Chapter 8 â Segmentation, Targeting and Positioning Process ...
Chapter 8 – Segmentation, Targeting and Positioning Process *Segmentation Step 1: Establish Overall Strategy or Objectives • Derived from mission and current state • Where company wants to be in the market Step 2: Segmentation Methods • Geographic Segmentation: Where a consumer lives. o i.e. Continent and sector within it • Demographic Segmentation: Characteristics of people within a certain area. o i.e. Age, gender, income • Psychographic Segmentation: How people selfselect based on the ways in which they choose to occupy their time and the psychological reasons that determine those actions. o Lifestyle (way we live), SelfConcept (image people ideally have for themselves), SelfValues (goals for life) • Geodemographic Segmentation: Combination of geographic, demographic, and lifestyle characteristics to classify consumers. o i.e. Urban, exurban, established, sophisticated town houses, affluent retirees • Benefit Segmentation: Groups consumers based on benefits that come from products/services o i.e. Convenience, economy, prestige • Behavioral Segmentation: Divides customers into groups based on how they use product/service o Occasion Segmentation (based on product or service purchased), Loyalty Segmentation (investing in loyalty initiatives to retain firm’s most profitable customers) *Targeting Step 3: Evaluate Segment Attractiveness • Identifiable: Firms must be able to identify who is within their market to be able to design products or services to meet their needs. • Substantial: Firm needs to measure a markets size and make sure it is large enough and its buying power is significant, i.e. Old Navy, Gap (Baby, Kids, Regular), and Banana Republic • Reachable: Consumer must know your product exists, understand what it does and how to buy it • Responsive: customers must react positively to the firm’s offering, move toward the firm’s products/services and accept the firm’s value proposition • Profitable: Marketers must focus on potential profitability of each segment, both current and future. Some key factors are market growth, market competitiveness, and market access. o Segment Profitability: (segment size*segment adoption percentage*purchase behavior*profit margin percentage) – fixed costs Segment Size: Number of people in segment Segment Adoption Percentage: Percentage of customers in segment who are likely to adopt product/service Purchase Behavior: Purchase price*number of times the customer would buy product in a year Profit Margin Percentage: (selling pricevariable costs) / selling price Fixed Costs: Advertising expenditure, rent, utilities, insurance, and administrative salaries for managers Step 4: Select Target Market • Firms assess attractiveness of target market (opportunities and threats based on the SWOT analysis and the profitability of the segment) and its own competencies (strengths and weaknesses based on SWOT Analysis) very carefully • Segmentation Strategies: o Undifferentiated Targeting Strategy/Mass Marketing: Everyone might be considered a potential user of its product, firm can appeal to everyone, cheaper.
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Differentiated Targeting Strategy: Firms target several market segments with a different offering for each, more profitable, i.e. Conde Nast has more than 20 niche magazines to diversify their business and lower the company’s overall risk. Concentrated Targeting Strategy: When an organization selects a single, primary target market and focuses all it’s energies on providing a product to fit that market’s needs. Small Business Entrepreneurs benefit from this because it allows them to use their limited resources more efficiently, i.e. Newton Running makes shoes only for people who want to land on forefoot. Micromarketing/One to One Marketing: When a firm tailors a product or service to suit an individual customer’s wants or need, i.e. Financial Services or Dell letting customers to pick specific colors, parts, and sizes of software in computer
*Positioning Step 5: Identify and Develop Positioning Strategy • Market position involves defining marketing mix variables so target customers have clear, distinctive, desirable understanding of what product does or represents in comparison with competing products. Firms position products and services based on different methods such as value proposition, salient attributes, symbols, and competition. o Perceptual Map: Displays position of product or brands in consumer’s mind Ideal Points: Where particular segment’s ideal product would lie on map • Methods: o Value Proposition: Unique value that a product or service provides to its customers, and how it’s better than and different from those of competitors, i.e. Mercedes and luxurious cars o Salient Attributes: Most important characteristic of product, i.e. Volvo and safety o Symbols: Firms also use business to associate with their product. Makes people remember them, i.e. The Nike swoosh, Ralph Lauren Polo player. o Competition: i.e. Blockbuster is saying they are better than Netflix • Positioning Steps 1. Determine consumer’s perceptions and evaluations in relation to competitors Ask series of questions 2. Identify competitor’s positions 3. Determine consumer preferences “Ideal product or service” 4. Select the position 5. Monitor the position strategy Shifts occur often • Repositioning o Changing brand's status in comparison to that of the competing brands. Repositioning is effected usually through changing the marketing mix in response to changes in the market place, or due to a failure to reach the brand's marketing objectives.
Chapter 10 – Product, Branding, and Packaging Decisions Complexity of Products
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Core Customer Value: Basic problem solving benefits that consumers are seeking from valuable products or services/ideas Associated Services/Augmented Products: Nonphysical aspects of the product, i.e. financing (on cars), product support, and aftersale service/warranty Actual Product: Consists of brand name, quality level, packing, and features/designs; company must also know what they want to lead, i.e. luxury leader, mid level leader, or lower level leader
Types of Products • Consumer Products: Used by people for their personal use o Specialty Products/Services: Customers show such a strong preference for these products/services that they will expend considerable effort to search for the best supplier; high involvement and effort; brand loyalty; i.e. luxury cars, legal or medical professionals, designer apparel, specific products o Shopping Products/Services: consumers will spend a fair amount of time comparing alternatives (technology or prices) for these products/services; i.e. furniture, apparel, fragrances, appliances o Convenience Products/Services: Customer is not willing to spend any effort to evaluate these products/services prior to purchase; habitual products consumers need every day; impulse buying; easier and time saving; i.e. frequently purchased commodity items like beverages, bread, soap o Unsought Products/Services: consumers do not normally think of buying or do not know about these products/services; not a necessity; unimportant; products/services require a lot of marketing to sell; i.e. GPS when first invented. Product Mix: Complete set of all products offered by a firm Product Lines: Groups of associated items that consumers tend to use together or think of as part of a group of similar products o i.e. Colgate has 4 product lines: oral care, personal care, home care and pet nutrition. Within these lines are products such as toothpaste and toothbrushes in oral care and soaps in personal care. o i.e. Kellogg’s cereal has 4 product lines: ready to eat cereal, toaster pasties, cookies and crackers, and natural organic and frozen foods. In each of these lines are a number of products. • Breadth: Number of product lines offered by a firm o Increase Breadth: Firms often add new product lines to capture new or evolving markets and increase sales, i.e. Palm making smartphone line to compete with blackberry. o Decrease Breadth: Necessary sometimes to delete entire product lines to address changing market conditions or meet internal strategic priorities, i.e. Palm removing first phone they made because it is obsolete after newer technology or TCBY yogurt stopping sales of ice cream and focusing just on frozen yogurt • Depth: Number of categories within a product line o Increase Depth: Firms might add items to address changing consumer preferences or preempt competitors while boosting sales o Decrease Depth Need sometimes to delete products within a product line to realign the firm’s resources, i.e. McCormick spices deleting dozens of spices each year so they can focus on new ones Brand: Gives a product an identity and personality; way for a firm to differentiate its product from those of its competitors • Brand Name: Spoken component of branding, it can describe the product or service/product characteristics and/or be composed of words invented or derived from colloquial or contemporary language, i.e. Comfort Inn (suggests product characteristics) Apple (no association with product) or Zillow.com (invented term) • URLs: Uniform resource locators/domain names; location of pages on the Internet that often substitutes a firm’s name, i.e. Yahoo and Amazon.com • Logos and Symbols: Logos are visual branding elements that stand for corporate names or trademarks. Symbols are logos without words. o i.e. Nike swoosh, Mercedes star
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Characters: Brand symbols that could be human, animal, or animated, i.e. Pillsbury doughboy, Keebler elves Slogans: Short phrases used to describe brand or persuade customers about some characteristics of that brand Jingles/Sounds: Audio messages of brand that are composed of words or distinctive music, i.e. Intel fournote sound signature
