Exam #2 322 MC

Relative advantage

(4K vs. HDTV), smartwatches - the degree to which a product is perceived as superior to existing substitutes. Because it can store and play back thousands of songs, the iPod and its many variants have a clear relative advantage over the portable CD player.

Complementary branding (Co-Branding)

(Jack & Coke)

Ingredient branding (Co-Branding)

(Oreo McFlurry)

Cooperative branding (Co-Branding)

(SouthWest Visa Credit Card)

Understand how a reverse channel works

Along with marketing channels that move products downstream to end customers, retailers and manufacturers also manage channels that move products upstream, in the direction of the producer. These reverse channels enable consumers to return products to the retailer or manufacturer in the event of a product defect or at the end of the product's useful life to the consumer. The retailers or manufacturers can then recycle the product and use components to manufacture new products, or refurbish and resell the same product in a secondary market. Several large companies, including Apple, Best Buy, and Walmart, offer opportunities to recycle items ranging from plastic bags and batteries to televisions and Christmas trees. Consumers and companies alike view reverse channels as not just a way to reduce the firm's environmental impact but also as a means to gain some financial benefits as well. For example, Apple will pay consumers for their old Apple products if they qualify for resale or if their component parts are valuable for manufacturing new products.Footnote Drop and shop programs use convenience to get consumers to recycle products like batteries or cell phones during a regular trip to the store.

Understand the types of nonstore retailing (automatic vending, direct retailing, etc.)

Automatic vending entails the use of machines to offer goods for sale—for example, the soft drink, candy, or snack vending machines commonly found in public places and office buildings. Retailers are continually seeking new opportunities to sell via vending. As a result, vending machines today sell merchandise such as DVDs, digital cameras, perfumes, and even ice cream. A key aspect of their continuing success is the proliferation of cashless payment systems in response to consumers' diminishing preference for carrying cash. Automatic vending has allowed marketers to tap into a new, unlikely audience: customers seeking luxury items on the go. Vending machines in France are now being used to dispense high-quality meat, while vending machines in other countries are being used to sell gold bars, champagne, and even luxury cars. Self-service technologies (SST) comprise a form of automatic vending where services are the primary focus. Automatic teller machines, pay-at-the-pump gas stations, and movie ticket kiosks allow customers to make purchases that once required assistance from a company employee. However, as with any sort of self-service technology, automatic vending comes with failure risks due to human or technological error. Unless customers expect that they can easily recover from such errors, they may end up shopping elsewhere. Direct retailing representatives sell products door-to-door, in offices, or at in-home sales parties. Companies like Avon, Mary Kay, and The Pampered Chef have used this approach for years. Social media selling has flourished among direct sellers seeking to increase the number of products and services sold. Many direct sellers now host digital parties on social media, where people can shop from the comfort of their own homes for items ranging from do-it-yourself manicures to weight loss body wraps. Man Cave, a new home sales party developed for men, has been described as "like Mary Kay on steroids." Man Cave representatives invite male friends and family over for testosterone-fueled parties at which Man Cave products are used and Man Cave foods are eaten. Affiliates earn commissions for the sale of beer mugs, grilling tools, frozen steaks, and other Man Cave products. Direct marketing (DM) includes techniques used to elicit purchases from consumers' homes, offices, and other convenient locations. Common DM techniques include telemarketing, direct mail, and mail-order catalogs. Shoppers using these methods are less bound by traditional shopping situations. Time-strapped consumers and those who live in rural or suburban areas are most likely to be DM shoppers because they value the convenience and flexibility it provides. DM occurs in several forms: Telemarketing is a form of DM that employs outbound and inbound telephone contacts to sell directly to consumers. Telemarketing is a highly effective marketing technique; recent estimates indicate that 5,000 U.S. companies will spend over $15 billion on inbound and outbound calls by 2015.Footnote Alternatively, direct mail can be a highly efficient or highly inefficient retailing method, depending on the quality of the mailing list and the effectiveness of the mailing piece. With direct mail, marketers can precisely target their customers according to demographic, geographic, and/or psychographic characteristics. Direct mailers are becoming more sophisticated in targeting the right customers. Microtargeting based on data analytics of census data, lifestyle patterns, financial information, and past purchase and credit history allows direct mailers to pick out those most likely to buy their products.Footnote U.S. companies spend more than $46 billion every year on direct mail advertising, an increase of $1 billion over recent years. This increase was driven by rising costs in postal pricing—direct mail volumes are actually decreasing.Footnote Microtargeting is also an effective tool for online retailing. Many companies have purchased access to online search engine data, making it easier than ever to pinpoint customer preferences. A customer's online search history enables retailers to match his or her specific customer wants through targeted digital advertisements. Shop-at-home television networks such as HSN and QVC produce television shows that display merchandise to home viewers. Viewers can phone in their orders directly on toll-free lines and shop with their credit cards. The shop-at-home industry has quickly grown into a multi-billion-dollar business with a loyal customer following and high customer penetration. Online retailing, or e-tailing, enables a customer to shop over the Internet and have items delivered directly to her door. Global online shopping accounts for about $1.9 trillion annually and is expected to exceed $4 trillion by 2020. Online retailer Amazon sells more than 480 million products in the United States, including more than 30 million items in the Clothing, Shoes & Jewelry department; 24 million in Sports & Outdoors; and 60 million in Home & Kitchen.Footnote Online, interactive shopping tools and live chats substitute for the in-store interactions with salespeople and product trials that customers traditionally use to make purchase decisions. Shoppers can look at a much wider variety of products online because physical space restrictions do not exist. While shopping, customers can take their time deciding what to buy.

