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INTEGRATED BUSINESS MANAGEMENT Business products – Products bought to use in an organization’s operations, to resell, or to Lesson 1 make other products...

INTEGRATED BUSINESS MANAGEMENT Business products – Products bought to use in an organization’s operations, to resell, or to Lesson 1 make other products Classified according to their What Is a Product? characteristics and intended uses in A product is a good, a service, or an idea an organization received in an exchange. Purchased to satisfy the goals of the organization Good – A tangible physical entity Service – An intangible result of the Consumer Products application of human and mechanical efforts to people or objects Convenience products – Relatively Idea – A concept, a philosophy, an image, or inexpensive, frequently purchased an issue items for which buyers exert minimal purchasing effort A product can be either tangible or intangible Examples: Bread, soft drinks, chewing gum, and includes functional, social, and gasoline, newspapers psychological utilities or benefits. A total product offers three independent Shopping products – Items for which elements: buyers are willing to expend The core product considerable effort in planning and Its supplemental features making purchases Its symbolic or experiential benefits Examples: Appliances, bicycles, furniture, stereos, cameras, shoes Specialty products – Items with unique characteristics that buyers are willing to expend considerable effort to obtain Examples: Fine jewelry, limited-edition collector’s items Unsought products – Products Classifying Products purchased to solve a sudden Products fall into one of two general problem, products of which categories: customers are unaware, and products that people do not Consumer products – Products purchased necessarily think about buying to satisfy personal and family needs Examples: Emergency medical services, Categorized according to how buyers automobile repairs generally behave when purchasing a specific item Business Products (Examples: Paper, pencils, cleaning supplies, paints) Installations – Facilities and nonportable major equipment Business services – The intangible (Examples: Buildings, factories, products that many organizations warehouses, production lines, very use in their operations (Examples: large machines) Financial services, legal services, marketing research services, Accessory equipment – Equipment information technology services, that does not become part of the janitorial services) final physical product but is used in production or office activities (Examples: File cabinets, Product Line and Product Mix fractional-horsepower motors, calculators, tools) Product item – A specific version of a product that can be designated as a distinct Raw materials – Basic natural offering among a firm’s products materials that become part of a physical product (Examples: Product line – A group of closely related Minerals, chemicals, agricultural product items viewed as a unit because of products, materials from forests and marketing, technical, or end-use oceans) considerations Component parts – Items that Product mix – The total group of products become part of the physical product that an organization makes available to and are either finished items ready customers for assembly or products that need - Width of product mix – The number little processing before assembly of product lines a company offers (Examples: Spark plugs, brakes, tires, - Depth of product mix – The average headlights) number of different product items offered in each product line Process materials – Materials that are used directly in the production of other products but are not readily identifiable (Example: An ingredient in salad dressing) MRO supplies – Maintenance, repair, and operating items that facilitate production and operations but do not become part of the finished product Product Life Cycles and Marketing Growth Strategies Growth stage – The stage of a product’s life Product life cycle – The progression of a cycle when sales rise rapidly and profits product through four stages: introduction, reach a peak and then start to decline growth, maturity, and decline The growth stage is critical to a product’s survival because competitive reactions to the product’s success during this period will Introduction affect the product’s life expectancy. - A typical marketing strategy should Introduction stage – The initial stage of a seek to strengthen market share and product’s life cycle—its first appearance in position the product favorably the marketplace—when sales start at zero against aggressive competitors by and profits are negative emphasizing product benefits. - Two difficulties may arise during the - Marketers should analyze competing introduction stage: brands’ product positions relative to - Sellers may lack the resources, their own and adjust the marketing technological knowledge, and mix in response to their findings. marketing expertise to launch the - The goal of the marketing strategy in product successfully. the growth stage is to establish and - The initial product price may have to fortify the product’s market position be high to recoup expensive by encouraging adoption and brand marketing research or development loyalty. costs, which can depress sales. - Production expenditures may be - Most new products start off slowly slightly lower during this stage, but and seldom generate enough sales to are still large. bring immediate profits. - Advertising messages should stress - It is estimated that only 15 to 25 brand benefits. percent of new products succeed in the marketplace. Maturity - As buyers learn about the new product and express interest, the firm Maturity stage – The stage of a product’s life should constantly monitor the cycle during when the sales curve peaks and product and marketing strategy for starts to decline as profits continue to fall weaknesses and make corrections - This stage is characterized by quickly to prevent the product’s early intense competition because many demise. brands are now in the market. - Producers who remain in the market are likely to change promotional and distribution efforts.  - As it reaches maturity, buyers’ in the decline stage of the product life knowledge of the product is likely to cycle. be high. - During a product’s decline, spending - Marketers of mature products on promotion efforts is usually sometimes expand distribution into reduced considerably. global markets, in which case - As sales decline, the product products may have to be adapted to becomes harder for consumers to fit differing needs of global find, but loyal buyers will seek out customers more precisely. retailers who still carry it. - Because many products are in the maturity stage, marketers must know how to deal with them and be Product Adoption Process prepared to adjust their marketing strategies. Product adoption process – The stages - During this stage, marketers actively buyers go through in accepting a product encourage resellers to support the product. - Maintaining market share during this stage requires promotion expenditures, which can be large if a firm seeks to increase market share through new uses. Decline When an organization introduces a new product, consumers in the target market Decline stage – The stage of a product’s life enter into and move through the adoption cycle during when sales fall rapidly process at different rates. Marketers must consider eliminating a product that no longer earns a profit or - For most products, there is also a repositioning it to extend its life. group of non-adopters who never - Marketers may also cut promotion begin the process. efforts, eliminate marginal distributors, and finally, plan to phase Depending on the length of time it takes out the product. them to adopt a new product, consumers - Usually, a declining product has lost tend to fall into one of five major adopter its distinctiveness because similar categories: competing or superior products have been introduced. Innovators – First adopters of new - New technology or social trends, products product substitutes, or environmental Early adopters – Careful choosers of considerations also play a huge role new products  Early majority – Those adopting new The value of branding for sellers includes: products just before the average - Brands are identifiers that make person repeat purchases easier for Late majority – Skeptics who adopt customers, fostering brand loyalty. new products when they feel it is - Branding helps a firm introduce a necessary new product by carrying the name Laggards – The last adopters, who and image of one or more existing distrust new products products. - Branding facilitates promotional Branding efforts because the promotion of Brand – A name, term, design, symbol, or each branded product indirectly any other feature that identifies one promotes all products bearing the marketer’s product as distinct from those of same brand. other marketers - As customers become loyal to a specific brand, the company’s market Brand name – The part of a brand that can share will achieve a level of stability, be spoken allowing the firm to use its resources Brand mark – The part of a brand not made more efficiently. up of words Branding also involves a cultural Trademark – A legal designation of exclusive dimension: use of a brand - Most brand experiences are individual, and each consumer Trade name – The full legal name of an confers their own social meaning organization onto brands. - The term cultural branding has been Value of Branding used to explain how a brand conveys a powerful myth that consumers find Brands help buyers recognize useful in cementing their identities. specific products that meet their - It is important to recognize that criteria for quality, reducing the time because a brand exists needed to identify and purchase independently in the consumer’s products. mind, it is not directly controlled by For many consumers, brand is a form the marketer. of self-expression. - Each aspect of a brand is subject to a A brand indicates a quality level and consumer’s emotional involvement, image and reduces a buyer’s interpretation, and memory. perceived risk of purchase. Customers might receive a psychological reward from owning a brand that symbolizes status. Brand Equity - The name should indicate in some way the product’s major benefits and, if possible, Brand equity – The marketing and financial suggest the product’s uses and special value associated with a brand’s strength in a characteristics. market - The brand should be distinctive. - A brand should be designed to be used and Four major elements underlie brand equity: recognized in all types of media. To avoid terms that have negative connotations, marketers sometimes use fabricated words that have absolutely no meaning when created. Types of Brands Brand names are generally created Manufacturer brands – Brands initiated by by individuals or a team within the producers organization, but outside consultants - A manufacturer brand usually and companies that specialize in requires that a producer get involved brand-name development are with distribution, promotion, and (to sometimes used. some extent) pricing decisions. To guard its exclusive rights to a Private distributor brands – Brands initiated brand, a company must ensure the and owned by resellers brand is not likely to be an - Also called private brands, store infringement on any brand already brands, or dealer brands. registered with the U.S. Patent and - The manufacturers are not identified Trademark Office. on the products for private brands. - Infringement is determined by the courts. - Successful private brands are A marketer must guard against distributed nationally, and many rival allowing a brand name to become a the quality of manufacturer brands. generic term because such terms cannot be protected as exclusive Generic brands – Brands indicating only the brand names. product category - Examples: aspirin, escalator, and shredded - Generic brands are usually sold at wheat lower prices than are comparable - To keep a brand name from becoming a branded items. generic term, the firm: Should spell the name with a capital letter Selecting a Brand Name and use it as an adjective to modify the Marketers consider several factors name of the general product class and when selecting a brand name: include the word brand after the brand name - The name should be easy for customers to Can indicate that the brand is a registered say, spell, and recall. trademark by using the symbol  consumers, and even promote greater consumption Can promote a product by communicating its features, uses, benefits, or image Can make the product more desirable through the use of reusable packaging Major Packaging Considerations Cost – Buyers have shown a willingness to pay more for improved packaging. Consistency – Marketers should consider Packaging how much consistency is desirable between the package designs of different products Packaging involves the development produced by an organization. of a container to hold a product. - Family packaging – Using similar A package can be a vital part of a packaging for all of a firm’s products product, making it: or packaging that has one common More versatile design element Safer Promotional role – Packaging can create Easier to use desirable images and associations by its color, design, shape, and texture. Packaging also conveys vital Needs of retailers – Wholesalers and information about the product and is retailers consider whether a package an opportunity to display interesting facilitates transportation, storage, and graphic design elements. handling. Like a brand name, a package can influence a customers’ attitudes Packaging and Marketing Strategy toward a product and