Value of Branding to a Marketer and Customers • Facilitate Purchases: Easily recognizable by consumers, signify certain quality level, and contain familiar attributes; help consumers make quick decisions; enable customers to differentiate one firm or product from another; i.e. Coke and Pepsi • Establish Loyalty: Consumers learn to trust certain brands • Protect from Competition and Price Competition: Strong brands are somewhat protected from competition of other firms and price because they are more established in the market and have more loyal customers, so competitive pricing is also not a threat; i.e. Lacoste golf shirts • Reduce Marketing Costs: Firms with wellknown brands can spend less money on marketing than firms with little known brands because the brand sells itself, i.e. Starbucks customers know the brand logo and seek it out, they do not need to educate people on what its brand represents as much • Assets: Brands can be legally protected through trademark and copyrights constituting a unique form of ownership. • Impact Market Value: Having wellknown brands can have a direct impact on the company’s bottom line; every brand has a value that contributes to the company’s overall value Brand Equity: Assets and liabilities linked to a brand that add or subtract from the value provided by the product or service, i.e. Ralph Lauren and polo player have good brand equity. Determined by: • Brand Awareness: How many consumers in market are familiar with brand and what it stands for and have opinion about brand, i.e. BandAid, Kleenex tissues • Perceived Value: Relationship between product/service’s benefits and it’s cost • Brand Associations: Mental link consumers make between brand and it’s key product attributes (logo, slogan, or famous personality); i.e. Toyota Prius known as economical & good for environment, BMW known for luxury & performance o Brand Personality: Set of human characteristics associated with brand, which has symbolic or selfexpressive meanings for consumers; can include personality elements such as gender and age or physical traits such as fresh, smooth, round, or clean; i.e. McDonald’s atmosphere is great for youth • Brand Loyalty: When customer buys same brand product/service repeatedly over time rather than from multiple suppliers within same category; companies such as airlines and hotels have developed frequent buyer programs to reward loyal customers o Consumers are less sensitive to price; marketing costs are lower; firm is protected from competition Branding Strategies • Brand Ownership: Brands can be owned by any firm in the supply chain, whether manufacturers, wholesalers, or retailers o Manufacturer/National Brands: Owned & managed by the manufacturer; manufacturer develops merchandise, produces it to ensure consistent quality, and invests in marketing program to establish an appealing brand image; i.e. Nike, CocaCola, Sony o PrivateLabel/Store/House/Own Brands: Products developed by retailers, some national brands produce private brands for a specific retailer, i.e. WalMart’s “great value” brand Four Categories of Private Brands: • Premium Brands: Offers consumer a private label that is comparable to, or even superior to, a manufacturers brand quality; competes on quality, not price; i.e. Kroger’s private selection • Generic Brands: Target a pricesensitive segment by offering a no frills product at discount price; competes on price, not quality • Copycat Brands: Imitate manufacturer’s brand in appearance and packaging, generally are perceived as lower quality, and are offered at lower prices, i.e. CVS brand and PeptoBismol
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Exclusive CoBrands: Developed by a national brand manufacturer, often in conjunction with a retailer, and is sold exclusively by the retailer, i.e. JC Penny’s and Ralph Lauren “American Living brand” Naming Brands and Product Lines o Family Brands: All products sold under one brand name, individual brand benefits from overall awareness associated with family name, i.e. The Gap o Individual Brands: Names for each of its product, i.e. Mr. Clean (Proctor & Gamble) Brand and Line Extension o Brand Extension: Use of same brand name in different product line. An increase in the product mix’s breadth, i.e. Colgate and crest selling toothbrushes even though original product was just toothpaste Brand Dilution: Brand extension harms consumer perceptions about the attributes the core brand is believed to hold, i.e. Lifesavers soda failing • To Prevent: • Evaluate fit between product class of core brand and extension • Evaluate consumer’s perceptions of the attributes of the core brand and seek out extensions with similar attributes • Refrain from extending the brand name to too many products • Is the brand extension distanced enough from the core brand? o Line Extension: Use of the same brand name within same product line, represents an increase in a product line’s depth, i.e. Frito Lay & Doritos brand used for chips and dip Advantages: • Brand name is well established; firm spends less in developing consumer brand awareness & brand association for new product • If original brand or brand extension has strong consumer acceptance, that perception will carry over to the other product. • When brand extensions are used for complimentary products, a synergy exists between two products that increases overall sales CoBranding: Marketing two or more brands together, on the same package, promotion, or store; can enhance consumers’ perception of product quality by signaling “unobservable” product quality through links between the firm’s brand and well known quality brand. i.e. Yum brands putting Taco Bell and KFC together Brand Licensing: Contractual agreement between firms, one firm allows another to use it’s brand name, logo, symbols, and characters in exchange for negotiated fee, i.e. EA video game company and Porsche to make Need for Speed: Porsche unleashed Brand Repositioning/Rebranding: Marketers change brand’s focus to target new markets or realign brand’s core emphasis with changing market preferences; convey new image/message to customers; make product more beneficial; can improve brand’s fit with its target segment or boost vitality of old bands; comes with cost & risk; i.e. Gatorade has products for before & after, not only during exercise
Packaging and Labeling • Primary Packaging: One consumer uses, such as toothpaste tube; consumers usually seek storage (protection and increased shelf life), use, and consumption out of this • Secondary Packaging: Wrapper/exterior carton that contains primary package and provides UPC label used by retail scanners; consumers use packaging to find additional information on product; advertising on package used to trigger purchase • Labels: Communication tool. Provides information consumers need for purchase decision & consumption of product. Helps identify brand & is important for promotion. Some laws require certain things on labels. i.e. Food must have nutritional facts.
Chapter 11 Developing New Products Why do Firms Create New Products? • Innovation: Ideas get transformed into new offerings/products/services/processes/branding concepts that will help firms grow • Changing Customer Needs: Firms add products, services, and processes to their offering to create and deliver value more effectively by satisfying changing needs of current and new customers or simply keep customers from getting bored with current product or service offering o Things customers don’t know but will want, i.e. washing undercarriage of car o Innovate wellknown offering, i.e. Dyson & cyclone technology • Market Saturation: The longer a product exists in the marketplace, the more likely it is that the market will become saturated, i.e. Car companies make new models with new features every year • Managing Risk through Diversity: Through innovation, firms create broader portfolio of products, which helps them diversify risk & enhance firm value better than a single product can; if one product fails, a company has external shocks so it does not collapse; i.e. Kellogg’s making new cereal bars, and protein shakes. • Fashion Cycles: Some industries are based on fashion cycles and trends that experience short product life cycles, most sales come from new products in apparel, arts, books, and software • Improving Business Relationships: Sometimes new products function to improve relationships with suppliers, i.e. Kraft’s Capri Sun was packaged at bottom of pallet. Changed pallet to chimneystacks in each flavor and lemonade sales grew 162% Diffusion of Innovation: When use of an innovation (product/service/process) spreads throughout a market group over time and across various categories of adopters; helps marketers understand rate at which consumers are likely to adopt new product/service and helps them develop effective promotion, pricing, & other marketing strategies to push acceptance among each customer group • Pioneers/Breakthroughs: New to world products that create new markets, i.e. Apple IPod
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Firstmovers: First to create market or product category, the firm becomes readily recognizable to customers and thus establishes an early market share lead Diffusion of Innovation Curve o Innovators (2.5 %): Buyers who want to be the first on the block to have a new product or service. Take risks and impact others decision on buying the product. o Early adopters (13.5%): Second subgroup that begins to use a product or service. Purchase product after careful review. Do not take risks like innovators. o Early Majority (34%): Don’t like to take as much risk and tend to wait until “bugs” are worked out of particular product. Early adopters are vital to the success of a product. o Late Majority (34%): Last group of buyers to enter market, product has achieved its full market potential, sales are usually leveling off or on the decline o Laggards (16%): Avoid change & rely on traditional products until they’re not available Using the Diffusion of Innovation Theory Relative Advantage: If a product/service is perceived to be better than the substitute, then diffusion will be relatively quick, uniqueness of product, i.e. Clorox’s GreenWorks line of natural cleansing products that earned “best new product award” in 2009 Compatibility: Diffusion process may be faster/slower, depending on various consumer features, such as international cultural differences; i.e. China Firefox browser different than US Observability: When products are easily observed, their benefits or uses are easily communicated to others, which enhances the diffusion process; i.e. seeing a lot of Toyota Priuses on the road might make someone want to testdrive one Complexity and Trialability: Products that are relatively less complex are also relatively easier to try, which diffuse more quickly than products that are not easy to try; i.e. easy to try new kind of juice, but hard to “try” speakers in your home
How Firms Develop New Products • Idea Generation: Development of viable new product ideas o Internal Research and Development: Many firms have own R&D department where scientists work to solve complex problems and develop new ideas. This is expensive but is more likely to create break through technologies; i.e. IBM and 3M have R&D to develop new technologies and products o Research & Development Consortia: Groups of other firms and institutions (government or educational institutions) to explore new ideas or obtain solutions for developing new products, i.e. National Institutes of Health supporting five year, $71 million project to conduct clinical trials of treatments for rare diseases and disorders Clinical Trial: Medical study that tests the safety and effectiveness of a drug or treatment in people o Licensing: Firms buy the right to use technology or idea from other researchintensive firms through a licensing agreement; saves high R&D costs but means a firm is banking on solution that already exists but hasn’t been marketed, i.e. Pharmaceutical firms license products developed by other companies like Amgen and Biogen o Brainstorming: Groups work together within a firm to generate ideas o Outsourcing: Some companies have trouble moving through these steps so they turn to outside firms like IDEO (help clients generate new product & service ideas) o Competitor’s Products: New product entry by competition may trigger market opportunity for a firm Reverse Engineering: Take apart a product, analyze it, and create an improved version that does not infringe on competitor’s patents o Consumer Input: Listening to what the customer wants helps make new ideas Lead Users Innovative product users who modify existing products according to own ideas to suit their specific needs, firms can study these people to find trends • Concept Testing: Concept statement is presented to potential buyers/users to obtain reaction o Concept: Brief, written descriptions of product (technology working principles & forms and what customer needs it would satisfy) • Product Development/Design: Balancing various engineering, manufacturing, marketing, and economic considerations to develop a product/service’s form and features