Understand the difference between core and supplementary services

Core: the most basic benefit the consumer is buying Supplementary: a group of services that support or enhance the core service Exhibit 12.2 illustrates these concepts for a luxury hotel. The core service is providing bedrooms for rent, which involves people processing. The supplementary services, some of which involve information processing, include food services, reservations, parking, phone, and television services.

Understand the types of in-store retailers (department stores, specialty stores, etc.)

Department stores such as JCPenney and Macy's carry a wide range of products and specialty goods, including apparel, cosmetics, housewares, electronics, and sometimes furniture. Each department acts as a separate profit center, but central management sets policies about pricing and the types of merchandise carried. Specialty stores typically carry a deeper but narrower assortment of merchandise within a single category of interest. The specialized knowledge of their salesclerks allows for more attentive customer service. The Children's Place, Williams-Sonoma, and Foot Locker are well-known specialty retailers. Supermarkets are large, departmentalized, self-service retailers that specialize in food and some nonfood items. Some conventional supermarkets are being replaced by much larger superstores. Superstores offer one-stop shopping for food and nonfood needs, as well as services such as pharmacists, florists, salad bars, photo processing kiosks, and banking centers. Drugstores primarily provide pharmacy-related products and services, but many also carry an extensive selection of cosmetics, health and beauty aids, seasonal merchandise, greeting cards, toys, and some non-refrigerated convenience foods. As other retailer types have begun to add pharmacies and direct mail prescription services have become more popular, drugstores have competed by adding more services such as 24-hour drive-through windows and low-cost health clinics staffed by nurse practitioners. A convenience store resembles a miniature supermarket but carries a much more limited line of high-turnover convenience goods. These self-service stores are typically located near residential areas and offer exactly what their name implies: convenient locations, long hours, and fast service in exchange for premium prices. In exchange for higher prices, however, customers are beginning to demand more from convenience store management, such as higher quality food and lower prices on staple items such as gasoline and milk. Discount stores compete on the basis of low prices, high turnover, and high volume. Discounters can be classified into several major categories: Full-line discount stores such as Walmart offer consumers very limited service and carry a vast assortment of well-known, nationally branded goods such as housewares, toys, automotive parts, hardware, sporting goods, garden items, and clothing. Supercenters extend the full-line concept to include groceries and a variety of services, such as pharmacies, dry cleaning, portrait studios, photo finishing, hair salons, optical shops, and restaurants. For supercenter operators such as Target, customers are drawn in by food but end up purchasing other items from the full-line discount stock. Single-line specialty discount stores such as Foot Locker offer a nearly complete selection of merchandise within a single category and use self-service, discount prices, high volume, and high turnover to their advantage. A category killer such as Best Buy is a specialty discount store that heavily dominates its narrow merchandise segment. A warehouse club sells a limited selection of brand name appliances, household items, and groceries. These are sold in bulk from warehouse outlets on a cash-and-carry basis to members only. Currently, the leading stores in this category are Sam's Club, Costco, and BJ's Wholesale Club. Off-price retailers such as TJ Maxx, Ross, and Marshall's sell at prices 25 percent or more below traditional department store prices because they buy inventory with cash and they don't require return privileges. These stores often sell manufacturers' overruns, irregular merchandise, and/or overstocks that they purchase at or below cost. A factory outlet is an off-price retailer that is owned and operated by a single manufacturer and carries one line of merchandise—its own. Manufacturers can realize higher profit margins using factory outlets than they would by disposing of the goods through independent wholesalers and retailers. Used goods retailers turn customers into suppliers: pre-owned items bought back from customers are resold to different customers. Used goods retailers can be either brick-and-mortar locations (such as Goodwill stores) or electronic marketplaces (such as thredUP). Restaurants provide both tangible products—food and drink—and valuable services—food preparation and presentation. Most restaurants are also specialty retailers in that they concentrate their menu offerings on a distinctive type of cuisine—for example, Olive Garden Italian restaurants and Starbucks coffeehouses.

