WARNING WARNING 6 7 09 DANGER WILL ROBINSON THE FOLLOWING LECTURE SLIDES CONTAIN ONLY A PORTION OF THE INFORMATION NEEDED TO PASS THE by vok14112

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									            WARNING! WARNING!              6/7/09

          DANGER, WILL ROBINSON!




 THE FOLLOWING LECTURE SLIDES CONTAIN ONLY A
PORTION OF THE INFORMATION NEEDED TO PASS THE
                COURSE EXAMS!

  THEY ARE PROVIDED AS A LECTURE OUTLINE TO
FACILITATE NOTE TAKING IN CLASS. IN ADDITION, YOU
 MUST READ THE ASSIGNED CHAPTERS IN THE TEXT.
Principles of Marketing




                   WEEK 1
           Introduction to Marketing
Principles of Marketing
Introduction


• Registration
• Instructor Introduction
• Syllabus/Text
• Evaluation/Grading
• Administrivia Ad Nauseum
• Lecture
Principles of Marketing
Introduction
• MARKETING: A process of creating, distributing, promoting and
 pricing goods, services and ideas to facilitate satisfying
 exchange relationships with customers in a dynamic
 environment.
• CUSTOMERS: The purchasers of the organization’s products;
 the focal point of all marketing activities.
• MARKET: An aggregate of individuals and/or organizations that
 have needs for products and have the ability, willingness and
 authority to make the purchase.
• TARGET MARKET: A specific group of buyers on whose needs
 and wants an organization focuses its marketing efforts.
Principles of Marketing
Introduction
• MARKETING MIX: The four Marketing activities- PRODUCT,
 PLACE (Distribution), PROMOTION and PRICING- that an
 organization can control (by amount of resources committed to
 each) to meet a customer’s needs.
  – PRODUCT: a good, service or idea
  – DISTRIBUTION: the physical logistics of transporting
    products or ability to render a service to customers in desired
    quantities and at a desired location (PLACE or Point of Sale)
  – PROMOTION: activities used to inform potential customers
    about the organization and its products
  – PRICE: monetary value consumer pays for product
Principles of Marketing
Introduction
• Marketing builds satisfying “exchange relationships”
• EXCHANGES:
 The provision or transfer of goods, services or ideas
 in return for something of value

                    Something of Value
                 Money, credit, labor, goods

      BUYER                                    SELLER

                    Something of Value
                   Goods, services, ideas
Principles of Marketing
Introduction
• MARKETING CONCEPT:
 A managerial philosophy that an organization should
 try to provide products that satisfy customers’ needs
 through a coordinated set of activities that also allows
 an organization to achieve its goals.
 EVOLUTION:
  – Production Orientation: The Industrial Revolution
  – Sales Orientation: 1920’s to the 1950’s
  – Marketing Orientation: Mid 1950’s through today
     Production Orientation   Sales Orientation    Marketing Orientation


  1850               1900                   1950                    2000
Principles of Marketing
Introduction
• MARKETING ORIENTATION: A organization-wide commitment to
 researching and responding to customer needs.
• RELATIONSHIP MARKETING: Establishing long-term, mutually
 satisfying buyer-seller relationships.
• CUSTOMER RELATIONSHIP MARKETING (CRM): Focuses on
 using information about customers to create marketing strategies
 that develop and sustain desired customer relationships.
• VALUE / VALUE DRIVEN MARKETING: Value is a customer’s
 subjective assessment of benefits relative to costs in determining
 the worth of a product.
• MARKETING MANAGEMENT: The process of planning,
 organizing, implementing and controlling marketing activities to
 facilitate exchanges effectively and efficiently.
Principles of Marketing
Introduction
• IMPORTANCE OF MARKETING:
 –   Marketing Cost Consumers Money
 –   Marketing is a Function of all Organizations
 –   Marketing Helps to Sell Products
 –   Marketing Fuels the National and Global Economy
 –   Information Enhances Consumer Awareness
 –   Responsible Marketing Promotes Customer and
     Social Welfare
Principles of Marketing
Introduction

• MARKETING REVISITED:
 A system and process of business activities to plan,
 produce, price and distribute something of value (a
 want or need satisfying good, service or idea) to the
 benefit of the target market at a profit to the producer.

 A synergism of organization and customer (where the
 total exceeds the sum of the parts).
Principles of Marketing
Introduction
• ORGANIZATIONAL STRUCTURE:
 –   Usually a direct report to CEO level
 –   Typically small in size
 –   Distinction from “Sales” organizations and functions
 –   Sometimes associated with “New Business” development

                                       CEO




                                                 Finance/
          Engineering   Production   Marketing              Support
                                                   CFO
Principles of Marketing




                  WEEK 2
Principles of Marketing
Strategic Planning
• The process of establishing an organizational mission and
 formulating goals, corporate strategy, marketing objectives,
 marketing strategy and marketing plan.
• Components:
                Analysis of organizations strengths & weaknesses
                    Identification of opportunities and threats

                        Organizational Mission and Goals

                     Corporate and Business Unit Strategies



  MARKETING          PRODUCTION           FINANCE          HUMAN RESOURCES
  •Objectives       •Objectives          •Objectives       •Objectives
  •Strategy         •Strategy            •Strategy         •Strategy
  •Plan             •Plan                •Plan             •Plan
Principles of Marketing
Strategic Planning
• Marketing Strategy: A strategy for identifying and
 analyzing a target market and developing a marketing
 mix to meet the needs of that market.
• Marketing Plan:  A written document that specifies the
 activities to be performed to implement and control an
 organization’s marketing activities.
Principles of Marketing
Strategic Planning Process
• Analysis of the Marketing Environment: external forces which
 can constrain the firm and influence its goals and/or create
 opportunities
• Assess available human and financial resources and capabilities
• Core competencies: things a firm does well, leading to
 competitive advantage
• Identification of Market Opportunities: a combination of
 circumstances and timing that permits an organization to take
 action to reach a target market
• Strategic Windows: a temporary period of optimal fit between the
 key requirements of a market and a firm’s capabilities
• Competitive Advantage: the result of a company’s matching a
 core competency to opportunities in the marketplace
• SWOT Analysis: the assessment of an organization’s Strengths,
 Weaknesses, Opportunities and Threats
Principles of Marketing
Levels of Strategic Planning

                   Mission Statement


                   Corporate Strategy


                 Business Unit Strategy


                   Marketing Strategy


                 Marketing Mix Elements
                         Product
                          Price
                       Promotion
                      Distribution
Principles of Marketing
Strategic Planning Process
• Establishing an Organizational Mission and Goals
  – Mission Statement: A long term view or vision of what the
    organization wants to become
• Marketing Objective: a statement of what is to be accomplished
 through marketing activities
• Developing Corporate and Strategic Business Unit Strategies
  – Corporate Strategy determines the means for utilizing
    resources in the functional areas of marketing to reach the
    organizations goals
  – A Strategic Business Unit or SBU is a division, product line or
    other profit center within a parent company
Principles of Marketing
Strategic Planning Process
• Developing a Market Strategy
  – Target Market Selection: important because the
    target market must be selected before the
    organization can develop its marketing mix
  – Creating The Marketing Mix: must be consistent
    with corporate and business unit strategies, as well
    as resources available
Principles of Marketing
Matching the Marketing mix to Growth Strategies
Principles of Marketing
Strategic Planning Process
• Creating the Marketing Plan
  –    Marketing Planning: The process of assessing opportunities
       and resources, determining objectives, defining strategies,
       and establishing guidelines for implementation and control
       of the marketing program.
      • Assessment of marketing opportunities and resources
      • Development or revision of marketing objectives relative
           to performance
      • Revision or formulation of marketing strategy
      • Development or revision of the plan for implementation
           and control
      • Implementation of the marketing plan
Principles of Marketing
Strategic Planning Process
• Creating the Marketing Plan (Continued)
  – Components of the Market Plan: an outline of the methods and
    resources required to achieve a firm’s goals within a specific
    target market.
     • Executive Summary
     • Environmental Analysis
     • Strengths and Weaknesses, Opportunities and Threats
       (SWOT)
     • Marketing Objectives
     • Marketing Strategies
     • Marketing Implementation
     • Evaluation and Control
Principles of Marketing
Marketing Implementation and Control
• MARKETING IMPLEMENTATION: The process of putting marketing
 strategies into action
  – Intended strategies frequently differ from Realized strategies
    because:
     • Marketing Strategies and Implementation are related
     • Marketing Strategies and Implementation are constantly
       evolving
     • The responsibility for Marketing Strategies and
       Implementation are separated
  – Components
  – Approaches
     • Internal Marketing
     • Total Quality Management
Principles of Marketing
Marketing Implementation and Control
• ORGANIZING MARKETING ACTIVITIES
  – Centralized vs Decentralized
       • By Function
       • By Product
       • By Regions
       • By Type of Customer
• IMPLEMENTING ACTIVITIES
  –   Motivating Marketing Personnel
  –   Communication
  –   Coordination
  –   Establishing a Timetable
Principles of Marketing
The Marketing Control Process