Prototype: First physical form/service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing processes (crafted individually) o Alpha Testing: Firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended by testing it on firm’s Research and Development department, i.e. Gilette employees testing out razors o Beta Testing: Tests potential consumers, who examine product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues Market Testing o Premarket Tests: Customer are exposed, then surveyed in a controlled environment, then firm makes decision o Test Marketing: Mini Product Launch, more expensive than premarket tests, market demand is estimated o
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Product Launch: If market testing returns with positive results, the firm is ready to introduce product into the market; requires tremendous financial resources & extensive coordination of all aspects of marketing mix (promotion, place, price) o Promotion Trade Promotions: Promotions to wholesalers/retailers to get them to purchase new products, often combine introductory price promotions, special events, & personal selling Introductory Price Promotions: Limitedduration, lower than normal prices, designed to provide retailers with an incentive to try products Trade Show: Temporary concentration of manufacturers that provide retailers the opportunity to view what is available and new in the market place o Place: Manufacturer coordinates the delivery and storage of the new products with its retailers to ensure that they are available for sale o Price: Must decide at what price they would like product to sell to consumers. MSRP: Manufacturer’s suggested retail price (encourages retailers to sell at specified price) Slotting Allowance: Fee paid to get new products into stores to gain more or better shelf space for their products o Timing: Important to a launch, i.e. new movie appealing to kids released in summer Evaluation of Results: Satisfaction of technical requirements, customer acceptance, and firm’s financial requirements; critical post launch review determines whether product and launch were success or failure & what additional resources/changes to marketing mix are needed
Product Life Cycle: Stages that products move through as they enter, get established in, and leave marketplace (offers marketers a starting point for their strategy planning) • Introduction Stage: When product first launches. Characterized by initial losses due to high startup costs and low levels of sales revenues. • Growth Stage: Product gains acceptance, demand & sales increase, more competitors emerge in the product category; market becomes more segmented & consumer preferences more varied, which increase potential for new markets or new uses of the product/service; firms try to reach new consumers by studying preferences & making product variations • Maturity Stage: Industry sales reach peak, firms try to rejuvenate products by adding new features or repositioning them. Characterized by the adoption of product by late majority and intense competition for market share among firms. Marketing costs and price competitiveness lowers profit margin. o Entry into New Markets or Market Segments: Firms may attempt to enter new geographical markets (international) that may be less saturated. Innovation of product to appeal to a different market segment is also a strategy, i.e. Dial’s 3 in 1 laundry detergent, fabric softener, and antistatic agent o Development of New Products: Firms create new products or find new uses for old ones to keep competitive in market • Decline Stage: Product’s sales decline and it eventually exits market. Either positions itself for a niche segment of diehard consumers or exits market
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Competitors One or few Chapter 12: Services: The Intangible Product
Service: Any intangible offering that involves a performance/effort that cannot be physically possessed, i.e. Hotel experience Customer Service: Human or mechanical activities firms undertakes to help satisfy their customer’s needs and wants, i.e. Best buy and geek squad to provide service to customers Core Differences Between Services and Goods • Intangible: Cannot be touched or tasted or seen like a pure product, difficult to convey benefits of service; requires using cues to aid customers, atmosphere is important to convey value, images are used to convey benefit of value • Inseparable Production and Consumption: Services are simultaneously produced and consumed, so customers have rare opportunity to try service before purchase (after service is used, it cannot be returned); little opportunity to test a service before use, lower risk by offering guarantees or warranties • Variability: The more humans that are involved to provide a service, the more likely variability or change will occur in that service; can be fixed using technology, training, automation • Perishable: Services are perishable because they cannot be stored for use in the future, i.e. can’t stock memberships to gold gym in pantry like sixpack of v8 drink Service Recovery • Resolve Problems Quickly: The longer it takes to resolve a problem, the more irritated a customer will become • Provide a Fair Solution: Mistakes happen, but must provide customer with distributive fairness or procedural fairness; fairness is judged based on customers experience with a previous firm o Distributive Fairness: Customer’s perception of benefits he/she received compared with costs (inconvenience or loss); i.e. flight is booked so they give you next flight out, if flight is the next day they give you sleeping and food accommodations o Procedural Fairness: Perceived fairness of process used to resolve complaints, customers want efficient complaint procedures over whose outcomes they have some influence • Listen to the Customer: Allow customers to file complaints, listen to these to better your service, and give customers more of what they want, i.e. zip cars give people service of owning a car for certain period of time
Chapter 16: Retailing and Multichannel Marketing Retailing: Set of business activities that add value to products/services sold to consumers for their personal/family use Multichannel Strategy: Involves selling in more than one channel, i.e. store, catalog, and Internet Factors for Establishing a Relationship with Retailers • Choosing Retail Partners o Channel Structure: Level of difficulty a manufacturer experiences in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated, the degree to which the manufacturer’s brand is desired; and the relative power of the manufacturer and retailer o Customer Expectations: Retailers should know customer preferences regarding manufacturers. Manufacturers, in contrast, need to know where their target market customers expect to find their products and those of their competitors. o Channel Member Characteristics: the larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries, i.e. Independent grocery store may buy products from wholesalers whereas WalMart will buy straight from the manufacturer o Distribution Intensity: Number of channel members to use at each level of the marketing channel Divided into 3 levels: Intensive, Exclusive, and Selective Intensive Distribution: Places products in as many outlets as possible, i.e. Pepsi Exclusive Distribution: Grants exclusive geographic territories to one or very few retail customers so no other retailer in the territory can sell a particular brand; gives retailers strong incentive to market your product Selective Distribution: Relies on a few selected retail customers in a territory to sell products • Identifying Types of Retailers o Food Retailers Conventional Supermarket: Selfservice retail food store offering different types of food with limited sales of nonfood items • Stock Keeping Units (SKUs): Individual items within each product category; the smallest unit available for inventory control • Limited Assortment Supermarkets: Retailers that offer very few brands/sizes of products & attempt to achieve great efficiency to lower costs & prices Supercenters: Large stores that combine a supermarket with a full line discount store; i.e. WalMart Supercenters, Super Target Warehouse Clubs: Large retailers that offer limited & irregular assortment of food & general merchandise, little service, and low prices to general public and small businesses; i.e. Sam’s Club, Costco Convenience Stores: Limited variety and assortment of merchandise in convenient location with speedy checkout, i.e. CVS o General Merchandise Retailers Department Stores: Carry broad variety and deep assortment, offer customer services, & organize stores into distinct departments for displaying merchandise, i.e. JC Penny’s, Macy’s Full Line Discount Stores: Offer broad variety of merchandise, limited service, & low prices; i.e. Wal Mart, Target, KMart Specialty Stores: Concentrate on limited number of complimentary merchandise categories & provide a higher level of service, i.e. Sephora
Drug Stores: Specialty stores that concentrate on pharmaceuticals & health & personal grooming merchandise, i.e. Walgreens, CVS Category Specialists: Offer narrow but deep assortment of discounted merchandise, have large selection in warehouse, offer assistance in other areas, i.e. Staples’ warehouse atmosphere but computer center offers help • Home Improvement Center: Category specialist’s offering equipment and material used by doit yourselfers and contractors to make home improvements, i.e. Lowes and Home Depot Extreme Value Retailers: Small, full line discount stores that offer a limited merchandise assortment at very low prices, i.e. Dollar General and Family Dollar OffPrice Retailers/CloseOut Retailers: Offer an inconsistent assortment of brand name merchandise at a significant discount, i.e. TJ Maxx • Irregulars: Merchandise with minor mistakes in construction • Factory/Outlet Stores: Off price retailers owned by manufacturers/department/specialty store chain o Service Retailers: Firms that primarily sell services rather than merchandise, i.e. Auto Rental, Health Spa, Vision Center, Bank Developing a Retail Strategy: Using the 4 P’s o Product: Providing right mix of merchandise and services o Price: Value of both merchandise and service provided o Promotion: Retailers use a wide variety of promotions, both within their retail environment and through mass media Mobile Commerce: Products and service purchases through mobile devices o Place: Convenience is a key ingredient to success Developing a Retail Strategy: Benefits of Stores for Consumers o Browsing: Shoppers have general sense of what they want, stores allow them to look o Touching and Feeling Products: Allows customers to use all 5 senses with products o Personal Service: Sales associates can provide meaningful, personalized information o Cash and Credit Payment: Stores are the only channels that accept cash payments o Entertainment and Social Experience: Stimulating & provides break in normal routine o Immediate Gratification: Customers get merchandise immediately after paying for it o Risk Reduction: Physical presence of store reduces perceived risk of buying and increases confidence that any problems with merchandise will be corrected Managing a Multichannel Strategy: Benefits of the Internet and Multichannel Retailing o Deeper and Broader Selection: Customer can visit & select merchandise from a broader array of retailers with more alternatives o Personalization Personalized Customer Service: Online chat allows customer to have an instant messaging/email session with a customer service representative Personalized Offering: Internet provides opportunity for retailers to personalize their offerings for each customer o Gain Insights into Consumer Shopping Behavior Cookie: Collects data on how customers navigate through a website o Increase Customer Satisfaction and Loyalty Cannibalization: Customers who formerly made purchases at a retailer’s store or catalog, now make the same purchase through the Internet channel o Expand Market Presence: Catalogs and stores are expensive and cost money, internet is much cheaper and can provide services to people anywhere Managing a Multichannel Strategy: Effective Multichannel Retailing