Understand why marketing costs are high in the introduction stage of the product life cycle

Due to the high cost of advertising and low initial sales, it is possible that you won't make immediate profits or you may even find that the product is producing negative profits. However, you should make up for this with increasing revenue generated at the growth and maturity stage of a product life cycle.

Early Adopters

Early adopters are the next 13.5 percent to adopt the product. Although early adopters are not the very first, they do adopt early in the product's life cycle. Compared to innovators, they rely much more on group norms and values. They are also more oriented to the local community, in contrast to the innovators' worldly outlook. Early adopters are more likely than innovators to be opinion leaders because of their closer affiliation with groups. Early adopters are a new product's best friends. Because viral, buzz, and word-of-mouth advertising is on the rise, marketers focus a lot of attention identifying the group that begins the viral marketing chain—the influencers. Part of the challenge is that this group of customers is distinguished not by demographics, but by behavior. Influencers come from all age, gender, and income groups, and they do not use media any differently than other users who are considered followers. The characteristic influencers share is their desire to talk to others about their experiences with goods and services. A desire to earn the respect of others is a dominant characteristic among early adopters.

Innovators

Innovators are the first 2.5 percent of all those who adopt the product. Innovators are eager to try new ideas and products, almost as an obsession. In addition to having higher incomes, they are more worldly and more active outside their community than noninnovators. They rely less on group norms and are more self-confident. Because they are well educated, they are more likely to get their information from scientific sources and experts. Innovators are characterized as being venturesome.

Understand the three levels of distribution intensity (intensive distribution, selective distribution, exclusive distribution)

Intensive distribution is a form of distribution aimed at maximum market coverage. Here, the manufacturer tries to have the product available in every outlet where potential customers might want to buy it. If buyers are unwilling to search for a product, it must be made very accessible to buyers. The next level of distribution, selective distribution, is achieved by screening dealers and retailers to eliminate all but a few in any single area. Because only a few are chosen, the consumer must seek out the product. For example, HBO selectively distributes its popular television shows through a series of its own subscription-based channels (HBO, HBO on Demand, and HBO Go for mobile devices) and sells subscriptions or single episodes through Apple, Amazon.com, and Sony's online stores but does not stream them through Netflix or Hulu Plus. The most restrictive form of market coverage is exclusive distribution, which entails only one or a few dealers within a given area. Because buyers may have to search or travel extensively to buy the product, exclusive distribution is usually confined to consumer specialty goods, a few shopping goods, and major industrial equipment. Products such as Rolls-Royce automobiles, Chris-Craft powerboats, and Pettibone tower cranes are distributed under exclusive arrangements.