                            Establishment of
                      1   Performance Standards




      Corrective Action                            Evaluation of Actual
  3     as Required                        2      Performance Relative to
                                                   Established Standards
Principles of Marketing
Marketing Implementation and Control
• MARKETING CONTROL PROCESS: Establishing performance
 standards, evaluating actual performance by comparing it with
 established standards, and reducing the differences between
 desired and actual performance
• PERFORMANCE STANDARD: An expected level of performance
 against which actual performance can be compared
• METHODS OF EVALUATION:
     • Sales Analysis: Use of sales figures to evaluate a firm’s
       current performance.
     • Marketing Cost Analysis: Breaking down and classifying
       costs to determine which are associated with specific
       marketing activities.
     • Marketing Audit: A systematic, periodic examination of the
       firm’s marketing objectives, strategies, organization and
       performance.
Principles of Marketing
Strategic Planning
• The process of establishing an organizational mission and
 formulating goals, corporate strategy, marketing objectives,
 marketing strategy and marketing plan.
• Components:
                Analysis of organizations strengths & weaknesses
                    Identification of opportunities and threats

                        Organizational Mission and Goals

                     Corporate and Business Unit Strategies



  MARKETING          PRODUCTION           FINANCE          HUMAN RESOURCES
  •Objectives       •Objectives          •Objectives       •Objectives
  •Strategy         •Strategy            •Strategy         •Strategy
  •Plan             •Plan                •Plan             •Plan
Principles of Marketing
Strategic Planning
• Marketing Strategy: A strategy for identifying and
 analyzing a target market and developing a marketing
 mix to meet the needs of that market.
• Marketing Plan:  A written document that specifies the
 activities to be performed to implement and control an
 organization’s marketing activities.
Principles of Marketing
Strategic Planning Process
• Analysis of the Marketing Environment: external forces which
 can constrain the firm and influence its goals and/or create
 opportunities
• Assess available human and financial resources and capabilities
• Core competencies: things a firm does well, leading to
 competitive advantage
• Identification of Market Opportunities: a combination of
 circumstances and timing that permits an organization to take
 action to reach a target market
• Strategic Windows: a temporary period of optimal fit between the
 key requirements of a market and a firm’s capabilities
• Competitive Advantage: the result of a company’s matching a
 core competency to opportunities in the marketplace
• SWOT Analysis: the assessment of an organization’s Strengths,
 Weaknesses, Opportunities and Threats
Principles of Marketing
Levels of Strategic Planning

                   Mission Statement


                   Corporate Strategy


                 Business Unit Strategy


                   Marketing Strategy


                 Marketing Mix Elements
                         Product
                          Price
                       Promotion
                      Distribution
Principles of Marketing
Strategic Planning Process
• Establishing an Organizational Mission and Goals
  – Mission Statement: A long term view or vision of what the
    organization wants to become
• Marketing Objective: a statement of what is to be accomplished
 through marketing activities
• Developing Corporate and Strategic Business Unit Strategies
  – Corporate Strategy determines the means for utilizing
    resources in the functional areas of marketing to reach the
    organizations goals
  – A Strategic Business Unit or SBU is a division, product line or
    other profit center within a parent company
Principles of Marketing
Strategic Planning Process
• Developing a Market Strategy
  – Target Market Selection: important because the
    target market must be selected before the
    organization can develop its marketing mix
  – Creating The Marketing Mix: must be consistent
    with corporate and business unit strategies, as well
    as resources available
Principles of Marketing
Strategic Planning Process
• Creating the Marketing Plan
  – Marketing Planning: The process of assessing opportunities
    and resources, determining objectives, defining strategies,
    and establishing guidelines for implementation and control of
    the marketing program.
  – Components of the Market Plan: an outline of the methods and
    resources required to achieve a firm’s goals within a specific
    target market.
     • Executive Summary
     • Environmental Analysis
     • Strengths and Weaknesses, Opportunities and Threats
       (SWOT)
     • Marketing Objectives
     • Marketing Strategies
     • Marketing Implementation
     • Evaluation and Control
Principles of Marketing
Marketing Implementation and Control
• MARKETING IMPLEMENTATION: The process of putting marketing
 strategies into action
  – Intended strategy- the strategy the company decided on during
    the planning phase and wants to use
  – Realized strategy- the strategy that actually takes place
  – Approaches
     • Internal Marketing
     • Total Quality Management
• ORGANIZING MARKETING ACTIVITIES
  – Centralized vs Decentralized
       • By Function
       • By Product
       • By Regions
       • By Type of Customer
Principles of Marketing
Controlling Marketing Activities
• MARKETING CONTROL PROCESS: Establishing performance
 standards, evaluating actual performance by comparing it with
 established standards, and reducing the differences between
 desired and actual performance
• METHODS OF EVALUATION:
    • Sales Analysis: Use of sales figures to evaluate a firm’s
      current performance.
    • Marketing Cost Analysis: Breaking down and classifying
      costs to determine which are associated with specific
      marketing activities.
    • Marketing Audit: A systematic, periodic examination of the
      firm’s marketing objectives, strategies, organization and
      performance.
Principles of Marketing
The Marketing Control Process

                            Establishment of
                      1   Performance Standards




      Corrective Action                            Evaluation of Actual
  3     as Required                        2      Performance Relative to
                                                   Established Standards
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
The Marketing Environment
• Consists of external forces that directly or indirectly
    influence an organization’s acquisition of inputs and
    creation of outputs.
•   Environmental Analysis: the process of collecting,
    assessing and interpreting information about the forces
    in the marketing environment
•   Forces:
     – competitive
     – economic
     – political
     – legal and regulatory
     – technological
     – socio-cultural
Principles of Marketing
The Marketing Environment
• Competitive Forces
  – Competition: other organizations that market products
    similar to or can be substituted for a marketer’s products in
    the same geographical area)
  – Types of Competition
       • Brand
       • Product
       • Generic
       • Total Budget
  – Types of Competitive Structures
       • Pure or Perfect Competition
       • Monopolistic Competition
       • Oligopoly
       • Monopoly
Principles of Marketing
The Marketing Environment
• Economic Forces
  – Economic Conditions
     • Business Cycle: a pattern of economic fluctuation that
       has 4 stages:
       – Prosperity, Recession, Depression, Recovery
  – Buying Power
     • Levels of Income, wealth
  – Willingness to Spend
     • Affected by expectations about employment, income
       levels, prices, family size and general economic
       conditions
Principles of Marketing
The Marketing Environment
• Political Forces
    – Often viewed as beyond control
    – Some firms seek to influence the political process
      to favorably shape legislation
•   Legal and Regulatory Forces
    – Procompetitive Legislation
    – Consumer Protection Legislation
    – Regulatory Agencies
    – Self Regulating Forces
Principles of Marketing
The Marketing Environment
• Technological Forces
  – The application of knowledge and tools to solve problems
    and perform tasks more efficiently.
  – Influences consumer demand, product development,
    packaging, price, promotion and distribution systems
• Socio-Cultural Forces
  – The influences in a society and its culture(s) that change
    people’s attitudes, beliefs, norms, customs and lifestyles
  – Demographics and Diversity Characteristics: the study of
    human populations, such as characteristics, behavior and
    distribution.
  – Cultural Values: health, nutrition, family environment
  – Consumerism: Organized efforts by individuals, groups and
    organizations to protect consumer’s rights
Principles of Marketing