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Integrated Customer Relationship Management: Effective multichannel operations require an integrated CRM system with a centralized customer data warehouse that houses complete history of each customer’s interaction with retailer; allows efficient handling of complaints, expedite returns, & to better target future promotions Brand Image: Retailers need to provide a consistent brand image across all channels Pricing: Customers expect price consistency for the same Stock Keeping Units across channels Supply Chain: Unique skills and resources are needed to manage each channel, distribution centers that ship to customers & ones that ship to businesses need totally different structure
Chapter 15: Supply Chain Management • Supply Chain Management: Set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless operation, in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, as well as to minimize system wide costs, while satisfying the service levels their customers require • Wholesalers: Firms that buy products from manufacturers and resell them to retailers, then retailers sell products directly to consumers Supply Chain, Marketing Channel, and Logistics are Related • Marketing Channel: Institutions that transfer ownership of & move goods from point of production to point of consumption; consists of all the institutions and marketing activities in the marketing process. Marketing Channel = Supply Channel • Logistics Management: Integration of two or more activities for the purpose of planning, implementing, and controlling efficient flow of raw materials, in process inventory, and finished goods from the point of origin to the point of consumption; Concentrates on the movement and control of physical products; Activities may include: customer service, demand forecasting, inventory control, packaging, materials handling, and transportation Supply Chains Add Value o Value Deliver Network: Supply chain adds value at each level • Supply Chain Management Streamlines Distribution o Direct supply chain without a retailer causes more transactions, which makes prices higher for the consumer; with a retailer there are less transactions, making the supply chain more efficient and cheaper • Supply Chain Management Affects Marketing o Advertising and promotion must be coordinated with those departments that control inventory and transportation o Distribution Center: Facility for the receipt, storage, and redistribution of goods to company stores, or customers, may be operated by retailers, manufacturers, or distribution specialists Making Information Flow o Flow 1 (Customer to Store): Product’s UPC (Universal Product Code) is scanned and the customer receives a receipt o Flow 2 (Store to Buyer/Corporation): Pointofsales (POS) terminal records purchase information & electronically sends it to buyer at a corporate office. Sales information is incorporated into inventory management system & used to analyze sales & to decide to reorder more of that product, change the price, or plan a promotion. Buyers also send information to stores on overall sales for chain, how to display merchandise & upcoming promotions. o Flow 3 (Buyer/Corporation to Manufacturer): Corporate gets information from all its stores and sends order to manufacturer. Buyer may also communicate directly with manufacturer to negotiate prices, shipping dates, promotional events, or other merchandise related issues. o Flow 4 (Store to Manufacturer): Sales transaction data sent directly from store to manufacturer. The manufacturer decides when to ship more merchandise to the distribution center/store. In other situations, when merchandise is reordered frequently, the ordering process is done automatically, bypassing the buyers. o Flow 5 (Store to Distribution Center): Stores also communicate with distribution centers to coordinate deliveries and check inventory status. o Flow 6 (Manufacturing to Distribution Center & Buyer): When manufacturer sends products to distribution center it sends an Advanced Shipping Notice (ASN), center then makes appointments for trucks to make delivery at a specific time, date, and loading dock. Advanced Shipping Notice: Electronic document that supplier sends retailer in advance of a shipment to tell the retailer exactly what to expect in the shipment • Data Warehouse: Huge database storing purchase data collected at the point of sales
Horizontal Axis: Data can be accessed according to the level of merchandise aggregation (SKU [item], vendor, category, or all merchandise) o Vertical Axis: Data can be accessed by level of the company [store, divisions, or total company] o Third Line of Dimension: Data can be accessed by point in timeday, season, or year Electronic Data interchange: Computertocomputer exchange of business documents from a retailer, to a vendor, and back o Reduces Cycle Time: Time between decision to place order & receipt of merchandise o Improves Quality of Communications through better record keeping; fewer errors in inputting and receiving an order; and less human error in the interpretation of data o Data is in computerreadable format that can be easily analyzed & used for a variety of tasks VendorManaged Inventory: Approach for improving supply chain efficiency in which the manufacturer is responsible for maintaining the retailer’s inventory levels in each of its stores o Consignment Manufacturer owns merchandise until retailer sells it, at which time the retailer pays for merchandise; provides incentive to minimize inventory & generate sales Collaborative Planning, Forecasting, and Replenishment (CFPR): Sharing of forecast and related business information and collaborative planning between retailers & vendors to improve supply chain efficiency & product replenishment Pull and Push Supply Chains o Pull Supply Chains: Orders based on sales data, more accurate inventory, better when demand is uncertain o Push Supply Chains: Merchandise allocated based on forecast, does not need sophisticated system, good for steady demand items o
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Distribution Center: Management of Inbound Transportation Receiving and Checking UPC and RFID Storing and CrossDocking Getting Merchandise Floor Ready Preparing to Ship Shipping to Store Managing the Marketing Channel and Supply Chain o Vertical Channel/Supply Chain Conflict: Type of channel conflict in which members of the same marketing channel, for example, manufacturers, wholesalers, and retailers, are in disagreement or discord. o Horizontal Channel/Supply Chain Conflict: Can occur when there is disagreement or discord among members at the same level of a marketing channel, such as two competing retailers or two competing manufacturers. Ex. Home Depot and Lowes offering low prices on Stanley tools. • Managing the Marketing Channel and Supply Chain through Vertical Marketing Systems o Independent/Conventional Supply Chain: Loose coalition of several independently owned and operated supply chain members all attempting to satisfy own objectives and maximize own profits, often at the expense of other members. No participants have control over the others. Manufacturer Wholesaler Retailer Consumer Vertical Marketing System: Members act as a unified system, each with increasing levels of formalization and control. The more formal the vertical marketing system, the less likely conflict will ensure. Manufacturer, Wholesaler, Retailer Consumer o Administered Vertical Marketing system: No common ownership and no contractual relationships, but the dominant channel member controls or holds the balance of power in the channel relationship. Power: When one firm has the means or ability to have control over the actions of another member in the channel. Reward Power: Monetary incentive usually. The powerful member of the channel offers a reward to gain power and make the other member do what it wants. Coercive Power: Powerful member threatens to punish another member for not undertaking certain
tasks it wants it to do. Referent Power: Occurs if one channel member wants to be associated with another channel member. The channel member with whom the others wish to be associated has the power and can get them to do what they want. Expertise Power: Powerful member has expertise that the other channel member wants or needs and can therefore get them to do what they want. Information Power: Powerful member has information that the other channel member wants or needs and can therefore get them to do what they want. Legitimate Power: Powerful member has a contractual agreement with other channel member that requires other channel member to behave in a certain way. This type of power occurs in an administered vertical marketing system. o Contractual Vertical Marketing System: Independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination to reduce conflict. Franchising: Contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor. o Corporate Vertical Marketing System: Parent company has complete control and can dictate priorities and objective of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios. • Managing Marketing Channels and Supply Chain through Strategic Relationships Strategic Relationship/Partnering Relationship: the supply chain members are committed to maintain the relationship over the long term and investing in opportunities that are mutually beneficial. o Mutual Trust: Belief partners are honest & won’t take advantage of each other, more willing to share relevant ideas, clarify goal & problem, & communicate o Open communication (Technology): Need to share information with each other. Supply chain members need to understand what is driving each other’s business, their roles in relationship, each firm’s strategies, & any problem that arises over course of relationship o Common Goals: Shared goals give both members of the relationship incentive to pool their strengths and abilities and exploit potential opportunities together. o Interdependence: When supply chain members view their goals and success to be intricately linked, they develop deeper longterm relationships. o Credible Commitments: Both parties of the relationship must make credible commitments, or tangible investments to make product/service better.
