Bnad 303 test 4

Service Recovery

Despite a firm's best efforts, sometimes service providers fail to meet customer expectations. When this happens, the best course of action is to attempt to make amends with the customer and learn from the experience. Of course, it is best to avoid a service failure altogether, but when a failure does occur, the firm has a unique opportunity to demonstrate its customer commitment. Effective service recovery efforts can significantly increase customer satisfaction, purchase intentions, and positive word of mouth, though customers' postrecovery satisfaction levels usually fall lower than their satisfaction level prior to the service failure. Effective service recovery thus demands (1) listening to the customers and involving them in the service recovery, (2) providing a fair solution, and (3) resolving the problem quickly.

Competition

Because the fourth C, competition, has a profound impact on pricing strategies, we use this section to focus on its effect, as well as on how competitors react to certain pricing strategies. There are four levels of competition—monopoly, oligopolistic competition, monopolistic competition, and pure competition—and each has its own set of pricing challenges and opportunities

The Delivery Gap: Delivering Service Quality

-the delivery gap is where the customer directly interacts with the service provider. -Even if there are adequate standards in place, the employees are well-trained, and management is committed to meeting or exceeding customers' service expectations, there can still be delivery gaps. -Even if there are no other gaps, a delivery gap always results in a service failure. -Delivery gaps can be reduced when employees are empowered to spontaneously act in the customers' and the firm's best interests when problems or crises are experienced.

The five Cs of pricing

1. Company Objectives 2. Customers 3. Costs 4. Competition 5. Channel Members

corporate vertical marketing system

A system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios. By virtue of its ownership and resulting control, potential conflict among segments of the channel is lessened.

Costs of a JIT System

Although firms achieve great benefits from a JIT system, it is not without its costs. The distribution function becomes much more complicated with more frequent deliveries. With greater order frequency also come smaller orders, which are more expensive to transport and more difficult to coordinate. Therefore, JIT systems require a strong commitment by the firm and its vendors to cooperate, share data, and develop systems.

service quality and customer satisfaction and loyalty

Good service quality leads to satisfied and loyal customers. As we discussed in, customers inevitably wind up their purchase decision process by undertaking a postpurchase evaluation. This evaluation after the purchase may produce three outcomes: satisfaction, dissonance, and loyalty. Dissonance may just be a passing emotion that is overcome; we will discuss recovery from an actual service failure in the next section. Satisfaction, on the other hand, often leads to loyalty. Assuming that none of the service gaps that we have discussed occur, or at least are not too wide, customers should be more or less satisfied. Surveys of customers that ask them to identify the retailer that provides the best customer service thus often show some consistency. A service provider that does a good job one year is likely to keep customers satisfied the next year too.

promotion

Retailers and manufacturers know that good promotion, both within the retail environments and in the media, can mean the difference between flat sales and a growing consumer base. Advertising in traditional media such as newspapers, magazines, and television continues to be important to get customers into stores. Increasingly, electronic communications are being used for promotions as well. Some traditional approaches, such as direct mail, are being reevaluated by retailers, but many are still finding value in sending catalogs to customers and selected mailing lists. Companies also offer real-time promotions on their websites. For example, CVS.com contains in-store and online coupons that customers can use immediately on the website or print to use in the store. Coupons.com offers coupons that customers can use immediately for many grocery store items. Retailers are also investing heavily in mobile commerce (M-commerce)—product and service purchases through mobile devices. A coordinated effort between the manufacturer and retailer helps guarantee that the customer receives a cohesive message and that both entities maintain their images. For example, Coach for Men might work with its most important retailers to develop advertising and point-of-sale signs. It may even help defray the costs of advertising by paying all or a portion of the advertising's production and media costs, an agreement called cooperative (co-op) advertising. Store credit cards and gift cards are subtler forms of promotion that also facilitate shopping. Retailers might offer pricing promotions—such as coupons, rebates, and in-store or online discounts, or perhaps buy-one-get-one-free offers—to attract consumers and stimulate sales. These promotions play a very important role in driving traffic to retail locations, increasing average purchase size, and creating opportunities for repeat purchases. But retail promotions also are valuable to customers; they inform customers about what is new and available and how much it costs. Another type of promotion occurs inside the store, where retailers use displays and signs placed at the point of purchase (POP) or in strategic areas such as the ends of aisles to inform customers and stimulate purchases of the featured products. In addition to traditional forms of promotion, many retailers are devoting more resources to their overall retail environment as a means to promote and showcase what the store has to offer. These promotions may take the form of recognizable approaches, such as in-store and window displays, or they may be entirely new experiences designed to help retailers draw customers and add value to the shopping experience. Bass Pro Shops Outdoor World in Lawrenceville, Georgia, offers a 30,000-gallon aquarium stocked with fish for casting demonstrations, an indoor archery range, and a 43-foot climbing wall. These features enhance customers' visual experiences, provide them with educational information, and enhance the store's sales potential by enabling customers to try before they buy. In addition to adding fun to the shopping experience, these activities help offset the current drop in brick-and-mortar customers engendered by online shopping. A variety of factors influence whether customers will actually buy once they are in the store. Some of these factors are quite subtle. Consumers' perceptions of value and their subsequent patronage are heavily influenced by their perceptions of the store's look and feel. Music, color, scent, aisle size, lighting, the availability of seating, and crowding can also significantly affect the overall shopping experience. Therefore, the extent to which stores offer a more pleasant shopping experience fosters a better mood, resulting in greater spending. Personal selling and customer service representatives are also part of the overall promotional package. Retailers must provide services that make it easier to buy and use products, and retail associates—whether in the store, on the phone, or on the Internet—provide customers with information about product characteristics and availability. These individuals can also facilitate the sale of products or services that consumers perceive as complicated, risky, or expensive, such as an air conditioning unit, a computer, or a diamond ring. Manufacturers can play an important role in preparing retail sales and service associates to sell their products. Last but not least, sales reps handle the sales transactions. Traditionally, retailers treated all their customers the same. Today, the most successful retailers concentrate on providing more value to their best customers. The knowledge retailers gain from their store personnel, the Internet browsing and buying activities of customers, and the data they collect on customer shopping habits can be used in customer relationship management (CRM). Using this information, retailers may modify product, price, and/or promotion to attempt to increase their share of wallet—the percentage of the customer's purchases made from that particular retailer. For instance, omnichannel retailers use consumer information collected from the customers' Internet browsing and buying behavior to send dedicated e-mails to customers promoting specific products or services. Retailers also may offer special discounts to good customers to help them become even more loyal.

common goals

Supply chain members must have common goals for a successful relationship to develop. Shared goals give both members of the relationship an incentive to pool their strengths and abilities and exploit potential opportunities together. Such commonality also offers an assurance that the other partner won't do anything to hinder the achievement of those goals within the relationship.

service retailers

The retail firms discussed in the previous sections sell products to consumers. However, service retailers, or firms that primarily sell services rather than merchandise, are a large and growing part of the retail industry. There are a wide variety of service retailers, along with some national companies that provide these services. These companies are retailers because they sell goods and services to consumers. However, some are not just retailers. For example, airlines, banks, hotels, and insurance and express mail companies sell their services to businesses as well as consumers. Several trends suggest considerable future growth in services retailing. For example, the aging population will increase demand for health care services. Younger people are also spending more time and money on health and fitness. Busy parents in two-income families are willing to pay to have their homes cleaned, lawns maintained, clothes washed and pressed, and meals prepared so they can spend more time with their families.

Deceptive or Illegal Price Advertising

Although it is always illegal and unethical to lie in advertising, a certain amount of "puffery" is typically allowed. But price advertisements should never deceive consumers to the point of causing harm. For example, a local car dealer's advertising that it had the "best deals in town" would likely be considered puffery. In contrast, advertising "the lowest prices, guaranteed" makes a very specific claim and, if not true, can be considered deceptive.

The Knowledge Gap: Understanding Customer Expectations

An important early step in providing good service is knowing what the customer wants. It doesn't pay to invest in services that don't improve customer satisfaction. To reduce the knowledge gap, firms must understand customers' expectations. To understand those expectations, firms undertake customer research and increase the interaction and communication between managers and employees. Expectations vary according to the type of service People's expectations also vary depending on the situation. Thus, the service provider needs to know and understand the expectations of the customers in its target market.

reduced lead time

By eliminating the need for paper transactions the EDI in the JIT system reduces the lead time, or the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller's store, ready for sale.

New Product Pricing Strategies

Developing pricing strategies for new products is one of the most challenging tasks a manager can undertake. When the new product is similar to what already appears on the market, this job is somewhat easier because the product's approximate value has already been established and the value-based methods described earlier in this chapter can be employed. But when the new product is truly innovative, or what we call "new to the world," determining consumers' perceptions of its value and pricing it accordingly become far more difficult.

Food retailers

Supercenters Supercenters are large stores (185,000 square feet) that combine a supermarket with a full-line discount store. Walmart operates almost 3,500 supercenters in the United States, accounting for the vast majority of total supercenter sales—far outpacing its competitors Meijer, SuperTarget (Target), Fred Meyer (Kroger Co.), and Super Kmart Center (Sears Holding). By offering broad assortments of grocery and general merchandise products under one roof, supercenters provide a one-stop shopping convenience to customers. Warehouse Clubs Warehouse clubs are large retailers (100,000 to 150,000 square feet) that offer a limited and irregular assortment of food and general merchandise, little service, and low prices to the general public and small businesses. The largest warehouse club chains are Costco, Sam's Club (Walmart), and BJ's Wholesale Club (operating only on the U.S. East Coast). Customers are attracted to these stores because they can stock up on large packs of basics (e.g., paper towels), mega-sized packaged groceries (e.g., a quart of ketchup), best-selling books and CDs, fresh meat and produce, and an unpredictable assortment of upscale merchandise and services (e.g., jewelry, electronics, and home decor) at lower prices than are available at other retail stores. Typically, members pay an annual fee of around $50, which amounts to significant additional income for the chains. Convenience Stores Convenience stores provide a limited variety and assortment of merchandise at a convenient location in 3,000- to 5,000-square-foot stores with speedy checkout. 7-Eleven is the largest convenience store chain in North America, with more than 8,000 locations. This type of retailer is the modern version of the neighborhood mom-and-pop grocery or general store. Convenience stores enable consumers to make purchases quickly without having to search through a large store and wait in a lengthy checkout line. Convenience store assortments are limited in terms of depth and breadth, and they charge higher prices than supermarkets do. Milk, eggs, and bread once represented the majority of their sales, but now most sales come from gasoline and cigarettes. Convenience stores also face increased competition from other retail formats. In response to these competitive pressures, convenience stores are taking steps to decrease their dependency on gasoline sales by offering fresh food and healthy fast food, tailoring assortments to local markets, and making their stores even more convenient to shop. Finally, convenience stores are adding new services, such as financial service kiosks that give customers the opportunity to cash checks, pay bills, and buy prepaid telephone minutes, theater tickets, and gift cards. Online Grocery Retailers Time-strapped customers are willing to pay more to access options for ordering groceries online and having them delivered (e.g., for a gallon of organic milk, Safeway charges $5.99, and the delivery service Instacart charges $7.39). As a result, online sales of groceries have grown by 14.1 percent annually for the past five years. The set of retailers providing online capabilities continues to expand