                  WEEK 3
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
Markets
• Market:  An aggregate of individuals and/or
 organizations that have needs for products and have
 the ability, willingness and authority to make the
 purchase
• Categories of Markets:
  – Consumer Markets: Producers and household
    members who intend to consume or benefit from
    the purchased product and who do not buy the
    products for resale or make profits
  – Business Markets: Individuals or groups that
    purchase a specific kind of product for resale,
    direct use in producing other products, or in
    general daily operations
Principles of Marketing
Consumer Markets & Consumer Buying Behavior
• Consumer Buying Behavior: Buying behavior of persons
    who purchase products for personal or household use (not
    for business purposes, resale or profit)
•   Level of Involvement: An individual’s intensity of interest in a
    product and the importance of the product for that person
•   Consumer Problem Solving Processes
     – Routinized Response Behavior
     – Limited problem solving
     – Extended Problem Solving
     – Impulse Buying
Principles of Marketing
Consumer Buying Behavior
• Consumer Buying Decision Process
  – Five steps:


  Problem         Information   Evaluation of              Postpurchase
                                                Purchase
 Recognition         Search      Alternatives               Evaluation


• Situational Influences on the Buying Decision Process: influences
 resulting from circumstances, time, and location that affect the
 consumer buying decision process
• Psychological Influences on the Buying Decision Process: factors
 that in part determine people’s general behavior, thus influencing
 their behavior as consumers.
• Social Influences on the Buying Decision Process: the forces that
 other people exert on one’s buying behavior
Principles of Marketing
Consumer Buying Behavior
• Mazlow’s “Theory of Motivation” based on a hierarchy,
 or five levels of “Needs”: a physiological or
 psychological requirement.

    – Self Actualization
    – Self and Peer Esteem
    – Social
    – Safety
    – Physiological
Principles of Marketing
Consumer Buying Behavior
• STIMULUS RESPONSE THEORY
 Components:
  – Internal Drive
  – External Cue
  – Response (Purchase)
  – Reinforcement


• “Drive/Cue/Response” can become “Drive/Response”
 or “Cue/Response” based on reinforcement of
 positive responses, leading to development of a habit
Principles of Marketing
Business Markets and Buying Behavior

• BUSINESS MARKETS:
 Individuals or groups that purchase a specific kind of
 product for resale, direct use in producing other
 products, or use in general daily operations.

 Types of Markets :     Producer
                        Reseller
                        Government
                        Institutional
Principles of Marketing
Business Markets and Buying Behavior
• The “Buying Center”: people within the organization, including
 users, influencers, buyers, deciders, and gatekeepers who make
 purchase decisions
• Business/Organizational Buying Decision Process:
  – Five steps:

                                   Search for     Select Product     Evaluate
              Develop Product                      and Supplier      Product
 Problem                          and Evaluate
              Specifications to                     and Order      and Supplier
Recognition                         Products
               Solve Problem                         Product       Performance
                                  and Suppliers



  – Influencing factors:
     • Environmental
     • Organizational
     • Interpersonal
     • Individual
Principles of Marketing
E-Marketing
• ELECTRONIC COMMERCE (E-Commerce): Sharing business
 information, maintaining business relationships, and conducting
 business transactions by means of telecommunications networks
• ELECTRONIC MARKETING (E-Marketing): The strategic process
 of creating, distributing, promoting, and pricing products for
 targeted customers in the virtual environment of the Internet
   – Basic Characteristics:
      • Addressability
      • Interactivity
      • Memory
      • Control
      • Accessibility
      • Digitalization
Principles of Marketing
E-Marketing
• E-MARKETING STRATEGY:

  – Target Markets: More precise, Shift from Share-of-Market to
    Share-of-Customer (purchases)
  – Products and Services: Information, convenience
  – Distribution: Speed of order processing and delivery
  – Promotion: Websites, flow of information, interactive
    dialogues, pop-up ads
  – Pricing: Proliferation of cost and price information changing
    the balance of negotiations
  – Legal and Ethical Issues: Invasion of privacy, unsolicited
    commercial e-mail (UCE or Spam), misappropriation of
    registered trademarks
Principles of Marketing
Business Markets and Buying Behavior
• MARKETING RESEARCH: The systematic design, collection,
 interpretation and reporting of information to help marketers solve
 specific marketing problems or take advantage of market
 opportunities.
  – Five step process:

  Locating                                   Interpreting     Reporting
               Designing the
and Defining                   Collecting   the Research    the Research
                 Research
 Problems                        Data          Findings        Findings
                  Project
  or Issues
Principles of Marketing
Target Markets
• MARKET:
 An aggregate of individuals and/or organizations that
 have needs for products and have the ability,
 willingness and authority to make the purchase
 Requirements:
  – They must need or desire a particular product(s)
  – They must have the ability to purchase the product
    (possess buying power)
  – They must be willing to exercise the buying power
  – They must have the authority to purchase the
    specific product(s)
Principles of Marketing
Business Markets and Buying Behavior
• TARGET MARKET:
 A specific group of buyers on whose needs and wants
 an organization focuses its marketing efforts.
 – Five step process:

Identify the   Determine Which   Develop     Evaluate   Select
Appropriate     Segmentation      Target    Relevant    Specific
 Targeting        Variables      Market       Market     Target
  Strategy          To Use       Profiles   Segments    Markets
Principles of Marketing
Targeting Strategy
• Undifferentiated Targeting Strategy: Defining an entire market for
 a particular product as the target market and designing a single
 marketing mix for it.
  – Appropriate for Homogeneous Markets in which a large portion of the
    customers have similar product needs
• Market Segmentation: The process of dividing the total market into
 segments with relatively similar product needs in order to design a
 marketing mix that matches those needs.
  – Appropriate for Heterogeneous Markets
• Concentrated Targeting Strategy Through Market Segmentation:
 Targeting a single market segment using one marketing mix.
• Differentiated Targeting Strategy Through Market Segmentation:
 Targeting two or more market segments by developing a marketing
 mix for each segment.
Principles of Marketing
Determination of Segmentation Variables
• Segmentation Variables: Characteristics of individuals, groups
 or organizations used to divide a market into segments.
• Consumer Market Variables:
  –   Demographic
  –   Geographic
  –   Psychographic
  –   Behavioristic
• Organizational Market Variables:
  –   Geographic location
  –   Type of organization
  –   Customer size
  –   Product use
Principles of Marketing
Develop Market Segment Profiles


• Market Segment Profile:  Describes the similarities
 among potential customers within a segment and
 explains the differences among people and
 organizations in other segments.
 Used to assess the degree to which products can
 match customer’s needs.
Principles of Marketing
Evaluate Relevant Market Segments
• Estimates of Potential Sales:
  – Market Potential
  – Company Sales Potential
  – Breakdown Approach
  – Buildup Approach
• Assessment of Competitors already operating in the
 target segment
• Estimate the cost of the marketing mix for the
 product/target segment combination for feasibility
Principles of Marketing
Select Specific Target Market Segments