Understand the logistics function performed by intermediaries

Intermediaries in a channel negotiate with one another, facilitate transfer of ownership for finished goods between buyers and sellers, and physically move products from the producer toward the final consumer. The most prominent difference separating intermediaries is whether they take title to the product. Taking title means they actually own the merchandise and control the terms of the sale—for example, price and delivery date. Retailers and merchant wholesalers are examples of intermediaries that take title to products in the marketing channel and resell them. Merchant wholesalers are organizations that facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers. All merchant wholesalers take title to the goods they sell, and most of them operate one or more warehouses where they receive finished goods, store them, and later reship them to retailers, manufacturers, and institutional clients. Since wholesalers do not dramatically alter the form of a good or sell it directly to the consumer, their value hinges on their providing time and place utility and contact efficiency to retailers. ----------------------------------- Other intermediaries do not take title to goods and services they market, but do facilitate exchanges of ownership between sellers and buyers. Agents and brokers facilitate the sales of products downstream by representing the interests of retailers, wholesalers, and manufacturers to potential customers. Unlike merchant wholesalers, agents or brokers only facilitate sales and generally have little input into the terms of the sale. They do, however, get a fee or commission based on sales volume. For example, grocery chains often employ the services of food brokers, who provide expertise for a range of products within a category. The broker facilitates the sale of many different manufacturers' products to the grocery chain by marketing the producers' stocks, but the broker never actually takes ownership of any food products.

Understand how the strategy of mass customization works

Mass customization: a strategy that uses technology to deliver customized services on a mass basis Mass customization uses technology to deliver customized services on a mass basis, which results in giving each customer whatever she or he asks for. To mass-customize coffee drinks, Starbucks uses different kinds of coffee, dairy, flavor shots, and temperature levels, resulting in a diverse array of options for customers. Aiding the mass customization process, Starbuck's uses a machine called a Clover, which allows baristas to customize brew times down to the second, specify how much exposure the water has to the coffee grounds, and dial in a precise temperature.

Understand the types of channel intermediaries (merchant wholesalers, agents and brokers, and retailers)

Merchant wholesalers are organizations that facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers. All merchant wholesalers take title to the goods they sell, and most of them operate one or more warehouses where they receive finished goods, store them, and later reship them to retailers, manufacturers, and institutional clients. ----------------------------------- Other intermediaries do not take title to goods and services they market, but do facilitate exchanges of ownership between sellers and buyers. Agents and brokers facilitate the sales of products downstream by representing the interests of retailers, wholesalers, and manufacturers to potential customers. Unlike merchant wholesalers, agents or brokers only facilitate sales and generally have little input into the terms of the sale. They do, however, get a fee or commission based on sales volume. For example, grocery chains often employ the services of food brokers, who provide expertise for a range of products within a category. The broker facilitates the sale of many different manufacturers' products to the grocery chain by marketing the producers' stocks, but the broker never actually takes ownership of any food products. ----------------------------------- Retailers are those firms in the channel that sell directly to consumers as their primary function. A critical role fulfilled by retailers within the marketing channel is that they provide contact efficiency for consumers. Suppose you had to buy your milk at a dairy, your meat at a stockyard, and so forth. You would spend a great deal of time, money, and energy just shopping for just a few groceries. Retailers simplify distribution by reducing the number of transactions required by consumers, and by making an assortment of goods available in one location. Consider the example illustrated in Exhibit 13.1. Four consumers each want to buy a tablet computer. Without a retail intermediary like Best Buy, tablet manufacturers Samsung, Microsoft, Apple, and Lenovo would each have to make four contacts to reach the four consumers who are in the target market, for a total of 20 transactions. But when Best Buy acts as an intermediary between the producer and consumers, each producer needs to make only one contact, reducing the number to nine transactions. This benefit to customers accrues whether the retailer operates in a physical store location or online format.

Understand the difference between people-processing and possession- processing services

People processing takes place when the service is directed at a customer. Examples are transportation services and health care. ----------------------------------- Possession processing occurs when the service is directed at customers' physical possessions. Examples are lawn care, dry cleaning, and veterinary services. ----------------------------------- For example, people-processing services require customers to enter the service factory, which is a physical location, such as an aircraft, a physician's office, or a hair salon. In contrast, possession-processing services typically do not require the presence of the customer in the service factory.