their decisions Packaging can be a major to purchase. component of a marketing strategy. The right type of package for a new Packaging Functions product can help it gain market recognition very quickly. Protects and preserves the product, When considering the strategic uses prevents damage, or may even of packaging, marketers must prevent tampering or deter analyze the cost of packaging and shoplifting package changes. Offers convenience to consumers (Example: single-serving containers) Can prevent product waste, make storage easier for retailers and Altering the Package CHAPTER 2 Marketers sometimes alter a package because: Price and Nonprice Competition - The existing design is no longer in style compared to competitive products - New product features need to be highlighted - New packaging materials have become available - New packaging may make a product safer or more convenient to use - New packaging may make a Price competition – Emphasizing price as an product easier to handle in issue and matching or beating competitors’ the distribution channel prices - Innovative or unique - To compete effectively on a price packages that are basis, a firm should be the low-cost inconsistent with traditional seller of the product. packaging practices may - A seller competing on price must make the brand stand out have the flexibility to change prices from its competitors rapidly and aggressively in response - Demand may be increased by to competitors’ actions. accommodating multiple - If competitors quickly match or beat packaging a company’s price cuts, a price war may ensue. Nonprice competition – Emphasizing factors other than price to distinguish a product from competing brands - Nonprice factors include distinctive product quality, excellent customer service, effective promotion, packaging, or other unique features. - Nonprice competition is effective only under certain conditions: - A company must be able to distinguish its brand through unique product features, higher product quality, effective promotion, distinctive packaging, and/or excellent customer service.  - Buyers must not only be able strategy can be useful in keeping a to perceive these company afloat by increasing sales distinguishing characteristics volume. but also deem them Profit important. - The company must The objective of profit maximization extensively promote the is rarely operational because its brand’s distinguishing achievement is difficult to measure. characteristics to establish its Profit objectives tend to be superiority and set it apart set at levels that the owners from competitors in the and top-level decision makers minds of buyers. view as satisfactory and attainable. Development of Pricing Objectives Specific profit objectives may be stated in terms of either Pricing objectives – Goals that describe actual dollar amounts or a what a firm wants to achieve through pricing percentage of sales revenues. - Developing pricing objectives is an important task because they form Return on Investment the basis for decisions for other Pricing to attain a specified rate of stages of the pricing process. return on the company’s investment - Pricing objectives must be stated is a profit-related pricing objective. explicitly and in measurable terms A return on investment (ROI) pricing and should include a time frame for objective generally requires some accomplishing them. trial and error, as it is unusual for all - Marketers must ensure that pricing data and inputs required to objectives are consistent with the determine the necessary ROI to be firm’s marketing and overall available when first setting prices. objectives because pricing objectives influence decisions in many Market Share functional areas. Market share – A product’s sales in relation - A marketer can use both short- and to total industry sales long-term pricing objectives and can - Maintaining or increasing market share employ one or multiple pricing need not depend on growth in industry sales: objectives. An organization can increase market Survival share even if industry sales are flat or Achieving this objective generally decreasing. involves temporarily setting prices Sales volume can increase while low, at times below costs, in order to market share decreases if the overall attract more sales. market grows. Because price is a flexible ingredient in the marketing mix, survival  Value combines a product’s price Cash Flow with quality attributes, which -Some companies set prices so they can customers use to differentiate recover cash as quickly as possible. among competing brands. Choosing this pricing objective may Consumers may perceive relatively have the support of a marketing expensive products to have great manager if he or she anticipates a value if the products have desirable short product life cycle. features or characteristics. Consumers are generally willing to Status Quo pay a higher price for products that Status quo objectives can focus on offer convenience and save time. several dimensions, such as maintaining a certain market share, Evaluation of Competitors’ Prices meeting competitors’ prices, achieving price stability, or Identifying competitors’ prices should maintaining a favorable public image. be a regular part of marketing Can reduce a firm’s risks by helping research. to stabilize demand for its products Regardless of actual costs, a firm Can increase risk of minimizing does not want to sell its product: pricing as a competitive tool, which could lead to a climate of nonprice - At a price that is significantly above competition competitors’ prices, because the Product Quality products may not sell as well Attaining a high level of product - At a price that is significantly below quality is generally more expensive competitors’ prices, because for the firm, as the costs of materials, customers may believe the product is research, and development may be of low quality greater. Products and brands that customers In some instances, an organization’s perceive to be of high quality are prices are designed to be slightly more likely to survive in a competitive above competitors’ prices to lend an marketplace. exclusive image and to signal product quality to consumers. Assessment of the Target Market’s Evaluation of Price Selection of a Basis for Pricing The importance of price varies depending The three major dimensions on on the: which prices can be based are cost, - Type of product demand, and competition. - Type of target market An organization generally considers - Purchase situation at least two, or perhaps all three, dimensions.  