• Down-select of Segment opportunities:
  – Long term profit potential
  – Consistent with organizational objectives
  – Sufficient resources available
Principles of Marketing
Select Specific Target Market Segments
 Potential Target Market                 Effects on Decision Areas
     Dimensions
• Geographic location and other    • Affects size of Target Markets (sales potential);
  demographic characteristics of     Place (where products should be made
  potential customers                available) and Promotion (where, when and
                                     to whom to advertise to)

• Behavioral needs, attitudes,     • Affects Product (design, packaging, length
  and how present and potential      or width of product line); Promotion (what
  goods or services fit into         customers need and want to know about the
  customers’ consumption             product offering and what advertising should
  patterns                           be used)

• Urgency to satisfy need and/or   • Affects Place (how directly products are
  desire and willingness to          distributed from producer to consumer, how
  compare and shop                   extensively they are made available, and the
                                     level of service needed), and Price (how
                                     much potential customers are willing to pay).
Principles of Marketing
Select Specific Target Market Segments



             Helpless              Crafty
            Homemaker             Craftsman




                  English Paint Market



                                    Cost
              Handy
                                  Conscious
              Helper
                                   Couple
Principles of Marketing




                   WEEK 4

                 “PRODUCT”
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
Product Concepts
• PRODUCT:    Anything, tangible or intangible, received in
 an exchange. A product can be a good, service or idea
 and include functional, social and psychological utilities
 or benefits.
  – A GOOD is a tangible, physical entity
  – A SERVICE is an intangible result of the application
    of human and mechanical efforts to people or objects
  – An IDEA is a concept, philosophy, image or issue
Principles of Marketing
Product Classification
• CONSUMER PRODUCTS: Products purchased to satisfy
 personal and family needs.
  – Convenience Products
  – Shopping Products
  – Specialty Products
  – Unsought Products
• BUSINESS PRODUCTS: Products bought to use in a firm’s
 operations, to resell, or to make other products.
  – Installations
  – Accessory Equipment
  – Raw Materials
  – Component Parts
  – Process Materials
  – MRO Supplies
  – Business Services
Principles of Marketing
Product Lines & Mixes
• PRODUCT ITEM:     A specific version of a product that
 can be designated as distinct offering among an
 organization’s products.
  – PRODUCT LINE: A group of closely related product
    items viewed as a unit because of marketing,
    technical, or end-use considerations.
• PRODUCT MIX:    The total group of products that an
 organization makes available to customers.
  – DEPTH: the average number of different products
    offered in each product line
  – WIDTH: the total number of product lines offered
    by the firm
Principles of Marketing
Product Life Cycle
• The progression of a product through four stages

           Introduction   Growth          Maturity        Decline


                                                         Industry Sales
 Dollars




                                                     Industry Profits

 0



                                   Time
Principles of Marketing
Obsolescence
• Technical or Functional Obsolescence
    – Advances in technology rendering an existing product
      obsolete
    – Generally considered socially and economically desirable
•   Style Obsolescence
     – Style: a distinctive manner of construction or
       construction
     – Fashion: a style that is popular or currently accepted
     – Fad: a novelty product or feature of a product whose
       popularity is short-lived
•   Planned Obsolescence
     – Products are intentionally changed to create impression
       that earlier versions are out-of-date
Principles of Marketing
Product Failure
• Estimates of new product failures range from 30 to 90%
• Annual cost of up to of $100 billion
• Consumer products fail more often than business
 products
• Reasons for failure:
  – Failure to match product offerings with customer
    needs
  – Ineffective or inconsistent branding
  – technical or design shortcomings
  – overestimation of market size
  – poor promotion
  – insufficient distribution
Principles of Marketing
Developing and Managing Existing Products


• LINE EXTENSIONS: Development of a product closely
 related to existing products in the product line, but that
 meets different customer needs
• PRODUCT MODIFICATIONS:        Change in one or more
 characteristics of a product
  – Quality
  – Functional
  – Aesthetic
Principles of Marketing
Developing New Products
• Product Development Process: a seven phase process
 for introducing products
     – Idea generation
     – Screening
     – Concept testing
     – Business analysis
     – Product development
     – Test marketing
     – Commercialization
Principles of Marketing
Product Adoption
• PRODUCT ADOPTION PROCESS: The five stages that
 consumers go through in accepting a product:
  – Awareness
  – Interest
  – Evaluation
  – Trial
  – Adoption
• Distribution of Product Adopter Categories
  –   Innovators
  –   Early Adopters
  –   Early Majority
  –   Late Majority
  –   Laggards
Principles of Marketing
Product Differentiation and Positionong
• PRODUCT DIFFERENTIATION:      The process of creating
 and designing products so that consumers perceive
 them as different from competing products.
 Physical aspects of product differentiation:
  – Level and consistency of Product Quality
  – Product Design and Features
  – Product Support Services
• PRODUCT POSITIONING:     Creating and maintaining a
 certain concept of a product in the customers’ minds
Principles of Marketing
Product Deletion
•   Eliminating a product from the product mix when it no
    longer satisfies a sufficient number of customers
•   Three ways to delete a product:
    1. Phase it out, allowing the product to decline without a
       change in marketing strategy
    2. Run it out, reducing costs to a bare minimum and
       continue production until lack of sale warrant
       abandonment
    3. Drop immediately, employed when the product is losing
       money
Principles of Marketing
Branding and Packaging
• BRAND: An identifying name, term, design, symbol
• BRAND NAME: The part of the brand that can be
 spoken
• BRAND MARK: The part of the brand not made up of
 words
• TRADE MARK:    Legal designation of exclusive use of
 a brand
• TRADE NAME:    Full legal name of an organization
 rather than the name of a specific brand
Principles of Marketing
Value of Branding
• Helps consumers identify products and association of
 satisfaction, reducing time required for search and
 comparison
• Helps consumers evaluate the quality of a product,
 reducing risk and time
• Psychological reward and self expression of owning a
 “status brand”
• Fosters brand loyalty
    Principles of Marketing
    Branding and Packaging
• BRAND LOYALTY: A customer’s favorable attitude
    toward a specific brand
     – Brand Recognition: A customer’s awareness that a
       brand exists and is an alternative to purchase if the
       preferred brand is not available
     – Brand Preference: Customer prefers one brand over
       competitive offerings
     – Brand Insistence: Customer strongly prefers a
       specific brand and will accept no substitute
•   Brand Rejection: customer is aware of the product, dislikes it
    and will not purchase it, even as a lower priced alternative or
    the only product available.
•   Brand Non-Recognition: customer is unaware of product, may
    consider as an alternative
Principles of Marketing
Branding and Packaging
• BRAND EQUITY: The marketing and financial value associated
 with a brand’s strength in the market

            Brand name                     Perceived brand
             awareness                         quality

                            BRAND EQUITY

                                                Brand
            Brand loyalty
                                             associations



