Marketing:

Developing

Relationships

McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

CHAPTER 11 Customer-Driven Marketing

CHAPTER 12 Dimensions of Marketing Strategy

CHAPTER 13 Digital Marketing and Social Networking

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Entering the World of Business

Examining Red Bull’s Marketing Prowess

• Red Bull is not meant to taste good, but to provide energy and

enhance endurance and is beloved for its caffeine boost

• Because Red Bull is marketed as a performance enhancer, the

company focuses on extreme sports and its athletes

• The company creates TV shows, films and video games; runs

a magazine; owns four soccer teams; and runs a record label

? Describe the Red Bull product and how it is used to target

athletes

? Describe Red Bull’s promotional strategy

? Why do you think Red Bull is expanding into other forms of

media such as magazines and television? 12-3

The Marketing Mix

The marketing mix is the part of the marketing strategy

that involves decisions regarding controllable variables

After selecting a target market, marketers develop

and manage the dimensions of the marketing mix

to give their firm an advantage over competitors

Successful companies offer at least one dimension

of the marketing mix that surpasses all competitors

These companies must also maintain acceptable,

and if possible distinguishable, differences in the

other dimensions as well

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Product Strategy

Product

Development

Process

Thousands of new

products are

introduced annually,

few succeed

It takes time to get a

new product to market

Sometimes a product

or idea is shelved,

only to be returned to

later

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Product Strategy

Business Analysis

Analyze the product’s affects on sales, costs and profits

New Idea Screening

Screening involves management looking at the company’s resources and its ability to produce and market the product; most ideas are rejected in this phase

Idea Development

New ideas come internally from marketing research or employees and from external sources such as ad agencies, consultants and customers

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Product Strategy

FedEx founder Fred Smith

studied a mathematical

discipline called topology, which

inspired his vision for creating

the company

Realizing the potential

efficiencies of connecting all

points on a network through a

central hub, Smith used what he

learned to get FedEx off the

ground

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Product Strategy

Commercialization

The full introduction of a complete marketing strategy and the launch of the product for commercial success

Test Marketing

A trial mini-launch of a product in limited areas that represent the potential market

Product Development

The few products to reach this stage get prototypes and the development of a marketing strategy

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Product Strategy

ACNielsen

Market

Decisions

Source: “Test Marketing,” ACNielsen (n.d.), www.acnielsen.com/services/testing/test1.htm (accessed June

5, 2004). Reprinted with permission of ACNielsen Market Decisions.

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Product Strategy Products are classified as consumer or business products

Consumer products are products intended for

household or family use

Convenience Products – items bought frequently with no planning, such as eggs, milk, bread and

newspapers

Shopping Products – purchased after consumer has “shopped around”

Specialty Products – require greater research and shopping effort; consumers unwilling to accept a

substitute

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Product Strategy

o The Dolorean from the

1980’s, is a product that did

not survive; however, they

are still popular among car

collectors

o Because there are so few of

these cars left, Doloreans

would be classified as

specialty products requiring

greater shopping effort

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Product Strategy

Raw materials – natural products from the earth

Major equipment – large, expensive items used in production

Accessory equipment – items not part of final product

Component parts – finished items included in final product

Processed materials – used in production, not a component

Supplies – materials that make operations possible

Industrial services – financial, legal, security and janitorial

Business Products

• Used directly or indirectly in the operation or manufacturing processes of businesses

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Product Strategy

Product relationships are of key importance

Product Line

• A group of closely related products that are treated as a unit because of similar marketing strategy, production or end-use considerations

Product Mix

• All the products offered by an organization

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Product Strategy

Colgate-

Palmolive’s

Product Mix and

Product Lines

Source: “Colgate World of Care,” Colgate-Palmolive Company,

www.colgate.com/app/Colgate/US/HomePage.cvsp (accessed April 11, 2012).