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Differentiated Targeting Strategy: Firms target several market segments with a different offering for each, more profitable, i.e. Conde Nast has more than 20 niche magazines to diversify their business and lower the company’s overall risk. Concentrated Targeting Strategy: When an organization selects a single, primary target market and focuses all it’s energies on providing a product to fit that market’s needs. Small Business Entrepreneurs benefit from this because it allows them to use their limited resources more efficiently, i.e. Newton Running makes shoes only for people who want to land on forefoot. Micromarketing/One to One Marketing: When a firm tailors a product or service to suit an individual customer’s wants or need, i.e. Financial Services or Dell letting customers to pick specific colors, parts, and sizes of software in computer
*Positioning Step 5: Identify and Develop Positioning Strategy • Market position involves defining marketing mix variables so target customers have clear, distinctive, desirable understanding of what product does or represents in comparison with competing products. Firms position products and services based on different methods such as value proposition, salient attributes, symbols, and competition. o Perceptual Map: Displays position of product or brands in consumer’s mind Ideal Points: Where particular segment’s ideal product would lie on map • Methods: o Value Proposition: Unique value that a product or service provides to its customers, and how it’s better than and different from those of competitors, i.e. Mercedes and luxurious cars o Salient Attributes: Most important characteristic of product, i.e. Volvo and safety o Symbols: Firms also use business to associate with their product. Makes people remember them, i.e. The Nike swoosh, Ralph Lauren Polo player. o Competition: i.e. Blockbuster is saying they are better than Netflix • Positioning Steps 1. Determine consumer’s perceptions and evaluations in relation to competitors Ask series of questions 2. Identify competitor’s positions 3. Determine consumer preferences “Ideal product or service” 4. Select the position 5. Monitor the position strategy Shifts occur often • Repositioning o Changing brand's status in comparison to that of the competing brands. Repositioning is effected usually through changing the marketing mix in response to changes in the market place, or due to a failure to reach the brand's marketing objectives.
Chapter 10 – Product, Branding, and Packaging Decisions Complexity of Products
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Core Customer Value: Basic problem solving benefits that consumers are seeking from valuable products or services/ideas Associated Services/Augmented Products: Nonphysical aspects of the product, i.e. financing (on cars), product support, and aftersale service/warranty Actual Product: Consists of brand name, quality level, packing, and features/designs; company must also know what they want to lead, i.e. luxury leader, mid level leader, or lower level leader
Types of Products • Consumer Products: Used by people for their personal use o Specialty Products/Services: Customers show such a strong preference for these products/services that they will expend considerable effort to search for the best supplier; high involvement and effort; brand loyalty; i.e. luxury cars, legal or medical professionals, designer apparel, specific products o Shopping Products/Services: consumers will spend a fair amount of time comparing alternatives (technology or prices) for these products/services; i.e. furniture, apparel, fragrances, appliances o Convenience Products/Services: Customer is not willing to spend any effort to evaluate these products/services prior to purchase; habitual products consumers need every day; impulse buying; easier and time saving; i.e. frequently purchased commodity items like beverages, bread, soap o Unsought Products/Services: consumers do not normally think of buying or do not know about these products/services; not a necessity; unimportant; products/services require a lot of marketing to sell; i.e. GPS when first invented. Product Mix: Complete set of all products offered by a firm Product Lines: Groups of associated items that consumers tend to use together or think of as part of a group of similar products o i.e. Colgate has 4 product lines: oral care, personal care, home care and pet nutrition. Within these lines are products such as toothpaste and toothbrushes in oral care and soaps in personal care. o i.e. Kellogg’s cereal has 4 product lines: ready to eat cereal, toaster pasties, cookies and crackers, and natural organic and frozen foods. In each of these lines are a number of products. • Breadth: Number of product lines offered by a firm o Increase Breadth: Firms often add new product lines to capture new or evolving markets and increase sales, i.e. Palm making smartphone line to compete with blackberry. o Decrease Breadth: Necessary sometimes to delete entire product lines to address changing market conditions or meet internal strategic priorities, i.e. Palm removing first phone they made because it is obsolete after newer technology or TCBY yogurt stopping sales of ice cream and focusing just on frozen yogurt • Depth: Number of categories within a product line o Increase Depth: Firms might add items to address changing consumer preferences or preempt competitors while boosting sales o Decrease Depth Need sometimes to delete products within a product line to realign the firm’s resources, i.e. McCormick spices deleting dozens of spices each year so they can focus on new ones Brand: Gives a product an identity and personality; way for a firm to differentiate its product from those of its competitors • Brand Name: Spoken component of branding, it can describe the product or service/product characteristics and/or be composed of words invented or derived from colloquial or contemporary language, i.e. Comfort Inn (suggests product characteristics) Apple (no association with product) or Zillow.com (invented term) • URLs: Uniform resource locators/domain names; location of pages on the Internet that often substitutes a firm’s name, i.e. Yahoo and Amazon.com • Logos and Symbols: Logos are visual branding elements that stand for corporate names or trademarks. Symbols are logos without words. o i.e. Nike swoosh, Mercedes star
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Characters: Brand symbols that could be human, animal, or animated, i.e. Pillsbury doughboy, Keebler elves Slogans: Short phrases used to describe brand or persuade customers about some characteristics of that brand Jingles/Sounds: Audio messages of brand that are composed of words or distinctive music, i.e. Intel fournote sound signature
Value of Branding to a Marketer and Customers • Facilitate Purchases: Easily recognizable by consumers, signify certain quality level, and contain familiar attributes; help consumers make quick decisions; enable customers to differentiate one firm or product from another; i.e. Coke and Pepsi • Establish Loyalty: Consumers learn to trust certain brands • Protect from Competition and Price Competition: Strong brands are somewhat protected from competition of other firms and price because they are more established in the market and have more loyal customers, so competitive pricing is also not a threat; i.e. Lacoste golf shirts • Reduce Marketing Costs: Firms with wellknown brands can spend less money on marketing than firms with little known brands because the brand sells itself, i.e. Starbucks customers know the brand logo and seek it out, they do not need to educate people on what its brand represents as much • Assets: Brands can be legally protected through trademark and copyrights constituting a unique form of ownership. • Impact Market Value: Having wellknown brands can have a direct impact on the company’s bottom line; every brand has a value that contributes to the company’s overall value Brand Equity: Assets and liabilities linked to a brand that add or subtract from the value provided by the product or service, i.e. Ralph Lauren and polo player have good brand equity. Determined by: • Brand Awareness: How many consumers in market are familiar with brand and what it stands for and have opinion about brand, i.e. BandAid, Kleenex tissues • Perceived Value: Relationship between product/service’s benefits and it’s cost • Brand Associations: Mental link consumers make between brand and it’s key product attributes (logo, slogan, or famous personality); i.e. Toyota Prius known as economical & good for environment, BMW known for luxury & performance o Brand Personality: Set of human characteristics associated with brand, which has symbolic or selfexpressive meanings for consumers; can include personality elements such as gender and age or physical traits such as fresh, smooth, round, or clean; i.e. McDonald’s atmosphere is great for youth • Brand Loyalty: When customer buys same brand product/service repeatedly over time rather than from multiple suppliers within same category; companies such as airlines and hotels have developed frequent buyer programs to reward loyal customers o Consumers are less sensitive to price; marketing costs are lower; firm is protected from competition Branding Strategies • Brand Ownership: Brands can be owned by any firm in the supply chain, whether manufacturers, wholesalers, or retailers o Manufacturer/National Brands: Owned & managed by the manufacturer; manufacturer develops merchandise, produces it to ensure consistent quality, and invests in marketing program to establish an appealing brand image; i.e. Nike, CocaCola, Sony o PrivateLabel/Store/House/Own Brands: Products developed by retailers, some national brands produce private brands for a specific retailer, i.e. WalMart’s “great value” brand Four Categories of Private Brands: • Premium Brands: Offers consumer a private label that is comparable to, or even superior to, a manufacturers brand quality; competes on quality, not price; i.e. Kroger’s private selection • Generic Brands: Target a pricesensitive segment by offering a no frills product at discount price; competes on price, not quality • Copycat Brands: Imitate manufacturer’s brand in appearance and packaging, generally are perceived as lower quality, and are offered at lower prices, i.e. CVS brand and PeptoBismol