General Merchandise Retailers

The major types of general merchandise retailers are department stores, full-line discount stores, specialty stores, category specialists, home improvement centers, off-price retailers, and extreme-value retailers. Department Stores Department stores are retailers that carry a broad variety and deep assortment of merchandise, offer customer services, and organize their stores into distinct departments for displaying merchandise. The list of the largest department store chains in the United States includes Macy's, Kohl's, JCPenney, and Nordstrom. Full-Line Discount Stores Full-line discount stores are retailers that offer a broad variety of merchandise, limited service, and low prices. The largest full-line discount store chains are Walmart, Target, and Kmart (Sears Holding). Customers do not expect higher-end products in full-line discount stores. Rather, they are looking for value prices and are willing to compromise on quality or cachet. Walmart accounts for approximately two-thirds of full-line discount store retail sales in the United States. Target has experienced considerable growth because its stores offer fashionable merchandise at low prices in a pleasant shopping environment. The retailer has developed an image of cheap chic by offering limited-edition exclusive apparel and cosmetic lines. Specialty Stores Specialty stores concentrate on a limited number of complementary merchandise categories targeted toward very specific market segments by offering deep but narrow assortments and sales associate expertise. Although such shops are familiar in brick-and-mortar forms, more retailers also are expanding their online specialty profile as well. Drugstores Drugstores are specialty stores that concentrate on pharmaceuticals and health and personal grooming merchandise. Prescription pharmaceuticals represent almost 70 percent of drugstore sales. The largest drugstore chains in the United States are CVS and Walgreens Boots Alliance Inc. Drugstores face competition from pharmacies in discount stores and some food retailers and from pressure to reduce health care costs. In response, the major drugstore chains are offering a wider assortment of merchandise such as frequently purchased food items. They also offer services such as convenient drive-through windows and curbside pickup for prescriptions, in-store medical clinics, and even makeovers and spa treatments Category Specialists Category specialists are big-box retailers or category killers that offer a narrow but deep assortment of merchandise. Most category specialists use a predominantly self-service approach, but they offer assistance to customers in some areas of the stores. For example, the office supply store Staples has a warehouse atmosphere with cartons of copy paper stacked on pallets, plus equipment in boxes on shelves. But in some departments, such as computers, electronics, and other high-tech products, salespeople staff the display area to answer questions and make suggestions. Other prominent category specialists are Men's Warehouse, Best Buy, IKEA, Home Depot, and Bass Pro Shops. By offering a complete assortment in a category at somewhat lower prices than their competition offers, category specialists can kill a category of merchandise for other retailers, which is why they are frequently called category killers. Using their category dominance, these retailers exploit their buying power to negotiate low prices. extreme-Value Retailers are small, full-line discount stores that offer a limited merchandise assortment at very low prices. The largest extreme-value retailers are Dollar General and Dollar Tree Like limited-assortment food retailers, extreme-value retailers reduce costs and maintain low prices by buying opportunistically from manufacturers with excess merchandise, offering a limited assortment, and operating in low-rent locations. They offer a broad but shallow assortment of household goods, health and beauty aids, and groceries. Off-Price Retailers Off-price retailers offer an inconsistent assortment of brand-name merchandise at a significant discount from the manufacturer's suggested retail price (MSRP). In today's market, these off-price retailers may be brick-and-mortar stores, online outlets, or a combination of both. America's largest off-price retail chains are TJX Companies (which operates TJMaxx, Marshalls, Winners [Canada], HomeGoods, HomeSense [Canada]), Ross Stores, Burlington Coat Factory, Big Lots Inc., and Overstock.com.

Evaluating Service Quality Using Well-Established Marketing Metrics:

To meet or exceed customers' expectations, marketers must determine what those expectations are. Yet because of their intangibility, the service quality, or customers' perceptions of how well a service meets or exceeds their expectations, is often difficult for customers to evaluate. Customers generally use five distinct service dimensions to determine overall service quality: reliability, responsiveness, assurance, empathy, and tangibles. The Broadmoor Hotel in Colorado Springs, Colorado, maintains its five-star rating by focusing on these five service characteristics. Reliability: Every new Broadmoor employee, before ever encountering a customer, attends a two-and-a-half-day orientation session and receives an employee handbook. Making and keeping promises to customers is a central part of this orientation. Employees are trained always to give an estimated time for service, whether it be room service, laundry service, or simply how long it will take to be seated at one of the resort's restaurants. When an employee makes a promise, he or she keeps that promise. If they don't know the answer to a question, employees are trained to never guess. When an employee is unable to answer a question accurately, he or she immediately contacts someone who can. Assurance : The Broadmoor conveys trust by empowering its employees. An example of an employee empowerment policy is the service recovery program. If a guest problem arises, employees are given discretionary resources to rectify the problem or present the customer with something special to help mollify them. For example, if a meal is delivered and there's a mistake in the order or how it was prepared, a server can offer the guest a free item such as a dessert or, if the service was well below expectations, simply take care of the bill. Managers then review each situation to understand the nature of the problem and help prevent it from occurring again. Tangibles : One of the greatest challenges for the Broadmoor in recent years has been updating rooms built in the early part of the 20th century to meet the needs of 21st-century visitors. To accomplish this, it spent millions in improvements, renovating rooms, and adding a new outdoor pool complex. Empathy : One approach used to demonstrate empathy is personalizing communications. Employees are instructed to always address a guest by name, if possible. To accomplish this, employees are trained to listen and observe carefully to determine a guest's name. Subtle sources for this information include convention name tags, luggage ID tags, credit cards, or checks. In addition, all phones within the Broadmoor display a guest's room number and name on a screen. Responsiveness : Every employee is instructed to follow the HEART model of taking care of problems. First, employees must "Hear what a guest has to say." Second, they must "Empathize with them" and then "Apologize for the situation." Fourth, they must "Respond to the guest's needs" by "Taking action and following up."

Choosing Retail Partners

When choosing retail partners, manufacturers look at the basic channel structure, where their target customers expect to find the products, channel member characteristics, and distribution intensity.

increased product availability and lower inventory investment

in general, as a firm's ability to satisfy customer demand by having stock on hand increases, so does its inventory investment; that is, it needs to keep more backup inventory in stock. But with JIT, the ability to satisfy demand can actually increase while inventory decreases. Because firms using JIT order merchandise to cover shorter-term demand, their inventory is reduced even further. The ability to satisfy customer demand by keeping merchandise in stock also increases in JIT systems as a result of the more frequent shipments. For instance, if an H&M store runs low on a medium-sized red T-shirt, its JIT system ensures a shorter lead time than for those of more traditional retailers. As a result, it is less likely that the H&M store will be out of stock for its customers before the next T-shirt shipment arrives.

loss leader pricing

leader pricing is a legitimate tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost. Loss-leader pricing takes this tactic one step further by lowering the price below the store's cost. No doubt you have seen "buy one, get one free" offers at grocery and discount stores. Unless the markup for the item is 100 percent of the cost, these sales obviously do not generate enough revenue from the sale of one unit to cover the store's cost for both units, which means it has essentially priced the total for both items below cost, unless the manufacturer is absorbing the cost of the promotion to generate volume. In some states, this form of pricing is illegal.

break-even analysis

technique used to examine the relationships among cost, price, revenue, and profit over different levels of production and sales to determine the break-even point Central to this analysis is the determination of the break-even point, or the point at which the number of units sold generates just enough revenue to equal the total costs. At this point, profits are zero. Although profit, which represents the difference between the total cost and the total revenue (Total revenue or sales = Selling price of each unit sold × Number of units sold), can indicate how much money the firm is making or losing at a single period of time, it cannot tell managers how many units a firm must produce and sell before it stops losing money and at least breaks even, which is what the break-even point does. The graph contains three curves (recall that even though they are straight, we still call them curves): fixed costs, total costs, and total revenue. The vertical axis measures the revenue and costs in dollars, and the horizontal axis measures the quantity of units sold. The fixed cost curve will always appear as a horizontal line straight across the graph because fixed costs do not change over different levels of volume. The total cost curve starts where the fixed cost curve intersects the vertical axis at $100,000. When volume is equal to zero (no units are produced or sold), the fixed costs of operating the business remain and cannot be avoided. Thus, the lowest point the total costs can ever reach is equal to the total fixed costs. Beyond that point, the total cost curve increases by the amount of variable costs for each additional unit, which we calculate by multiplying the variable cost per unit by the number of units, or quantity. Finally, the total revenue curve increases by the price of each additional unit sold. To calculate it, we multiply the price per unit by the number of units sold. The formulas for these calculations are as follows: Total variable costs= Variable cost per unit × Quantity Total costs=Fixed costs + Total variable costs total revenue=Price × Quantity To determine the break-even point in units mathematically, we must introduce one more variable, the contribution per unit, which is the price minus the variable cost per unit. Break-even point (units) = fixed costs/ contributions per unit profit = (cpu X quantity) - fixed costs break- even point = (fixed costs + profit)/ CPU Although a break-even analysis cannot actually help managers set prices, it does help them assess their pricing strategies because it clarifies the conditions in which different prices may make a product or service profitable. It becomes an even more powerful tool when performed on a range of possible prices for comparative purposes. Naturally, however, there are limitations to a break-even analysis. First, it is unlikely that a hotel has one specific price that it charges for each and every room, so the price it would use in its break-even analysis probably represents an "average" price that attempts to account for these variances. Second, prices often get reduced as quantity increases, because the costs decrease, so firms must perform several break-even analyses at different quantities. Third, a break-even analysis cannot indicate for sure how many rooms will be rented or, in the case of products, how many units will sell at a given price. It only tells the firm what its costs, revenues, and profitability will be, given a set price and an assumed quantity. To determine how many units the firm actually will sell, it must bring in the demand estimates we discussed previously.

Channel Member Characteristics

the larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries Larger firms often find that by performing the channel functions themselves, they can gain more control, be more efficient, and save money.

contractual vertical marketing system

A system in which independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict. Franchising is the most common type of contractual vertical marketing system. Franchising is a 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. In a franchise contract, the franchisee pays a lump sum plus a royalty on all sales in return for the right to operate a business in a specific location. The franchisee also agrees to operate the outlet in accordance with the procedures prescribed by the franchisor. The franchisor typically provides assistance in locating and building the business, developing the products or services sold, management training, and advertising. To maintain the franchisee's reputation, the franchisor also makes sure that all outlets provide the same quality of services and products. A franchise system combines the entrepreneurial advantages of owning a business with the efficiencies of vertical marketing systems that function under single ownership (i.e., a corporate system, as we discuss next). Franchisees are motivated to make their stores successful because they receive the profits after they pay the royalty to the franchisor. The franchisor is motivated to develop new products, services, and systems and to promote the franchise because it receives royalties on all sales. Advertising, product development, and system development are all done efficiently by the franchisor, with costs shared by all franchisees.

channel members

Channel members—manufacturers, wholesalers, and retailers—have different perspectives when it comes to pricing strategies. Consider a manufacturer that is focused on increasing the image and reputation of its brand but working with a retailer that is primarily concerned with increasing its sales. The manufacturer may desire to keep prices higher to convey a better image, whereas the retailer wants lower prices and will accept lower profits to move the product, regardless of consumers' impressions of the brand. Unless channel members carefully communicate their pricing goals and select channel partners that agree with them, conflict will surely arise. Developing a price that allows all channel members to earn their requisite profits requires careful planning

Making merchandise flow through marketing channels

Making merchandise flow involves first deciding whether the merchandise will go from the manufacturer to a retailer's distribution center or directly on to stores. Once in a distribution center, multiple activities take place before it is shipped on to a store

customer expectations

Retailers should also 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. Customers generally expect to find certain products at some stores but not at others.

direct marketing channel

a marketing channel that has no intermediary levels Typically, the seller is a manufacturer, such as when a carpentry business sells bookcases through its own store and online to individual consumers. The seller also can be an individual, such as when a knitter sells blankets and scarves at craft fairs, on Etsy, and through eBay When the buyer is another business, such as when Boeing sells planes to JetBlue, the marketing channel still is direct, but in this case, the transaction is a business-to-business one

customer service

specifically refers to human or mechanical activities firms undertake to help satisfy their customers' needs and wants. By providing good customer service, firms add value to their products. Even those firms that are engaged primarily in selling a good, such as an apparel store, typically view service as a method to maintain a sustainable competitive advantage. Although lululemon is working extraordinarily hard to provide community-oriented services, any clothing retailer needs to provide basic customer service to help shoppers find the items they want and complete their transaction

Markup and Target Return Pricing

In many situations, the manufacturer may want to achieve a standard markup Variable costs per unit: $8 Fixed costs: $1,00,000 Expected sales:1,000,000 units The teeth-whitening kit manufacturer would like to calculate the price at which it would make a 10 percent markup. The formula for calculating a target return price based on a markup on cost is: Target return price=(Variable costs + (Fixed costs ÷ Expected Unit sales))× (1 × Target return % [expressed as a decimal]) In this example, this would result in the firm charging $9.90. Target return price=($8.00 + ($1,000,000.00 ÷ 1,000,000.00)) × (1 + 0.10) target return price= $9.00 × 1.1=$9.90

zone of tolerance

The area between customers' expectations regarding their desired service and the minimum level of acceptable service—that is, the difference between what the customer really wants and what he or she will accept before going elsewhere.

oligopolistic competition

only a few firms dominate. Firms typically change their prices in reaction to competition to avoid upsetting an otherwise stable competitive environment. Examples of oligopolistic markets include the soft drink market and commercial airline travel. Sometimes reactions to prices in oligopolistic markets can result in a price war, which occurs when two or more firms compete primarily by lowering their prices. Firm A lowers its prices; Firm B responds by meeting or beating Firm A's new price. Firm A then responds with another new price, and so on. In some cases though, these tactics result in predatory pricing, which occurs when a firm sets a very low price for one or more of its products with the intent of driving its competition out of business. Predatory pricing is illegal in the United States under both the Sherman Antitrust Act and the Federal Trade Commission Act.