• TYPES OF BRANDS:
  – Manufacturer’s Brand
  – Private Distributor’s Brand
  – Generic Brands
Principles of Marketing
Branding and Packaging
• Selecting a brand name
• Protecting a brand
• Branding Policies
  – Individual branding
  – Family branding
  – Brand extension branding
• Co-branding
• Brand Licensing Agreements
Principles of Marketing
Branding and Packaging
•   PACKAGING: The development of a container and
    graphic design for a product.
• Functions/considerations:
    – Product Safety and Protection
    – Convenience
    – Promotion
    – Attract attention
    – Communication of Product Features, Benefits and
      Uses
    – Utility
    – Value of Package Itself
    – Needs of resellers
Principles of Marketing
Branding and Packaging
• Packaging and Marketing Strategies
  –   Altering the package
  –   Secondary use packaging
  –   Category- consistent packaging
  –   Innovative packaging
  –   Multiple packaging
  –   Handling- improved packaging
• Criticisms of Packaging
  –   Functional problems
  –   Safety
  –   Deception
  –   Cost
Principles of Marketing
Branding and Packaging
• LABELING: Providing identifying, promotional or other
 information about the product on the package label.
• Used to Identify:
  – Brand and Producer Grade
  – Contents
  – Ingredients/Source
  – Use and Care Information
  – Nutritional Information
Principles of Marketing
Services
• SERVICE: An intangible product involving a deed,
 performance or effort that cannot be physically
 possessed. Provided through the application of
 human and/or mechanical efforts directed at people
 or objects.
• Basic Characteristics:
  – Intangibility
  – Inseparability of production and consumption
  – Perishability
  – Heterogeneity
  – Client-Based Relationships
  – Customer Contact
Principles of Marketing
Services
• Creating Marketing Mixes for Services
  – Development
  – Distribution
  – Promotion
  – Pricing
• SERVICE QUALITY:    Customer’s perception of how
 well a service meets or exceeds their expectation
 – Dimensions of Service Quality
 – Service Quality Model
Principles of Marketing
Nonprofit Marketing
• Marketing conducted to achieve some goal other than
 business goals of profit, market share or return on
 investment (ROI)
• Uses most of the same concepts applicable to profit
 oriented businesses
• Marketing objective is to obtain a desired response
 from a target market
• Marketing Mix
Principles of Marketing




                   WEEK 5

                Mid Term Exam
Principles of Marketing




                   WEEK 6

            “PLACE (Distribution)”
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
Distribution
• Distribution: The activities that make products available to
    customers when and where they want to purchase them.
•   Marketing Channels: A group of individuals and organizations
    directing products from producers to customers.
•   Marketing Intermediary: A “Middleman” linking producers to other
    middlemen or ultimate consumers through contractual
    arrangements or through the purchase and resale of products.
    Functions:
     – Concentrating: Collecting and concentrating the output of
       several producers.
     – Equalizing: Subdividing the output into amounts and
       assortments desired by his many clients (retailers/ consumers).
     – Dispersing: Transporting and delivering the packages to clients.
•   Marketing Channels:
     – Create Utility: time, place and possession
     – Facilitate Exchange Efficiencies
     – Marketing Channel members form and manage a Supply Chain
Principles of Marketing
Distribution
• Supply Chain Management: Long term partnerships among
 marketing channel members to reduce inefficiencies, costs,
 redundancies, and to develop innovative approaches in order to
 satisfy customers.
  – Channel Leadership
  – Channel Cooperation
  – Channel Conflict
  – Channel Integration
  – Legal Issues
     • Dual distribution
     • Restricted sales territories
     • Tying agreements
     • Exclusive dealing
     • Refusal to deal
Principles of Marketing
Marketing Channels for Consumer Products
      A            B            C             D

   Producer    Producer      Producer      Producer


                                           Agents or
                                            Brokers


                            Wholesalers   Wholesalers



                Retailers    Retailers     Retailers



   Consumers   Consumers    Consumers     Consumers
Principles of Marketing
Marketing Channels for Business Products

        E               F                G                H

   Producer         Producer         Producer         Producer



                                       Agents           Agents



                    Industrial                        Industrial
                   Distributors                      Distributors


  Organizational   Organizational   Organizational   Organizational
     Buyers           Buyers           Buyers           Buyers
Principles of Marketing
Distribution
• Multiple Marketing Channels
    – Dual Distribution: Use of two or more channels to
      distribute the same product to the same target market
    – Strategic Channel Alliance: An agreement whereby the
      products of one organization are distributed through the
      market channels of another organization
•   Intensity of Market Coverage
     – Intensive: Using all available outlets to distribute a
                   product
     – Selective: Using only some available outlets to distribute
                  a product.
     – Exclusive: Using a single outlet in a fairly large
                   geographic area to distribute a product.
Principles of Marketing
Wholesaling
• WHOLESALING: Transactions in which products are purchased
 for resale, making other products, or general business operations.
• WHOLESALER: An individual or organization that sells products
 that are bought for resale, making other products, or general
 business operations.
  – Functions:
     •   Supply Chain Management Promotion
     •   Warehousing, Shipping and Product Handling
     •   Shared Risk Taking
     •   Financing and Budgeting
     •   Marketing Research and information Systems
  – Services:
     •   Extension of sales force
     •   Financing
     •   Information
     •   Efficiency
 Principles of Marketing
 Wholesaling
• Wholesaler Classifications:
  – Merchant Wholesalers: Independently owned business that take
    title to goods, assume ownership risks, and buy and resell
    products to other wholesalers, organizational customers, or
    retailers.
     • Full Service Wholesalers
     • Limited Service Wholesalers

  – Functional Middlemen: Agents and Brokers that negotiate
    purchases and expedite sales, but do not take title to products.

  – Manufacturer’s Sales Branches and Offices: Manufacturer owned
    operations that sell products and provide support services.
Principles of Marketing
Physical Distribution
• PHYSICAL DISTRIBUTION/LOGISTICS: Activities used to move
 products from producers to consumers and other end users.
• OUTSOURCING: The contracting of physical distribution tasks to
 third parties that do not have managerial authority within the
 marketing channel.
• Objectives
  – Meeting Standards of Customer Service
  – Reducing Total Distribution costs
  – Reducing Cycle time
• Functions
  –   Order Processing
  –   Inventory Management
  –   Material Handling
  –   Warehousing
  –   Transportation
Principles of Marketing
Retailing
• RETAILING:      All transactions in which the buyer intends to
    consume the product through personal, family or
    household use.
•   RETAILER: An organization that purchases products for
    the purpose of reselling them to ultimate consumers.
•   Major Types of Retail Stores:
     – General Merchandise Retailers: A retail establishment
       that offers a variety of product lines stocked in
       considerable depth
     – Specialty Retailers: A retail establishment that offer
       substantial assortments in a few product lines
Principles of Marketing
Retailing
• Non-store Retailing: The selling of goods and services outside the
 confines of a retail facility.
• Direct Marketing: The use of the telephone, internet and non-
 personal media to introduce products to customers, who can then
 purchase them via mail, telephone or the internet
     –   Catalog Marketing
     –   Direct-response Marketing
     –   Telemarketing
     –   Television Home Shopping
     –   On-line Retailing
• Direct Selling: The marketing of products to ultimate consumers
 through face-to-face sales presentations at home or in the work
 place
• Automatic Vending: The use of machines to dispense products
Principles of Marketing
Retailing
• Franchising: An arrangement in which a supplier (Franchiser)
 grants a dealer (Franchisee) the right to sell products in exchange
 for some type of consideration
  – Types:
     • Manufacturer authorizes independent Franchisee’s to sell a specific
       brand name
     • Manufacturer licenses Franchisee’s to sell a specific product to
       retailers
     • Franchiser supplies brand names and services instead of complete
       products
  – Advantages:
     • Franchisee can start business with limited capital
     • Pre-existing brand recognition and loyalty
     • Pre-existing distribution and promotion
  – Disadvantages:
     – Franchiser restrictions
     – Franchise fees and royalties
Principles of Marketing
Strategic Issues in Retailing
•   Location
•   Retail Positioning: Identifying an unserved or underserved market niche
    or segment and serving it through a strategy that distinguishes the retailer
    from others in the minds of consumers in that segment
•   Store Image (Atmospherics): The physical elements in a store’s design
    that appeals to consumers’ emotions and encourage buying
•   Category Management: The retail strategy of managing groups of similar,
    often substitutable products produced by different manufacturers.
•   Scrambled Merchandising: The addition of unrelated product lines to an
    existing product mix, particularly fast-moving items that can be sold in
    volume
•   Wheel of Retailing: A hypothesis holding that new retailers usually enter
    the market as low-status, low-margin, low-price operators but eventually
    evolve into high-cost, high-price merchants
Principles of Marketing




                   WEEK 7

                “PROMOTION”
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
Promotion
• Promotion: Communication to build and maintain
    relationships by informing and persuading one or more
    audiences
•   Objectives:
     – Create product awareness
     – Stimulate Demand
     – Encourage product trial
     – Identify sales prospects
     – Retain loyal customers
     – Facilitate reseller support
     – Combat competitive promotional efforts
     – Reduce sales fluctuations
Principles of Marketing
Promotion
• Communication: A sharing of meaning through the
 transmission of information.
 Verbal and/or non-verbal transmission of information
 between someone wanting to express an idea and an
 intended recipient.