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Exclusive CoBrands: Developed by a national brand manufacturer, often in conjunction with a retailer, and is sold exclusively by the retailer, i.e. JC Penny’s and Ralph Lauren “American Living brand” Naming Brands and Product Lines o Family Brands: All products sold under one brand name, individual brand benefits from overall awareness associated with family name, i.e. The Gap o Individual Brands: Names for each of its product, i.e. Mr. Clean (Proctor & Gamble) Brand and Line Extension o Brand Extension: Use of same brand name in different product line. An increase in the product mix’s breadth, i.e. Colgate and crest selling toothbrushes even though original product was just toothpaste Brand Dilution: Brand extension harms consumer perceptions about the attributes the core brand is believed to hold, i.e. Lifesavers soda failing • To Prevent: • Evaluate fit between product class of core brand and extension • Evaluate consumer’s perceptions of the attributes of the core brand and seek out extensions with similar attributes • Refrain from extending the brand name to too many products • Is the brand extension distanced enough from the core brand? o Line Extension: Use of the same brand name within same product line, represents an increase in a product line’s depth, i.e. Frito Lay & Doritos brand used for chips and dip Advantages: • Brand name is well established; firm spends less in developing consumer brand awareness & brand association for new product • If original brand or brand extension has strong consumer acceptance, that perception will carry over to the other product. • When brand extensions are used for complimentary products, a synergy exists between two products that increases overall sales CoBranding: Marketing two or more brands together, on the same package, promotion, or store; can enhance consumers’ perception of product quality by signaling “unobservable” product quality through links between the firm’s brand and well known quality brand. i.e. Yum brands putting Taco Bell and KFC together Brand Licensing: Contractual agreement between firms, one firm allows another to use it’s brand name, logo, symbols, and characters in exchange for negotiated fee, i.e. EA video game company and Porsche to make Need for Speed: Porsche unleashed Brand Repositioning/Rebranding: Marketers change brand’s focus to target new markets or realign brand’s core emphasis with changing market preferences; convey new image/message to customers; make product more beneficial; can improve brand’s fit with its target segment or boost vitality of old bands; comes with cost & risk; i.e. Gatorade has products for before & after, not only during exercise
Packaging and Labeling • Primary Packaging: One consumer uses, such as toothpaste tube; consumers usually seek storage (protection and increased shelf life), use, and consumption out of this • Secondary Packaging: Wrapper/exterior carton that contains primary package and provides UPC label used by retail scanners; consumers use packaging to find additional information on product; advertising on package used to trigger purchase • Labels: Communication tool. Provides information consumers need for purchase decision & consumption of product. Helps identify brand & is important for promotion. Some laws require certain things on labels. i.e. Food must have nutritional facts.
Chapter 11 Developing New Products Why do Firms Create New Products? • Innovation: Ideas get transformed into new offerings/products/services/processes/branding concepts that will help firms grow • Changing Customer Needs: Firms add products, services, and processes to their offering to create and deliver value more effectively by satisfying changing needs of current and new customers or simply keep customers from getting bored with current product or service offering o Things customers don’t know but will want, i.e. washing undercarriage of car o Innovate wellknown offering, i.e. Dyson & cyclone technology • Market Saturation: The longer a product exists in the marketplace, the more likely it is that the market will become saturated, i.e. Car companies make new models with new features every year • Managing Risk through Diversity: Through innovation, firms create broader portfolio of products, which helps them diversify risk & enhance firm value better than a single product can; if one product fails, a company has external shocks so it does not collapse; i.e. Kellogg’s making new cereal bars, and protein shakes. • Fashion Cycles: Some industries are based on fashion cycles and trends that experience short product life cycles, most sales come from new products in apparel, arts, books, and software • Improving Business Relationships: Sometimes new products function to improve relationships with suppliers, i.e. Kraft’s Capri Sun was packaged at bottom of pallet. Changed pallet to chimneystacks in each flavor and lemonade sales grew 162% Diffusion of Innovation: When use of an innovation (product/service/process) spreads throughout a market group over time and across various categories of adopters; helps marketers understand rate at which consumers are likely to adopt new product/service and helps them develop effective promotion, pricing, & other marketing strategies to push acceptance among each customer group • Pioneers/Breakthroughs: New to world products that create new markets, i.e. Apple IPod
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Firstmovers: First to create market or product category, the firm becomes readily recognizable to customers and thus establishes an early market share lead Diffusion of Innovation Curve o Innovators (2.5 %): Buyers who want to be the first on the block to have a new product or service. Take risks and impact others decision on buying the product. o Early adopters (13.5%): Second subgroup that begins to use a product or service. Purchase product after careful review. Do not take risks like innovators. o Early Majority (34%): Don’t like to take as much risk and tend to wait until “bugs” are worked out of particular product. Early adopters are vital to the success of a product. o Late Majority (34%): Last group of buyers to enter market, product has achieved its full market potential, sales are usually leveling off or on the decline o Laggards (16%): Avoid change & rely on traditional products until they’re not available Using the Diffusion of Innovation Theory Relative Advantage: If a product/service is perceived to be better than the substitute, then diffusion will be relatively quick, uniqueness of product, i.e. Clorox’s GreenWorks line of natural cleansing products that earned “best new product award” in 2009 Compatibility: Diffusion process may be faster/slower, depending on various consumer features, such as international cultural differences; i.e. China Firefox browser different than US Observability: When products are easily observed, their benefits or uses are easily communicated to others, which enhances the diffusion process; i.e. seeing a lot of Toyota Priuses on the road might make someone want to testdrive one Complexity and Trialability: Products that are relatively less complex are also relatively easier to try, which diffuse more quickly than products that are not easy to try; i.e. easy to try new kind of juice, but hard to “try” speakers in your home
How Firms Develop New Products • Idea Generation: Development of viable new product ideas o Internal Research and Development: Many firms have own R&D department where scientists work to solve complex problems and develop new ideas. This is expensive but is more likely to create break through technologies; i.e. IBM and 3M have R&D to develop new technologies and products o Research & Development Consortia: Groups of other firms and institutions (government or educational institutions) to explore new ideas or obtain solutions for developing new products, i.e. National Institutes of Health supporting five year, $71 million project to conduct clinical trials of treatments for rare diseases and disorders Clinical Trial: Medical study that tests the safety and effectiveness of a drug or treatment in people o Licensing: Firms buy the right to use technology or idea from other researchintensive firms through a licensing agreement; saves high R&D costs but means a firm is banking on solution that already exists but hasn’t been marketed, i.e. Pharmaceutical firms license products developed by other companies like Amgen and Biogen o Brainstorming: Groups work together within a firm to generate ideas o Outsourcing: Some companies have trouble moving through these steps so they turn to outside firms like IDEO (help clients generate new product & service ideas) o Competitor’s Products: New product entry by competition may trigger market opportunity for a firm Reverse Engineering: Take apart a product, analyze it, and create an improved version that does not infringe on competitor’s patents o Consumer Input: Listening to what the customer wants helps make new ideas Lead Users Innovative product users who modify existing products according to own ideas to suit their specific needs, firms can study these people to find trends • Concept Testing: Concept statement is presented to potential buyers/users to obtain reaction o Concept: Brief, written descriptions of product (technology working principles & forms and what customer needs it would satisfy) • Product Development/Design: Balancing various engineering, manufacturing, marketing, and economic considerations to develop a product/service’s form and features
Prototype: First physical form/service description of a new product, still in rough or tentative form, that has the same properties as a new product but is produced through different manufacturing processes (crafted individually) o Alpha Testing: Firm attempts to determine whether the product will perform according to its design and whether it satisfies the need for which it was intended by testing it on firm’s Research and Development department, i.e. Gilette employees testing out razors o Beta Testing: Tests potential consumers, who examine product prototype in a “real use” setting to determine its functionality, performance, potential problems, and other issues Market Testing o Premarket Tests: Customer are exposed, then surveyed in a controlled environment, then firm makes decision o Test Marketing: Mini Product Launch, more expensive than premarket tests, market demand is estimated o