Understand the three pricing objectives (revenue-oriented, operations-oriented, and patronage-oriented) marketers can set when pricing services

Revenue-oriented pricing focuses on maximizing the surplus of income over costs. This is the same approach that many manufacturing companies use. A limitation of this approach is that determining costs can be difficult for many services. Operations-oriented pricing seeks to match supply and demand by varying prices. For example, matching hotel demand to the number of available rooms can be achieved by raising prices at peak times and decreasing them during slow times. Patronage-oriented pricing tries to maximize the number of customers using the service. Thus, prices vary with different market segments' ability to pay, and methods of payment (such as credit) are offered that increase the likelihood of a purchase. Senior citizen and student discounts at movie theaters and restaurants are examples of patronage-oriented pricing.

Laggards

The final 16 percent to adopt are called laggards. Like innovators, laggards do not rely on group norms. Their independence is rooted in their ties to tradition. Thus, the past heavily influences their decisions. By the time laggards adopt an innovation, it has probably been outmoded and replaced by something else. For example, they may have bought their first color television set after flat screen televisions were already widely diffused. Laggards have the longest adoption time and the lowest socioeconomic status. They tend to be suspicious of new products and alienated from a rapidly advancing society. The dominant value of laggards is tradition. Marketers typically ignore laggards, who do not seem to be motivated by advertising or personal selling and are virtually impossible to reach online. Note that some product categories may never be adopted by 100 percent of the population. The adopter categories refer to all of those who will eventually adopt a product, not the entire population.

Late Majority

The late majority is the next 34 percent to adopt. The late majority adopts a new product because most of their friends have already adopted it. Because they also rely on group norms, their adoption stems from pressure to conform. This group tends to be older and below average in income and education. They depend mainly on word-of-mouth communication rather than on the mass media. The dominant characteristic of the late majority is skepticism.

Early Majority

The next 34 percent to adopt are called the early majority. The early majority weighs the pros and cons before adopting a new product. They are likely to collect more information and evaluate more brands than early adopters, thereby extending the adoption process. They rely on the group for information but are unlikely to be opinion leaders themselves. Instead, they tend to be opinion leaders' friends and neighbors. Consumers trust positive word-of-mouth reviews from friends, family, and peers.Footnote According to Nielsen research, 84 percent of consumers believe that recommendations from friends and family are the most trustworthy source of product information. Meanwhile, 68 percent of consumer trust online reviews.Footnote Product discussions often drive Millennial conversations, so word-of-mouth marketing is particularly powerful among this demographic. In an effort to appeal to Millennials and encourage them to discuss its products on social media, Coca-Cola recently launched a campaign that featured the hashtag #ShareaCoke on its cans. The campaign was a huge success for the brand, and the hashtag was used more than 600,000 times on Instagram.Footnote While word-of-mouth marketing is important to Millennials, actually getting them to discuss products concretely can be difficult. According to Eric Pakurar, executive director and head of strategy at G2 USA, "They kind of ping-pong back and forth. They do a little research, then talk to their friends, and then do a little more research and check back with their friends and family."Footnote

Compatibility

When Sony made the PS4, included a blu-ray players - the degree to which the new product is consistent with existing values and product knowledge, past experiences, and current needs. Incompatible products diffuse more slowly than compatible products.

Specialty Consumer Products

a particular item for which consumers search extensively and are very reluctant to accept substitutes

Shopping Consumer Products

a product that requires comparison shopping because it is usually more expensive than a convenience product and is found in fewer stores

Unsought Consumer Products

a product unknown to the potential buyer or a known product that the buyer does not actively seek

Convenience Consumer Products

a relatively inexpensive item that merits little shopping effort

Individual branding

different brand names for different products in your line Procter & Gamble - using different brand names for different products

Product line width

how many product lines your company offers

Product line depth

how many products are in a product line

Trialability

if it can be tried, it can be adopted faster - the degree to which a product can be tried on a limited basis. It is much easier to try a new toothpaste or breakfast cereal, for example, than a new personal computer.

Observability

more observable= faster to adopt - the degree to which the benefits or other results of using the product can be observed by others and communicated to target customers. For instance, fashion items and automobiles are highly visible and more observable than personal-care items.

Family branding

same brand for different products; best example: Black & Decker (tools & toaster) - marketing several different products under the same brand name

Complexity

the degree of difficulty involved in understanding and using a new product. The more complex the product, the slower is its diffusion.