotape, MP3 players have replaced portable Can you imagine choosing to buy a cassette players, and flat-screen television sets have all but black-and-white television instead of a colour television? replaced the picture tube type. No amount of marketing will restore life to these products. Non-traditional Product Life Cycles Many products do not go through the stages of the traditional product life cycle. There are at least three non-traditional product life cycles: fad, niche, and seasonal. Women are a new customer-market for Vespa motor scooters. 236 UNIT 2 Functions of a Business NEL Fads A fad is a product that is extremely popular for a very short period of time. Many people misuse the term and call trends fads. A trend lasts a lot longer than a fad and influences numerous other areas. Low-carb diets were a trend that crippled Stretch Your Thinking businesses such as Krispy Kreme and hurt numerous other carb- What are some fads you friendly producers. Fads, on the other hand, appear in a very remember as you were growing select target market (usually the under-14 set) and last less than up? Are there any current fads a year. Some popular fads over the years have been hula hoops, of which you are aware? yo-yos, Pogs, and Tamagotchis. You can still find these items but they are no longer as popular. Companies can make or lose a great deal of money on fads. If a business can sell most of its stock and get out of the market just as the fad reaches its peak, the business will make an excellent profit. Many fad marketers—especially imitators who create a cheaper version of the fad, called a knock-off—enter the market at the wrong time or stay too long. When a fad dies, it dies very quickly, and many businesses get caught with a large inventory that no one wants to buy. Niches Some products have a very short growth stage that leads to a solid, but not financially spectacular, maturity stage. These products have a niche—a section of the market in which they dominate and into which very few competitors enter. Niche marketers usually invent their products and hold exclusive patents or formulas. By the time other businesses can invent a competing product, the original manufacturer has already Oops! distributed its brand to most of the businesses or stores that Excerpt from The Simpsons, episode 2F14: “Homer versus Patty and Selma” wish to purchase it. Competitors, then, have no one to sell their Lenny: Hey, Homer! How come product to. Often, niche marketers manufacture specialty parts. you’ve got money to burn? Or singe, Recently, niche marketers have shown rapid growth in the anyway? high-tech industry, manufacturing specialized computer parts Carl: Yeah, Homer, what’s your secret investment? for large computer firms. Homer: Take a guess. Many factors prevent competitors from being profitable in Barney: Uh, pumpkins? a given market. These factors, called barriers to entry, include Homer: [pause] Yeah, that’s right, the small market size, the cost of research and development, Barney. This year, I invested in pumpkins. They’ve been going up the advertising expenses, factory and equipment costs, design costs, whole month of October and I got lack of distribution channels, and the cost of raw materials. High a feeling they’re going to peak right barriers to entry usually mean that competitors don’t enter a around January. Then, bang! That’s market, leaving a niche marketer alone. when I’ll cash in. NEL CHAPTER 8 Marketing 237  Seasonal Try to sell a Christmas tree the day after Christmas, or a snowblower on the hottest day in August. Ice cream parlours have lineups from July to the end of August, but are often closed in January and February. These examples demonstrate that many products are popular only during a specific time or season. The product becomes popular again only when that season returns. The new season, however, brings with it new styles. Even Christmas ornaments change in style from year to year. Retailers, wholesalers, importers, and manufacturers of seasonal products need to make the most of their selling season. These businesses must keep adequate stock. However, if they have too much inventory left over at the end of the season, many of the products will be out of style when the season starts again the For a farmer, this pumpkin field represents significant income at next year. This balancing of product quantity with sales is called the beginning of October but, come inventory management. November, this same field would mean a huge financial loss! Review Questions 1. What are two major roles of marketing? 2. What is the most important way to measure the impact of marketing? 3. List and describe briefly the three parts of effective brand identification. 4. List a product not mentioned in the text for each of the stages in the product life cycle. Keep in Mind Marketing Concepts 1. the four Ps of marketing 2. the two Cs of marketing Did you know that Sony Corporation had portable digital audio technology two years before Apple did? What Sony did not have, however, was a way to connect this technology to a product and connect the product to a consumer. Apple figured that out and put together a marketing mix that saw the iPod become one of the most successful products in the past decade. Sony missed out by not having the right marketing concepts. You can divide marketing into two major concepts: the product concept and the market concept. Product concept marketers can answer questions about a firm’s internal operations: What should our company make and sell? What 238 UNIT 2 Functions of a Business NEL price will stimulate sales and generate a profit? Where and how do we sell the product? What advertising and promotion should we create for the product to boost sales? These make up the four Ps of marketing: product, price, place, and promotion. Market concept marketers work with the external environment by examining both the competitive market and the consumer market. The competitive market consists of all the products or services that might take sales away from a firm. The consumer market consists of all the people who are or might at some point be interested in buying the product or services. These make up the two Cs of marketing: competitive market and consumer market. The Four Ps of Marketing A good marketing campaign considers the four Ps of marketing: product, price, place, and promotion. All four elements must be combined properly to have an effective campaign. When all four parts are assembled, it is called the marketing mix. Products and Services Businesses develop products and services for two reasons: because they can and because they see a need. Good product and service development takes into account quality, design, features, and benefits. Quality Ralph Waldo Emerson wrote, “If a man can…make a better The World of Business DVD mousetrap than his neighbour, though he build his house in the “Igniting the Buzz: I-Buzz” woods, the world will make a beaten path to his door.” Simply from The World of Business DVD put, if you improve the quality of your product, you will attract more customers. Vacuum cleaners that pick up more dirt, dry cleaners who sew on buttons, skateboards with better wheels, movie theatres with stadium seating and great sound, and jeans with higher-grade denim are all examples of products that are of better quality than other similar products. Many established brand names take pride in their quality, and consumers come to depend on it. Low quality is a part of product development as well. Most consumers know that you pay for quality. If some products can meet a consumer’s needs and be less expensive because they don’t provide high quality, that product or service has a good chance for success as well. For example, Food Basics and no-name products remove the frills but lower the price. NEL CHAPTER 8 Marketing 239  Figure 8.3 The Marketing Mix The Marketing Mix Product (or service) Price quality how our product compares design with the competition features The Four Ps of customer’s perception of benefits Marketing our product’s value service and support impact on sales and profit Promotion how our company encourages Place consumers to buy a product how our product gets to (coupons, contests, premiums, the consumer (channels samples, special events) of distribution) Design Most often, we think of style and design in relation to clothing. Jeans, for example, come in many different styles—slim fit Business Fact or wide leg, button fly or zipper, straight leg or flare. Every detail is part of the design, from the colour of thread used in Product designers also create product features that you cannot the stitching to the colour of the denim itself. However, every see, such as the flavour of a soft product has a design component. We often buy one product drink or the scent of a perfume. instead of another because we like the way it looks. For example, all cars will transport us from one place to another, but many of us would prefer to get there in a Porsche. Even if the product itself is not interesting to look at (e.g., liquid detergent), the package design can capture the customer’s attention. When designing a package, product developers consider the package’s functions. Packages protect the product from light, dirt, germs, air, water, tampering, and damage. A good package also makes it easy for the consumer to use the product—for example, cartons with spouts, bottles with handgrips, or resealable cereal bags. Consumers may also identify a particular product by the shape or colour of the package design. The traditional Coca-Cola bottle is one of the most identifiable packages in the world. Not only is the Coca-Cola Classic brand name distinct, but so is the shape of Package labels also help consumers identify the product the bottle. and can make the product stand out from the competition. 240 UNIT 2 Functions of a Business NEL An attractive label can help sell a product. For example, Arizona Iced Tea shrink-wraps colourful plastic labels around the entire bottle. This labelling method, which results in a bottle that attracts consumers’ attention, has helped sales. Labels also provide information about a product’s size, weight, ingredients, and nutritional content. Services have a design feature as well. Even if the business is web-based, the web page design is important. A computer repair shop can look sterile and high-tech or down-and-dirty and hands- on. A hairstylist’s shop can be a luxury spa or a busy salon. Each design feature of the business attracts a specific type of customer. Arizona Iced Tea’s packaging is designed to catch consumers’ attention. Features Product developers consider the features of products, such as the material used in construction, the scent, the size, or the taste. Pillows are foam or feathers. Perfumes all smell differently. Cocoa Krispies cereal does not taste the same as Raisin Bran. Detergents come in liquid or powder, large boxes or small, scented or unscented. Service providers outline what they do. As a car rental company, is pickup part of the service? As a house-cleaning firm, do you do windows? If you were a DVD rental place, how long would you allow customers to keep new releases? Service features are in the details. Benefits People buy most products and services for a particular purpose— towels for drying, furnace repair for warmth, microwaves to cook food quickly. But some towels are more absorbent than others, some furnace repairers more efficient, and some microwaves cook food faster. Each product or service has benefits that attract different consumers. The consumer must perceive these benefits in order to be interested enough to buy. The Product/Service Mix Retail stores provide services that add value to the products they sell. These include delivery, installation, extended warranties, alterations, advice, carry-outs, gift-wrapping, and free parking. Many stores provide coffee or relaxation areas. Some have a cafeteria or restaurant. Every service that a store offers gives consumers another reason to select that store instead of another. On the other hand, many service businesses also sell products. Movie theatres sell popcorn, video stores sell candy, NEL CHAPTER 8 Marketing 241  veterinarians sell pet food, universities sell sweatshirts, and salons sell hair care products. The right product/service mix can increase sales to existing customers. It can also attract new customers by helping the store be competitive. Price Pricing decisions can make the difference between a successful product and a failure. You could have a well-designed, top- quality product with great features, but if the consumer thinks the price is too high, you will not sell