                          MEDIUM       DECODED
 SOURCE     CODED           of                      RECEIVER
           MESSAGE                     MESSAGE
                       TRANSMISSION



                         FEEDBACK

                          NOISE
Principles of Marketing
Promotion

• Promotional Mix: A combination of promotional
 methods used to promote a specific product.
• Elements:
    – Advertising
    – Public Relations
    – Personal Selling
    – Sales Promotions
Principles of Marketing
Promotion
1. Advertising: Paid non-personal communication about an
   organization transmitted to a target audience through mass
   media
    Types:
      – Institutional: Promotes organizational images, ideas and
          political issues
      – Advocacy: Promotes a firm’s position on a public issue
      – Product: Promotes uses, features and benefits of the
          product
          Pioneer: Stimulates a “Primary Demand” for a product
             category rather than specific brand
          Competitive: Stimulates “Selective Demand” for a
             specific brand by pointing out a brand’s special
             features, uses and advantages relative to competing
             brands
Principles of Marketing
Promotion
1. Advertising:
     Types (continued):
      – Comparative: Two or more brands are compared on the
          basis of one or more product characteristics
      – Reminder: Reminds consumers about established brand’s
          uses, characteristics and benefits
      – Reinforcement: Assures users they chose the right brand
          and tells them how to get the most satisfaction from it

      Advertising Campaign: The creation and execution of a
       series of advertisements to communicate with a particular
       target audience
Principles of Marketing
Promotion

2. Personal Selling: Paid personal communication that informs
   customers and persuade them to purchase products.
3. Public Relations: Communications activities used to create and
   maintain favorable relations between an organization and the
   public.
     Tools:
         – Publicity
         – News releases
         – Feature Articles
         – Captioned Photography
         – Press Conferences
Principles of Marketing
Promotion
4. Sales Promotions: An activity and/or materials meant to
   induce resellers or salespersons to sell a product, or
   consumers to buy a product.
 – Consumer Methods:
       Coupons                         Money Refunds and Rebates
       Demonstrations                  Premiums
       Frequent User Incentives        Cents-off offers
       Point of Purchase Displays      Contests
       Free Samples                    Sweepstakes

 – Trade Sales Methods:
       Buy-Back Allowances             Cooperative Advertising
       Buying Allowances               Dealer Listings
       Scan-Back Allowances            Premium or Push Money
       Count and Recount               Sales Contests
       Free Merchandise                Dealer Loaders
       Merchandise Allowances
Principles of Marketing
Promotion
• Factors Affecting Selection Of A Promotional Mix:
  –   Promotional Resources, Objectives and Policies
  –   Characteristics of the Target Market
  –   Characteristics of the Product
  –   Cost and Availability of Promotional Methods
  –   Push and Pull Channel Policies
       – Push Policy: Producer promotes the product only to
         the next institution down the marketing channel.
       – Pull Policy: Promoting a product directly to
         consumers to develop strong consumer demand that
         pulls products through the marketing channel.

• Research shows that promotion of a product affects
 buyer behavior primarily only in those consumers
 already predisposed to make a near term purchase of
 the product.
Principles of Marketing
Promotion
• Criticisms of Promotion
  – Promotion is deceptive
  – Promotion increases prices
  – Promotion creates needs
  – Promotion encourages Materialism
  – Promotion costs too much to help customers
  – Potentially harmful products are promoted
Principles of Marketing




                   WEEK 8

                  “PRICING”
Principles of Marketing
The Marketing Environment

                       ECONOMIC FORCES


 COMPETITIVE                                          POLITICAL
   FORCES                  PRODUCT                     FORCES



               PRICE      CUSTOMER    DISTRIBUTION

                                                        LEGAL
    SOCIO-                                               AND
  CULTURAL                PROMOTION                  REGULATORY
   FORCES                                              FORCES


                   TECHNOLOGICAL FORCES
Principles of Marketing
Pricing
• PRICE:     Value exchanged for products in a marketing
    exchange
     – Considered the key activity of free enterprise, allocating
       the factors of production and distribution
     – UTILITY creates VALUE measured as PRICE
     – Price is often the only marketing mix variable that can
       be changed quickly
     – Price has a psychological association with quality
•   PRICE COMPETITION: Emphasizing price as an issue and
    matching or beating competitor’s prices
•   NON-PRICE COMPETITION: Emphasizing factors other than
    price to distinguish a product from competing brands
Principles of Marketing
Pricing
• Demand: A schedule which shows the           Demand Schedule
 various amounts of a product consumers        Price        Quantity
 are willing and able to purchase at each                  Demanded
 price in a series of possible prices during
                                                   5             4
 a specified period of time.                       4             8
• LAW OF DEMAND: The Quantity                      3
                                                   2
                                                                12
                                                                15
 Demanded of a product is inversely                1            20
 related to its Price, all other factors
 remaining the same.
  – For most products, the quantity                5
    demanded will:                             P
                                               R   4

      1. increase as price decreases           I   3
                                               C
      2. decrease as price increases           E   2                      D
  – In order to sell more of a product, the        1

    price will generally have to be lowered            5   10   15   20   25
                                                           QUANTITY
    in consideration of a downward
    sloping demand curve.
Principles of Marketing
Pricing
• Elasticity of Demand (ED): A measure of the sensitivity of demand
   to a change in price
                                ED = % Increase in Q
                                     % Decrease in P

          5                         5                       5
          4                         4                       4
        P 3                       P 3                     P 3
          2                         2                       2
          1                         1                       1
          0                         0                       0
              0 1 2 3 4 5               0 1 2 3 4 5             0 1 2 3 4 5
                   Q                         Q                       Q
              INELASTIC                 UNITARY                 ELASTIC
                                        ELASTIC