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Product Strategy

Like people,

products are

born, grow,

mature and

eventually die

With redesign or

new uses,

products can be

reborn

The Life Cycle of a Product

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Product Strategy

Introductory Stage

Growth Stage

Maturity Stage

Decline Stage

As products pass through the four life cycle stages, they get new

advertising and pricing strategies for each stage

Marketers focus on

making consumers

aware of the product

and its benefits

The firm tries to

strengthen its

market position

by emphasizing

benefits

Severe

competition

and heavy

costs

Firms may eliminate

models, cut costs

and finally phase out

products

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Product Strategy

Landline phones are in the

decline stage as more and more

consumers are giving up their

landlines and choosing to go with

cell phones instead

Products at

Different Stages

of the Life Cycle

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Product Strategy

A brand is a name, term, symbol, design or

combination that identifies a product

A brand name is the part that can be spoken and

consists of letters, words and numbers

A brand mark is the part of the brand that is a

distinctive design, such as McDonald’s arches

Branding

• The process of naming and identifying products

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Product Strategy

Protecting a brand name is

important in maintaining a brand

identity

Xerox has become synonymous

with photocopying and Kleenex

with tissues

Trademark

• A brand registered with the U.S. Patent and Trademark Office and is thus legally protected from use by any other firm

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Product Strategy

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Product Strategy

Manufacturer Brands

• Initiated and owned by the manufacturer to identify products from the point of production to the point of purchase

Private Distributor Brands

• May cost less than manufacturer brands, they are owned and controlled by a wholesaler or retailer

Generic Products

• Products with no brand name that often come in simple packages and carry only their generic name

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Product Strategy

Each product in the product mix has its own brand name

Develop a family of brands with each carrying the same

name or a portion of the name

Two basic approaches to

branding multiple products

Warner-Lambert sells

Dentyne, Chiclets, Listerine,

Halls, Rolaids and Trident –

each individually branded

Gillette, Sara Lee

and IBM use this

approach

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Product Strategy

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Product Strategy

• The external container that holds and describes the product; influences consumers’ attitudes

• Performs several functions: protection, economy, convenience and promotion

Packaging

• The presentation of important information on a package; closely associated with packaging

• Contains information required by law such as ingredients, nutrition facts, warnings, instructions and manufacturer’s address

Labeling

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Product Strategy

As concern for the environment grows, many companies are

developing products with more eco-friendly ingredients, from

recycled paper to biodegradable chemicals

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Product Strategy

Level of quality is the amount of quality a product

possesses

Consistency of quality depends on the product

maintaining the same level of quality over time

Service quality is judged by consumers

Quality is also associated with where the product is made

Quality

• The degree to which a good, service or idea meets the demands and requirements of customers

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Product Strategy

Google is one of the most

valuable brands worldwide

Google also owns YouTube, the

most popular video sharing site

on the Web

YouTube transformed an old

phone booth into a YouTube

Upload Booth at the Macworld

Expo

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Pricing Strategy

o Almost anything of value can be assessed by a price

o Consumers vary in their response to price

o The product’s perceived value in the marketplace

added to the production costs help determine price

Calculating the Value of a Product

Source: Rafi Mohammed, “Use Price to Profit and Grow,” Forbes.com, March 25, 2010, www.forbes.com/ 2010/03/25/profit-gainvalue-mckinsey-sears-whirlpool-

cmo-network-rafi-mohammed.html (accessed April 15, 2012).

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Pricing Strategy

Price is a key element in the marketing mix as

it related directly to revenue and profits

Pricing objectives specify the role of price

in an organization’s marketing mix and

strategy

Price is probably the

most flexible variable;

can be set or changed

in a few minutes

Four common pricing

objectives: maximizing

profits, boosting market

share, maintaining the

status quo, and survival

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Pricing Strategy

Pricing strategies provide guidelines for achieving the

pricing objectives

Pricing New Products

Price Skimming is charging the highest possible price

buyers who want the product will pay

Penetration price is a low price designed to help a product enter the market and gain market share

rapidly

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Pricing Strategy

Comcast is attempting

to increase market

share by using a

penetration pricing

strategy of $29.99 per

month for 12 months

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Pricing Strategy

Perfume and cosmetics prices are

set artificially high to give the

impression of superior quality

Psychological Pricing encourages purchasing based on emotional rather than rational responses to price

Even/Odd Pricing assumes people will buy more of a product for

$9.99 than $10 because it seems to be a bargain at the odd price

Symbolic/Prestige Pricing assumes that high prices connote

high quality

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Pricing Strategy

o Quantity discounts are given for purchasing

in large volumes

o Seasonal discounts are those given for

purchasing goods or services out of season

o Promotional discounts attempt to improve

sales by advertising price reductions on

selected products; increasing customer

interest and profits

Discounts

• Temporary price reductions often employed to boost sales

12-33

Pricing Strategy

The pricing strategy of an

independently owned ice

cream business can use a

premium price objective

because of the quality of the

product and the unique

atmosphere

12-34

Going Green

The Challenges of Choosing Green Products over Convenience

• An innovative but simple product has been introduced: refill

packages for household cleaners

• Except, it has been done before with poor results; consumers

wanted premixed bottles and retailers hated the packaging

• Some companies are finding ways to meet these challenges

? Why has it been difficult for consumers and retailers to accept

eco-friendly cleaning products?