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Product Launch: If market testing returns with positive results, the firm is ready to introduce product into the market; requires tremendous financial resources & extensive coordination of all aspects of marketing mix (promotion, place, price) o Promotion Trade Promotions: Promotions to wholesalers/retailers to get them to purchase new products, often combine introductory price promotions, special events, & personal selling Introductory Price Promotions: Limitedduration, lower than normal prices, designed to provide retailers with an incentive to try products Trade Show: Temporary concentration of manufacturers that provide retailers the opportunity to view what is available and new in the market place o Place: Manufacturer coordinates the delivery and storage of the new products with its retailers to ensure that they are available for sale o Price: Must decide at what price they would like product to sell to consumers. MSRP: Manufacturer’s suggested retail price (encourages retailers to sell at specified price) Slotting Allowance: Fee paid to get new products into stores to gain more or better shelf space for their products o Timing: Important to a launch, i.e. new movie appealing to kids released in summer Evaluation of Results: Satisfaction of technical requirements, customer acceptance, and firm’s financial requirements; critical post launch review determines whether product and launch were success or failure & what additional resources/changes to marketing mix are needed
Product Life Cycle: Stages that products move through as they enter, get established in, and leave marketplace (offers marketers a starting point for their strategy planning) • Introduction Stage: When product first launches. Characterized by initial losses due to high startup costs and low levels of sales revenues. • Growth Stage: Product gains acceptance, demand & sales increase, more competitors emerge in the product category; market becomes more segmented & consumer preferences more varied, which increase potential for new markets or new uses of the product/service; firms try to reach new consumers by studying preferences & making product variations • Maturity Stage: Industry sales reach peak, firms try to rejuvenate products by adding new features or repositioning them. Characterized by the adoption of product by late majority and intense competition for market share among firms. Marketing costs and price competitiveness lowers profit margin. o Entry into New Markets or Market Segments: Firms may attempt to enter new geographical markets (international) that may be less saturated. Innovation of product to appeal to a different market segment is also a strategy, i.e. Dial’s 3 in 1 laundry detergent, fabric softener, and antistatic agent o Development of New Products: Firms create new products or find new uses for old ones to keep competitive in market • Decline Stage: Product’s sales decline and it eventually exits market. Either positions itself for a niche segment of diehard consumers or exits market
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Competitors One or few Chapter 12: Services: The Intangible Product
Service: Any intangible offering that involves a performance/effort that cannot be physically possessed, i.e. Hotel experience Customer Service: Human or mechanical activities firms undertakes to help satisfy their customer’s needs and wants, i.e. Best buy and geek squad to provide service to customers Core Differences Between Services and Goods • Intangible: Cannot be touched or tasted or seen like a pure product, difficult to convey benefits of service; requires using cues to aid customers, atmosphere is important to convey value, images are used to convey benefit of value • Inseparable Production and Consumption: Services are simultaneously produced and consumed, so customers have rare opportunity to try service before purchase (after service is used, it cannot be returned); little opportunity to test a service before use, lower risk by offering guarantees or warranties • Variability: The more humans that are involved to provide a service, the more likely variability or change will occur in that service; can be fixed using technology, training, automation • Perishable: Services are perishable because they cannot be stored for use in the future, i.e. can’t stock memberships to gold gym in pantry like sixpack of v8 drink Service Recovery • Resolve Problems Quickly: The longer it takes to resolve a problem, the more irritated a customer will become • Provide a Fair Solution: Mistakes happen, but must provide customer with distributive fairness or procedural fairness; fairness is judged based on customers experience with a previous firm o Distributive Fairness: Customer’s perception of benefits he/she received compared with costs (inconvenience or loss); i.e. flight is booked so they give you next flight out, if flight is the next day they give you sleeping and food accommodations o Procedural Fairness: Perceived fairness of process used to resolve complaints, customers want efficient complaint procedures over whose outcomes they have some influence • Listen to the Customer: Allow customers to file complaints, listen to these to better your service, and give customers more of what they want, i.e. zip cars give people service of owning a car for certain period of time
Chapter 16: Retailing and Multichannel Marketing Retailing: Set of business activities that add value to products/services sold to consumers for their personal/family use Multichannel Strategy: Involves selling in more than one channel, i.e. store, catalog, and Internet Factors for Establishing a Relationship with Retailers • Choosing Retail Partners o Channel Structure: Level of difficulty a manufacturer experiences in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated, the degree to which the manufacturer’s brand is desired; and the relative power of the manufacturer and retailer o Customer Expectations: Retailers should know customer preferences regarding manufacturers. Manufacturers, in contrast, need to know where their target market customers expect to find their products and those of their competitors. o Channel Member Characteristics: the larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries, i.e. Independent grocery store may buy products from wholesalers whereas WalMart will buy straight from the manufacturer o Distribution Intensity: Number of channel members to use at each level of the marketing channel Divided into 3 levels: Intensive, Exclusive, and Selective Intensive Distribution: Places products in as many outlets as possible, i.e. Pepsi Exclusive Distribution: Grants exclusive geographic territories to one or very few retail customers so no other retailer in the territory can sell a particular brand; gives retailers strong incentive to market your product Selective Distribution: Relies on a few selected retail customers in a territory to sell products • Identifying Types of Retailers o Food Retailers Conventional Supermarket: Selfservice retail food store offering different types of food with limited sales of nonfood items • Stock Keeping Units (SKUs): Individual items within each product category; the smallest unit available for inventory control • Limited Assortment Supermarkets: Retailers that offer very few brands/sizes of products & attempt to achieve great efficiency to lower costs & prices Supercenters: Large stores that combine a supermarket with a full line discount store; i.e. WalMart Supercenters, Super Target Warehouse Clubs: Large retailers that offer limited & irregular assortment of food & general merchandise, little service, and low prices to general public and small businesses; i.e. Sam’s Club, Costco Convenience Stores: Limited variety and assortment of merchandise in convenient location with speedy checkout, i.e. CVS o General Merchandise Retailers Department Stores: Carry broad variety and deep assortment, offer customer services, & organize stores into distinct departments for displaying merchandise, i.e. JC Penny’s, Macy’s Full Line Discount Stores: Offer broad variety of merchandise, limited service, & low prices; i.e. Wal Mart, Target, KMart Specialty Stores: Concentrate on limited number of complimentary merchandise categories & provide a higher level of service, i.e. Sephora
Drug Stores: Specialty stores that concentrate on pharmaceuticals & health & personal grooming merchandise, i.e. Walgreens, CVS Category Specialists: Offer narrow but deep assortment of discounted merchandise, have large selection in warehouse, offer assistance in other areas, i.e. Staples’ warehouse atmosphere but computer center offers help • Home Improvement Center: Category specialist’s offering equipment and material used by doit yourselfers and contractors to make home improvements, i.e. Lowes and Home Depot Extreme Value Retailers: Small, full line discount stores that offer a limited merchandise assortment at very low prices, i.e. Dollar General and Family Dollar OffPrice Retailers/CloseOut Retailers: Offer an inconsistent assortment of brand name merchandise at a significant discount, i.e. TJ Maxx • Irregulars: Merchandise with minor mistakes in construction • Factory/Outlet Stores: Off price retailers owned by manufacturers/department/specialty store chain o Service Retailers: Firms that primarily sell services rather than merchandise, i.e. Auto Rental, Health Spa, Vision Center, Bank Developing a Retail Strategy: Using the 4 P’s o Product: Providing right mix of merchandise and services o Price: Value of both merchandise and service provided o Promotion: Retailers use a wide variety of promotions, both within their retail environment and through mass media Mobile Commerce: Products and service purchases through mobile devices o Place: Convenience is a key ingredient to success Developing a Retail Strategy: Benefits of Stores for Consumers o Browsing: Shoppers have general sense of what they want, stores allow them to look o Touching and Feeling Products: Allows customers to use all 5 senses with products o Personal Service: Sales associates can provide meaningful, personalized information o Cash and Credit Payment: Stores are the only channels that accept cash payments o Entertainment and Social Experience: Stimulating & provides break in normal routine o Immediate Gratification: Customers get merchandise immediately after paying for it o Risk Reduction: Physical presence of store reduces perceived risk of buying and increases confidence that any problems with merchandise will be corrected Managing a Multichannel Strategy: Benefits of the Internet and Multichannel Retailing o Deeper and Broader Selection: Customer can visit & select merchandise from a broader array of retailers with more alternatives o Personalization Personalized Customer Service: Online chat allows customer to have an instant messaging/email session with a customer service representative Personalized Offering: Internet provides opportunity for retailers to personalize their offerings for each customer o Gain Insights into Consumer Shopping Behavior Cookie: Collects data on how customers navigate through a website o Increase Customer Satisfaction and Loyalty Cannibalization: Customers who formerly made purchases at a retailer’s store or catalog, now make the same purchase through the Internet channel o Expand Market Presence: Catalogs and stores are expensive and cost money, internet is much cheaper and can provide services to people anywhere Managing a Multichannel Strategy: Effective Multichannel Retailing