it. Consumers are very price aware these days, especially with the ability to check out competing prices on the Internet. To compare prices, all they need to do is spend a few minutes at their computer. If you lower the price to sell more product, you might increase your profit, but you could also end up with less. For example, let’s assume the total cost of producing your gadget is $25. Q If you can sell 100 gadgets at $100 each, you will make  a profit of $75 for each gadget sold (because it costs $25 to make). Your total profit will be 100 × $75 = $7500. Q If you lower the price to $50 per unit and sell 1000  gadgets, you will only earn $25 profit for each gadget you sell, but your total profit will increase to $25 000 because 1000 × $25 = $25 000. Q However, if you lower the price to $50 and sell only  200 gadgets, you will still earn $25 profit for each gadget but your total profit will only be 200 × $25 = $5000. Clearly, marketers need to know how price sensitive their product is: how much sales will go up or down when the price goes up or down. Price must always be similar to the price of competitive products. If the product appears to be similar, but carries a much higher price, the marketing mix should increase the promotional component and make sure consumers know they are paying more for more. Place (Channels of Distribution) Channels of distribution are the paths of ownership that goods follow as they pass from the producer to the consumer. They are the methods that a business uses to sell and distribute its products. A product does not change as it moves through 242 UNIT 2 Functions of a Business NEL  Figure 8.4 Channels of Distribution Channels of Distribution Direct Indirect Specialty the business that makes the product the business sells to an intermediary who the consumer buys sells it directly to the consumer then sells the product to the consumer from a place other (e.g., at a farmers’ market, bakery, the intermediary could be a retailer, or it than a retail store or factory outlet store) could be an importer or wholesaler who (e.g., vending allows for direct communication will then sell to a retailer machine, between producers and consumers intermediaries add to the cost of a product catalogue, website) channels of distribution (also known as a distribution chain). If a product does change in any way, it has reached the end of that particular channel. For example, a farmer sells wheat to a business that stores grain. Because it does not change the product, the storage company is part of the wheat’s distribution chain. The storage company then sells the wheat to a flour mill, and the mill processes the wheat into flour. Because the mill does change the wheat into another product, the channel of distribution for the wheat ends, and a new channel of distribution for the flour begins. A marketer can use three types of channels of distribution: direct, indirect, and specialty channels. Direct Channels Selling directly to the consumer is the simplest form of distribution. It has a number of advantages. Other channels of distribution use intermediaries or businesses that take possession of the goods before consumers do. Intermediaries add costs to a product so that they make a profit. Eliminating intermediaries cuts out these costs. Direct channels of distribution connect buyers to the businesses providing the goods or services. This connection is known as a maker–user relationship. Through this relationship, consumers can inform businesses about their needs. Consumers may also feel more confident because they know the actual source of the products they are buying. NEL CHAPTER 8 Marketing 243  This farmer is selling his produce to customers through a direct channel of distribution. Indirect Channels Indirect channels of distribution have one or more intermediaries. These intermediaries might be importers, wholesalers, or retailers. Importers Many foreign businesses want to sell their products in Canada. An importer searches for these businesses, negotiates distribution deals with foreign manufacturers, buys the manufactured merchandise, stores it in Canada, if necessary, and then sells it. This arrangement makes it easier for foreign businesses to ship their goods to Canadian customers. Sometimes, importers arrange only delivery of foreign products to Canadian businesses. In this way, they assume no risk in buying the goods. Normally, importers hire a sales force to sell the products across Canada. When an importer actually buys the foreign Stretch Your Thinking merchandise and distributes it nationally, the foreign business Why would an importer want usually gives the importer exclusive rights to the product. to have exclusive rights to Having exclusive rights means that no other business can buy a product? Why would a or sell these products in Canada. An exclusive distribution manufacturer want to give exclusive rights to an importer? deal is usually for a year or more. (Review Chapter 4 on International Business.) 244 UNIT 2 Functions of a Business NEL  Ethical, Moral & Legal Considerations Wal-Mart is known for its low at lower wages. In the United Most consumers are grateful prices. The company tries to do States, where Wal-Mart is based, to Wal-Mart for keeping prices everything it can to shave a few almost 70 percent of Wal-Mart low. It is considered a better cents off the selling price of its workers can’t afford to participate retailer than most other compa- products. The company pays low in the company’s health insur- nies because it carries the mer- wages and discourages labour ance plan, which costs about 20 chandise consumers want at a unions. Numerous charges have percent of a worker’s paycheque. lower price than competitors, and been levelled against Wal-Mart Some people view Wal-Mart’s merchandise is always in stock, for age discrimination (laying employee practices differently. when the customer wants it. off workers when they get old in They argue that everyone who Would you be willing to pay order to make room for younger, works for Wal-Mart makes the more for the items you buy at less costly employees), failure choice to work there and knows Wal-Mart if the extra money Wal- to pay overtime, and widespread the wages being offered when Mart received went to benefit sex discrimination to keep women they take the job. its employees? Wholesalers