Services Marketing

Differs from the marketing of goods in several ways and pose unique challenges. Legal and medical services are typical examples. These are distinct from manufactured goods in four ways: intangibility, inseparability, perishability, and variability.

administered vertical marketing system

There is no common ownership or contractual relationships, but the dominant channel member controls or holds the balance of power. Because of its size and relative power, Walmart can easily impose controls on small manufacturers, such as PenAgain, but with large, powerful suppliers such as P&G, the control is more balanced between parties. Power in a marketing channel exists when one firm has the means or ability to dictate the actions of another member at a different level of distribution . A retailer like Walmart exercises its power over suppliers in several ways. With its reward power, Walmart offers rewards, often a monetary incentive, if the wholesalers or manufacturers do what Walmart wants them to do. For example, it might promise to purchase larger quantities if a manufacturer will lower its wholesale price. Coercive power arises when Walmart threatens to punish or punishes the other channel member for not undertaking certain tasks, such as if it were to delay payment for a late delivery. Walmart may also have referent power if a supplier desperately wants to be associated with Walmart, because being known as an important Walmart supplier enables that supplier to attract other retailers' business. In this sense, P&G might be playing its retailer partners against one another to enhance its own performance. If Walmart exerts expertise power, it relies on its vast experience and knowledge to decide how to market a particular supplier's products, without giving the supplier much of a say. Because Walmart has vast information about the consumer goods market, it might exert information power over P&G by providing or withholding important market information. At the same time, P&G might have its own information power that it could exert over Walmart, depending on which company has the most or most updated data. Legitimate power is based on getting a channel member to behave in a certain way because of a contractual agreement between the two firms. As Walmart deals with its suppliers, it likely exerts multiple types of power to influence their behaviors. If either party dislikes the way the relationship is going, though, it can simply walk away.

bait and switch

a deceptive practice because the store lures customers in with a very low price on an item (the bait), only to aggressively pressure these customers into purchasing a higher-priced model (the switch) by disparaging the low-priced item, comparing it unfavorably with the higher-priced model, or professing an inadequate supply of the lower-priced item. Again, the laws against bait-and-switch practices are difficult to enforce because salespeople, simply as a function of their jobs, are always trying to get customers to trade up to a higher-priced model without necessarily deliberately baiting them. The key to proving deception centers on the intent of the seller, which is also difficult to prove.

pure competition

a large number of sellers offer standardized products or commodities that consumers perceive as substitutable, such as grains, gold, meat, spices, or minerals. In such markets, price usually is set according to the laws of supply and demand. For example, wheat is wheat, so it does not matter to a commercial bakery whose wheat it buys. However, the secret to pricing success in a pure competition market is not necessarily to offer the lowest price, because doing so might create a price war and erode profits. Instead, some firms have brilliantly decommoditized their products. When a commodity can be differentiated somehow, even if simply by a sticker or logo, there is an opportunity for consumers to identify it as distinct from the rest, and in this case, firms can at least partially extricate their product from a pure competitive market.

penetration pricing

a new product pricing strategy that aims to capture as much of the market as possible through rock-bottom prices Their objective is to build sales, market share, and profits quickly and deter competition from entering the market. The low penetration price is an incentive to purchase the product immediately. Firms using a penetration pricing strategy expect the unit cost to drop significantly as the accumulated volume sold increases, an effect known as the experience curve effect. With this effect, as sales continue to grow, the costs continue to drop. In addition to offering the potential to build sales, market share, and profits, penetration pricing discourages competitors from entering the market because the profit margin is relatively low. Furthermore, if the costs to produce the product drop because of the accumulated volume, competitors who enter the market later will face higher unit costs, at least until their volume catches up with the early entrant. A penetration strategy has its drawbacks. First, the firm must have the capacity to satisfy a rapid rise in demand—or at least be able to add that capacity quickly. Second, low price does not signal high quality. Of course, a price below their expectations decreases the risk for consumers to purchase the product and test its quality for themselves. Third, firms should avoid a penetration pricing strategy if some segments of the market are willing to pay more for the product; otherwise, the firm is just "leaving money on the table."

Empowering Service Providers

allowing employees to make decisions about how service is provided to customers When frontline employees are authorized to make decisions to help their customers, service quality generally improves. Empowerment becomes more important when the service is more individualized. Nordstrom provides an overall objective—satisfy customer needs—and then encourages employees to do whatever is necessary to achieve the objective. Empowering service providers with only a rule like "Use your best judgment" (as Nordstrom does) might cause chaos. At Nordstrom, department managers avoid abuses by coaching and training salespeople to understand what "Use your best judgment" specifically means.

Monopoly

one firm provides the product or service in a particular industry, which results in less price competition. For example, there is often only one provider of cable television services in each region of the country: Time Warner is in New York, Comcast is in most of New England, and so forth.

price

the overall sacrifice a consumer is willing to make to acquire a specific product or service. This sacrifice necessarily includes the money that must be paid to the seller to acquire the item, but it also may involve other sacrifices, whether nonmonetary, such as the value of the time necessary to acquire the product or service, or monetary, such as travel costs, taxes, shipping costs, and so forth, all of which the buyer must give up to take possession of the product. It's useful to think of overall price in this way to see how the narrower sense of purchase price fits in. Because price is the only element of the marketing mix that does not generate costs but instead generates revenue, it is important in its own right. Every other element in the marketing mix may be perfect, but with the wrong price, sales and thus revenue will not accrue. Consumers generally believe that price is one of the most important factors in their purchase decisions. Knowing that price is so critical to success, why don't managers put greater emphasis on it as a strategic decision variable? Price is the most challenging of the four Ps to manage, partly because it is often the least understood. Historically, managers have treated price as an afterthought to their marketing strategy, setting prices according to what competitors were charging or, worse yet, adding up their costs and tacking on a desired profit to set the sales price. Prices rarely changed except in response to radical shifts in market conditions. Even today, pricing decisions are often relegated to standard rules of thumb that fail to reflect our current understanding of the role of price in the marketing mix. Price is a particularly powerful indicator of quality when consumers are less knowledgeable about the product category

retailers' cooperative

A marketing channel intermediary that buys collectively for a group of retailers to achieve price and promotion economies of scale. It is similar to a wholesaler, except that the retailer members have some control over, and sometimes ownership of, the cooperative's operations. determining prices throughout the marketing channel that will enable all channel members to make a reasonable profit requires thought, cooperation, and strong negotiating skills by everyone involved.

personalization

Another benefit of adding the Internet channel is the ability to personalize promotions and services economically, including heightened service or individualized offerings. Personalized Customer Service Traditional Internet channel approaches for responding to customer questions—such as FAQ (frequently asked question) pages and offering an 800 number or e-mail address to ask questions—often do not provide the timely information customers are seeking. To improve customer service from an electronic channel, many firms offer live online chats, so that customers can click a button at any time and participate in an instant messaging conversation with a customer service representative. This technology also enables firms to send a proactive chat invitation at specific times to visitors to the site. Verizon Wireless programs its chat windows to appear at the moment a customer chooses a product, because its goal is to upsell these willing buyers to a more expensive plan. Other online retailers use metrics such as the amount of time spent on the site or number of repeat visits to determine which customers will receive an invitation to chat. Personalized Offering The interactive nature of the Internet also provides an opportunity for retailers to personalize their offerings for each of their customers, based on customers' behavior. Just as a well-trained salesperson would make recommendations to customers prior to checkout, an interactive web page can make suggestions to the shopper about items that he or she might like to see based on previous purchases, what other customers who purchased the same item purchased, or common web viewing behavior. Some omnichannel retailers are able to personalize promotions and Internet home pages on the basis of several attributes tied to the shopper's current or previous web sessions, such as the time of day, time zone as determined by a computer's Internet address, and assumed gender. However, some consumers worry about this ability to collect information about purchase histories, personal information, and search behavior on the Internet. How will this information be used in the future? Will it be sold to other firms? Will the consumer receive unwanted promotional materials online or in the mail?

integrated crm

Effective omnichannel operations require an integrated CRM (customer relationship management) system with a centralized customer data warehouse that houses a complete history of each customer's interaction with the retailer, regardless of whether the sale occurred in a store, on the Internet, or on the telephone. This information storehouse allows retailers to efficiently handle complaints, expedite returns, target future promotions, and provide a seamless experience for customers when they interact with the retailer through multiple channels.

supply chain

Omnichannel retailers struggle to provide an integrated shopping experience across all their channels because unique skills and resources are needed to manage each channel. For example, store-based retail chains operate and manage many stores, each requiring the management of inventory and people. With Internet and catalog operations, inventory and telephone salespeople instead are typically centralized in one or two locations.Also, retail distribution centers (DCs) supporting a store channel are designed to ship many cartons of merchandise to stores. In contrast, the DCs supporting a catalog and Internet channel are designed to ship a few items at a time to many individual customers. The difference in shipping orientation for the two types of operations requires a completely different type of distribution center. Due to these operational differences, many store-based retailers have a separate organization to manage their Internet and catalog operations. But as the omnichannel operation matures, retailers tend to integrate all operations under one organization. Both Walmart and JCPenney initially had separate organizations for their Internet channel but subsequently integrated them with stores and catalogs.

Deeper and Broader Selection

One benefit of adding the Internet channel is the vast number of alternatives retailers can make available to consumers without crowding their aisles or increasing their square footage. Stores and catalogs are limited by their size. By shopping on the Internet, consumers can easily visit and select merchandise from a broader array of retailers. Individual retailers' websites typically offer deeper assortments of merchandise (more colors, brands, and sizes) than are available in stores or catalogs. This expanded offering enables them to satisfy consumer demand for less popular styles, colors, or sizes. Many retailers also offer a broader assortment (more categories) on their websites. Staples.com, for instance, offers soft drinks and cleaning supplies, which are not available in stores, so that its business customers will view it as a one-stop shop.

price

Price helps define the value of both the merchandise and the service, and the general price range of a particular store helps define its image. Although both Saks Fifth Avenue and JCPenney are department stores, their images could not be more different. Price must always be aligned with the other elements of a retailer's strategy—that is, product, promotion, and place. A customer would not expect to pay $600 for a Coach for Men briefcase at a JCPenney store, but she might question the briefcase's quality if its price is significantly less than $600 at Neiman Marcus. there is much more to pricing than simply adding a markup onto a product's cost. Manufacturers must consider at what price they will sell the product to retailers so that both the manufacturer and the retailer can make a reasonable profit. At the same time, both the manufacturer and the retailer are concerned about what the customer is willing and expecting to pay.

pricing

Pricing represents another difficult decision for omnichannel retailers. Customers expect pricing consistency for the same SKU across channels (excluding shipping charges and sales tax). However, in some cases, retailers need to adjust their pricing strategy because of the competition they face in different channels. For example, to compete effectively against Amazon.com, Barnes & Noble offers lower prices through its Internet channel than it offers in its stores. Retailers with stores in multiple markets often set different prices for the same merchandise to compete better with local stores. Customers generally are not aware of these price differences because they are exposed to the prices only in their local markets. However, omnichannel retailers may have difficulties sustaining these regional price differences when customers can easily check prices on the Internet.

product

Providing the right mix of merchandise and services that satisfies the needs of the target market is one of retailers' most fundamental activities. Offering assortments gives customers a choice. To reduce transportation costs and handling, manufacturers typically ship cases of merchandise, such as cartons of mascara or boxes of leather jackets, to retailers. Because customers generally do not want or need to buy more than one of the same item, retailers break up the cases and sell customers the smaller quantities they desire. Manufacturers don't like to store inventory because their factories and warehouses are typically not available or attractive shopping venues. Consumers don't want to purchase more than they need because storage consumes space. Neither group likes keeping inventory that isn't being used, because doing so ties up money that could be used for something else. Thus, in addition to other values to manufacturers and customers, retailers provide a storage function, though many retailers are beginning to push their suppliers to hold the inventory until they need it. It is difficult for retailers to distinguish themselves from their competitors through the merchandise they carry because competitors can purchase and sell many of the same popular brands. Thus, many retailers have developed private-label brands (also called store brands), which are products developed and marketed by a retailer and available only from that retailer.

place

Retailers already have realized that convenience is a key ingredient to success, and an important aspect of this success is convenient locations. As the old cliché claims, the three most important things in retailing are location, location, location. Many customers choose stores on the basis of where they are located, which makes great locations a competitive advantage that few rivals can duplicate. For instance, once Starbucks saturates a market by opening in the best locations, Peet's will have difficulty breaking into that same market—where would it put its stores? In pursuit of better and better locations, retailers are experimenting with different options to reach their target markets. Walgreens has free-standing stores, unconnected to other retailers, so the stores can offer drive-up windows for customers to pick up their prescriptions. Walmart, Staples, and others are opening smaller stores in urban locations to serve those markets better.

brand image

Retailers need to provide a consistent brand image across all channels. For example, Patagonia reinforces its image of selling high-quality, environmentally friendly sports equipment in its stores, catalogs, and website. Each of these channels emphasizes function, not fashion, in the descriptions of Patagonia's products. Patagonia's position about taking care of the environment is communicated by carefully lighting its stores and using recycled polyester and organic rather than pesticide-intensive cotton in many of its clothes.

perishable

Services are perishable in that they cannot be stored for use in the future. You can't stockpile your membership at Planet Fitness like you could a six-pack of V8 juice, for instance. The perishability of services provides both challenges and opportunities to marketers in terms of the critical task of matching demand and supply. As long as the demand for and supply of the service match closely, there is no problem, but unfortunately this perfect matching rarely occurs. A ski area, for instance, can be open as long as there is snow, even at night, but demand peaks on weekends and holidays, so ski areas often offer less expensive tickets during off-peak periods to stimulate demand. Airlines, cruise ships, movie theaters, and restaurants confront similar challenges and attack them in similar ways.

shipping merchandise to stores

Shipping merchandise to stores from a distribution center has become increasingly complex. Most distribution centers run 50 to 100 outbound truck routes in one day. To handle this complex transportation problem, the centers use sophisticated routing and scheduling computer systems that consider the locations of the stores, road conditions, and transportation operating constraints to develop the most efficient routes possible. As a result, stores are provided with an accurate estimated time of arrival, and vehicle usage is maximized.