? How are companies making eco-friendly cleaning products

more convenient for consumers?

? Do you consider price or convenience to be more important

when shopping?

12-35

Distribution Strategy

Marketing Channel

A group of organizations that moves products from their

producer to customers; also called a channel of distribution

Middlemen, or intermediaries, are organizations that bridge the gap between a product’s manufacturer

and the ultimate consumer

Makes products available to customers when and where

they desire to purchase them

Middlemen create time, place and ownership utility

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Move products from producers

to a convenient retail

establishment (place utility)

Maintain hours of operation

(time utility)

Assume the risk of inventories

(ownership utility)

Distribution Strategy

• Intermediaries who buy products from manufacturers (or other intermediaries) and sell them to consumers for home and household use rather than for resale or for use in producing other products

Retailers

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Distribution Strategy

12-38

Distribution Strategy

Today, there are too many stores

competing for too few customers so

competition is intense

In addition, retailers

face challenges

such as shoplifting

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Distribution Strategy

They usually do not sell to ultimate consumers

Important for the marketing activities they perform

If wholesalers were eliminated, their functions must

be passed on to some other entity, such as

producer, another intermediary or the consumers

• Intermediaries who buy from producers or from other wholesalers and sell to retailers

Wholesaler

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Distribution Strategy

12-41

Distribution Strategy

Supply chain management creates alliances between

channel members

Connects and integrates all parties of the distribution

system in order to satisfy customers

Involves long-term partnerships among members

Goes beyond traditional members to include all

organizations involved in moving products

Focus shifts from selling to the next level to one of

selling products through the channel

12-42

Distribution Strategy

Marketing

Channels

for

Consumer

Products

12-43

Distribution Strategy

In contrast to consumer goods, more than half of all

business products are sold through direct marketing

Business Products

Business customers like to communicate directly with

producers to gain the technical assistance and

assurances only the producer can offer

Business products may be distributed through channels

employing wholesaling intermediaries such as

industrial distributors and / or manufacturer’s agents

12-44

Distribution Strategy

A major distribution decision is how widely to distribute a

product – how many and what type of outlets

Intensive Distribution

• A product is made available in as many outlets as possible

• Used for frequently purchased items

Selective Distribution

• Only a small number of all available outlets are used to expose products

• Used most often when consumers buy only after shopping and comparing price, quality and style

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Distribution Strategy

Exclusive Distribution

• The awarding by a manufacturer to an intermediary of the sole right to sell a product in a defined geographic territory

• Includes high-quality merchandise

Physical Distribution

• All the activities necessary to move products from producers to customers – inventory control, transportation, warehousing and materials handling

• Both goods and services require physical distribution

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Distribution Strategy

Transportation is the shipment of products to buyers

Railways – least expensive

Motor vehicles – greater flexibility

Inland waterways – cheap but slow

Pipelines – transport petroleum and natural gas

Airways – costly but speedy

Factors affecting choice include cost, capability, reliability

and availability

12-47

Distribution Strategy

Handling processes vary significantly due to

product characteristics

Warehousing

• The design and operation of facilities to receive, store and ship products

Materials Handling

• The physical handling and movement of products in warehousing and transportation

Companies can own their own warehouse, lease a

private warehouse or rent space in a public warehouse

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Distribution Strategy

Distribution decisions are among the least flexible

marketing mix decisions

Commit resources and establish contractual

relationships that are difficult or impossible to change

Expanding into new markets could mean a complete

change in distribution

If a company does not manage its channel efficiently, a

competitor may evolve to create a more effective

distribution system

12-49

Promotion Strategy

Promotion encourages consumers to accept products and

influences opinions and attitudes

Advertising, personal selling, publicity and sales

promotion are collectively known as the promotion mix

Integrated Marketing Communications

• Coordinating the promotion mix elements and synchronizing promotion as a unified effort

