Managing the Marketing Mix: Product, Price, Place, and Promotion

Another way to get more impact from advertising is to appeal to the interest in green marketing among consumers and businesses.

A brief glance through magazines and the business press reveals all kinds of appeals that refer to sustainability and carbon-cutting.

Social commerce

A form of electronic commerce that involves using social media and user contributions to assist in the online buying and selling of products and services.

Competition-based pricing

A pricing strategy based on what all the other competitors are doing. The price can be set at, above, or below competitors' prices. Pricing depends on customer loyalty, perceived differences, and the competitive climate.

Channel of distribution

A set of marketing intermediaries, such as agents, brokers, wholesalers, and retailers, that join together to transport and store goods in their path (or channel) from producers to consumers.

Total fixed costs

All expenses that remain the same no matter how many products are made or sold. Among the expenses that make up fixed costs are the amount paid to own or rent a factory or warehouse and the amount paid for business insurance.

Retailer

An organization that sells to ultimate consumers.

Viral marketing

Any strategy that encourages people to pass on a marketing message to others, creating exponential growth in the message's influence as the message reaches thousands to millions of potential customers.

Brand names you may be familiar with include Air Canada, Roots, President's Choice, Red Bull, and Campbell Soup.

Brand names give products a distinction that tends to make them attractive to customers. Companies sue other companies for too closely matching brand names. For the buyer, a brand name assures quality, reduces search time, and adds prestige to purchases.

The break-even point is the point where revenue from sales equals all costs. The formula for calculating the break-even point is as follows:

Break-even point (BEP)= Total fixed cost (FC) / Price of one unit (P) - Variable cost (VC) of one unit

Variable costs

Costs that change according to the level of production. Included are expenses for the materials used in making products and the direct costs of labour used to make those products.

Packaging Changes the Product

Customers evaluate many aspects of the total product offer, including the package. It is surprising how important packaging can be in such evaluations. Many companies have used packaging to change and improve their basic products. In each case, the package changed the product in the minds of customers and opened large markets. In short, packaging changes the product by changing its visibility, usefulness, or attractiveness.

Target costing

Designing a product so that it satisfies customers and meets the profit margins desired by the firm.

Intensive distribution

Distribution that puts products into many retail outlets as possible. Products that need intensive distribution include candy, gum, and popular magazines.

Selective distribution

Distribution that sends products to only a preferred group of retailers in an area. Manufacturers of appliances, furniture, and clothing use selective distribution.

Exclusive distribution

Distribution that sends products to only one retail outlet in a given geographic area. Auto manufacturers usually use exclusive distribution, as do producers of specialty goods such as skydiving equipment.

Value

Good quality at a fair price. When consumers calculate the value of a product, they look at the benefits and then subtract the cost (price) to see whether the benefits exceed the cost, including the cost of driving to the store (or shipping fees if they buy the product online). Whether customers perceive a product as the best value depends on many factors, including the benefits they seek and the service they receive.

Bundling

Grouping two or more products together and pricing them as a unit. Packaging may make use of a strategy called bundling, which combines goods and/or services for a single price. When combining goods or services into one package, marketers must not include so much that the price gets too high. It's best to work with customers to develop value enhancers that meet their individual needs.

Bricks and mortar are stores that have a physical presence.

If they add an online presence, they are called bricks and clicks (or clicks and bricks). Bricks and clicks allow customers to choose which shopping technique suits them best. Most companies that want to compete in the future will probably need both a physical store and an online presence to provide customers with all the options they want.

Effective selling is not simply a matter of persuading others to buy.

In fact, it is more accurately described today as helping others satisfy their wants and needs (again, helping the buyer buy).

Advertising:

Informing, Persuading, and Reminding

Direct marketing has become popular because shopping from home or work is more convenient for consumers than going to stores.

Instead of driving to a mall, people can shop online. Direct marketing took on a new dimension with interactive video. Companies that use interactive video have become major competitors to those who market through static paper catalogues. For example, customers watching a video of a model moving and turning around in a dress get a much better idea of the look and feel than simply seeing it in a printed photo.

A firm may have short-run objectives that differ greatly from its long-run objectives.

Managers should understand both types at the beginning and put both into their strategic marketing plan. They should also set pricing objectives in the context of other marketing decisions about product design, packaging, branding, distribution, and promotion. All these marketing decisions are interrelated.

Publicity has several disadvantages.

Marketers have no control over whether, how, and when the media will use the story. The media are not obligated to use a publicity release, and most are ignored. Furthermore, the story may be altered so that it is not so positive. Also, once a story has run, it is not likely to be repeated, unlike advertising.

Marketing intermediaries

Organizations that assist in moving goods and services from producers to business and consumer users.

Advertising

Paid, non-personal communication through various media by organizations and individuals who are in some way identified in the advertising message. Ads are informative.

Retail Intermediaries

Perhaps the most useful marketing intermediaries, as far as you are concerned, are retailers. Remember that retailers sell to ultimate consumers. They are the ones who bring goods and services to your neighbourhood and make them available day and night.

Psychological pricing

Pricing goods and services at price points that make the product appear less expensive than it is. Gas stations almost always use psychological pricing.

Cost-based pricing

Producers often use cost as a primary basis for setting the price. They develop elaborate cost accounting systems to measure production costs (including materials, labour, and overhead), add in a margin of profit, and come up with a price. The question is whether the price will be satisfactory to the market as well. Pricing should take into account costs, but it should also include the expected costs of product updates, the marketing objectives for each product, and competitors' prices.

Different stages in the product life cycle call for different marketing strategies. Knowing what stage in the cycle a product has reached helps marketing managers decide when such strategic changes in the marketing mix are needed.

Profit levels start to fall before sales reach their peak. This is due to increasing price competition. When profits and sales start to decline, it is time to come out with a new product or to remodel the old one to maintain interest and profits.

Pull strategy

Promotional strategy in which heavy advertising and sales promotion efforts are directed toward consumers so that they will request the products from retailers. Products are thus pulled through the distribution system. Of course, a company could use both strategies in a major promotional effort.

Push strategy

Promotional strategy in which the producer uses advertising, personal selling, sales promotion, and all other promotional tools to convince wholesalers and retailers to stock and sell merchandise. If the push strategy works, consumers will walk into a store, see the product, and buy it.

Retailer Pricing Strategies

Retailers use several pricing strategies.

Electronic retailing

Selling goods and services to ultimate consumers (e.g., you and me) over the Internet.

Direct selling

Selling to customers in their homes or where they work.

Everyday low pricing (EDLP)

Setting prices lower than competitors and then not having any special sales. The idea is to bring customers to the store whenever they want a bargain rather than waiting until there is a sale.

Steps in the business-to-consumer (B2C) selling process

Start --> Approach, ask questions, make presentation, close sale, follow up

Product mix

The combination of product lines offered by an organization.

Promotion mix

The combination of promotional tools an organization uses. Recall from Chapter 14 that promotion consists of all techniques that sellers use to motivate customers to buy their products. Traditionally, as shown in Figure 15.9, those tools include advertising, personal selling, public relations, sales promotion, and direct marketing. Each target group calls for a separate promotion mix.

Product differentiation

The creation of real or perceived product differences. Actual product differences are sometimes quite small, so marketers must use a creative mix of branding, pricing, advertising, and packaging (value enhancers) to create a unique, attractive image. Various bottled water companies, for example, have successfully achieved product differentiation.

Brand loyalty

The degree to which customers are satisfied, enjoy the brand, and are committed to further purchase. One way manufacturers are trying to create more brand loyalty is by lowering the carbon footprints of their products.

Pricing Strategies for New Products

The firm has to decide how to price these units at the introductory stage of the product life cycle.

Price leadership

The strategy by which one or more dominant firms set the pricing practices that all competitors in an industry then follow.

Brand equity

The value of the brand name and associated symbols. Usually the company cannot know the value of its brand until it sells it to another company.

In order for a blog to succeed, a business must take time to post and respond to the customers that leave comments.

They have to keep customers coming back to the blog for new information. If the blog isn't kept updated, it will lose traffic and as a result, its power as a promotional tool.

A firm may have several pricing objectives over time, and it must formulate these objectives clearly before developing an overall pricing strategy. Popular objectives include the following:

1. Achieving a target return on investment or profit. Ultimately, the goal of marketing for profit-oriented firms is to make a profit by providing goods and services. Naturally, one long-run pricing objective of almost all terms is to optimize profit. 2. Building traffic. Supermarkets often advertise certain products at or below cost to attract people to the store. These products are called loss leaders. The long-run objective is to make profits by following the short-run objective of building a customer base. 3. Achieving greater market share. One way to capture a larger part of the market is to offer lower prices, low finance rates (like 0 percent financing), low lease rates, or rebates. 4. Creating an image. Certain watches (e.g., Rolex), perfumes, and other socially visible products are priced high to give them an image of exclusivity and status. 5. Furthering social objectives. A firm may want to price a product low so that people with little money can afford it.

Packaging must perform the following functions:

1. Attract the buyer's attention. 2. Protect the goods inside, stand up to handling and storage, be tamperproof, and deter theft. 3. Be easy to open and use. 4. Describe and give information about the contents. 5. Explain the benefits of the core product inside. 6. Provide information on warranties, warnings, and other customer matters. 7. Give some indication of price, value, and uses.

Product line

A group of products that are physically similar or are intended for a similar market. They usually face similar competition. In one product line, there may be several competing brands. Service providers have product lines and product mixes as well.

Retail Distribution Strategy

A major decision that marketers must make is selecting the right retailers to sell their products. Different products call for different retail distribution strategies.

Brand manager

A manager who has direct responsibility for one brand or one product line; called a product manager in some firms. This individual also manages all the elements of the marketing mix-product, price, place, and promotion-throughout the life cycle of each product and service. Thus, you might think of the brand manager as the president of a one-product firm. One reason many large consumer product companies created this position was to have greater control over new-product development and product promotion. Some companies have brand management teams to bolster the overall effort. In B2B companies, brand managers are often known as product managers.

Wholesaler

A marketing intermediary that sells to other organizations. Wholesalers are part of the B2B system.

Podcasting

A means of distributing multimedia digital files on the Internet for downloading to a portable media player. Podcasts are important because they are a great way to capture your existing and prospective customers' attention for an extended period of time by giving them something of value that is easy for them to understand.

Brand

A name, symbol, or design (or combination thereof) that identifies the goods or services of one seller or group of sellers, and distinguishes them from the goods and services of competitors. The word brand includes practically all means of identifying a product.

Word-of-mouth promotion

A promotional tool that involves people telling other people about products they have purchased. Although word of mouth was not traditionally listed as one of the major promotional efforts (it was not considered to be manageable), it is now one of the most effective, especially on the Internet.

Skimming price strategy

A strategy in which a new product is priced high to make optimum profit while there's little competition. A skimming price strategy prices a new product high, to recover research and development costs and to make as much profit as possible while there's little competition. Of course, those large profits will eventually attract competitors.

Penetration price strategy

A strategy in which the product is priced low to attract many customers and discourage competitors. This penetration price strategy enables the firm to penetrate or capture a large share of the market quickly.

Integrated marketing communication (IMC)

A technique that combines all of the promotional tools into one comprehensive and unified promotional strategy.

Product life cycle

A theoretical model of what happens to sales and profits for a product class over time; the four stages of the cycle are introduction, growth, maturity, and decline. However, not all individual products follow this life-cycle shape, and particular brands may act differently. For example, while frozen foods as a product class may go through the entire cycle, one brand may never get beyond the introduction stage. Some product classes, such as microwave ovens, stay in the introductory stage for years. Other products, like ketchup, become classics and never experience decline. Fad products (think Beanie Babies and mood rings) may go through the entire cycle in a few months. Still others may be withdrawn from the market altogether. Nonetheless, the product life cycle may provide some basis for anticipating future market developments and for planning marketing strategies.

Blog

An online diary (web log) that looks like a web page but is easier to create and update by posting text, photos, or links to other sites.

Direct marketing

Any activity that directly links manufacturers or intermediaries with the ultimate customer. It includes direct mail, catalogue sales, and telemarketing. It uses direct communication with customers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet.

Publicity

Any information about an individual, product, or organization that is distributed to the public through the media and that is not paid for or controlled by the seller.

Total product offer (value package)

Everything that customers evaluate when deciding whether to buy something; also called a value package. You may hear some people call the basic product the "core product" and the total product offer the "augmented product." When people buy a product, they may evaluate and compare total product offers on many dimensions. Some are tangible (the product itself and its package); others are intangible (the producer's reputation and the image created by advertising). It is wise to talk with customers to learn which features and benefits are most important to them and which value enhancers they want or don't want in the final offering. Different customers may want different total product offers, so a company must develop a variety of offerings.

Intuition tells us the price charged for a product must bear some relationship to the cost of producing it. Prices usually are set somewhere above the cost. But as we'll see, price and cost are not always related.

In fact, there are three major approaches to pricing strategy: cost-based, demand-based (target costing), and competition-based.

Many marketers today are moving from globalism (one ad for everyone in the world) to regionalism (specific ads for each country or for specific groups within a country).

In the future, marketers will prepare more custom-designed promotions to reach smaller audiences-audiences as small as one person.

The product life cycle can give marketers valuable clues to successfully promoting a product over time.

It is extremely important for marketers to recognize what stage a product is in so that they can make intelligent and efficient marketing decisions about it.

Besides being free, publicity has several further advantages over other promotional tools, such as advertising.

It may reach people who would not read an ad. It may appear on the front page of a newspaper or in some other prominent position, or be given air time on a television news show. Perhaps the greatest advantage of publicity is its believability. When a newspaper or magazine publishes a story as news, the reader treats that story as news-and news is more believable than advertising.

Agents/brokers

Marketing intermediaries that bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods. That is, at no point do they own the goods. Think of real estate agents as an example.

Mobile marketing

Most marketers make sure their media are viewable on mobile devices like tablets and smartphones. One key to success, therefore, is to keep the message brief because mobile users do not want to read through too much text. With mobile media, marketers can use text messaging to promote sweepstakes, send customers news or sports alerts, and give them company information. Companies can determine where you are and send you messages about restaurants and other services in your vicinity.

Non-Store Retailing

Non-Store retailing includes electronic retailing; telemarketing; vending machines, kiosks and carts; and direct selling. Small businesses can use non-store retailing to open up new channels of distribution for their products.

High-low pricing strategy

Set prices that are higher than EDLP stores, but have many special sales where the prices are lower than competitors. The problem with such pricing is that it encourages customers to wait for sales, thus cutting into profits. As online shopping continues to grow, you may see fewer stores with a high-low strategy because customers will be able to find better prices on the Internet.

Personal selling

The face-to-face presentation and promotion of goods and services. It also involves the search for new prospects and follow-up service after the sale. With personal selling, there is a person to help you complete a transaction. The salesperson should listen to your needs, help you reach a solution, and do everything possible to make accomplishing it smoother and easier.

Public relations (PR)

The function that evaluates public attitudes, changes policies and procedures in response to the public's requests, and executes a program of action and information to earn public understanding and acceptance.

Publicity only works only if the media find the material interesting or newsworthy.

The idea, then, is to write publicity that meets those criteria.

Anything that encourages people to talk favourably about an organization can be effective word of mouth.

The more that people talk about your products and brand name, the more easily customers remember them when they shop. One especially effective strategy for spreading positive word of mouth is to send testimonials to current customers. Word of mouth is so powerful that negative word of mouth can hurt a firm badly. Addressing customer complaints quickly and effectively is one of the best ways to reduce the effects of negative word of mouth.

The goal is to use the media that can reach your desired target market most efficiently.

The most effective media are often very expensive. The inexpensive media may not reach your target market.

Break-even analysis

The process used to determine profitability at various levels of sales.

Public relations

The professional maintenance of a favourable public image by a company or other organization or a famous person.

Sales promotion

The promotional tool that stimulates consumer purchasing and dealer interest by means of short-term activities. You can stimulate sales at Very Vegetarian by putting half-off coupons in the school paper and home mailers. Business-to-business sales promotion techniques include trade shows, portfolios for salespeople, deals (e.g., price reductions), catalogues, and conventions. Sales promotion programs are designed to supplement personal selling, advertising, PR, and other promotional efforts by creating enthusiasm for the overall promotional program.

Telemarketing

The sale of goods and services by telephone. Companies use it to supplement or replace in-store selling and to complement online selling. Many telemarketers send catalogues to customers and let them order by calling a toll-free number. Many electronic retailers provide a help feature online that serves the same function.

Demand-based pricing

Unlike cost-based pricing, target costing is demand-based. That means we design a product so it not only satisfies customers but also meets profit margins we've set. Target costing makes the final price an input to the product development process, not an outcome of it. You first estimate the selling price people would be willing to pay for a product and then subtract your desired profit margin. The result is your target cost of production, or what you can spend to profitably produce the item.