Setting appropriate prices can be a - Customers pay a higher price when difficult balance for firms: demand for the product is strong and a lower price when demand is weak. - A high price may reduce - Marketers must be able to estimate demand for the product. the quantity of a product consumers - A low price will hurt profit will demand at different times and margins and may instill in how demand will be affected by customers a perception that changes in the price; the marketer the product is of low quality. then chooses the price that generates the highest total revenue. Firms must weigh many different - Appropriate for industries in which factors when setting prices, companies have a fixed amount of including: available resources that are perishable - Effectiveness depends on the marketer’s ability to estimate demand accurately Competition-Based Pricing Cost-Based Pricing Competition-based pricing – Pricing Cost-based pricing – Adding a dollar amount influenced primarily by competitors’ prices or percentage to the cost of the product - A common method among - Does not necessarily take into producers of relatively homogeneous account the economic aspects of products, particularly when the target supply and demand, nor must it market considers price to be an relate to just one pricing strategy or important purchase consideration pricing objective - Firms may choose to set prices COST-PLUS PRICING below competitors’ or at the same Cost-plus pricing – Adding a specified dollar level amount or percentage to the seller’s cost MARKUP PRICING Cost-plus pricing – Adding a specified dollar Markup pricing – Adding to the cost of the amount or percentage to the seller’s cost product a predetermined percentage of that Markup pricing – Adding to the cost of the cost product a predetermined percentage of that - Can be stated as a percentage of cost cost of making the product or as a Demand-based pricing – Pricing based on percentage of selling price: the level of demand for the product Competition-based pricing – Pricing influenced primarily by competitors’ prices Demand-Based Pricing Demand-based pricing – Pricing based on the level of demand for the product Selection of a Pricing Strategy negotiating prices, having a single price reduces the risk of a marketer developing an adversarial relationship with customers. Differential pricing – Charging different prices to different buyers for the same New-Product Pricing quality and quantity of product - For differential pricing to be effective, PRICE SKIMMING the market must consist of multiple Price skimming – Charging the highest segments with different price possible price that buyers who most desire sensitivities. the product will pay - Caution should be used to avoid - Some consumers are willing to pay a confusing or antagonizing high price for an innovative product, customers. either because of its novelty or because of the prestige or status that NEGOTIATED PRICING ownership confers. Negotiated pricing – Establishing a final - Provides the most flexible price through bargaining between seller and introductory base price customer SECONDARY-MARKET PRICING Secondary-market pricing – Setting one price for the primary target market and a different price for another market PENETRATION PRICING PERIODIC DISCOUNTING Penetration pricing – Setting prices below Periodic discounting – Temporary reduction those of competing brands to penetrate a of prices on a patterned or systematic basis market and gain a significant market share Customers can predict when the reductions quickly will occur and may delay their purchases; less effective in an environment where many Differential Pricing consumers easily comparison shop for a - An important issue in pricing better deal online decisions is whether to use a single price or different prices for the same RANDOM DISCOUNTING product. Random discounting – Temporary reduction - A single price is easily of prices on an unsystematic basis understood by both employees and customers. - Because many salespeople and customers dislike Psychological Pricing BUNDLE PRICING Psychological pricing – Strategies that Bundle pricing – Packaging together two or encourage purchases based on consumers’ more complementary products and selling emotional responses, rather than on them for a single price economically rational ones - The single price generally is markedly - Used primarily for consumer less than the sum of the prices of the products rather than business individual products. products EVERYDAY LOW PRICES (EDLPs) ODD-NUMBER PRICING Everyday low prices (EDLPs) – Setting a low Odd-number pricing – The strategy of setting price for products on a consistent basis prices using odd numbers that are slightly - EDLPs are set low enough to make below whole-dollar amounts customers feel confident they are - This strategy is not limited to receiving a good deal. low-price items. - A major issue with this approach is - Odd-number pricing has been the that, in some instances, customers subject of various psychological believe that EDLPs are a marketing studies, but the results have been gimmick and not truly the good deal inconclusive. that they proclaim. MULTIPLE-UNIT PRICING CUSTOMARY PRICING Multiple-unit pricing – The strategy of setting Customary pricing – Pricing on the basis of a single price for two or more units tradition - Can increase sales by encouraging - Example: 25-cent gumballs sold in consumers to purchase multiple gumball machines units when they might otherwise have only purchased one at a time Product-Line Pricing Product-line pricing – Establishing and REFERENCE PRICING adjusting prices of multiple products within a Reference pricing – Pricing a product at a product line moderate level and positioning it next to a more expensive model or brand CAPTIVE PRICING - Used in the hope that the customer Captive pricing – Pricing the basic product in will use the higher price as a a product line low, but pricing related items reference price (i.e., a comparison at a higher level price) - Because of the comparison, PREMIUM PRICING the customer is expected to Premium pricing – Pricing the highest-quality view the moderate price more or most versatile products higher than other favorably than he or she models in the product line would if the product were considered in isolation. PRICE LINING - Because this pricing strategy can lead to deceptive pricing practices, Price lining – The strategy of selling goods the Federal Trade Commission has only at certain predetermined prices that established guidelines for reflect definite price breaks comparison discounting: - If the higher price is the price Promotional Pricing formerly charged for the product, the seller must have made the previous PRICE LEADERS price available to customers for a Price leaders – Products priced below the reasonable time period. usual markup, near cost, or below cost - If sellers present the higher price as - Used in supermarkets and the one charged by other retailers in restaurants to attract customers by the same trade area, they must be offering them especially low prices able to demonstrate that this claim is on a few items, with the expectation true. that they will purchase other items as - When the higher price is presented as well the