Wholesalers buy goods from producers or importers and resell the goods to retailers. Retailers use wholesalers, rather than buying directly from suppliers, for a number of reasons. Manufacturers often require retailers to purchase a minimum quantity of goods. Smaller stores may not have the space or money to buy in such large quantities. Wholesalers can afford to buy in volume and will sell to retailers in much smaller quantities. As well, wholesalers are usually located close to retailers, which means wholesalers can provide storage space Canadian Tire is just one familiar retail and reduce transportation costs. Retailers who use wholesalers, centre that is constantly stocked with however, often pay more for a product than those who buy large quantities of merchandise. directly from the manufacturer. Retailers In the distribution chain, retailers link directly to consumers. Retailers buy merchandise that consumers want, have it in stock when consumers want it, and display the merchandise so consumers can examine it in an easy-to-reach location. Specialty Channels A specialty channel of distribution is any indirect channel of distribution that does not involve a retail store. There are many different specialty channels, including vending machines, telemarketing, catalogue sales, e-commerce, and door-to-door sales. Lee Valley Tools catalogue NEL CHAPTER 8 Marketing 245  Figure 8.5 Specialty Channels of Distribution Vending Machines Vending machines sell everything from soft drinks to blue jeans. Marketers can place their products in vending machines where consumers work, study, shop, rest, eat, or travel. If the manufacturer owns the machine, it dispenses only their products—there is no competition unless a rival producer’s machine is nearby. Telemarketing Many businesses use the telephone to sell products and services. Businesses may hire a telemarketing company to create a sales pitch—a scripted presentation that anticipates consumer responses. Telemarketing companies may set up call centres, or they may hire an independent call centre. Call centres use automatic call distributors (ACDs)—computers that automatically dial phone numbers. Telemarketers may call at random, or they may get lists of targeted recipients from coupons, contest-entry forms, or surveys that consumers complete. The main problem with telemarketing is that it often annoys consumers, which may lead to negative reactions to the product or service. Catalogue Sales Catalogues from retailers, such as Sears, provide information about merchandise that consumers can purchase by mail, by phone, or at the store. However, there are also catalogue distributors who sell mainly by mail. Lee Valley Tools, for example, makes a high quality line of woodworking tools. It offers these to consumers primarily through its catalogues (it also has retail stores across the country). Catalogues are expensive to produce when they are printed in colour and include photos taken by professional photographers. But catalogue businesses can be very successful, and many companies have added online catalogues to their distribution chain. E-commerce By far the most important specialty channel is e-commerce: selling online. Almost all major retailers provide customers with an online catalogue and electronic shopping cart. Online shopping offers consumers convenience and competitive prices. For manufacturers and retailers, distribution costs are much lower. For importers and wholesalers, it is possible to sell directly to consumers, cutting out intermediaries entirely. Online shopping allows even small entrepreneurs to compete globally. You can buy almost anything online today, have it shipped within 24 hours, probably save money, and never have to leave your home. 246 UNIT 2 Functions of a Business NEL Promotion Most people associate advertising with promotion. That part of promotion will be covered later on in this chapter, under a separate section. Promotion, though, means more than advertising. Promotion is any attempt to sell a product. Sales promotion encourages consumers to buy a product by using The eBay logo coupons, contests, premiums, samples, and special events. Coupons Coupons offer consumers money off the price of a product. When a consumer presents a coupon at a checkout counter, the cashier treats it as cash. On average, Canadian consumers are exposed to more than 1200 coupons a year. Most coupons end up in the trash. Advertisers measure the effectiveness of a coupon promotion by the redemption rate, or the percentage of coupons that consumers actually use. An average redemption rate is 5 percent. In general, the larger the value of the coupon, the higher the redemption rate will be. Contests Contests are an exciting way to increase brand recognition and sales. By law, businesses must organize contests so that anyone can enter—the business cannot require consumers to buy a product in order to enter. As a result, you often see “no purchase required” included in contest rules. Businesses, however, can make it easier for consumers who buy the product or service to enter contests. Purchasers of the product may receive an entry form at the cash register, for example, or receive a game card to What could be better than to “roll up the scratch or collect. rim” and win? There are laws that forbid the use of gambling in contests. Contests must require people either to demonstrate a skill—for example, drawing a logo, thinking up a name, responding to a quiz—or to answer a skill-testing question (usually a simple math problem). Consider the Tim Hortons “Roll Up the Rim to Win” contest. People could enter their name in the contest by writing to the Tim Hortons head office, but most consumers bought coffee in specially marked cups and “rolled up the rim” themselves to see if they had won a prize. Contestants did not have to exhibit a skill to enter, but winners did have to answer a skill-testing question. NEL CHAPTER 8 Marketing 247  Premiums Premiums are giveaways—something a consumer gets free with the purchase of a product. Premiums can be unrelated to the product—for example, a free CD with the purchase of a certain amount of coffee, or a free T-shirt with the purchase of a case of pop. To establish brand recognition, these free products usually carry the company’s logo. Many businesses encourage brand loyalty by