Internet and Omnichannel retailing

The addition of the Internet channel to traditional store-based retailers has improved their ability to serve their customers and build a competitive advantage in several ways. First, the addition of an Internet channel has the potential to offer a greater selection of products. Second, an Internet channel enables retailers to provide customers with more personalized information about products and services. Third, it offers sellers the unique opportunity to collect information about consumer shopping behavior—information that they can use to improve the shopping experience across all channels. Fourth, the Internet channel allows sellers to enter new markets economically.

expanded market presence

The market for customers who shop in stores is typically limited to consumers living in close proximity to those stores. The market for catalogs is limited by the high cost of printing and mailing them and increasing consumer interest in environmentally friendly practices. By adding the Internet channel, retailers can expand their market without having to build new stores or incur the high cost of additional catalogs. Adding an Internet channel is particularly attractive to retailers that have strong brand names but limited locations and distribution. For example, retailers such as Nordstrom, REI, IKEA, and L.L.Bean are widely known for offering unique, high-quality merchandise. If these retailers had only a few stores, customers would have to travel vast distances to buy the merchandise they carry. To ensure effective omnichannel retailing practices, modern retailers need to acknowledge modern consumers' preferences. That is, consumers desire a seamless experience when interacting with omnichannel retailers. They want to be recognized by a retailer, whether they interact with a sales associate, the retailer's website, or the retailer's call center by telephone. Customers want to buy a product through the retailer's Internet or catalog channels and pick it up or return it to a local store; find out if a product offered on the Internet channel is available at a local store; and, when unable to find a product in a store, determine if it is available for home delivery through the retailer's Internet channel. However, providing this seamless experience for customers is not easy for retailers. Because each of the channels is somewhat different, a critical decision facing omnichannel retailers is the degree to which they should or are able to integrate the operations of the channels4 To determine how much integration is best, each retailer must address issues such as integrated CRM, brand image, pricing, and the supply chain.

open communication

To share information, develop sales forecasts together, and coordinate deliveries, Walmart and its suppliers maintain open and honest communication. This maintenance may sound easy in principle, but some businesses don't tend to share information with their business partners. But open, honest communication is a key to developing successful relationships because supply chain members need to understand what is driving each other's business, their roles in the relationship, each firm's strategies, and any problems that arise over the course of the relationship.

Managing Inbound Transportation

Traditionally, when working with vendors, buyers focused their efforts on developing merchandise assortments, negotiating prices, and arranging joint promotions. Now, buyers and planners are much more involved in coordinating the physical flow of merchandise to stores. Planners are employees responsible for the financial planning and analysis of merchandise and its allocation to stores The dispatcher—the person who coordinates deliveries to the distribution center—reassigns the truck delivering the HDTVs to a Wednesday morning delivery slot and charges the firm several hundred dollars for missing its delivery time. Although many manufacturers pay transportation expenses, some retailers negotiate with their vendors to absorb this expense. These retailers believe they can lower their net merchandise cost and better control merchandise flow if they negotiate directly with trucking companies and consolidate shipments from many vendors.

predatory pricing

When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business, it is using predatory pricing. Predatory pricing is illegal under both the Sherman Antitrust Act and the Federal Trade Commission Act because it constrains free trade and represents a form of unfair competition. It also tends to promote a concentrated market with a few dominant firms (an oligopoly). But again, predation is difficult to prove. First, one must demonstrate intent; that is, that the firm intended to drive out its competition or prevent competitors from entering the market. Second, the complainant must prove that the firm charged prices lower than its average cost, an equally difficult task.

Customers

When firms have developed their company objectives, they turn to understanding consumers' reactions to different prices. The second C of the five Cs of pricing focuses on the customers. Customers want value, and as you likely recall, price is half of the value equation.

monopolistic competition

occurs when there are many firms competing for customers in a given market but their products are differentiated. When so many firms compete, product differentiation rather than strict price competition tends to appeal to consumers. This is the most common form of competition. Hundreds of firms make sunglasses, thus the market is highly differentiated. Depending on the features, style, and quality, companies compete for very different market segments. By differentiating their products using various attributes, prices, and brands, they create unique value propositions in the minds of their customers.

Supply Chain Management (marketing channel)

refers to a 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. Students of marketing often overlook or underestimate the importance of place in the marketing mix simply because it happens behind the scenes. Yet marketing channel management adds value because it gets products to customers efficiently, quickly, and at low cost.

Inseperable Production and Consumption

services are produced and consumed at the same time; that is, service and consumption are inseparable. When getting a haircut, the customer is not only present but also may participate in the service process. Furthermore, the interaction with the service provider may have an important impact on the customer's perception of the service outcome. If the hairstylist appears to be having fun while cutting hair, it may affect the experience positively. Because the service is inseparable from its consumption, customers rarely have the opportunity to try the service before they purchase it. And after the service has been performed, it can't be returned. Imagine telling your hairstylist that you want to have the hair around your ears trimmed as a test before he or she does your entire head. Because the purchase risk in these scenarios can be relatively high, service firms sometimes provide extended warranties and 100 percent satisfaction guarantees.

Service Gaps Model

-is designed to encourage the systematic examination of all aspects of the service delivery process and prescribes the steps needed to develop an optimal service strategy. There are 4 service gaps: knowledge, standard, delivery and communication gap The knowledge gap reflects the difference between customers' expectations and the firm's perception of those customer expectations. Firms can close this gap by determining what customers really want by doing research using marketing metrics such as service quality and the zone of tolerance (discussed later). The standards gap pertains to the difference between the firm's perceptions of customers' expectations and the service standards it sets. By setting appropriate service standards, training employees to meet and exceed those standards, and measuring service performance, firms can attempt to close this gap. The delivery gap is the difference between the firm's service standards and the actual service it provides to customers. This gap can be closed by getting employees to meet or exceed service standards when the service is being delivered by empowering service providers, providing support and incentives, and using technology where appropriate. The communication gap refers to the difference between the actual service provided to customers and the service that the firm's promotion program promises. If firms are more realistic about the services they can provide and at the same time manage customer expectations effectively, they generally can close this gap.

The Standards Gap: Setting Service Standards

-once a company has a pretty good idea of customers' service expectations, the next step would be to set service its service standards accordingly and develop systems to meet the customers' service expectations -firms must set specific, measurable goals -Employees should be shown exactly what is expected of them and what specific tasks they are responsible for performing, for the specific service, by management higher up. (servers generally want to do a good job) -employees must be thoroughly trained to complete their specific tasks, how to treat customers, and the manager needs to set an example of high service standards -people can be taught specific tasks related to their jobs, this isn't easily extended to interpersonal relations *** it's not enough to tell employees to be nice or do what customers want. A quality goal should be specific, like: greet every customer you encounter with "good morning/afternoon/evening, sir or ma'am." In extreme cases, such training becomes even more crucial, i.e. cancelled flights, lost baggage, long ticket lines... In general, more employees will buy into a quality-oriented process if they are involved in setting the goals. For instance, suppose an important employee of the motel objects to disposable plastic cups and suggests that actual drinking glasses in the rooms would be classier as well as more ecological. There might be a cost-benefit trade-off to consider here, but if management listens to her and makes the change in this case, it should likely make the employee all the more committed to other tasks involved in cleaning and preparing rooms.

customer orientation

A firm uses customer orientation when it sets its pricing strategy based on how it can add value to its products or services. When CarMax promises a "no-haggle" pricing structure, it exhibits a customer orientation because it provides additional value to potential used car buyers by making the process simple and easy. Firms may offer very high-priced, state-of-the-art products or services in full anticipation of limited sales. These offerings are designed to enhance the company's reputation and image and thereby increase the company's value in the minds of consumers. Setting prices with a close eye to how consumers develop their perceptions of value can often be the most effective pricing strategy, especially if it is supported by consistent advertising and distribution strategies. After a company has a good grasp on its overall objectives, it must implement pricing strategies that enable it to achieve those objectives. As the second step in this process, the firm should look toward consumer demand to lay the foundation for its pricing strategy.

everyday low pricing

A strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer. By reducing consumers' search costs, EDLP adds value; consumers can spend less of their valuable time comparing prices, including sale prices, at different stores. With its EDLP strategy, Walmart communicates to consumers that, for any given group of often-purchased items, its prices will tend to be lower than those of any other company in that market. This claim does not necessarily mean that every item that consumers may purchase will be priced lower at Walmart than anywhere else—in fact, some competitive retailers will offer lower prices on some items. However, for an average purchase, Walmart's prices tend to be lower overall.

price skimming

A strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay in order to obtain it; after the high-price market segment becomes saturated and sales begin to slow down, the firm generally lowers the price to capture (or skim) the next most price sensitive segment. appeals to these segments of consumers who are willing to pay the premium price to have the innovation first. This tactic is particularly common in technology markets, where sellers know that customers of the hottest and coolest products will wait in line for hours, desperate to be the first to own the newest version. These innovators are willing to pay the very highest prices to obtain brand-new examples of technology advances and exciting product enhancements. However, after this high-price market segment becomes saturated and sales begin to slow down, companies generally lower the price to capture (or skim) the next most price-sensitive market segment, which is willing to pay a somewhat lower price. For most companies, the price-dropping process can continue until the demand for the product has been satisfied, even at the lowest price points. For price skimming to work though, the product or service must be perceived as breaking new ground in some way, offering consumers new benefits currently unavailable in alternative products. When they believe it will work, firms use skimming strategies for a variety of reasons. Some may start by pricing relatively high to signal high quality to the market. Others may decide to price high at first to limit demand, which gives them time to build their production capacities. Similarly, some firms employ a skimming strategy to try to quickly earn back some of the high research and development investments they made for the new product. Finally, firms employ skimming strategies to test consumers' price sensitivity. A firm that prices too high can always lower the price, but if the price is initially set too low, it is almost impossible to raise it without significant consumer resistance. Furthermore, for a skimming pricing strategy to be successful, competitors cannot be able to enter the market easily; otherwise, price competition will likely force lower prices and undermine the whole strategy. Competitors might be prevented from entering the market through patent protections, their inability to copy the innovation (because it is complex to manufacture, its raw materials are hard to get, or the product relies on proprietary technology), or the high costs of entry. Skimming strategies also face a significant potential drawback in the relatively high unit costs associated with producing small volumes of products. Therefore, firms must consider the trade-off between earning a higher price and suffering higher production costs. Finally, firms using a skimming strategy for new products must face the consequences of ultimately having to lower the price as demand wanes. Margins suffer, and customers who purchased the product or service at the higher initial price may become irritated when the price falls.

managing the marketing channel and supply chain through vertical marketing systems

Although conflict is likely in any marketing channel, it is generally more pronounced when the channel members are independent entities. Marketing channels that are more closely aligned, whether by contract or ownership, share common goals and therefore are less prone to conflict. In an independent (conventional) marketing channel, several independent members—a manufacturer, a wholesaler, and a retailer—attempt to satisfy their own objectives and maximize their profits, often at the expense of the other members, . None of the participants have any control over the others. Before any sort of relationship develops, or in one-time interactions, both parties likely try to extract as much profit from the deal as possible. After the deal is consummated, neither party feels any responsibility to the other. Over time though, many parties develop relationships marked by routinized, automatic transactions, such as those that take place between Walmart and P&G. Walmart's customers thus come to expect to find P&G products in stores, and P&G depends on Walmart to purchase a good portion of its output to sell to its own customers. This scenario represents the first phase of a vertical marketing system, a marketing channel in which the members act as a unified system, as in Three types of vertical marketing systems—administered, contractual, and corporate—reflect increasing phases of formalization and control. The more formal the vertical marketing system, the less likely conflict is to ensue.

just-in-time inventory system

As recently as the early 1990s, even the most innovative firms needed 15 to 30 days—or even more—to fulfill an order from the warehouse to the customer. The typical order-to-delivery process had several steps: order creation, usually using a telephone, fax, or mail; order processing, using a manual system for credit authorization and assignment to a warehouse; and physical delivery. Things could, and often did, go wrong. Ordered goods were not available. Orders were lost or misplaced. Shipments were misdirected. These mistakes lengthened the time it took to get merchandise to customers and potentially made the entire process more expensive. Faced with such predicaments, firms began stockpiling inventory at each level of the supply chain (retailers, wholesalers, and manufacturers), but keeping inventory where it is not needed becomes a huge and wasteful expense. If a manufacturer has a huge stock of items stuck in a warehouse, it not only is not earning profits by selling those items but also must pay to maintain and guard that warehouse. Therefore many firms, such as H&M, Zara, Mango, and Forever 21, have adopted a practice developed by Toyota in the 1950s. Just-in-time (JIT) inventory systems, also known as quick response (QR) inventory systems in retailing, are inventory management systems that deliver less merchandise on a more frequent basis than in traditional inventory systems. The firm gets the merchandise just in time for it to be used in the manufacture of another product or for sale when the customer wants it. The benefits of a JIT system include reduced lead time (the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller's store, available for sale), increased product availability, and lower inventory investment.