                ED < 1                    ED = 1                  ED >1
         A decrease in Price       A decrease in Price    A decrease in Price
           results in a small       results in an equal     results in a large
         increase in Demand        increase in Demand     increase in Demand
         so as to make Total        with Total Revenue    so as to make Total
             Revenue fall               unchanged             Revenue rise
               4x2=8                     4x2=8                  4x2=8
               2x3=6                     2x4=8                  2 x 5 = 10
Principles of Marketing
Pricing
• FIXED COST: Costs which
 are incurred regardless of
 the level of production
 (overhead, rent, etc.)                        TC
                                C
• VARIABLE COST: Costs          O
                                S              VC
 which vary with the level of   T
                                                FC
 production (labor, material,
 energy)
                                    QUANTITY
• TOTAL COST equals Fixed
 Cost + Variable Cost
    TC = FC + VC
Principles of Marketing
Pricing
• MARGINAL ANALYSIS: The analysis of what happens to a firm’s
 costs and revenues when production/sales are changed by one
 unit. “Marginal” means “extra”.
• MARGINAL COST (MC): The additional
 cost incurred in producing one extra
 unit of output. The Marginal Cost curve
 is “U” shaped, decreasing at first due to              MC
 “Economies of Scale”, bottoming out         C
 and then begins to climb due to             O
                                             S
 “Diminishing Returns”                       T              MR
• MARGINAL REVENUE (MR): The change
 in total revenue (Income derived from the
 sale of products) made by the sale of           QUANTITY
 one additional unit.
Principles of Marketing
Analysis of Cost                                                  TOTAL ANALYSIS
1     2       3        4        5        6          7        70
                                                             60
             Total   Total   Marginal Marginal               50     TC
Q   Price   Revenue Cost      Cost    Revenue    Profit      40
            (TR PxQ) (TC)     (MC)     (MR)
                                                          $ 30
                                                             20         TR
0    16       0       25                          - 25       10
                               10       15                    0
1    15      15       35                          - 20     - 10
                                                           - 20          P
                                6       13
                                                           - 30
2    14      28       41                          - 13            0 1 2 3 4 5 6 7 8
                                4       11                                Q
3    13      39       45                           -6
                                2        9                    MARGINAL ANALYSIS
4    12      48       47                            1
                                                             70
                                2        7                   60
5    11      55       49                            6        50
                                3        5                   40
6    10      60       52            4               8     $ 30
                                5        3                   20          MR
                                                             10
7     9      63       57                            6
                                                              0    MC
                                8        1                 - 10              P
8     8      64       65                           -1      - 20
                               14       -1                 - 30
                                                                  0 1 2 3 4 5 6 7 8
                                                                          Q
Principles of Marketing
Pricing
• PROFIT:
    – Profit = Revenue (Price x Quantity Sold) - Total Costs
•   Total Cost / Revenue Analysis
     – Maximum profit is achieved at the production level
       where the Total Revenue exceeds Total Cost by the
       greatest amount
•   Marginal Cost / Revenue Analysis
    – Maximum profit is achieved at the production level
      where the Marginal Cost of producing one additional
      unit is equal to the Marginal Revenue derived from its
      sale
    – Also known as the “Profit Maximization Rule
•   The answer will always be the same for both methods of
    analysis.
Principles of Marketing
Pricing
•   BREAK-EVEN POINT: The point (quantity and price) at which the costs of
    producing a product equal the revenue made from selling it.

    QBE =      F               QBE =   Quantity Breakeven in Units
              P-V              F   =   Fixed Costs $154,000
                               P   =   Sales Price per Unit $15
                               V   =   Variable Cost per Unit $12
         =    154,000
              15 - 12

          = 154,000
                3
          = 51,334 Units

SBE = Sales Breakeven in Dollars QBE X P
    = QBE (51,334) x P (15) = $770,010
Principles of Marketing
Pricing
Breakeven
                                   PROFIT


                     REVENUES
       1000          PxQ          TOTAL COSTS
                                  VxQ+F

        800
  SBE = 770                                          Q   =   Quantity of Sales in Units
                                                     F   =   Fixed Costs $154 K
                                                     V   =   Variable Costs per Unit $12
        600                     OPERATING            P   =   Sales Price per Unit $15
 $K                             BREAKEVEN
                                  POINT
        400                                          SBE = Sales Breakeven
                                                           in Dollars $770,010
                                                     QBE = Quantity Breakeven
        200                                                in Units 51,334
        154                            FIXED COSTS
              LOSS
          0
               20    40 51 60    80
                        QBE
              QUANTITY IN THOUSANDS
Principles of Marketing
Pricing
• Break even analysis at various sales prices

                                      REVENUE
                                       @ $20    REVENUE
                                                 @ $15
                      REVENUE
                       @ $25
                                                  TOTAL COSTS



             $




                                                   FIXED COSTS




                                QUANTITY
Principles of Marketing
Pricing
• FACTORS AFFECTING PRICING DECISIONS:
 – Organizational and Marketing Objectives
 – Types of Pricing Objectives
 – Cost
 – Impact on Other Marketing Mix Variables
 – Channel Member Expectations
 – Customers’ Interpretation and Response
 – Competition
 – Legal and Regulatory Issues
Principles of Marketing
Pricing
• PRICING FOR BUSINESS MARKETS:
  – PRICE DISCOUNTING
     • Trade
     • Quantity
     • Cash
     • Seasonal
     • Allowances
  – GEOGRAPHIC PRICING
     • Free On Board
     • Uniform
     • Zone
     • Base Point
     • Freight Absorption
  – TRANSFER PRICING
Principles of Marketing
Stages for Establishing Prices

                  Development of Pricing Objectives


         Assessment of Target Market’s Evaluation of Price


                 Evaluation of Competitors’ Prices


                  Selection of a Basis for Pricing


                  Selection of a Pricing Strategy


                 Determination of a Specific Price
Principles of Marketing
Pricing
1. Development of Pricing Objectives
  Pricing Objectives: Goals that describe what a firm
  wants to achieve through pricing.
     – Survival
     – Profit
     – Return on Investment (ROI)
     – Market Share
     – Cash Flow
     – Status Quo
     – Product Quality
Principles of Marketing
Pricing
2. Assessment of Target Market’s Evaluation of Price
    – Understanding the importance of the product to
      customers as well as their expectations about quality
      and value helps determine how much emphasis to
      place on price, and how far above the competition a
      firm can set its prices
3. Evaluation of Competitors’ Prices
    – Price data collection is a routine function of
      market research
    – Such data is critical in a market where price
      competition prevails
Principles of Marketing
Pricing
4. Selection of a Basis for Pricing
    – Cost Based Pricing: Adding a dollar amount or
      percentage to the cost of a product.
       • Cost Plus Pricing: Adding a specified dollar
         amount or percentage to the cost of the product.
       • Mark-up Pricing: Adding to the cost of the
         product a predetermined percentage of that cost.
    – Demand Based Pricing: Pricing based on the level
      of demand for the product.
    – Competition Based Pricing: Pricing influenced
      primarily by competitors’ prices rather than cost
      and revenue
Principles of Marketing
Pricing
5. Selection of a Pricing Strategy
    – Differential Pricing: Charging different prices to different
      customers for the same quality and quantity of product
       • Negotiated
       • Secondary Market
       • Periodic and Random Discounting
    – New Product Pricing: Introduction pricing techniques
       • Price Skimming
       • Penetration
    – Product Line Pricing: Establishing and adjusting prices of
      multiple products within a product line
       •   Captive
       •   Premium
       •   Bait Pricing
       •   Price Lining
Principles of Marketing
Pricing
5. Selection of a Pricing Strategy (Continued)
   – Psychological Pricing: Pricing that attempts to influence a
     customer’s perception of price to make a product’s price
     more attractive
      •   Reference
      •   Bundle
      •   Multiple Unit
      •   Every Day Low Prices (EDLP)
      •   Odd-even
      •   Customary
      •   Prestige
   – Professional Pricing: Fees set by persons with great skill or
     experience in a particular field
Principles of Marketing
Pricing
5. Selection of a Pricing Strategy (Continued)
   – Promotional Pricing: Pricing that is coordinated with
     promotional events or policies
      • Price Leaders
      • Special Event
      • Comparison Discounting

6. Determination of a Specific Price
   – Once a price is determined using one or more strategies,
     it may require refinement to make the price consistent with
     pricing practices in a particular market or industry
Principles of Marketing



                   WEEK 9

              GLOBAL MARKETING
 SOCIAL RESPONSIBILITY AND ETHICS IN MARKETING
    APPRAISAL AND CRITICISMS OF MARKETING
Principles of Marketing
Global Markets
WHICH OF THE FOLLOWING FIRMS ARE AMERICAN OWNED?