giving free products to regular customers. Coffee and sandwich shops, florists, video-rental businesses, and CD retailers issue customer When customers buy this box of loyalty cards. These cards are stamped each time the customer Kellogg’s Raisin Bran, they will get two scoops of raisins and a free gift. buys the business’s product. When the card is completed, the consumer is entitled to a free product. Because the consumer must buy the product to get the premium, this method of promotion ensures sales. Samples Samples encourage brand trial. Usually, samples are small “trial” sizes of the product being promoted. Often, the company distributes these samples door to door. Sometimes, marketers hire product-sampling businesses to set up booths in supermarkets, big box stores, and shopping centres. They give out samples of the product to shoppers passing by. They also provide information about the product, its price, and where it can be found in the store. Sampling is a very effective method of sales promotion, and it usually results in increased sales. Costs are very high, however. Special Events Marketers organize special events to attract customers and increase product sales. Authors visit bookstores to autograph their newly published books. Sports heroes, television stars, actors, and music celebrities take part in special events that promote their athletic shoe, new perfume, latest movie, or current CD. Sometimes, special events also include other types of sales promotions, such as contests, premiums, and samples. The main purpose of a special event is to excite consumers, encourage their participation, and, ultimately, get them to buy the product. Consumers are more likely to buy if they are having fun. 248 UNIT 2 Functions of a Business NEL The Two Cs of Marketing In order to properly put together a marketing mix, the marketing department must consider two major external factors: the competition and the consumer. These are called the two Cs of marketing. The Competitive Market The competitive market consists of all the sellers of a specific product, and is expressed most often in terms of the total dollars spent annually on this product. Table 8.1 defines the size of that market in dollars. For example, the American soft drink industry is worth $68 billion, which means all the manufacturers, bottlers, importers, and distributors share that $68 billion among themselves. The percentage of the market that a company or brand has is called its market share. Assume that in 2007, the soft drink market is worth $70 billion, and the leading soft drink brands and their market shares are as illustrated in Table 8.1. The total market share for these top seven brands is 62.9 percent—almost two-thirds of the market. That leaves Although Coca-Cola Classic has the only 37.1 percent of the market for the other 200 brands largest market share of the soft drink industry, Coca-Cola still has to share the available in the United States. However even one-tenth of competitive market with other soft drink a 1 percent share of this market is worth $68 million! companies, such as Pepsi. Figure 8.6 The Two Cs of Marketing The Two Cs of Marketing Competitive Market Consumer Market other businesses that characteristics of compete with us for people who buy our consumer dollars products Direct Competition Demographics other sellers of Indirect Competition Lifestyle other spending needs age products similar gender values, beliefs, to ours that may draw and motivations customer dollars away family life cycle from our products income ethnicity and culture NEL CHAPTER 8 Marketing 249  Table 8.1 Estimated U.S. Market Share for Major Soft Drink Brands* Brand % Market Share Coca-Cola Classic 16.5 Pepsi 12.3 Diet Coke 10.2 Mountain Dew 6.5 Diet Pepsi 5.9 Sprite 5.8 Dr. Pepper 5.7 Total 62.9 *2007 Coca-Cola has a major portion of the cola segment of the soft drink market. A market segment is a part of the overall market that has similar characteristics. The soft drink market would have flavoured segments, such as root beer (Barq’s has the largest piece of that pie), a diet segment (Diet Coke is the leader here), and an energy drink segment (Red Bull owns this market segment). A company can increase market share in two ways. The first is by increasing the size of the overall market. When energy drinks became popular, a whole new segment of the overall beverage market was created. New soft drink users were added The energy drink Red Bull played a major role in expanding the beverage market. 250 UNIT 2 Functions of a Business NEL to the market, and the size of the market increased, meaning many competitors could see an increase in sales. The second way to increase market share is by taking sales away from competitors. If you look at the market shares of U.S. beverage brands next year (or next month, perhaps), you will see different market shares, as Sprite attracts more customers than Mountain Dew, or Diet Pepsi takes customers away from Diet Coke. Market shares are like pieces of a pie. If five people are sharing the pie and one person gets half, all the others get much smaller pieces. For the last 100 years or so, Coca-Cola has always had the biggest piece. Competition among Products The most obvious type of competition is competition among similar products. All products compete for the consumer’s money in some way. If you have $25 and decide to spend it taking a friend to a movie, each theatre and each movie competes for your money. Once you spend $25 on the movie, that $25 is gone— you can’t spend it on anything else. So it’s not just movies and theatres that compete for your $25; CDs, pizzas, clothes, and any other products you might buy also compete for your money. This type of competition is called indirect competition because the products or services are not directly related to each other. Products in direct competition Every business is in competition with every other business for your discretionary income. Discretionary income is the income you have that is not committed to paying for basic necessities, such as food, clothing, and shelter. Disposable income, on the other hand, is used to pay for basic necessities. It is the amount of income left after taxes have been paid. Products that are very similar are in direct competition. The consumer chooses among them because of minor differences. There