Preparing to Ship Merchandise to a Store

At the beginning of the day, the computer system in the distribution center generates a list of items to be shipped to each store on that day. For each item, a pick ticket and shipping label is generated. The pick ticket is a document or display on a screen in a forklift truck indicating how much of each item to get from specific storage areas. The forklift driver goes to the storage area, picks up the number of cartons indicated on the pick ticket, places UPC shipping labels on the cartons that indicate the stores to which the items are to be shipped, and puts the cartons on the conveyor system, where they are automatically routed to the loading dock for the truck going to the stores. In some distribution and fulfillment centers, these functions are performed by robots.

Importance of marketing channel

Convincing wholesalers and retailers to carry new products can be more difficult than you might think. Wholesalers are firms that buy products from manufacturers and resell them to retailers; retailers sell products directly to consumers. Consider some familiar examples: Walmart is a massive retailer, and many of its products come from massive partners such as Procter & Gamble (P&G). In this relationship, Walmart certainly needs P&G to supply it with toothpaste, diapers, paper towels, and other consumer goods marketed under P&G's various brand names. But P&G also desperately needs Walmart to agree to stock its products because the retailer represents its largest purchaser, accounting for about $12 billion in annual sales. When P&G introduces a totally new product, such as teeth-whitening strips, it has to convince Walmart to create space in its stores for the innovation without giving up too much space for its other products For other wholesalers and manufacturers, the effort to convince Walmart to stock their products might be even more challenging because they lack the leverage and power of P&G. A viral marketing program is a promotional strategy that encourages people to pass along a marketing message to other potential consumers. Manufacturers ship to a wholesaler or to a retailer's distribution center (e.g., Manufacturer one and Manufacturer three) or directly to stores (Manufacturer two). In addition, many variations on this supply chain exist. Some retail chains, such as Home Depot or Costco, function as both retailers and wholesalers. They act as retailers when they sell to consumers directly and as wholesalers when they sell to other businesses such as building contractors or restaurant owners.

profit orientation

Even though all company methods and objectives may ultimately be oriented toward making a profit, firms implement a profit orientation specifically by focusing on target profit pricing, maximizing profits, or target return pricing. Firms usually implement target profit pricing when they have a particular profit goal as their overriding concern. To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit per unit. The maximizing profits strategy relies primarily on economic theory. If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized. Of course, the problem with this approach is that actually gathering the data on all these relevant factors and somehow coming up with an accurate mathematical model, such as Amazon which is discussed later. Other firms are less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments. These firms typically turn to target return pricing and employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales.

marketing channel management affects other aspects of marketing

Every marketing decision is affected by and has an effect on marketing channels. When products are designed and manufactured, how and when the critical components reach the factory must be coordinated with production. The sales department must coordinate its delivery promises with the factory or distribution or fulfillment centers. A distribution center, a facility for the receipt, storage, and redistribution of goods to company stores, may be operated by retailers, manufacturers, or distribution specialists. Similar to a distribution center, instead of shipping to stores, fulfillment centers are used to ship directly to customers. Furthermore, advertising and promotion must be coordinated with those departments that control inventory and transportation. There is no faster way to lose credibility with customers than to promise deliveries or run a promotion and then not have the merchandise when the customer expects it.

Listening to the Customers and Involving Them in the Service Recovery

Firms often don't find out about service failures until a customer complains. Whether the firm has a formal complaint department or the complaint is offered directly to the service provider, the customer must have the opportunity to air the complaint completely, and the firm must listen carefully to what he or she is saying. Customers can become very emotional about a service failure, whether the failure is serious (a botched surgical operation) or minor (the wrong change at a restaurant). In many cases, the customer may just want to be heard, and the service provider should give the customer all the time he or she needs to get it out. The very process of describing a perceived wrong to a sympathetic listener or on social media is therapeutic in and of itself. Service providers therefore should welcome the opportunity to be that sympathetic ear, listen carefully, and appear (and actually be) eager to rectify the situation to ensure it doesn't happen again. When the company and the customer work together, the outcome is often better than either could achieve on their own. This cocreation logic applies especially well to service recovery. A service failure is a negative experience, but when customers participate in its resolution, it results in a more positive outcome than simply listening to their complaint and providing a preapproved set of potential solutions that may satisfy them.

Getting Merchandise Floor-Ready

For some merchandise, additional tasks are undertaken in the distribution center to make the merchandise floor-ready. Floor-ready merchandise is merchandise that is ready to be placed on the selling floor. Getting merchandise floor-ready entails ticketing, marking, and, in the case of some apparel, placing garments on hangers (or maybe attaching RFID chips). For the UK-based grocery chain Tesco, it is essential that products ship in ready-to-sell units so that there is little manipulation or sorting to do at the distribution center or in the stores. To move the store-ready merchandise it receives from suppliers quickly into the store, Tesco demands that products sit on roll cages rather than pallets. Then, store employees can easily wheel them onto the retail floor. The stores' backrooms only have two or three days' worth of backup inventory, and it is important to keep inventory levels low and receive lots of small, accurate deliveries from its suppliers—which also helps cut costs.

Deceptive Reference Prices

If the reference price is bona fide, the advertisement is informative. If the reference price has been inflated or is just plain fictitious, however, the advertisement is deceptive and may cause harm to consumers. But it is not easy to determine whether a reference price is bona fide. What standard should be used? If an advertisement specifies a "regular price," just what qualifies as regular? How many units must the store sell at this price for it to be a bona fide regular price—half the stock? A few? Just one? Finally, what if the store offers the item at the regular price but customers do not buy any? Can it still be considered a regular price? In general, if a seller is going to label a price as a regular price, the Better Business Bureau suggests that at least 50 percent of the sales have occurred at that price.

mutual trust

Mutual trust holds a strategic relationship together. Trust is the belief that a partner is honest (i.e., reliable, stands by its word, sincere, fulfills obligations) and benevolent (i.e., concerned about the other party's welfare). When vendors and buyers trust each other, they are more willing to share relevant ideas, clarify goals and problems, and communicate efficiently. Information shared between the parties, such as inventory positions in stores, thus becomes increasingly comprehensive, accurate, and timely. With trust, there's also less need for the supply chain members to constantly monitor and check up on each other's actions because each believes the other won't take advantage, even if given the opportunity. Although it is important in all relationships, monitoring supply chain members becomes particularly pertinent when suppliers are located in less developed countries, where issues such as the use of child labor, poor working conditions, and below-subsistence wages have become a shared responsibility.

marketing channels add value

In a simple agrarian economy, the best supply chain likely does follow a direct route from manufacturer to consumer: The consumer goes to the farm and buys food directly from the farmer. Modern eat-local environmental campaigns suggest just such a process. But before the consumer can eat a fresh steak procured from a local farm, she needs to cook it. Assuming the consumer doesn't know how to make a stove and lacks the materials todo so, she must rely on a stove maker. The stove maker, which has the necessary knowledge, must buy raw materials and components from various suppliers, make the stove, and then make it available to the consumer. If the stove maker isn't located near the consumer, the stove must be transported to where the consumer has access to it. To make matters even more complicated, the consumer may want to view a choice of stoves, hear about all their features, and have the stove delivered and installed Each participant in the channel adds value. The components manufacturer helps the stove manufacturer by supplying parts and materials. The stove maker turns the components into the stove. The transportation company gets the stove to the retailer. The retailer stores the stove until the customer wants it, educates the customer about product features, and delivers and installs the stove. At each step, the stove becomes more costly but also more valuable to the consumer.

Factors influencing price elasticity of Demand

Income Effect The income effect refers to the change in the quantity of a product demanded by consumers due to changes in their incomes. Generally, as people's incomes increase, their spending behavior changes: They tend to shift their demand from lower-priced products to higher-priced alternatives. Substitution Effect The substitution effect refers to consumers' ability to substitute other products for the focal brand. The greater the availability of substitute products, the higher the price elasticity of demand for any given product will be. For example, there are many close substitutes in the laundry detergent category Keep in mind that marketing plays a critical role in making consumers brand loyal. And because of this brand loyalty and the lack of what consumers judge to be adequate substitutes, the price elasticity of demand for some brands is very low Getting consumers to believe that a particular brand is unique, different, or extraordinary in some way makes other brands seem less substitutable, which in turn increases brand loyalty and decreases the price elasticity of demand Cross-Price Elasticity Cross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B. If Product A's price increases, Product B's price could either increase or decrease, depending on the situation and whether the products are complementary or substitutes. We refer to products such as Blu-ray discs and Blu-ray players as complementary products, which are products whose demands are positively related, such that they rise or fall together. In other words, a percentage increase in the quantity demanded for Product A results in a percentage increase in the quantity demanded for Product B. However, when the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are substitute products because changes in their demand are negatively related. That is, a percentage increase in the quantity demanded for Product A results in a percentage decrease in the quantity demanded for Product B.

Making Information Flow Through Marketing Channels

Information flows from the customer to stores, to and from distribution centers, possibly to and from wholesalers, to and from product manufacturers, and then on to the producers of any components and the suppliers of raw materials. To simplify our discussion—and because information flows are similar in other marketing channel links, such as through the Internet and catalogs, as well as in B2B channels—we shorten the supply chain in this section to exclude wholesalers as well as the link from suppliers to manufacturers Flow 1 (Customer to Store)- The sales associate at Best Buy scans the Universal Product Code (UPC) tag on the HDTV packaging, and the customer receives a receipt. flow 2 (Store to Buyer)- The point-of-sale (POS) terminal records the purchase information and electronically sends it to the buyer at Best Buy's corporate office. The sales information is incorporated into an inventory management system and used to monitor and analyze sales Flow 3 (Buyer to Manufacturer)- The purchase information from each Best Buy store is typically aggregated by the retailer as a whole, which creates an order for new merchandise and sends it to Sony. Flow 4 (Store to Manufacturer)- In some situations, the sales transaction data are sent directly from the store to the manufacturer, and the manufacturer decides when to ship more merchandise to the distribution centers and the stores. In other situations, especially when merchandise is reordered frequently, the ordering process is done automatically, bypassing the buyers. By working together, the retailer and manufacturer can better satisfy customer needs. Flow 5 (Store to Distribution Center)- Stores also communicate with the Best Buy distribution centers to coordinate deliveries and check inventory status. Flow 6 (Manufacturer to Distribution Center and Buyer)-When the manufacturer ships the HDTVs to the Best Buy distribution center, it sends an advanced shipping notice to the distribution centers. An advanced shipping notice (ASN) is an electronic document that the supplier sends the retailer in advance of a shipment to tell the retailer exactly what to expect in the shipment. The center then makes appointments for trucks to make the delivery at a specific time, date, and loading dock. When the shipment is received at the distribution center, the buyer is notified and authorizes payment to the vendor.