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Integrated Customer Relationship Management: Effective multichannel operations require an integrated CRM system with a centralized customer data warehouse that houses complete history of each customer’s interaction with retailer; allows efficient handling of complaints, expedite returns, & to better target future promotions Brand Image: Retailers need to provide a consistent brand image across all channels Pricing: Customers expect price consistency for the same Stock Keeping Units across channels Supply Chain: Unique skills and resources are needed to manage each channel, distribution centers that ship to customers & ones that ship to businesses need totally different structure
Chapter 15: Supply Chain Management • Supply Chain Management: Set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless operation, in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, as well as to minimize system wide costs, while satisfying the service levels their customers require • Wholesalers: Firms that buy products from manufacturers and resell them to retailers, then retailers sell products directly to consumers Supply Chain, Marketing Channel, and Logistics are Related • Marketing Channel: Institutions that transfer ownership of & move goods from point of production to point of consumption; consists of all the institutions and marketing activities in the marketing process. Marketing Channel = Supply Channel • Logistics Management: Integration of two or more activities for the purpose of planning, implementing, and controlling efficient flow of raw materials, in process inventory, and finished goods from the point of origin to the point of consumption; Concentrates on the movement and control of physical products; Activities may include: customer service, demand forecasting, inventory control, packaging, materials handling, and transportation Supply Chains Add Value o Value Deliver Network: Supply chain adds value at each level • Supply Chain Management Streamlines Distribution o Direct supply chain without a retailer causes more transactions, which makes prices higher for the consumer; with a retailer there are less transactions, making the supply chain more efficient and cheaper • Supply Chain Management Affects Marketing o Advertising and promotion must be coordinated with those departments that control inventory and transportation o Distribution Center: Facility for the receipt, storage, and redistribution of goods to company stores, or customers, may be operated by retailers, manufacturers, or distribution specialists Making Information Flow o Flow 1 (Customer to Store): Product’s UPC (Universal Product Code) is scanned and the customer receives a receipt o Flow 2 (Store to Buyer/Corporation): Pointofsales (POS) terminal records purchase information & electronically sends it to buyer at a corporate office. Sales information is incorporated into inventory management system & used to analyze sales & to decide to reorder more of that product, change the price, or plan a promotion. Buyers also send information to stores on overall sales for chain, how to display merchandise & upcoming promotions. o Flow 3 (Buyer/Corporation to Manufacturer): Corporate gets information from all its stores and sends order to manufacturer. Buyer may also communicate directly with manufacturer to negotiate prices, shipping dates, promotional events, or other merchandise related issues. o Flow 4 (Store to Manufacturer): Sales transaction data sent directly from store to manufacturer. The manufacturer decides when to ship more merchandise to the distribution center/store. In other situations, when merchandise is reordered frequently, the ordering process is done automatically, bypassing the buyers. o Flow 5 (Store to Distribution Center): Stores also communicate with distribution centers to coordinate deliveries and check inventory status. o Flow 6 (Manufacturing to Distribution Center & Buyer): When manufacturer sends products to distribution center it sends an Advanced Shipping Notice (ASN), center then makes appointments for trucks to make delivery at a specific time, date, and loading dock. Advanced Shipping Notice: Electronic document that supplier sends retailer in advance of a shipment to tell the retailer exactly what to expect in the shipment • Data Warehouse: Huge database storing purchase data collected at the point of sales
Horizontal Axis: Data can be accessed according to the level of merchandise aggregation (SKU [item], vendor, category, or all merchandise) o Vertical Axis: Data can be accessed by level of the company [store, divisions, or total company] o Third Line of Dimension: Data can be accessed by point in timeday, season, or year Electronic Data interchange: Computertocomputer exchange of business documents from a retailer, to a vendor, and back o Reduces Cycle Time: Time between decision to place order & receipt of merchandise o Improves Quality of Communications through better record keeping; fewer errors in inputting and receiving an order; and less human error in the interpretation of data o Data is in computerreadable format that can be easily analyzed & used for a variety of tasks VendorManaged Inventory: Approach for improving supply chain efficiency in which the manufacturer is responsible for maintaining the retailer’s inventory levels in each of its stores o Consignment Manufacturer owns merchandise until retailer sells it, at which time the retailer pays for merchandise; provides incentive to minimize inventory & generate sales Collaborative Planning, Forecasting, and Replenishment (CFPR): Sharing of forecast and related business information and collaborative planning between retailers & vendors to improve supply chain efficiency & product replenishment Pull and Push Supply Chains o Pull Supply Chains: Orders based on sales data, more accurate inventory, better when demand is uncertain o Push Supply Chains: Merchandise allocated based on forecast, does not need sophisticated system, good for steady demand items o
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Distribution Center: Management of Inbound Transportation Receiving and Checking UPC and RFID Storing and CrossDocking Getting Merchandise Floor Ready Preparing to Ship Shipping to Store Managing the Marketing Channel and Supply Chain o Vertical Channel/Supply Chain Conflict: Type of channel conflict in which members of the same marketing channel, for example, manufacturers, wholesalers, and retailers, are in disagreement or discord. o Horizontal Channel/Supply Chain Conflict: Can occur when there is disagreement or discord among members at the same level of a marketing channel, such as two competing retailers or two competing manufacturers. Ex. Home Depot and Lowes offering low prices on Stanley tools. • Managing the Marketing Channel and Supply Chain through Vertical Marketing Systems o Independent/Conventional Supply Chain: Loose coalition of several independently owned and operated supply chain members all attempting to satisfy own objectives and maximize own profits, often at the expense of other members. No participants have control over the others. Manufacturer Wholesaler Retailer Consumer Vertical Marketing System: Members act as a unified system, each with increasing levels of formalization and control. The more formal the vertical marketing system, the less likely conflict will ensure. Manufacturer, Wholesaler, Retailer Consumer o Administered Vertical Marketing system: No common ownership and no contractual relationships, but the dominant channel member controls or holds the balance of power in the channel relationship. Power: When one firm has the means or ability to have control over the actions of another member in the channel. Reward Power: Monetary incentive usually. The powerful member of the channel offers a reward to gain power and make the other member do what it wants. Coercive Power: Powerful member threatens to punish another member for not undertaking certain
tasks it wants it to do. Referent Power: Occurs if one channel member wants to be associated with another channel member. The channel member with whom the others wish to be associated has the power and can get them to do what they want. Expertise Power: Powerful member has expertise that the other channel member wants or needs and can therefore get them to do what they want. Information Power: Powerful member has information that the other channel member wants or needs and can therefore get them to do what they want. Legitimate Power: Powerful member has a contractual agreement with other channel member that requires other channel member to behave in a certain way. This type of power occurs in an administered vertical marketing system. o Contractual Vertical Marketing System: Independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination to reduce conflict. Franchising: Contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor. o Corporate Vertical Marketing System: Parent company has complete control and can dictate priorities and objective of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios. • Managing Marketing Channels and Supply Chain through Strategic Relationships Strategic Relationship/Partnering Relationship: the supply chain members are committed to maintain the relationship over the long term and investing in opportunities that are mutually beneficial. o Mutual Trust: Belief partners are honest & won’t take advantage of each other, more willing to share relevant ideas, clarify goal & problem, & communicate o Open communication (Technology): Need to share information with each other. Supply chain members need to understand what is driving each other’s business, their roles in relationship, each firm’s strategies, & any problem that arises over course of relationship o Common Goals: Shared goals give both members of the relationship incentive to pool their strengths and abilities and exploit potential opportunities together. o Interdependence: When supply chain members view their goals and success to be intricately linked, they develop deeper longterm relationships. o Credible Commitments: Both parties of the relationship must make credible commitments, or tangible investments to make product/service better.