really is not a large difference between two brands of sunscreen—they both have the same sun protection factor, both are waterproof, and both are non-greasy. These products compete mainly on image. Other products compete directly in more obvious ways, through all of the quality, price, design, features, and benefits that compose the product (see the four Ps of marketing, earlier in this chapter). The Consumer Market Companies also compete by studying the consumer market, or the types of consumers who buy their products. These consumers can be identified in at least two ways: by demographics and by lifestyle. NEL CHAPTER 8 Marketing 251  Demographics Demographics is the study of obvious characteristics that categorize human beings. Businesses use demographics to target specific consumers. Examples of demographic variables are age, gender, family life cycle, income level, and ethnicity and culture. Age Children want toys, teens want computer games, adults are interested in cars, and seniors may want more products related to health or retirement activities. Age defines our tastes, as well as our needs and wants. Some age groups are consumers, but not often customers. For example, an adult—most often a parent— usually directs his or her child’s purchases. Businesses consider this adult a gatekeeper, or a person who makes buying decisions for others. Cereal makers compete by selling their products to the gatekeepers, advertising that their cereal is low in sugar or has added vitamins for good health. However, cereal makers also know that children have some influence over the decisions that their gatekeepers make, so these companies also target young people in their advertisements. Gender Many products, like jeans and athletic shoes, are worn by both genders. However, businesses that sell jeans and shoes still distinguish between their men’s and women’s product lines. The businesses market their men’s athletic shoes to the male market and their women’s athletic shoes to the female market. In the area of shopping, gender roles have changed a great deal. At one time, women did the family grocery shopping and men purchased the family car. Today, the act of shopping has become a task for males and females alike, and purchase decisions are more likely to be shared. A number of successful businesses have recognized this change. Many products that were formerly targeted at females (detergents, disposable diapers, food products) or males (cars, power tools, sporting equipment) are now being advertised and sold successfully to both genders. Family Life Cycle Newly married couples need furniture. Parents with a new baby need a crib, carriage, and car seat. A couple with three teenagers wants to save for their children’s college or university educations. Retired seniors want to travel. Your stage in the family life cycle often determines your wants and needs. Businesses are aware of this demographic. They compete for consumer dollars in 252 UNIT 2 Functions of a Business NEL What products would this family buy… …that this family wouldn’t need? different ways for various groups. For example, a cruise could be a honeymoon for a newly married couple, a break for a couple with a baby, a family holiday for a couple with teenagers, or a retirement escape for a senior. The advertising, destination, onboard activities, and meals will all depend on the type of customers the cruise is trying to attract. Income Level Consumers are often grouped by how much money they have or earn. This grouping affects what products or services a business tries to sell them. Products such as Kellogg’s Corn Flakes are targeted at consumers in every income bracket, but a Mercedes automobile could be purchased only by wealthy customers. Businesses have many ways of determining the income of specific groups of consumers. One way is to look at the postal codes of affluent, or upper-income, neighbourhoods. If a consumer has an address in this postal code, it is likely that he or she has a high income. Similarly, a business can look at programs for ballets, book readings, and other special events in the community to find out who sponsors these events. If a business wants to target a particular high-income group, it might place an advertisement in a certain type of publication, such as a luxury travel magazine. Businesses that make or sell luxury goods and services are interested in the wealthy customer, but most manufacturers and retailers make and sell products to consumers with average incomes. These businesses are mainly interested in competing for the discretionary income that almost all consumers possess. They sell their products and services to everyone. NEL CHAPTER 8 Marketing 253  Ethnicity and Culture Canada has a diverse population with a wonderful mix of customs and traditions. Many cities have ethnic communities with stores and businesses that target the various wants and needs of a particular ethnic group. These businesses compete for a cultural market by importing goods from the consumer’s country of origin or producing goods reflective of that country. The food-service sector has a multitude of restaurants that reflect different cultural tastes in food. Newspapers and magazines in Canada are available in more than 100 languages. Of course, many of the products and services that first attracted the business of a specific ethnic group now compete for the business of all Canadians. Italian restaurants, for example, certainly have many non-Italian customers. Lifestyle Lifestyle is less obvious than demographics but equally important to businesses competing for specific groups of consumers. Lifestyle is the way people live, which includes their values, beliefs, and motivations. The study of lifestyles is called psychographics. A person’s beliefs influence what he or she purchases. An environmentally conscious person would not buy an SUV, for example. A sedentary person would not be interested in running shoes or skis. These lifestyles cross all demographic boundaries. Unless companies consider lifestyle marketing, the potential consumers in these groups will miss their message. Review Questions 5. What are the four Ps of marketing? 6. Provide an example for each of the following: a) slogan b) family life cycle c) premium d) specialty channel of distribution e) product/service mix 7. What are the two Cs of marketing? 