manufacturer’s suggested retail - Management expects that sales of price, the higher price must be close regularly priced products will more to the price at which a reasonable than offset the reduced revenues proportion of the product was sold. from the price leaders. SPECIAL-EVENT PRICING Special-event pricing – Advertised sales or CHAPTER 3 price cutting linked to a holiday, season, or event Foundations of the Supply Chain - Used to increase sales volume - Special sales events may be Distribution – The decisions and activities designed to generate necessary that make products available to consumers operating capital. when and where they want to purchase them COMPARISON DISCOUNTING Supply chain – All the organizations and Comparison discounting – Setting a price at activities involved with the flow and a specific level and comparing it with a transformation of products from raw higher price materials through to the end customer - The higher price may be the product’s previous price, the price of a Procurement – Processes to obtain competing brand, the product’s price resources to create value through sourcing, at another retail outlet, or a purchasing, and recycling including materials manufacturer’s suggested retail and information price. Logistics management – Planning, and stored, and when they expire, all implementing, and controlling the efficient the way to the final consumer. and effective flow and storage of products - Another technology improving supply and information from the point of origin to chain management is artificial consumption in order to meet customers’ intelligence (AI), which can help firms needs and wants with complex computing tasks to improve marketing analytics. Operations management – The total set of managerial activities used by an organization to transform resource inputs into goods, services, or both Supply chain management (SCM) – The coordination of all the activities involved with the flow and transformation of supplies, products, and information throughout the supply chain to the ultimate consumer The Role of Marketing Channels in Supply Chains Supply chain management should begin with a focus on the customer, who is the ultimate Marketing channel – A group of individuals consumer and whose satisfaction should be and organizations that direct the flow of the goal of all efforts of channel members. products from producers to customers When the buyer, the seller, marketing within the supply chain intermediaries, and facilitating agencies - Also called a channel of distribution work together, the cooperative relationship or distribution channel results in compromise and adjustments that - Goal is to make products available at meet customers’ needs. the right time at the right place in the Supply chain managers can use data right quantities available through improved information - Customer satisfaction should be the technology to learn about a firm’s driving force behind marketing customers. channel decisions. Technology has improved supply chain Marketing intermediaries – Middlemen that management capabilities globally. link producers to other intermediaries or ultimate consumers through contractual - Blockchain – An incorruptible digital arrangements or through the purchase and recordkeeping system resale of products - Using blockchain technology, all - Play key roles in customer organizations within a supply chain relationship management through can record every movement of distribution activities and by products and components from maintaining databases and where they are sourced, processed, information systems to help all  members of the marketing channel performing certain services or maintain effective customer functions efficiently. relationships - Intermediaries are specialists in facilitating exchanges. - Critics accuse wholesalers of being inefficient and adding to costs. - While eliminating wholesalers may lower prices for customers, it would not eliminate the need for the services the wholesalers provide. - Other channel members The Significance of Marketing Channels would have to perform those - Marketing channel decisions can functions, perhaps not as have a strong influence on the other efficiently, and customers still elements of the marketing mix. would have to pay for them. - Channel decisions are critical because they determine a product’s market presence and accessibility. - Marketing channel decisions have strategic significance because they generally entail long-term commitments among a variety of Types of Marketing Channels firms. - Channel decisions are the least CHANNELS FOR CONSUMER PRODUCTS flexible component of the marketing - A long channel may be the most mix; once a firm commits to a efficient distribution channel for distribution channel, it is difficult to some consumer goods. change. - When several channel intermediaries - Marketing channels serve many perform specialized functions, costs functions, including creating utility are likely to be lower than when one and facilitating exchange efficiencies. channel member tries to perform them all. MARKETING CHANNELS CREATE UTILITY - Efficiencies arise when firms that - Marketing channels create four types specialize in certain elements of of utility: time, place, possession, and producing a product or moving it form. through the channel are more MARKETING CHANNELS FACILITATE effective at performing specialized EXCHANGE EFFICIENCIES tasks than the manufacturer. - Marketing intermediaries can reduce - This results in added value to the costs of exchanges by customers and reduced costs  throughout the distribution Multichannel distribution – The use of a channel. variety of marketing channels to ensure maximum distribution Digital distribution – Delivering content through the internet to a computer or other device CHANNELS FOR BUSINESS PRODUCTS - Industrial distributor – An independent business organization that takes title to industrial products and carries inventories - Usually sells standardized items, although some carry a wide variety of product lines - Can be most effective when a Selecting appropriate marketing channels is product: important because they are difficult to - Has broad market appeal change once chosen. - Is easily stocked and serviced Channel selection decisions are usually - Is sold in small quantities affected significantly by a number - Is needed on demand to of factors. avoid high losses CUSTOMER CHARACTERISTICS Manufacturers’ agent – An independent - Because of variations in product use, businessperson who sells complementary product complexity, consumption products of several producers in assigned levels, and need for services, firms territories and is compensated through develop different marketing commissions strategies for business customers and consumers. MULTIPLE MARKETING CHANNELS AND - Business customers often prefer to CHANNEL ALLIANCES deal directly with producers and frequently buy in