supermarkets

Large, self-service stores that carry a complete line of food products, along with some nonfood products Perishables including meat, produce, baked goods, and dairy products account for almost 54 percent of supermarket sales and typically have higher margins than packaged goods do. Whereas conventional supermarkets carry about 30,000 SKUs, limited-assortment supermarkets, or extreme-value food retailers, stock only about 1,500 SKUs. The two largest limited-assortment supermarket chains in the United States are Save-A-Lot and Aldi. Rather than carrying 20 brands of laundry detergent, limited-assortment supermarkets offer one or two brands and sizes, one of which is a store brand. By trimming costs, limited-assortment supermarkets can offer merchandise at prices 40 percent lower than those at conventional supermarkets. Although conventional supermarkets still sell the majority of food merchandise, they are under substantial competitive pressure on multiple sides: from supercenters, warehouse clubs, extreme-value retailers, convenience stores, and even drug stores. All these types of retailers have increased the amount of space they devote to consumables. To compete successfully against intrusions by other food retailing formats, conventional supermarkets are differentiating their offerings by (1) emphasizing fresh perishables; (2) targeting green, ethnic, and Millennial consumers; (3) providing better value with private-label merchandise; (4) adding new value-added services such as online ordering and delivery options; and (5) providing a better shopping experience, such as by adding restaurant options or hosting social events.

managing the marketing channel and supply chain

Marketing channels and supply chains comprise various buying entities such as retailers and wholesalers, sellers such as manufacturers or wholesalers, and facilitators of the exchange such as transportation companies. Similar to interpersonal interactions, their relationships can range from close working partnerships to one-time arrangements. Each member of the marketing channel also performs a specialized role. If one member believes that another has failed to do its job correctly or efficiently, it can replace that member. However, anytime a marketing channel member is replaced, the function it has performed remains, so someone needs to complete it If a marketing channel is to run efficiently, the participating members must cooperate. Often, however, supply chain members have conflicting goals, and this may result in channel conflict When supply chain members that buy and sell to one another are not in agreement about their goals, roles, or rewards, vertical channel conflict or discord results. horizontal channel conflict can also occur when there is disagreement or discord among members at the same level in a marketing channel, such as two competing retailers or two competing manufacturers Avoiding vertical channel conflicts demands open, honest communication. Buyers and vendors all must understand what drives the other party's business, their roles in the relationship, each firm's strategies, and any problems that might arise over the course of the relationship. Amazon and P&G recognize that it is in their common interest to remain profitable business partners

price elasticity of demand

Measures how changes in a price affect the quantity of the product demanded; specifically, the ratio of the percentage change in quantity demanded to the percentage change in price. These responses to a change in price vary depending on the product or service. For example, consumers are generally less sensitive to price increases for necessary items, such as milk, because they have to purchase the items even if the price climbs. When the price of milk goes up, demand does not fall significantly, because people still need to buy milk. However, if the price of T-bone steaks rises beyond a certain point, people will buy fewer of them because they can turn to the many substitutes for this cut of meat. Marketers need to know how consumers will respond to a price increase or decrease for a specific product or brand so they can determine whether it makes sense for them to raise or lower prices. % Change in quantity demanded/% Change in price= Price elasticity of demand In general, the market for a product or service is price sensitive, or elastic, when the price elasticity is less than −1. Thus, an elasticity of -5 would indicate that a 1 percent decrease in price produces a 5 percent increase in the quantity sold. In an elastic scenario, relatively small changes in price will generate fairly large changes in the quantity demanded, so if a firm is trying to increase its sales, it can do so by lowering prices. However, raising prices can be problematic in this context because doing so will lower sales. The market for a product is generally viewed as price insensitive, or inelastic, when its price elasticity is greater than −1. For example, an elasticity of -0.50 indicates that a 1 percent increase in price results in one-half a percent decrease in quantity sold. Generally, if a firm must raise prices, it is helpful to do so with inelastic products or services, because in such a market, fewer customers will stop buying or will reduce their purchases. However, if the products are inelastic, lowering prices will not appreciably increase demand; customers just don't notice or care about the lower price. Consumers are generally more sensitive to price increases than to price decreases. That is, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease. Ideally, firms could maximize their profits if they charged each customer as much as the customer was willing to pay. Although charging different prices to different customers is legal and widely used in some retail sectors, such as automobile and antique dealers, it has not been very practical in most retail stores until recently. Retailers have increased their use of dynamic pricing techniques due to the information that is available from point-of-sale data collected on the Internet purchases and in stores. Dynamic pricing, also known as individualized pricing, refers to the process of charging different prices for goods or services based on the type of customer; time of the day, week, or even season; and level of demand.

finding a fair solution

Most people realize that mistakes happen. But when they happen, customers want to be treated fairly, whether that means distributive or procedural fairness. Their perception of what "fair" means is based on their previous experience with other firms, how they have seen other customers treated, material they have read, and stories recounted by their friends. Distributive Fairness Distributive fairness pertains to a customer's perception of the benefits he or she received compared with the costs (inconvenience or loss). Customers want to be compensated a fair amount for a perceived loss that resulted from a service failure. The key to distributive fairness, of course, is listening carefully to the customer. One customer, traveling on vacation, may be satisfied with a travel voucher, whereas another may need to get to the destination on time because of a business appointment. Regardless of how the problem is solved, customers typically want tangible restitution—in this case, to get to their destination—not just an apology. If providing tangible restitution isn't possible, the next best thing is to assure the customer that steps are being taken to prevent the failure from recurring. Procedural Fairness With regard to complaints, procedural fairness refers to the perceived fairness of the process used to resolve them. Customers want efficient complaint procedures over whose outcomes they have some influence. Customers tend to believe they have been treated fairly if the service providers follow specific company guidelines. Nevertheless, rigid adherence to rules can have deleterious effects. Therefore, as we noted previously, service providers should be empowered with some procedural flexibility to solve customer complaints.

The communications gap: communicating the service promise

Poor communication between marketers and their customers can result in a mismatch between an ad campaign's or a salesperson's promises and the service the firm can actually offer. Although firms have difficulty controlling service quality because it can vary from day to day and provider to provider, they have nearly constant control over how they communicate their service package to their customers. If a firm promises more than it can deliver, customers' expectations won't be met. An advertisement may lure a customer into a service situation once, but if the service doesn't deliver on the promise, the customer will never return. Dissatisfied customers also are likely to tell others about the underperforming service using word of mouth or, increasingly, social media, which has become an important channel for dissatisfied customers to vent their frustrations. The communications gap can be reduced by managing customer expectations and by promising only what you can deliver, or possibly even a little less. A relatively easy way to manage customer expectations is to coordinate how the expectation is created and the way the service is provided. Expectations typically are created through promotions, advertising, or personal selling. Delivery is another function altogether. If a salesperson promises a client that an order can be delivered in one day, and that delivery actually takes a week, the client will be disappointed. However, if the salesperson coordinates the order with those responsible for the service delivery, the client's expectations likely will be met.

Data warehouse

Purchase data collected at the point of sale (information flow 2 in Exhibit 15.7) goes into a huge database known as a data warehouse. Using the data warehouse, the CEO not only can learn how the corporation is generally doing but also can look at the data aggregated by quarter for a merchandise division, a region of the country, or the total corporation. A buyer may be more interested in a particular manufacturer in a certain store on a particular day. Analysts from various levels of the retail operation extract information from the data warehouse to make a plethora of marketing decisions about developing and replenishing merchandise assortments. In some cases, manufacturers also have access to this data warehouse. They communicate with retailers by using electronic data interchange (EDI) and supply chain systems known as vendor-managed inventory. In information flows 3, 4, and 6 the retailer and manufacturer exchange business documents through EDI. Electronic data interchange (EDI) is the computer-to-computer exchange of business documents from a retailer to a vendor and back. In addition to sales data, purchase orders, invoices, and data about returned merchandise can be transmitted back and forth. With EDI, vendors can transmit information about on-hand inventory status, vendor promotions, and cost changes to the retailer, as well as information about purchase order changes, order status, retail prices, and transportation routings. Thus EDI enables channel members to communicate more quickly and with fewer errors than in the past, ensuring that merchandise moves from vendors to retailers more quickly. Vendor-managed inventory (VMI) is an approach for improving marketing channel efficiency in which the manufacturer is responsible for maintaining the retailer's inventory levels in each of its stores. By sharing the data in the retailer's data warehouse and communicating that information via EDI, the manufacturer automatically sends merchandise to the retailer's store or distribution or fulfillment center when the inventory at the store reaches a prespecified level. In ideal conditions, the manufacturer replenishes inventories in quantities that meet the retailer's immediate demand, which reduces stockouts with minimal inventory. In addition to providing a better match between retail demand and supply, VMI can reduce the vendor's and the retailer's costs. Manufacturer salespeople no longer need to spend time generating orders on items that are already in the stores, and their role shifts to selling new items and maintaining relationships. Retail buyers and planners no longer need to monitor inventory levels and place orders.

Interdependence

When supply chain members view their goals and ultimate success as intricately linked, they develop deeper long-term relationships. Interdependence between supply chain members that is based on mutual benefits is key to developing and sustaining the relationship

customer store pickup

Technology advances have changed consumers' expectations of their shopping experience. They want the option of making the purchase online and then picking up in store. Retailers that can offer this option drive additional sales, as customers who come into the store to pick up online orders are more likely to make additional purchases while in store. For retailers to be successful with the buy-online-and-pick-up-in-store option, they need to invest in technology that enables order allocation systems to locate every item in stock so as to fulfill the order in a timely manner. Multichannel retailers that offer the buy-online-and-pick-up-in-store option will be appealing to these spoiled customers. For this option to be successful, retailers need to ensure that the products that show up as being available online will actually be available in stock and ready for pickup. This requires a high level of accuracy inherent in the retailer's inventory management system. The notification of sales to stores quickly and accurately is crucial for retailers to differentiate themselves. Retailers need to equip themselves with mobile task management technology to deliver outstanding customer experience. Mobile task management technology is a wireless network and a mobile device that receives demand notification and enables a speedy response. This solution allows the associate closest to the ordered item to physically pull it and verify its availability. For the buy-online-and-pick-up-in-store option to be successful, the retailer must be able to move the product along its supply chain smoothly, effectively, and efficiently with the intention of delivering a single order to an individual customer. That is what enables the retailer to deliver an outstanding in-store pickup experience, and in return, brings the customer back to the store in the future

Use of technology

Technology can be employed to reduce delivery gaps, and has become an increasingly important facilitator of the delivery of services. Using technology to facilitate service delivery can provide many benefits, such as access to a wider variety of services, a greater degree of control by the customer over the services, and the ability to obtain information. The use of technology also improves the service provider's efficiency and reduces servicing costs; in some cases, it can lead to a competitive advantage over less service-oriented competitors. Technological advances that help close the delivery gap are expanding. Macy's has installed Look Book displays, which act like an interactive digital catalog in the store. These displays enable customers to find fashionable ideas, ways to extend their existing wardrobes, and images from forward-thinking fashion icons. Technological advances can also help with the delivery gap by improving supply chain efficiency. For example, grocery store chain Cisco is developing a shelf sensor that allows the retailer to determine the moment at which the supply of milk is getting low. The technological delivery of services can cause problems though. Some customers either do not embrace the idea of replacing a human with a machine for business interactions or have problems using the technology, such as supermarket self-checkout devices that are too challenging for some customers. In other cases, the technology may not perform adequately, such as ATMs that run out of money or are out of order.