This approach results in delivery of the

desired message to consumers

12-50

Promotion Strategy

Several factors affect the campaign, including: product features, target

audience, marketing objectives and the choice of media used

• A paid form of non-personal communication transmitted through a mass medium, such as television commercials or magazine advertisements

Advertising

• Designing a series of advertisements and placing them in various media to reach a particular target market

Advertising Campaign

12-51

Promotion Strategy

Your Ad

Here

12-52

Responding to Business Challenges

Disney English: A New Market Niche for Disney

• Disney lost more than $30 million in 2011 on its Hong Kong

Disney theme park yet plans to open another in Shanghai

• There is one business niche in China where Disney is thriving:

English Education, with its Disney English school program

• Disney claims its schools were created solely to teach English

but it has a unique marketing opportunity with young children

and their parents

? Why do you think Disney has decided to open up a larger park

in Shanghai?

? Why has Disney English been such a successful program?

? How might the Disney English program indirectly market the

theme parks? 12-53

Promotion Strategy

o Most flexible promotional method but expensive

o Three categories of salesperson:

Order takers – retail sales clerks

Creative salespersons – automobiles sales

Support salespersons – customer educators

Personal Selling

• Direct, two-way communication with buyers and potential buyers

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Prospecting: identifying potential

buyers

Approaching: referral or cold call

Presenting: demonstrating the

product

Handling Objections:

countering reasons for purchase

Closing: asking for a purchase

Following Up: checking back after

purchase

Promotion Strategy

Personal selling is a six-step process

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Promotion Strategy

Publicity

Non-personal communication

transmitted through mass media but not paid for directly by

the firm

Message is presented as a

news story and the company is not

seen as the originator of the

message

Most companies have a public

relations department trying to

gain favorable publicity and

minimize negative publicity

12-56

Promotion Strategy

Advertising and publicity are both carried by mass media

but they differ is several ways

Purpose

• Advertising in informative, persuasive, or both; publicity is informative

Impact

• Advertising calls for action; publicity rarely does

Cost

• Companies pay for advertising; publicity is free

Duration

• Advertising is repeated often; publicity appears once

12-57

Promotion Strategy

A related concept is viral marketing, which gets Internet

users to pass on ads and promotions to others

Buzz marketing is a variation of traditional advertising where marketers attempt to create a trend

Companies seek out trend setters in a

community and get them to “talk up”

their product

The idea is that accepted members

of a group have more credibility than

any form of paid communication

Works best as part of an integrated marketing plan

12-58

Promotion Strategy

Easier to measure and less expensive than advertising

Includes: store displays, premiums, samples and

demonstrations, coupons, contests and sweepstakes,

refunds, and trade shows

Used to enhance and supplement other forms of

promotion

Sales Promotion

• Direct inducements offering added value or some other incentive for buyers to enter into an exchange

12-59

Promotion Strategy

When developing a promotion mix, companies must

decide whether to push or pull the product

An attempt to motivate intermediaries to push the product

down to their customers

Uses promotion to create consumer demand so consumers exert

pressure on marketing channel members to make it available

A company can use either strategy or a combination

Push

Strategy

Pull

Strategy

12-60

Promotion Strategy

The exclusive use of advertising is a pull strategy

Personal selling indicates a push strategy

12-61

Promotion Strategy

Promotional positioning uses promotion to create and

maintain an image of a product in buyers’ minds

Typical objectives of promotion

Stimulate Demand

• Often through ads and sales promotion, particularly important when using a pull strategy

Stabilize Sales

• Decreasing sales call for sales promotions and ads

Inform, remind and reinforce

customers

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Importance of Marketing Strategy

Marketing creates value through the marketing mix

The marketing mix must be carefully integrated into an

effective marketing strategy

Companies with an effective marketing mix gain

competitive advantage

Advantages often come when a company excels at

one or more elements of the marketing mix

Companies must monitor demand and adapt the

marketing mix when needed

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Solve the Dilemma

Better Health With Snacks

• Deluxe Chips is a leading company in the salty-snack

industry with almost one-fourth of the $10 billion market

• As consumer’s snack choices change, Deluxe Chips is

considering a new product line of light chips

• While it will be expensive to launch a new line, store specific

micromarketing will allow Deluxe Chips to spend efficiently

? Design a marketing strategy for the new product line

? Critique your marketing strategy in terms of its strengths

and weaknesses

? What are your suggestions for implementation of the

marketing strategy?

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