large quantities. Strategic channel alliance – An agreement - Consumers generally buy limited whereby the products of one organization quantities of a product, purchase are distributed through the marketing from retailers, and often do not mind channels of another limited customer service. PRODUCT ATTRIBUTES Intensive distribution – Using all available - Marketers of complex and expensive outlets to distribute a product products, perishable products, and - Appropriate for products that have a fragile products that require special high replacement rate, require almost handling will likely employ short no service, or are bought based on channels. price cues - Less-expensive standardized - Must be available at a store nearby products with long shelf lives can go and be obtained with minimal search through longer channels with many time intermediaries. Selective Distribution TYPE OF ORGANIZATION Selective distribution – Using only some available outlets in an area to distribute a product - Appropriate for shopping products - Desirable when a special effort, such as customer service from a channel member, is important to customers - Often used to motivate retailers to COMPETITION provide adequate service In a highly competitive market, it is important for a company to maintain low costs so it can offer lower prices than its competitors if necessary, to maintain a competitive advantage. Exclusive Distribution Exclusive distribution – Using a single outlet ENVIRONMENTAL FORCES in a fairly large geographic area to distribute Economic conditions, technology, and a product government regulations can affect channel - Suitable for products purchased selection. infrequently, consumed over a long period of time, or that require a high CHARACTERISTICS OF INTERMEDIARIES level of customer service or When an organization believes that an information intermediary is not promoting its products - Used for expensive, high-quality adequately or does not offer the correct mix products with high profit margins of services, it may reconsider its channel - Not appropriate for convenience choices. products and many shopping products Intensity of Market Coverage - Used as an incentive to sellers when a limited market is available for Intensive Distribution products Some products are appropriate for exclusive - Channel cooperation reduces wasted distribution when first introduced, but as resources, such as time, energy, or competitors enter the market and the materials. product moves through its life cycle, other types of market coverage and distribution CHANNEL LEADERSHIP channels become necessary. - Channel captain – The dominant leader of a marketing channel or a Examples: supply channel Cigarettes - Intensive - May be a producer, wholesaler, or Apple iPads - Selective retailer Rolls-Royce - Exclusive - To attain desired objectives, the captain must possess channel power Strategic Issues in Marketing Channels - Channel power – The ability of one channel member to influence another Competitive Priorities in Marketing member’s goal achievement Channels - Supply chains can be a source of CHANNEL COOPERATION competitive advantage and a strong - Cooperation enables retailers, market orientation because supply wholesalers, suppliers, and logistics chain decisions cut across all providers to speed up inventory functional areas of business. replenishment, improve customer - Building the most effective and service, and cut the costs of bringing efficient supply chain can sustain a products to the consumer. business and help it to use resources - Channel cooperation leads to greater effectively and be more efficient. trust among channel members, - Supply chains driven by improves the overall functioning of firm-established goals focus on the the channel, and leads to more “competitive priorities” of speed, satisfying relationships among quality, cost, or flexibility as the channel members. performance objective. - A marketing channel should be viewed as a unified supply chain. Channel Leadership, Cooperation, and Conflict CHANNEL CONFLICT - Each channel member holds certain - Channel conflict occurs when: expectations of other channel - Members disagree about best members. methods for distributing products - Partnerships can facilitate effective profitably and efficiently supply chain management when - Intermediaries overemphasize partners agree on objectives, policies, competing products or diversity into and procedures for distribution product lines traditionally handled by associated with the supplier’s other intermediaries products.  - Self-interest creates Horizontal channel integration – Combining misunderstanding about role organizations at the same level of operation expectations of channel members under one management - Communication is poor between - Permits efficiencies and economies channel members of scale in purchasing, marketing - Although there is no single method research, advertising, and specialized for resolving conflict, partnerships personnel can be reestablished if two conditions are met: Logistics in Supply Chain Management - The role of each channel member is clearly defined and followed - Logistics, involving physical - Members of channel partnerships distribution, relates to planning, agree on means of coordinating implementing, and controlling the channels, which requires strong, but efficient flow and storage of products not polarizing, leadership and includes: - Order processing Channel Integration - Inventory management - Various channel stages may be - Materials handling combined, either horizontally or - Warehousing vertically, under the management of - Transportation a channel captain. - Such integration may stabilize supply, - Physical distribution activities may be reduce costs, and increase channel performed by a producer, wholesaler, member coordination. or retailer, or they may be outsourced. - Outsourcing – The VERTICAL CHANNEL INTEGRATION contracting of physical Vertical channel integration – Combining distribution tasks to third two or more stages of the marketing channel parties under one management - Third-party logistics (3PL) firms – Firms that have Vertical marketing system (VMS) – A special expertise in core marketing channel managed by a single physical distribution activities channel member to achieve efficient, such as warehousing, low-cost distribution aimed at satisfying transportation, inventory target market customers management, and information technology and can often perform these activities more efficiently Physical distribution managers must be HORIZONTAL CHANNEL INTEGRATION sensitive to the issue of cost trade-offs.  - Trade-offs are strategic decisions to - Too many products in inventory combine (and recombine) resources increases risks of obsolescence, for greatest cost effectiveness. pilferage, and damage. - The goal is not always to find the Reorder point – The inventory level that lowest cost, but rather to find the signals the need to place a new order right balance - To calculate the reorder point, the of costs. marketer must know the following: Cycle time – The time needed to complete a - Order lead time – The process average time lapse between - Firms should look for ways to reduce placing the order and cycle time while maintaining or receiving it reducing costs and maintaining or - Usage rate – The rate at improving customer service. which a product’s inventory is used or sold during a specific Order Processing time period Order processing – The receipt and - Safety stock – The amount of transmission of sales order information extra inventory a firm keeps - Order entry – Begins when to guard against stockouts customers or salespeople place resulting from above-average purchase orders usage rates and/or - Order handling – Product availability longer-than-expected lead and customer creditworthiness is times verified; order assembly occurs - Order delivery – Delivery is scheduled - Reorder Point = (Order Lead Time × with an appropriate carrier Usage Rate) + Safety Stock Electronic data interchange (EDI) – A Just-in-time (JIT) – An inventory computerized means of integrating order management approach in which supplies processing with production, inventory, arrive just when needed for production or accounting, and transportation resale - Functions as an information system that links marketing channel Materials Handling members and outsourcing firms - Materials handling – Physical together handling of tangible goods, supplies, and resources Inventory Management - Efficient procedures and techniques Inventory management – Developing and for materials handling minimize maintaining adequate assortments of inventory management costs, reduce products to meet customers’ needs the number of times a good is - Stockouts – Shortage of products handled, improve customer service, and increase customer satisfaction.  - Radio frequency identification (RFID) Transportation – A system of tags and readers that Transportation – The movement of products use radio waves to identify and track from where they are made to intermediaries materials tagged with special and end users microchips - Product characteristics and internal TRANSPORTATION MODES packaging are important considerations. - Two common methods used in materials handling include: - Unit loading – One or more boxes are placed on a pallet or skid - Containerization – The consolidation of many items into a single, large container CHOOSING TRANSPORTATION MODES that is sealed at its point of - Modes are selected based on the origin and opened at its cost, speed, dependability, load destination flexibility, accessibility, and frequency Warehousing that is most appropriate and Warehousing – The design and operation of generates the desired level of facilities for storing and moving goods customer service. - Provides time utility by compensating - Marketers compare transportation for dissimilar production and modes to determine if the benefits consumption rates from a more expensive mode are - Helps stabilize prices and the worth the higher costs. availability of seasonal items - Large logistics firms may be used to - Choosing appropriate warehouse establish seamless global facilities is an important strategic distribution. consideration. Warehouses fall into two general categories: COORDINATING TRANSPORTATION - Private warehouses – - Intermodal transportation – Two or Company-operated facilities for more transportation modes used in storing and shipping their own combination products - Containerization facilitates - Public warehouses – Storage space this by consolidating and related logistics facilities that shipments into sealed can be leased by companies containers for transport by Distribution centers – Large, centralized piggyback (truck and rail), warehouses that focus on moving rather fishyback (truck and water), than storing goods and birdyback (truck and air).  - Freight forwarders – Organizations LESSON 4 that consolidate shipments from several firms into efficient lot sizes The Nature of Integrated Marketing - Megacarriers – Freight Communications transportation firms that provide - Integrated marketing several modes of shipment communications – Coordination of promotion and other marketing Legal Issues in Channel Management efforts for maximum informational and persuasive impact on customers Tying agreement – An agreement in which a The Communication Process supplier furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well Exclusive Dealing Exclusive dealing – A situation in which a manufacturer forbids an intermediary from carrying products of competing Communication – A sharing of meaning manufacturers through the transmission of information - Only considered legal if the: - Exclusive dealing blocks Source – A person, group, or organization competitors from less than with a meaning it tries to share with a 15 percent of the market receiver or an audience - The sales volume is small - The producer is smaller than Receiver – The individual, group, or the retailer organization that decodes a coded message Refusal to Deal Audience – Two or more receivers - Producers have the right to choose or Coding process – Converting meaning into reject the channel members with a series of signs or symbols which they will do business. - Suppliers may not legally refuse to Communications channel – The medium deal with wholesalers or dealers of transmission that carries the coded merely because these wholesalers or message from the source to the receiver dealers resist policies that are anticompetitive or in restraint of trade. Decoding process – Converting signs or symbols into concepts and ideas Noise – Anything that reduces a communication’s clarity and accuracy  interested in the firm’s product and Feedback – The receiver’s response to a are likely potential buyers. decoded message Retain Loyal Customers Can be verbal and nonverbal - Maintaining long-term customer relationships is a major goal of most Channel capacity – The limit on the marketers volume of information a communication channel can handle effectively Facilitate Reseller Support - Strong reseller relationships are important to sustain a competitive Promotion – Communication to build and advantage. maintain relationships by informing and persuading one or more audiences Combat Competitive Promotional Efforts - A combative promotional objective is Create Awareness used most often by firms in - For an organization that is extremely competitive consumer introducing a new product or a line markets. extension, making customers aware of the product is crucial to initiating Reduce Sales Fluctuations the product adoption process. - A business cannot operate at peak efficiency when sales fluctuate Stimulate Demand widely (holidays, seasonal products, - Primary demand – Demand for a economic changes, etc.). product category rather