The distribution (or fulfillment) center

The distribution center performs the following activities: managing inbound transportation; receiving and checking; storing and cross-docking; getting merchandise floor-ready; ticketing and marking; preparing to ship merchandise to stores; and shipping merchandise to stores. Fulfillment centers perform the same functions, but because they deliver directly to customers rather than to stores, they do not have to get merchandise floor ready.

channel structure

The 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 has a strong brand or is otherwise desirable in the market; and the relative power of the manufacturer and retailer.

resolving problems quickly

The longer it takes to resolve a service failure, the more irritated the customer will become and the more people he or she is likely to tell about the problem. To resolve service failures quickly, firms need clear policies, adequate training for their employees, and empowered employees. Health insurance companies, for instance, have made a concerted effort in recent years to avoid service failures that occur because customers' insurance claims have not been handled quickly or to the customers' satisfaction.

heterogeneous

The more humans are needed to provide a service, the more likely there is to be heterogeneity or variability in the service's quality. A hairstylist may give bad haircuts in the morning because he or she went out the night before. Yet that stylist still may offer a better service than the undertrained stylist working in the next station over. A restaurant, which offers a mixture of services and products, generally can control its food quality but not the variability in food preparation or delivery. If a consumer has a problem with a product, it can be replaced, redone, destroyed, or, if it is already in the supply chain, recalled. In many cases, the problem can even be fixed before the product gets into consumers' hands. An inferior service can't be recalled; by the time the firm recognizes a problem, the damage has been done. Marketers also can use the variable nature of services to their advantage. A micromarketing segmentation strategy can customize a service to meet customers' needs exactly . Exercise facilities might generally provide the same weights, machines, and mats, but at Planet Fitness, customers know that the gym explicitly seeks to offer a laidback, less intense setting. In an alternative approach, some service providers tackle the variability issue by replacing people with machines. For simple transactions such as getting cash, using an automated teller machine (ATM) is usually quicker and more convenient—and less variable—than waiting in line for a bank teller. Many retailers have installed kiosks in their stores: In addition to offering customers the opportunity to order merchandise not available in the store, kiosks can provide routine customer service, freeing employees to deal with more demanding customer requests and problems and reducing service variability. Kiosks can also be used to automate existing store services such as gift registry management, rain checks, credit applications, and preordering service for bakeries and delicatessens.

competitor orientation

When firms take a competitor orientation, they strategize according to the premise that they should measure themselves primarily against their competition. Some firms focus on competitive parity, which means they set prices that are similar to those of their major competitors. Another competitor-oriented strategy, status quo pricing, changes prices only to meet those of the competition. For example, when Delta increases its average fares, American Airlines and United often follow with similar increases; if Delta rescinds that increase, its competitors tend to drop their fares too. Value is only implicitly considered in competitor-oriented strategies, but in the sense that competitors may be using value as part of their pricing strategies, copying their strategy might provide value.

price discrimination

There are many forms of price discrimination, but only some of them are considered illegal under the Clayton Act and the Robinson-Patman Act. When firms sell the same product to different resellers (wholesalers, distributors, or retailers) at different prices, it can be considered price discrimination; usually, larger firms receive lower prices. Quantity discounts are a method of charging different prices to different customers on the basis of the quantity they purchase. The legality of this tactic stems from the assumption that it costs less to sell and service 1,000 units to one customer than 100 units to 10 customers. But quantity discounts must be available to all customers and not be structured in such a way that they consistently and obviously favor one or a few buyers over others. The Robinson-Patman Act does not apply to sales to end consumers, at which point many forms of price discrimination occur. For example, students and seniors often receive discounts on food and movie tickets, which is perfectly acceptable under federal law. Those engaged in online auctions like eBay are also practicing a legal form of price discrimination, because sellers are selling the same item to different buyers at various prices.

managing marketing channels and supply chains through strategic relationships

There is more to managing marketing channels and supply chains than simply exercising power over other members in an administered system or establishing a contractual or corporate vertical marketing system. There is also a human side. In a conventional marketing channel, relationships between members reflect their arguments over the split of the profit pie: If one party gets ahead, the other party falls behind. Sometimes this type of transaction is acceptable if the parties have no interest in a long-term relationship. But such attitudes can limit the success of the supply chain as a whole. Therefore, firms frequently seek a strategic relationship, also called a partnering relationship, in which the marketing channel members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial. In a conventional or administered marketing channel, there are significant incentives to establish a strategic relationship, even without contracts or ownership relationships. Both parties benefit because the size of the profit pie has increased, so both the buyer and the seller increase their sales and profits. These strategic relationships are created explicitly to uncover and exploit joint opportunities, so members depend on and trust each other heavily; share goals and agree on how to accomplish those goals; and are willing to take risks, share confidential information, and make significant investments for the sake of the relationship. Successful strategic relationships require mutual trust, open communication, common goals, interdependence, and credible commitments.

Support and Incentives for Employees:

To ensure that service is delivered properly, management needs to support the service providers in several ways and give them incentives. This is basic. A service provider's job can often be difficult, especially when customers are unpleasant or less than reasonable. But the service provider cannot be rude or offensive just because the customer is. The old cliché "Service with a smile" remains the best approach, but for this to work, employees must feel supported. First, managers and coworkers should provide emotional support to service providers by demonstrating a concern for their well-being and standing behind their decisions. Because it can be very disconcerting when, for instance, a server is abused by a customer who believes her food was improperly prepared, restaurant managers must be supportive and help the employee get through his or her emotional reaction to the berating experienced. Such support can extend to empowering the server to rectify the situation by giving the customer new food and a free dessert, in which case the manager must understand the server's decision, not punish him for giving away too much. Second, service providers require instrumental support—the systems and equipment to deliver the service properly. Many retailers provide state-of-the-art instrumental support for their service providers. In-store kiosks help sales associates provide more detailed and complete product information and enable them to make sales of merchandise that is either not carried in the store or is temporarily out of stock. Third, the support that managers provide must be consistent and coherent throughout the organization. Patients expect physicians to provide great patient care using state-of-the-art procedures and medications, but because they are tied to managed-care systems (health maintenance organizations [HMOs]), many doctors must squeeze more people into their office hours and prescribe less optimal, less expensive courses of treatment. These conflicting goals can be very frustrating to patients. Finally, a key part of any customer service program is providing rewards to employees for their excellent service. Numerous firms have developed a service reputation by ensuring that their employees are themselves recognized for recognizing the value the firm places on customer service.

Costs

To make effective pricing decisions, firms must understand their cost structures so they can determine the degree to which their products or services will be profitable at different prices. In general, prices should not be based on costs because consumers make purchase decisions based on their perceived value; they care little about the firm's costs to produce and sell a product or deliver a service. Although companies incur many different types of costs as a natural part of doing business, there are two primary cost categories: variable and fixed. Variable Costs Variable costs are those costs, primarily labor and materials, that vary with production volume. As a firm produces more or less of a good or service, the total variable costs increase or decrease at the same time. Because each unit of the product produced incurs the same cost, marketers generally express variable costs on a per-unit basis. Fixed Costs Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Typically, these costs include items such as rent, utilities, insurance, administrative salaries (for executives and higher-level managers), and the depreciation of the physical plant and equipment. Across reasonable fluctuations in production volume, these costs remain stable; whether Entenmann's makes 100,000 loaves or a million, the rent it pays for the bakery remains unchanged. Total Cost Finally, the total cost is simply the sum of the variable and fixed costs.

high/low pricing

a pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases A high/low strategy is appealing because it attracts two distinct market segments: those who are not price sensitive and are willing to pay the "high" price and more price-sensitive customers who wait for the "low" sale price. High/low sellers can also create excitement and attract customers through the "get them while they last" atmosphere that occurs during a sale Sellers using a high/low pricing strategy often communicate their strategy through the creative use of a reference price, which is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. The seller labels the reference price as the "regular price" or an "original price." When consumers view the "sale price" and compare it with the provided reference price, their perceptions of the value of the deal increase

retailing

a set of business activities that adds value to the products and services sold to consumers for their personal or family use Our definition includes products bought at stores, through catalogs, and over the Internet, as well as services such as fast-food restaurants, airlines, and hotels. Some retailers claim they sell at wholesale prices, but if they sell to customers for their personal use, they are still retailers, regardless of their prices. Wholesalers buy products from manufacturers and resell them to retailers or industrial or business users. Retailing today is changing, both in the United States and around the world. Manufacturers no longer rule many supply chains as they once did. Retailers such as Walmart (U.S. superstore), Costco (U.S. warehouse club), Kroger (U.S. grocery chain), Schwarz (German conglomerate), Tesco (UK-based food retailer), Carrefour (French hypermarket), Aldi Enkauf (German discount food retailer), Metro (German retail conglomerate), Home Depot (U.S. home improvement), Walgreens (U.S. drugstore), Target (U.S. discount retailer), and Amazon (U.S. e-tailer)4—the largest retailers in the world—dictate to their suppliers what should be made, how it should be configured, when it should be delivered, and, to some extent, what it should cost. These retailers are clearly in the driver's seat. In choosing retail partners, the first factor, manufacturers assess how likely it is for certain retailers to carry their products. Manufacturers also consider where their target customers expect to find the products because those are exactly the stores in which they want to place their products. The overall size and level of sophistication of the manufacturer will determine how many of the marketing channel functions it performs and how many it will hand off to other channel members. Another aspect in choosing retail partners: The type and availability of the product and the image the manufacturer wishes to portray will determine how many retailers within a geographic region will carry the products. For the second factor, manufacturers identify the types of retailers that would be appropriate to carry their products. Although the choice is often obvious—such as a supermarket for fresh produce—manufacturers may have a choice of retailer types for some products. a hallmark of a strong marketing channel is one in which manufacturers and retailers coordinate their efforts. In the third factor, manufacturers and retailers therefore develop their strategy by implementing the four Ps. Many retailers and some manufacturers use an omnichannel or multichannel strategy, which involves selling in more than one channel (e.g., store, catalog, and Internet). The fourth factor therefore consists of examining the circumstances in which sellers may prefer to adopt a particular strategy. Although these factors for establishing a relationship with retailers are listed consecutively, manufacturers may consider them all simultaneously or in a different order.

Storing and Cross-Docking

after the merchandise is received and checked, it is either stored or cross-docked. When merchandise is stored, the cartons are transported by a conveyor system and forklift trucks to racks that go from the distribution center's floor to its ceiling. Then, when the merchandise is needed in the stores, a forklift driver or a robot goes to the rack, picks up the carton, and places it on a conveyor system that routes the carton to the loading dock of a truck going to the store. Using a cross-docking distribution center, merchandise cartons are prepackaged by the vendor for a specific store. The UPC or RFID labels on the carton indicate the store to which it is to be sent. The vendor also may affix price tags to each item in the carton. Because the merchandise is ready for sale, it is placed on a conveyor system that routes it from the unloading dock at which it was received to the loading dock for the truck going to the specific store—hence the name cross-docked. The cartons are routed on the conveyor system automatically by sensors that read the UPC or RFID label on the cartons. Cross-docked merchandise is in the distribution center only for a few hours before it is shipped to the stores. Merchandise sales rate and degree of perishability or fashionability typically determine whether cartons are cross-docked or stored. For instance, because Sony's HDTVs sell so quickly, it is in Best Buy's interest not to store them in a distribution center. Similarly, cross-docking is preferable for fashion apparel or perishable meat or produce.

service

any intangible offering that involves a deed, performance, or effort that cannot be physically possessed; intangible customer benefits that are produced by people or machines and cannot be separated from the producer Economies of developed countries such as of the United States have become increasingly dependent on services. Services account for nearly 80 percent of the U.S. gross domestic product (GDP), a much higher percentage than was true 50, 20, or even 10 years ago. In turn, the current list of Fortune 500 companies contains more service companies and fewer manufacturers than it did in previous decades. This dependence and the growth of service-oriented economies in developed countries have emerged for several reasons. First, it is generally less expensive for firms to manufacture their products in less developed countries. Even if the goods are finished in the United States, some of their components likely were produced elsewhere. In turn, the proportion of service production to goods production in the United States and other similar economies has steadily increased over time. Second, people place a high value on convenience and leisure. For instance, household maintenance activities, which many people performed themselves in the past, have become more popular and quite specialized. Food preparation, lawn maintenance, house cleaning, pet grooming, laundry and dry cleaning, hair care, and automobile maintenance are all often performed by specialists. Third, as the world has become more complicated, people are demanding more specialized services—everything from plumbers to personal trainers, from massage therapists to tax preparation specialists, from lawyers to travel and leisure specialists, and even to health care providers. The aging population in particular has increased the need for health care specialists, including doctors, nurses, and caregivers in assisted living facilities and nursing homes, and many of those consumers want their specialists to provide personalized, dedicated services.

VOC program (voice of customer)

collects customer inputs and integrates them into managerial decisions Marketing research provides a means to better understand consumers' service expectations and their perceptions of service quality. This research can be extensive and expensive, or it can be integrated into a firm's everyday interactions with customers. Today, most service firms have developed voice-of-customer programs and employ ongoing marketing research to assess how well they are meeting their customers' expectations. to define the zone of tolerance, firms ask a series of questions about each service quality dimension that relate to The desired and expected level of service for each dimension, from low to high. Customers' perceptions of how well the focal service performs and how well a competitive service performs, from low to high. The importance of each service quality dimension. A very straightforward and inexpensive method of collecting consumers' perceptions of service quality is to gather them at the time of the sale. Service providers can ask customers how they liked the service—though customers often are reticent to provide negative feedback directly to the person who provided the service—or distribute a simple questionnaire. Regardless of how information is collected, companies must take care not to lose it, which can happen if there is no effective mechanism for filtering it up to the key decision makers. Furthermore, in some cases, customers cannot effectively evaluate the service until several days or weeks later. Automobile dealers, for instance, often call their customers a week after they perform a service such as an oil change to assess their service quality. Another excellent method for assessing customers' expectations is making effective use of customer complaint behavior. Even if complaints are handled effectively to solve customers' problems, the essence of the complaint is too often lost on managers. For instance, an airline established a policy that customer service reps could not discuss any issues involving fees to travel agents with customers. So when a customer calls to complain about these fees, the representative just changes the subject, and management therefore never finds out about the complaint. Even firms with the best formal research mechanisms in place must put managers on the frontlines occasionally to interact directly with the customers. The late Sam Walton, founder of Walmart, participated in and advocated this strategy, which is known as "management by walking around." Unless the managers who make the service quality decisions know what their service providers are facing on a day-to-day basis, and unless they can talk directly to the customers with whom those service providers interact, any customer service program they create will not be as good as it could be.

Company Objectives

different firms embrace very different goals. These goals should spill down to the pricing strategy, such that the pricing of a company's products and services should support and allow the firm to reach its overall goals. For example, a firm with a primary goal of very high sales growth will likely have a different pricing strategy than will a firm with the goal of being a quality leader. Each firm then embraces objectives that seem to fit with where management thinks the firm needs to go to be successful, in whatever way it defines success. These specific objectives usually reflect how the firm intends to grow. Do managers want it to grow by increasing profits, increasing sales, decreasing competition, or building customer satisfaction? Company objectives are not as simple as they might first appear. They often can be expressed in slightly different forms that mean very different things. These objectives are not always mutually exclusive because a firm may embrace two or more noncompeting objectives. Profit-oriented-Institute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm. Sales-oriented-Set prices very low to generate new sales and take sales away from competitors, even if profits suffer. Competitor-oriented-To discourage more competitors from entering the market, set prices very low. Customer-oriented -target a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing).

Gray Market Pricing

employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer. Many manufacturers of consumer electronics therefore require retailers to sign an agreement that demands certain activities (and prohibits others) before the retailers may become authorized dealers. But if a retailer has too many high-definition televisions in stock, it may sell them at just above its own cost to an unauthorized discount dealer. This move places the merchandise in the market at prices far below what authorized dealers can charge and in the long term may tarnish the image of the manufacturer if the discount dealer fails to provide sufficient return policies, support, service, and so forth. To discourage this type of gray market distribution, many manufacturers have resorted to large disclaimers on their websites, packaging, and other communications to warn consumers that the manufacturer's product warranty becomes null and void unless the item has been purchased from an authorized dealer. Another method is to equalize worldwide prices so the gray market advantage evaporates

distribution centers versus direct store delivery

manufacturers can ship merchandise directly to a retailer's stores—direct store delivery (flow 2)—or to their distribution centers (flow 1). Although manufacturers and retailers may collaborate, the ultimate decision is usually up to the retailer and depends on the characteristics of the merchandise and the nature of demand. To determine which distribution system—distribution centers or direct store delivery—is better, retailers consider the total cost associated with each alternative and the customer service criterion of having the right merchandise at the store when the customer wants to buy it. There are several advantages to using a distribution center: More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distribution center rather than doing a forecast for each store. By carrying the item at each store, the retailer must develop individual forecasts, each with the possibility of errors that could result in either too much or too little merchandise. Alternatively, by delivering most of the inventory to a distribution center and feeding the stores merchandise as they need it, the effects of forecast errors for the individual stores are minimized, and less backup inventory is needed to prevent stockouts. Distribution centers enable the retailer to carry less merchandise in the individual stores, which results in lower inventory investments systemwide. If the stores get frequent deliveries from the distribution center, they need to carry relatively less extra merchandise as backup stock. It is easier to avoid running out of stock or having too much stock in any particular store because merchandise is ordered from the distribution center as needed. Retail store space is typically much more expensive than is space at a distribution center, and distribution centers are better equipped than stores to prepare merchandise for sale. As a result, many retailers find it cost effective to store merchandise and get it ready for sale at a distribution center rather than in individual stores. But distribution centers aren't appropriate for all retailers. If a retailer has only a few outlets, the expense of a distribution center is probably unwarranted. Also, if many outlets are concentrated in metropolitan areas, merchandise can be consolidated and delivered by the vendor directly to all the stores in one area economically. Direct store delivery gets merchandise to the stores faster and thus is used for perishable goods (meat and produce), items that help create the retailer's image of being the first to sell the latest product (e.g., video games), or fads. Finally, some manufacturers provide direct store delivery for retailers to ensure that their products are on the store's shelves, properly displayed, and fresh

receiving and checking using UPC and RFID

receiving is the process of recording the receipt of merchandise as it arrives at a distribution center. Checking is the process of going through the goods upon receipt to make sure they arrived undamaged and that the merchandise ordered was the merchandise received. In the past, checking merchandise was a very labor-intensive and time-consuming process. Today, however, many distribution systems using EDI are designed to minimize, if not eliminate, these processes. The advance shipping notice (ASN) tells the distribution center what should be in each carton. A UPC label or radio frequency identification (RFID) tag on the shipping carton that identifies the carton's contents is scanned and automatically counted as it is being received and checked. Radio frequency identification (RFID) tags are tiny computer chips that automatically transmit to a special scanner all the information about a container's contents or individual products. Approximately as large as a pinhead, these RFID tags consist of an antenna and a chip that contains an electronic product code that stores far more information about a product than bar (UPC) codes can. The tags also act as passive tracking devices, signaling their presence over a radio frequency when they pass within a few yards of a special scanner. The tags have long been used in high-cost applications such as automated highway toll systems and security identification badges. As the cost of the tags and implementation technology has decreased, their uses have become more prevalent in retail supply chain applications.

ticketing and marking

refers to affixing price and identification labels to the merchandise It is more efficient for a retailer to perform these activities at a distribution center than in its stores. In a distribution center, an area can be set aside and a process implemented to efficiently add labels and put apparel on hangers. Conversely, getting merchandise floor-ready in stores can block aisles and divert sales people's attention from their customers. An even better approach from the retailer's perspective is to get vendors to ship floor-ready merchandise, thus totally eliminating the expensive, time-consuming ticketing and marking process.

demand curve

shows how many units of a product or service consumers will demand during a specific period at different prices Of course, any demand curve relating demand to price assumes that everything else remains unchanged. For the sake of expediency, marketers creating a demand curve assume that the firm will not increase its expenditures on advertising and that the economy will not change in any significant way. As price increases, quantity demanded for a product or service will decrease. In the case here, consumers will buy more as the price decreases. We can expect a demand curve similar to this one for many, if not most, products and services. downward sloping. Knowing the demand curve for a product or service enables a firm to examine different prices in terms of the resulting demand and relative to its overall objective. But not all products or services follow the downward-sloping demand curve for all levels of price depicted in . Consider prestige products or services, which consumers purchase for their status rather than for their functionality. The higher the price, the greater the status associated with it and the greater the exclusivity, because fewer people can afford to purchase it. With prestige products or services, a higher price may lead to a greater quantity sold, but only up to a certain point. The price demonstrates just how rare, exclusive, and prestigious the product is. When customers value the increase in prestige more than the price differential between the prestige product and other products, the prestige product attains the greater value overall. However, prestige products can also run into pricing difficulties.

credible commitments

successful relationships develop because both parties make credible commitments to or tangible investments in, the relationship. These commitments go beyond just making the hollow statement, "I want to be your partner"; they involve spending money to improve the products or services provided to the customer and on information technology to improve supply chain efficiency Similar to many other elements of marketing, managing the marketing channel can seem like an easy task at first glance: Put the right merchandise in the right place at the right time. But the various elements and actors involved in a marketing channel create its unique and compelling complexities and require firms to work carefully to ensure they are achieving the most efficient and effective chain possible.

Sales Orientation

the belief that people will buy more goods and services if aggressive sales techniques are used and that high sales result in high profits Firms using a sales orientation to set prices believe that increasing sales will help the firm more than will increasing profits. Tide laundry detergent might adopt such an orientation selectively when it introduces new products that it wants to establish in the market. Some firms may be more concerned about their overall market share than about dollar sales per se (though these often go hand in hand) because they believe that market share better reflects their success relative to the market conditions than do sales alone. A firm may set low prices to discourage new firms from entering the market, encourage current firms to leave the market, and/or take market share away from competitors—all to gain overall market share. Yet adopting a market share objective does not always imply setting low prices. Rarely is the lowest-price offering the dominant brand in a given market. Heinz ketchup, Philadelphia cream cheese, Crest toothpaste, and Nike athletic shoes have all dominated their markets, yet all are premium-priced brands. On the services side, IBM claims market dominance in human resource outsourcing, but again, it is certainly not the lowest-price competitor. Premium pricing means the firm deliberately prices a product above the prices set for competing products so as to capture those customers who always shop for the best or for whom price does not matter. Thus, companies can gain market share by offering a high-quality product at a price that is perceived to be fair by its target market as long as they use effective communication and distribution methods to generate high-value perceptions among consumers. Although the concept of value is not overtly expressed in sales-oriented strategies, it is at least implicit because, for sales to increase, consumers must see greater value.

Intangible

the most fundamental difference between a product and a service is that services are intangible—they cannot be touched, tasted, or seen like a pure product can. When you get a physical examination, you see and hear the doctor, but the service itself is intangible. This intangibility can prove highly challenging to marketers, especially if they are more accustomed to selling products. For instance, it makes it difficult to convey the benefits of services—try describing whether the experience of visiting your dentist was good or bad and why. Service providers (e.g., physicians, dentists) therefore offer cues to help their customers experience and perceive their service more positively, such as a waiting room stocked with television sets, beverages, and comfortable chairs to create an atmosphere that appeals to the target market. A service that cannot be shown directly to potential customers also is difficult to promote. Marketers must creatively employ symbols and images to promote and sell services, as Six Flags does in using its advertising to evoke images of happy families and friends enjoying a roller coaster ride. Professional medical services provide appropriate images of personnel doing their jobs in white coats surrounded by high-tech equipment. Some services have found excellent ways to make their offerings more tangible to their customers. For example, Carbonite provides simple, affordable, unlimited online backup for individual home computer users as well as small businesses, for which it keeps its services, prices, and customer support well within reach.

distribution intensity

the number of channel members to use at each level of the marketing channel Intensive Distribution An intensive distribution strategy is designed to place products in as many outlets as possible. Most consumer packaged-goods companies, such as Pepsi, Procter & Gamble, Kraft, and other nationally branded products found in grocery and discount stores, strive for and often achieve intensive distribution. Pepsi wants its product available everywhere—grocery stores, convenience stores, restaurants, and vending machines. The more exposure the products get, the more they sell. Manufacturers also might use an exclusive distribution policy by granting exclusive geographic territories to one or very few retail customers so that no other retailers in the territory can sell a particular brand. Exclusive distribution can benefit manufacturers by assuring them that the most appropriate retailers represent their products.When supply is limited or a firm is just starting out, providing an exclusive territory to one retailer or retail chain helps ensure enough inventory to provide the buying public an adequate selection Selective Distribution Between the intensive and exclusive distribution strategies lies selective distribution, which relies on a few selected retail customers in a territory to sell products. Like exclusive distribution, selective distribution helps a seller maintain a particular image and control the flow of merchandise into an area. These advantages make this approach attractive to many shopping goods manufacturers. Recall that shopping goods are those products for which consumers are willing to spend time comparing alternatives, such as most apparel items, home items such as branded pots and pans or sheets and towels, branded hardware and tools, and consumer electronics. Retailers still have a strong incentive to sell the products, but not to the same extent as if they had an exclusive territory. like any large, complicated system, a marketing channel is difficult to manage. Whether the balance of power rests with large retailers such as Walmart or with large manufacturers such as Procter & Gamble, channel members benefit by working together to develop and implement their channel strategy.

price fixing

the practice of colluding with other firms to control prices. Price fixing might be either horizontal or vertical. Whereas horizontal price fixing is clearly illegal under the Sherman Antitrust Act, vertical price fixing falls into a gray area. Horizontal price fixing occurs when competitors who produce and sell competing products or services collude, or work together, to control prices, effectively taking price out of the decision process for consumers. This practice clearly reduces competition and is illegal. As a general rule of thumb, competing firms should refrain from discussing prices or terms and conditions of sale with competitors. If firms want to know competitors' prices, they can look at a competitor's advertisements, its websites, or its stores. Vertical price fixing occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) agree to control the prices passed on to consumers. Manufacturers often encourage retailers to sell their merchandise at a specific price, known as the manufacturer's suggested retail price (MSRP). Manufacturers set MSRPs to reduce retail price competition among retailers, stimulate retailers to provide complementary services, and support the manufacturer's merchandise. Manufacturers enforce MSRPs by withholding benefits such as cooperative advertising or even refusing to deliver merchandise to noncomplying retailers. The Supreme Court has ruled that the ability of a manufacturer to require retailers to sell merchandise at MSRP should be decided on a case-by-case basis, depending on the individual circumstances.

indirect marketing channel

when one or more intermediaries work with manufacturers to provide goods and services to customers In some cases, only one intermediary might be involved. Automobile manufacturers such as Ford and General Motors often use indirect distribution, such that dealers act as retailers, wholesalers are more common when the company does not buy in sufficient quantities to make it cost effective for the manufacturer to deal directly with them—independent book sellers, wine merchants, or independent drug stores, for example. Wholesalers are also prevalent in less developed economies, in which large retailers are rare.