8. Define and give an example of market share. 9. Explain two possible ways in which a businesses could increase its market share. 254 UNIT 2 Functions of a Business NEL Advertising Keep in Mind 1. creating good advertising Has an advertisement ever made you cry? Or laugh out loud? 2. types of advertising Some television commercials are better than some movies; they 3. comparing types of advertising do in 60 seconds or less what some movies can’t do in two hours. There is an art to good advertising, and more than a few major artists have started their careers in the industry. Spike Jonze, for example, directed videos for the Beastie Boys, Beck, REM, and Fatboy Slim, as well as films such as Being John Malkovich. Today, he is considered one of the best advertising minds in the business (look for his Levi’s ad on the Internet). Creating Good Advertising There is no magic formula for genius. Really great advertising has genius in it, and that cannot be taught. But most advertisers are simply looking for good ads—ads that consumers will see and remember. Advertisers want consumers to remember the brand name of the product in particular. Even ads that are artistic or funny or incredibly creative might not be good ads if you can’t remember the name of the product being sold. Good ads sell products. The Apple Computer advertisement called “1984” that introduced the Macintosh onto the market during the 1984 Super Bowl had thousands of customers looking for Macs the day after it was aired. There are four standard rules for creating good advertising: attract attention, gain interest, build desire, and get action. Figure 8.7 Rules for Creating Good Advertising 1. attract attention 2. gain interest Rules for Creating Good Advertising 3. build desire 4. get action NEL CHAPTER 8 Marketing 255  Attract Attention For print advertisements, a good headline works. It should be a headline that mentions the brand: “Sprite: Obey Your Thirst,” for example. Even if the consumer only sees that much of the ad, he or she will associate Sprite with thirst. A good print headline is rarely more than seven words (easier to remember) and always leads the reader into the rest of the ad. The Sprite ad, for example, should talk about thirst. Broadcast ads attract attention in various ways: sound, unusual visuals, an attractive person, a famous celebrity, or a hilarious moment (a singing cow attracted attention for HP sauce several years ago). For broadcast advertising, the task is to hold the attention for up to 60 seconds when the fridge or bathroom beckons. Literacy Link Gain Interest Print ads should be simple and easy to read. Avoid complex Persuasive writing Persuasive writing is used to convince or mixed typefaces. Keep the message clear and to the point. others to think like you do. There are Broadcast ads, too, should get to the main message right away. many ways to suggest that others see New advertisers should not try to do humour. It is very hard something your way. You can use to make something funny, and very embarrassing when no Q  a brochure (written details to one laughs. Provide a direct, interesting sales message and a highlight your position) great illustration. The old proverb that one picture is worth Q  an advertisement (written words a thousand words is absolutely true in advertising. Of course, and visual pictures to persuade) television ads must have strong visuals and radio ads can’t have Q  a speech (spoken emotional words to convince) any (except those that the imagination creates). Make people want to read (or watch or listen to) your ad. Build Desire Connect the sales message to your visual message. Help the customer want your product. Set up a problem that your product solves or put the product in a situation with which the customer identifies. The Sprite ad creates a scene in which someone is very thirsty. A cold bottle of Sprite solves the problem. The consumer, if thirsty, desires Sprite. Print ads build desire with words, adding benefits with each line. Broadcast ads describe the benefits thoroughly and repeat the brand name often to make sure the desire is associated with the brand. It is counterproductive to remind the audience of their thirst if they don’t remember that Sprite is the best product to quench it. 256 UNIT 2 Functions of a Business NEL Get Action Always ask for the sale. Summarize the reasons to buy. Be sure to have your logo, slogan, brand name, and contact information at the bottom right-hand corner of the print ad (the North American reader looks at a printed page from top to bottom, left to right, and always ends in the bottom right- hand corner). Both print and broadcast ads should repeat a phone number or simple website address to encourage consumers to find out more or even order online. Retail advertisers should include the store address and hours. A map is helpful. Limited-time offers are effective ways of providing a reason to “buy now.” All advertising should be about buying now. Oops! Types of Advertising In 1996, Clearly Canadian Beverage Corporation introduced a soft drink Advertising is the paid-for promotion of a business’s goods called Orbitz. Orbitz contained and services over a variety of mass media to a target market of edible balls of a somewhat chewy consumers. Businesses pay a great deal of money to advertise, substance. The balls gave Orbitz and they carefully control what their ads say. In other words, a unique look, but made many consumers reject the product. The an advertisement gives only the advertiser’s point of view. balls had the consistency of tiny Publicity is media information about a business that the oysters, and lots of people didn’t like business doesn’t pay for. Publicity can be either positive or drinking solid things, instead of just negative. As a result, it is more believable than advertising. a liquid. Many companies try to control their publicity by hiring public relations firms. Public relations firms try to influence the media to use only positive stories about their clients. In fact, public relations firms often write and distribute positive stories about the businesses they represent, hoping that the media will use them. We see, hear, and read hundreds of advertisements every day. Ads are played during movie previews at the cinema and during our favourite television programs each night. We hear advertising messages on the radio when we wake up. We read ads on buses and in subway stations; in magazines, Although Orbitz looked cool, it was not the number one beverage that newspapers, and flyers; and on the Internet. Most often, customers turned to in order to advertising is classified by the type of medium that is used to quench their thirst! carry the message: direct-to-home, out-of-home, radio and television (broadcast media), newspapers, magazines, and the Internet. NEL CHAPTER 8 Marketing 257  Direct-to-home Any advertising message that comes to your home, such as a flyer or catalogue, is a direct-to-home advertisement. Advertisements on the Internet, which are quite new, are also considered direct-to-home advertisements. Businesses are still testing the effectiveness of Internet advertisements, which are usually interactive graphic banners across web pages. Consumers do not ask or pay for direct-to-home advertisements, and residents often ignore them or throw them out. Out-of-home Out-of-home advertising is any advertising message that the consumer is supposed to receive while not at home. These messages are sometimes carried on billboards, which can reach 100 percent of a city’s mobile population if the advertiser rents the right number of billboards. Out-of-home ads are also shown in buses, subways, and transit shelters. Some advertisers have their ads painted on the outside of buses, making each ad a billboard in transit. These ads attract consumers’ attention during the commute to and from work, school, shopping, or entertainment. Clever advertisements also provide an interesting diversion for bored or weary travellers. Advertisements are placed in all kinds of places, including on buses and train cars. 258 UNIT 2 Functions of a Business NEL Radio Because the radio is often playing in the background, many people call it the “go anywhere” medium. Clock radios wake us up; car radios entertain us on the way to school or work; desk radios keep us amused while we work; radios at the cottage or beach help us relax. Effective radio advertisements skillfully use words and sound effects to draw us in. Although we may never have seen a flying crocodile, we can certainly imagine one when it’s described. In fact, you’re probably imagining one right now. (What kind of sound effect would you use?) Television Because television combines words, sounds, and images, it is an extremely effective advertising medium. It is also very expensive. Business Fact Nonetheless, television has the size of audience that many A 30-second commercial spot businesses want. Millions of people watch popular television during the televised broadcast shows and sporting events. Some programs appeal to a particular of the 2006 Super Bowl group of consumers. Others reach a large, general audience. football game cost an average of US$2.6 million. By way of If a television advertisement is creative and well made, a large comparison, 30-second ads on percentage of the target audience will remember the product’s prime time typically run about name, and many will purchase the product. If an advertisement $400 000. is especially creative, it may become popular itself. Newspapers Businesses advertise in both local and national newspapers. Small companies usually advertise in just local papers, while large companies might advertise both locally and nationally. It can be expensive to place a large ad in a newspaper, but inexpensive to place a small ad in the classified section. Magazines Magazines offer advertisers many advantages over newspapers. Magazines print colour advertisements, which attract consumers to the product. Many advertisers use specialty magazines to target specific groups of consumers. They advertise products that appeal to skiers, for example, in Ski Magazine. Flare has advertisements for fashions for young women. Advertisements for stores that sell bridal gowns appear in Brides magazine. Other magazines target specific demographics. There are magazines for men, women, business executives, new parents, young people, and senior citizens. General interest magazines, such as People or Maclean’s, have enormous readerships and appeal to a large cross-section of people. NEL CHAPTER 8 Marketing 259  In the News The Internet U.S. consumers are much more There are three types of Internet advertising: company experienced and comfortable websites, banner advertising on other websites, and e-mail purchasing from e-tailers these advertising. Company website advertising attracts consumers days, according to a recent study who are interested in the company in the first place (enough by comScore, a Virginia market to look it up). This is a good action medium, as it can easily research firm. The study shows convert interest into sales. Banner ads can target consumers that online shopping increased on one website and direct them to another (if you are looking 24% during the 2005 Christmas up a website on skateboarding, for example, a skateboard shoe season, reaching US$9.75 billion company like Vans could have an effective banner ad on the between November 1 and December 2, 2005. Online shoppers bought site). E-mail advertising is a bit of a mixed bag. If consumers a wider variety of products and have subscribed to a specific site and are expecting updates, also showed increased willingness offers, and advertising, then e-mail advertising can be very to spend on expensive items effective. But it can be very annoying to get messages from than during the same period companies you don’t know. This type of non-permission-based the previous year. The Nielsen/ e-mail is called spamming. NetRatings reported, however, that 18% of online shoppers Comparing Types of Advertising generate 46% of total spending. Consequently, e-tailers need to Advertisers use eight categories to compare media and select identify these buyers and come up the right one for their advertising. The categories are as follows: with ways to attract, retain, and Q  Reach: The number of people who are exposed to reward them. a message. Magazines express reach as circulation. Television describes it as ratings. Super Bowl ads reached 140 million people, for example. Q Frequency: The number of times an audience will see or hear the advertisement over a given period of time. To get frequency on some media (such as radio)