than for a specific brand The Promotion Mix - New introductory promotion – Promotion that informs consumers Promotion mix – A combination of about a new product promotional methods used to promote a - Selective demand – Demand for a specific product specific brand Advertising Encourage Product Trial - Advertising is a paid nonpersonal - If customers stall during the communication about an evaluation stage, marketers can use organization and its products certain types of promotion—free transmitted to a target audience samples, coupons, games—to through mass media. encourage product trial in order to move them through the product Personal Selling adoption process. Personal selling is a paid personal communication that seeks to inform Identify Prospects customers and persuade them to purchase - Certain types of promotional efforts products in an exchange situation. aim to identify customers who are Kinesic communication – Communicating personal selling, whereas through the movement of head, eyes, arms, advertising plays a major role in hands, legs, or torso promoting consumer goods. Proxemic communication – Communicating by varying the physical Costs and Availability of Promotional distance in Methods face-to-face interactions - Cost is a major factor to analyze Tactile communication – Communication when developing a promotion mix. through touching Push policy – Promoting a product only to Public relations the next institution down the marketing - Public relations is a broad set of channel communication efforts used to create and maintain favorable Pull policy – Promoting a product directly relationships between an to consumers to develop strong consumer organization and its stakeholders. demand that pulls products through the marketing channel Sales Promotion - Sales promotion is an activity or material that acts as a direct inducement, offering added value or incentive for the product to resellers, salespeople, or customers. Selecting Promotion Mix Elements Promotional Resources, Objectives, and Policies - The size of an organization’s promotional budget affects the Word-of-mouth communication – number and relative intensity of Personal, informal exchanges of promotional methods included in a communication that customers share with promotion mix. one another about products, brands, and companies Buzz marketing – An attempt to incite publicity and public excitement surrounding a product through a creative event Viral marketing – A strategy to get consumers to share a marketer’s message, often through email or online videos, in a Characteristics of the Product way that spreads dramatically and quickly - Generally, promotion mixes for business products concentrate on LESSON 5 with pricing objectives and policies and actual product prices. Customer-Driven Strategic Marketing Distribution Defining Marketing - Products must be available at the - Marketing – The process of right time and in appropriate creating, distributing, promoting, and locations. pricing goods, services, and ideas to Promotion facilitate satisfying exchange - The promotion variable relates to relationships with customers and to activities used to inform and develop and maintain favorable persuade to create a desired relationships with stakeholders in a response. dynamic environment Marketing Creates Value Marketing Focuses on Customers Value – A customer’s subjective Customers – The purchasers of assessment of benefits relative to costs in organizations’ products; the focal point of all determining the worth of a product marketing activities Exchanges – The provision or transfer of Target market – A specific group of goods, services, or ideas in return for customers on whom an organization something of value focuses its marketing efforts Stakeholders – Constituents who have a Marketing mix – Four marketing “stake,” or claim, in some aspect of a activities—product, price, distribution, and company’s products, operations, markets, promotion—that a firm can control to meet industry, and outcomes the needs of customers within its target market Product – A good, a service, or an idea - Good – A physical entity that you can touch - Service – The application of human and mechanical efforts to people or Marketing Occurs in a Dynamic objects to provide intangible benefits Environment to customers - Idea – A concept, a philosophy, an Marketing environment – The competitive, image, or an issue economic, political, legal and regulatory, technological, and sociocultural forces that Price surround the customer and affect the - The price variable relates to marketing mix decisions and actions associated Understanding the Marketing Concept Marketing Is Used in Nonprofit Marketing concept – A managerial Organizations philosophy that an organization should try to - Government agencies at the federal, satisfy customers’ needs through a state, and local levels engage in coordinated set of activities that also allows marketing activities to fulfill their the organization to achieve its goals mission and goals. THE PRODUCTION ORIENTATION Marketing Is Important to Businesses and - During the second half of the 19th the Economy century, the Industrial Revolution - Marketing activities help to produce improved speed and efficiency. the profits that are essential to the survival of individual businesses. THE SALES ORIENTATION - During the first half of the 20th Marketing Fuels Our Global Economy century, competition increased and - Advances in technology, along with focus shifted to selling products to falling political barriers and the many buyers. universal desire for a higher standard of living, have made marketing across national borders commonplace while stimulating economic growth. Market orientation – An organizationwide commitment to researching and responding Marketing Knowledge Enhances Consumer to customer needs Awareness - Studying marketing allows us to Customer Relationship Management understand the importance of marketing to customers, Customer relationship management – organizations, and our economy. Using information about customers to create Marketing Connects People through marketing strategies that develop and Technology sustain desirable customer relationships - Technology helps marketers to understand and satisfy more Relationship marketing ‒ Establishing customers than ever before. long-term, mutually satisfying buyer‒seller relationships Green marketing – A strategic process involving stakeholder assessment to create The Importance of Marketing in Our meaningful long-term relationships with Global Economy customers while maintaining, supporting, and enhancing the natural environment Marketing Costs Consume a Sizable Portion of Buyers’ Dollars Marketing Offers Many Exciting Career - About one-half of a buyer’s dollar Prospects goes toward marketing costs. - The marketing field offers a variety of interesting and challenging career opportunities throughout the world: