Marketing Exam 2
Types of Business Products
-major equipment: capital goods such as large or expensive machines, mainframe computers, airplanes, and buildings. Depreciated over time, often custom designed. Personal selling is an important marketing strategy. -accessory equipment: less expensive and shorter lived than major equipment, includes fax machines, personal computers, power tools. Usually not depreciated. Often standardized and purchased by more customers. Advertising is an important promotional tool. -raw materials: unprocessed products such as minerals, timber, wheat, corn, fish. Become part of finished products. Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user. -component parts: finished items ready for assembly or that need very little processing. Two important markets for component parts: original equipment manufacturer OEM and replacement market -processed materials: used directly in manufacturing other products. Sheet metals, chemicals, and lumber.Do not retain their identity in final products. Price and service are important factors in choosing a supplier. -supplies: consumable items that do not become part of the final product. Short lives and inexpensive. Generally fall into categories of maintenance, repair, or operating supplies MRO -business services: expense items that do not become part of the final product. Includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services
Criteria to use in selecting target markets
-market size -expected growth -competitive position -cost of reaching the segment -organizational compatibility
• Price Elasticity (formula, elastic, and inelastic demand)
-measure of how much the quantity demanded of a good responds to a change in the price of that good E= Percentage change in quantity demanded/percentage change in price Inelastic Demand 1. quantity demanded does not respond strongly to price changes 2. price elasticity of demand is less than one Elastic Demand 1. quantity demanded responds strongly to changes in price 2. price elasticity of demand is greater than one Determinants of price elasticity of demand 1. availability of close substitutes 2. necessities versus luxuries 3. definition of the market 4. time horizon Understand price elasticity, impacts of and what products might be elastic (price sensitive about cars) or inelastic (gasoline, can of soda, low cost) Raise price on elastic good, revenue will go down
Buying situations (New Buy, Straight Rebuy, Modified Rebuy)
-new buy: a situation requiring the purchase of a product for the first time -modified buy: a situation where the purchaser wants some change in the original good or service -straight buy: a situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers
Brand associations
-not benefits, images and symbols associated with brands for brand benefits -advertising and promotional efforts; nike swoosh -not reasons to buy -perceived qualities of a brand to a known entity -deep seeded in a consumer's mind about a brand
Market (Definition)
-people/organizations with needs or wants and the ability and willingness to buy
• Definition/calculation of market share
-percentage of an industry or market's total sales that is earned by a particular company over a specific time period -MS =sales revenue or volume of sales generated by business/ total sales in market x100 Need to be able to calculate Mowing lawns one lawn, competitors have 9 lawns Company sales in unit or dollars/total industry 1/10=10% 10% market share
Psychographic
-personality -values (VALS2) -lifestyle (nielsen prism) -needs
Brand loyalty
-positive feelings towards a brand and dedicated to purchase same product/service over time rather than buying from competitor even with changes over time
4 major categories of business customers
-producers: profit oriented organizations that use purchased goods and services to produce or incorporate their products -resellers: retail and wholesale businesses that buy finished goods to resell at a profit -governments: federal, state, and local buying units; may be largest single market for goods and services in the world -institutions (non profit): do not have standard business goals of profit, market share, and return on investment; schools, hospitals, colleges/universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations
Reasons for New Product failure
-product line overextension -some products have low sales or cannibalize sales of other items -resources are disproportionately allocated to slow moving products -items have become obsolete because of new product entries
Business vs. Consumer Marketing (differences)
-purchase volume: business customers buy in larger quantities than consumers -number of customers: business marketers have fewer customers than consumer marketers. An advantage is easier to identify buyers, monitor customer needs, and build personal relationships. A disadvantage is each customer becomes crucial, especially for those manufacturers who only have one customer.
Basis for segmentation (e.g., demographic, geographic, psychographic, behavior) Geographic
-region -city size -statistical area -media television -density
Behavioral
-retail store type -direct marketing -product features -usage rate -user status -awareness/intentions
Criteria to use in forming the segments
-similarity of needs of potential buyers within a segment -potential for increased profit -difference of needs of buyers among segments -similarity of needs of potential buyers within a segment -potential of a marketing action to reach a segment
Business Marketing
-the marketing of goods and services to individuals and organizations for purposes other than personal consumption -involves the marketing of goods and services to companies, governments, or not for profit organizations for use in the creation of goods and services that they can produce and market to others
· Market segmentation (purpose)
-the process of dividing a market into meaningful, relatively similar, identifiable segments or groups -links market needs to an organization's marketing program through marketing mix actions
Brand Extension (definition)
-use of same brand name in different product line -Colgate & crest: toothbrush toothpaste and other dental hygiene products Spend less on consumer brand awareness and brand associations for the product strong customer acceptance carry over to other products -Ferrari selling clothing and cars; clothing related extension of brand; brand awareness, enhancement, brand invigoration Used for complementary products they synergy exist between the two products that can increase overall sales -coca cola introducing diet coke, same brand introducing new products -huggies getting into other child care products; shampoos, etc.
• How is Value calculated; how can management impact customer's perception of value
-value is based upon perceived satisfaction -reasonable price means perceived reasonable price -price paid is based on the satisfaction consumers expect to receive from a product and not necessarily the satisfaction they actually receive Value=perceived benefits/price(sacrifice/what is given up/cost of product) Value pricing
Simulated Test Market
-A study in which consumer ratings & other info are fed into a computer model that then makes projections
· What is Price (Definition)?
-That at which is given up in an exchange to acquire a good or service -Typically money exchanged for a good or service, but may include other costs such as time lost while waiting to acquire the good or service sacrifice effect Information effect
What is prestige pricing? -involves setting a high price so that quality or status conscious consumers will be attracted to the product and buy it
-The demand curve for high quality products is backwards sloping -Lacking other information consumers will infer a greater quality for a product therefore higher perceived value if it is higher priced -as we raise price, demand goes up; appearance of upward sloping demand curve -as we increase price, consumers infer greater quality and perceived benefits; raising price=raising value to consumer Based on information effect, lack of other knowledge consumer will assume higher price good is higher quality, raise prices=demand increases
Test marketing (including simulated test market)
-The stage of new product development at which the product and its proposed marketing program are tested in realistic market settings.
Perceptual map
-a means of displaying in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how they perceive competing products or brands, as well as the firm's own product or brand
· 80/20 Principle
-a principle holding that 20% of all customers generate 80% of the demand a concept that suggests 80% of the firms sales are obtained from 20% of its customers
Consumer products
-a product bought to satisfy an individual's personal wants
Business Products
-a product used to manufacture other goods or services, to facilitate an organization's operations, or to resell to other customers
Buying Center (Roles of each)
-all those people in an organization who become involved in the purchase decision -number of people involved varies with each purchase decision -buying centers do not appear on formal organization charts -initiator: the person who suggests the purchase -influencers: help define specifications and provide information for evaluating options -gatekeepers: group members who regulate the flow of information, often the purchasing agent -decider: the person with the power to choose or approve the selection -purchaser: the person who negotiates the purchase -members of the organization who actually use the product
· Reciprocity
-an industrial buying practice in which two organizations agree to purchase each other's products and services
Brand
-assets that a firm can build or manage overtime to increase revenue profitability and overall value
Meaning of each letter in Model
-buying unit: purchase point (person or department/buying center) -aware: has heard about the new product with some characteristic that differentiates it -available: if the buyer wants to try the product, the effort to find it will be successful (expressed as percentage) -trial: usually means a purchase or consumption of the product -repeat: the product is bought at least once more, or (for durables) recommended to others
Product repositioning
-changing the place a product occupies in a consumer's mind relative to competitive products
What is a Product (Definition and examples)
-classified as either business (industrial) or consumer, depending on the buyer's intentions; bought to satisfy an individual's personal wants and needs -everything, both favorable and unfavorable, that a person receives in an exchange -computer: both consumer and business product
What is Predatory pricing? -practice of charging a very low price for a product with the intent of driving competitors out of business
-company must be charging below average variable cost with intent to put other company out of business; it is illegal -southwest airlines when first starting: another company subsidized their routes between dallas SA houston and lowered price below southwest to put them out of pricing; introduction of southwest tiered pricing; had to find way to encourage customers to pay that price; low price to match other company(targeted to families), implemented high full fare price (targeted to business travelers) illegal, charging below variable cost in order to put another company out of business
Research and development laboratories
-competitive products -universities, inventors, and small tech firms
Demand
-consumer taste -price and availability of similar products -consumer income
· Derived Demand
-demand for industrial products and services that is driven by, or derived from, the demand for consumer products and services
Constraints
-demand for product class, product group, and brand -newness of product: stage in life cycle -cost of producing and marketing the product -single product vs. product line -cost of changing prices and the time period they apply -type of competitive market: oligopoly, pure competition, monopolistic competition, pure monopoly -competitor prices and consumer awareness of them: consumer driven pricing actions, seller/retailer driven pricing actions -legal and ethical considerations
Product (re)positioning
-developing a specific marketing mix to influence potential customers' overall perception or a brand, product line, or organization in general -the place a product occupies in consumers' minds based on important attributes relative to competitive products
Perceived value
-difference between benefits and cost
What is a Yield Management System and what is it used for? -involves the charging of different prices to maximize revenue for a set amount of capacity at any given time
-dynamic pricing to sell off excess inventory -dominant in service industries and perishable goods; -Southwest airlines changes prices every minute depending on the inventory that is or isn't being bought -big inventory drop price; buy up inventory, raise price To help us maximize utilization of our capacity Airplane, take advantage of capacity of plane, maximize revenue on fixed capacity and managing revenue for that fixed capacity
Demographic
-gender -age -race/ethnicity -life stage -birth era -household size -marital status -income -education -occupation
Brand awareness
-how many consumers in a market recognize the brand and what it stands for -infrequently and frequently bought items
Sources for new product ideas
-idea generation -open innovation -customer and supplier suggestions -employee and coworker suggestions
Concept testing is not used
-if the prime benefit is a personal sense (aroma, taste) -if the concept involves new art and entertainment -if the the concept embodies a new technology that users cannot visualize -if the concept testing is mishandled by management, then blamed for product failure -if the customers simply do not know what problems they have
What is Price Discrimination? -practice of charging different prices to different buyers for products of like grade and quality
-illegal but implemented frequently; cost is a defense of price discrimination; creating a different product -military senior citizens offered lower price -can charge women lower price to get into bar because it lowers overall cost by bringing more people into bar -gender discrimination prohibited; shoes and razors by creating separate product it is not price discrimination -robinson-patman act: passed in 1936, intended to curb price discrimination by large retailers Few exemptions, cost structure different can discriminate against other groups male vs female products, selling in bulk, certain affinity groups military or senior groups
Marketing reasons
-insignificant points of difference -incomplete market and product protocol -not satisfying customer needs on critical factors -bad timing -too little market attractiveness -poor product quality -poor execution of the marketing mix -no economical access to buyers
· What is price bundling?
-involves the marketing of two or more products in a single package price -When customers are given the opportunity to purchase a package deal at a reduced price compared to what the individual components of the package would cost separately, the firm is using a ________ strategy. Multiple products together sold as a package Bundle from spectrum internet and video services and phone Movie pass with popcorn
Four Aspects of the Product Life Cycle
-length of cycle -shape of cycle -product level -rate of consumer adoption What the stages are, how it impacts marketing mix, what is the goal in each stage Introductory stage goal: inform and education consumers about new product categories, proctor and gamble introduce pampers explain why use new product disposable diapers; high costs Growth stage: differentiate product, new features and functionality
Seven stages in the New Product Development Process (e.g., 1st step is strategy, etc.)
1. new product strategy development 2. idea generation 3. screening and evaluation 4. business analysis 5. development 6. market testing 7. commercialization
What is Price Skimming? When is this strategy used? -setting the highest initial price that customers who really desire the product are willing to pay when introducing a new or innovative product
1.demand is inelastic: 2.offering is unique (protected by patent, copyright, trade secret): not substitutes/good substitutes; unique product 3.production or marketing costs are unknown 4.capacity constraint limits production 5.wants to generate funds quickly to recover investment 6.realistic perceived value in product -high price, lower price very low to maintain relatively high price through long periods of time -quickly recover return on investment; costs
· What is Penetration Pricing? When is this strategy used? -setting a low initial price on a new product to appeal immediately to the mass market
1.demand is price elastic 2.offering is not unique 3.no distinct segments 4.economies of scale (possibility of large savings in production) 5.objective is get obtain large market share 6.negative customer reaction to "skimming activity" -introduces product with low price -obtain large market share to get economies of scale and make profit -henry ford & the model T; over half of all the markets for the model T; economies of scale because producing so much for market share
Warranties (purpose)
A statement indicating the liability of the manufacturer for product deficiencies To protect the producer and the seller Reduce risk
Brand Name
Any word or sound, color or picture coca cola swirls, distinguishes one product or services from other
Determinants of rate of diffusion (complexity, observability, relative advantage, compatibility)
Complexity: the more complex the product, the slower is its diffusion Compatibility: incompatible products diffuse more slowly than compatible products Relative advantage: the degree to which a product is perceived as superior to existing substitutes Observability: degree to which benefits or other results of using products can be observed by other and communicated to target customers Trialability: the degree to which a product can be tried on a limited basis
Categories of consumer products (convenience, shopping, specialty, unsought)
Convenience -relatively inexpensive item that merits little shopping effort Shopping -product that requires comparison shopping, because it is usually more expensive and found in fewer stores Speciality -particular item for which consumers search extensively and are reluctant to accept substitutes Unsought products -product unknown to potential buyer or a known product that the buyer does not actively seek
Benefits of deep product line (e.g., efficient sales distribution, advertising economies, package uniformity, etc.)
Efficient sales distribution -transportation and warehousing costs likely to be lower for a product line than a collection of individual items -more number of products in similar line and types more shelf space in stores; enhances market reach and share; benefit of brand enhancement Advertising economies -economies of scale in advertising as several products can be advertised under the umbrella of the product line -coca cola packages all align with a common look but keep their different qualities -similar colors and design elements each is recognizably unique Package uniformity Standardized components -broad product lines allow firms to standardize components: reducing manufacturing and inventory costs -GM using similar parts in different cars Equivalent quality -enhances brand image of company -further reduce marketing promotional expenditures on the product line extensions
• Identify the two types of costs? (fixed and variable)
Fixed Cost: sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold; rent on a building, executives salaries, and insurance Variable Cost: sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold; quantity doubled=variable cost doubles; direct labor and direct materials used in producing the product and the sales commissions that are tied directly to the quantity sold Toyota plant producing trucks, shut down, not buying tires, tires variable cost, still paying employees fixed cost Fixed cost not dependent on volume of production, variable cost depend on volume production TC = FC + VC
Idea screening and Concept test
Idea Screening -Screening new product ideas to spot good ones and drop poor ones as soon as possible. -The first idea reducing stage Concept Testing -Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. -May be presented to consumers symbolically or physically.
Categories of adopters (innovators, early adopters, early majority, late majority, laggards)
Innovators -People who want to be the first to try the innovation. -venturesome and interested in new ideas. -willing to take risks, and are often the first to develop new ideas. -Very little, if anything, needs to be done to appeal to this population. Early Adopters - people who represent opinion leaders. -enjoy leadership roles, and embrace change opportunities. -already aware of the need to change and so are very comfortable adopting new ideas. S -strategies to appeal to this population include how-to manuals and information sheets on implementation. -They do not need information to convince them to change. Early Majority -people are rarely leaders, but they do adopt new ideas before the average person. -typically need to see evidence that the innovation works before they are willing to adopt it. -Strategies to appeal to this population include success stories and evidence of the innovation's effectiveness. Late Majority -people are skeptical of change, and will only adopt an innovation after it has been tried by the majority. -Strategies to appeal to this population include information on how many other people have tried the innovation and have adopted it successfully. Laggards -people bound by tradition and very conservative. -They are very skeptical of change and are the hardest group to bring on board. -Strategies to appeal to this population include statistics, fear appeals, and pressure from people in the other adopter groups.
Manufacturer vs. Private Brands - advantages and examples of each
Manufacturer -national brands; owned and managed by manufacturer; kraft nike coca cola kitchenaid sony Why does a retailer want each brand Manufacturer skippy peanut makes for HEB private brand Private -private label/store brand; brand name owned by wholesaler or retailer -10% higher profits margins than manufacturer to the retailer An advantage of private branding to retailers: higher profit margins
Cannibalization (Segmentation Trade-Off: Synergies vs. Cannibalization)
Market cannibalization is a loss in sales caused by a company's introduction of a new product that displaces one of its own older products. The cannibalization of existing products leads to no increase in the company's market share despite sales growth for the new product. Market cannibalization can occur when a new product is similar to an existing product, and both share the same customer base. Cannibalization can also occur when a chain store or fast food outlet lose customers due to another store of the same brand opening nearby. organizational synergy: the increased customer value achieved through performing organizational functions like marketing or manufacturing more efficiently. -cannibalization: happens when an org adds new products or new chain of stores, the market segmentation trade-off asks: are the new products/chains stealing customers and sales from the older existing ones?
What is odd-even pricing?
Odd Pricing: Value -involves setting prices a few dollars or cents under an even number -charge odd price: $3.84 not priced on the dollar -emphasize value by using odd pricing Even Pricing: Quality -convey higher quality -nordstroms, saks -priced on the dollar
· What are the primary considerations when setting Price?
Price considerations: important to know -demand for product (price ceiling) -costs (esp. Variable costs)-price floor -government regulations -price of competitive offerings -organization objectives/policies -organization objectives/policies -life cycle stage -effect on channel intermediaries -prices of other products (cross elasticity) Ceiling price: customer willingness to pay Floor: variable cost In between competitors pricing, government regulations, company goals for return on investment, cross price elasticity, stage in product life cycle
Product line vs. product mix
Product line -group of closely related product items: apple's ipods -breadth: number of product lines -depth: number of individual items within a product line Product mix -all products that an organization sells
·ATAR Model of Innovation Diffusion
Profits=profit per unit sold (PxQ) Units sold=number of buying units X % aware of product X % who would try product if they can get it X % to whom product is available X repeat measure (what is the average number of units bought per person per year, including repeats X number of units repeaters buy in a year Profit per unit= revenue per unit-cost per unit
Product Life Cycle Stages (market mix strategy at each stage)
Stage 1: Introduction -trial -primary demand, shift to selective demand -skimming pricing -penetration pricing Stage 2: Growth -rapid sales growth -more competitors -repeat purchasers -new features -broad distribution Stage 3: Maturity -industry/product sales slow -profit declines -product differentiation -fewer competitors Stage 4: Decline -industry/product sales drop -environmental changes -deletion -harvesting
• 6 steps in setting price
Step 1: identify pricing objectives and constraints Step 2: estimate demand and revenue Step 3: determine cost, volume, and profit relationships Step 4: select an approximate price level Step 5: set list or quoted price Step 6: make special adjustments to list or quoted price
Most important factor in New Product success (match needs to product)
The most important factor in successful new-product introduction is a good match between the product and market needs—as the marketing concept would predict. Successful new products deliver a meaningful and perceivable benefit to a sizable number of people or organizations and are different in some meaningful way from their intended substitutes.
Diffusion (Definition)
The process by which the adoption of an innovation spreads
Target market
a group of consumers or organizations most likely to buy a company's products or services.
Keiretsu
a network of interlocking corporate affiliates -relationships highly integrated -companies have executives sitting on each other's boards -maintain dedicated trade efforts -trade with each other and often engage in joint product development, finance, and marketing activity
New Product Development Goal (Minimize the dollar losses on the failures, Learn from failures)
goal is not to reduce failure rates to 0 -too low of rate may mean that firm is playing it too safe and missing opportunities -goal is to Minimize the dollar losses on the failures Learn from the failures
Diffusion
o Determinants of rate of diffusion (complexity, observability, relative advantage, compatibility) oCategories of adopters (innovators, early adopters, early majority, late majority, laggards)
Strategic Alliances
used in foreign cultures; Mexico, China, Japan, Korea, and Europe
What is included in business marketing?
used to manufacture other products -become part of another product -aid the normal operations of an organization