  NESTLE (CANDY)
  SMITH & WESSON (FIREARMS)
  MILES LABORATORIES (ALKA-SELTZER)
  LIGGETT GROUP (L&M CIGARETTES, ALPO DOG FOOD)
  LEVER BROTHERS (WISK DETERGENT, CLOSE-UPTOOTHPASTE)
  TIMEX (WATCHES)
  NORELCO (ELECTRONICS)
  BATUS (SAK'S FIFTH AVENUE)
  A&P SUPERMARKETS (GROCERIES)
  SEAGRAM'S (LIQUOR, WINE)
  BENETTON (APPAREL)
  BIC (PENS)
  LIPTON (TEA, SOUPS)
  ADIDAS (SHOES)
  SHELL (GASOLINE)
Principles of Marketing
Global Markets
WHICH OF THE FOLLOWING FIRMS ARE AMERICAN OWNED?
NONE. ALL ARE FOREIGNED OWNED.
  NESTLE (Switzerland)
  SMITH & WESSON (England)
  MILES LABORATORIES (Germany)
  LIGGETT GROUP (England)
  LEVER BROTHERS (England, Netherlands)
  TIMEX (Norway)
  NORELCO (Netherlands)
  BATUS (Norway)
  A&P SUPERMARKETS (Germany)
  SEAGRAM'S (Canada)
  BENETTON (Italy)
  BIC (France)
  LIPTON (England, Netherlands)
  ADIDAS (Germany)
  SHELL (Netherlands)
Principles of Marketing
Global Markets
• INTERNATIONAL MARKETING: Developing and performing
 marketing activities across national boundaries
• REASONS TO ENTER FOREIGN MARKETS:
  –   To utilize excess production capacity
  –   Saturated domestic markets
  –   Escape domestic recession
  –   Keep up with or escape competition
  –   Economies of scale in production
  –   Extend product life cycle
  –   Tax advantages
  –   Counter adverse domestic changes in demographics
  –   Dispose of excess inventories
  – Balance of Trade
Principles of Marketing
Global Markets
• Global Marketing Mix: The Four “P’s” are universally applicable
• Customization vs Globalization
     – Customization: Developing strategies and a customized
       marketing mix to address specific markets according to cultural,
       regional and national differences
     – Globalization: Developing a market strategy as though the entire
       world were a single entity
•   Product Strategies:
     – Extension of a standard product into multiple foreign markets
     – Adaptation or modification of a standard product into foreign
       markets
     – Invention of new products specifically for foreign markets
•   Promotion
     – Language, customs, regulations, technology
•   Distribution
     – Trade channels
•   Pricing
     – Exchange rates, tariffs, repatriotization of profits
Principles of Marketing
Global Markets: Environmental Forces
•   Competitive
     – Local competitors
     – Market conditions

•   Economic
     –   Stability
     –   Currency exchange
     –   Balance of trade
     –   Protectionism

•   Political, Legal, Regulatory
     –   Trade Agreements
     –   Ethics, Foreign Corrupt Practices Act
     –   Product Liability
     –   Employment Law

•   Socio-Cultural
     – Language, customs, values

•   Technological
     – Electronic advantage vs lack of infrastructure
Principles of Marketing
Global Markets
• Regional Trade Alliances, Markets and Agreements
  – North American Free Trade Agreement (NAFTA)- 1994
     • Merges Canada, Mexico and the United States into worlds single
       largest market
     • Virtually eliminates all tariffs by 2009
  – European Union (EU)- 1958
     • European Common Market, 2nd largest, and growing
  – Common Market of the Southern Cone (MERCOSUR)- 1991
     • Most of South America, 3rd largest
  – Asia-Pacific Economic Cooperation (APEC)- 1989
     • Australia to Japan, Russia, Mexico and South American nations
  – General Agreement on Tariffs and Trade (GATT)- 1947
     • Agreement to reduce worldwide tariffs and increase international
       trade
     • 149 member nations
     • World Trade Organization (WTO)-1985 promoting free trade among
       member nations
Principles of Marketing
Global Markets
• Methods Of Operation
  – Exporting
  – Trading Companies
  – Licensing
  – Franchising
  – Contract Manufacturing
  – Joint Venture
  – Strategic Alliance
  – Direct Ownership
  – Multinational Enterprise
Principles of Marketing
Global Markets
• Organizational Structures for Global Operations:
 The way in which a firm divides its operations into
 separate functions and/or value-adding units and
 coordinates its activities


  – Export Departments
  – International Divisions
  – Internationally Integrated Structures
Principles of Marketing
Social Responsibility and Ethics in Marketing
• Social Responsibility: An organization’s obligation to maximize
 its positive impact and minimize its negative impact on society
   – Marketing Citizenship: The adoption of a strategic focus for
     fulfilling the economic, legal, ethical and philanthropic social
     responsibilities expected by stakeholders
   – Marketing Ethics: Principles and standards that define
     acceptable marketing conduct as determined by various
     stakeholders
   – Cause-related Marketing: The practice of linking products to a
     particular social cause on an on-going or short-term basis
   – Strategic Philanthropy: The synergistic use of organizational
     core competencies and resources to address key
     stakeholders’ interests and achieve both organizational and
     social benefits
   – Green Marketing: The specific development, pricing,
     promotion and distribution of products that do not harm the
     natural environment
Principles of Marketing
Marketing Ethics
• Ethical Issue: An identifiable problem, situation or
    opportunity requiring a choice among several actions that
    must be evaluated as right or wrong, ethical or unethical
•   Factors that influence Ethical Decision-Making in the
    Marketing Process:
     – Individual Factors
     – Organizational Relationships/Culture
     – Opportunity
•   Codes of Conduct: Formalized rules and standards that
    describe what the company expects of its employees
•   The challenge incorporating Social Responsibility and Ethics
    into Strategic Planning
     – Ethics improve performance
Principles of Marketing
Marketing Appraisal
• A Basis For Evaluating Marketing Performance:
  – How well does Business satisfy the needs of the Target Market?
  – How well does Business satisfy its own organizational
    objectives?
  – How well does Business serve the interests or welfare of
    society?
• Consumerism: The efforts of independent individuals, groups and
 organizations to protect the rights of consumers
  – The Consumer protest against perceived injustices in the
    exchange relationship, and the efforts to remedy those
    injustices
  – The major implication of Consumerism is that to the extent that
    it exists, the Marketing Concept has not yet fully matured
Principles of Marketing
Criticisms of Marketing
• PRODUCT                       • DISTRIBUTION
  – Poor Quality                  – Too Complex
  – Unsafe Products               – Too Many Players
  – Confusing / Worthless
    Warranties
  – Deceptive Packaging and
                                • PROMOTION
    Labeling                      – Stimulation of Unwarranted
  – Over Promoted
                                    Demand
    “Improvements”                – Exploitive
  – Planned Obsolescence          – Adds to price
                                  – Restraint of Competition
• PRICE                             (Promotion Expense Barrier)
  – Too High
  – Controlled by Large Firms
  – Excessive Profit
Principles of Marketing




       A View from the Other Side
                  High Flight

        Oh! I have slipped the surly bonds of earth,
     And danced the skies on laughter-silvered wings;
  Sunward I've climbed, and joined the tumbling mirth
     Of sun-split clouds -- and done a hundred things
You have not dreamed of -- Wheeled and soared and swung
         High in the sunlit silence. Hov'ring there,
      I've chased the shouting wind along, and flung
        My eager craft through footless halls of air.
          Up, up the long, delirious burning blue
    I've topped the windswept heights with easy grace
            Where never lark, or even eagle flew.
       And, while with silent, lifting mind I've trod
          The high untrespassed sanctity of space,
      Put out my hand, and touched the face of God.


                     John Gillespie McGee, Jr. 1941
                  An American Spitfire Pilot Serving
                  with the Royal Canadian Air Force
                             in England
                          Killed in Action at Age 19

								
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