final exam marketing

fixed and variable costs

A product's total cost is composed of total variable costs and total fixed costs. Variable costs, such as raw materials and labor costs, change with the level of production, and fixed costs, such as lease payments, administrative staffing, and insurance costs, remain stable at any production level within a certain range. Marketers typically seek pricing that covers the total costs, not just variable costs alone. Let's first examine the possible fixed costs associated with running a fitness facility. First, you would likely pay a monthly lease. You would need insurance coverage to protect against damage from a storm or fire, plus liability insurance to cover any claims associated with members getting hurt. You decided not to purchase equipment outright, so you leased weights and cardio equipment, and will have a monthly payment for that. You would pay for electricity, telephone, Internet, and other utilities on a monthly basis. You will also have salaries for the staff who run the facility, no matter how many members come in each day. These are all fixed or operating costs, because they are necessary for the daily functioning of the business and aren't directly related to the number of customers you have. In fact, these expenses have to be paid even if you have no members at all. Variable costs, on the other hand, are those which change as levels of sales or production increase or decrease. In manufacturing, these costs typically relate to raw materials used in the product and direct labor costs for production. For businesses that purchase from manufacturers or wholesalers, variable costs are the per unit costs for the items they buy. At your fitness facility, if there is no demand for you to sell protein powder, then you won't have any expenses associated with it. But if 100 members per month want to buy protein powder, you'll need to purchase 100 bottles from your wholesaler. If 200 members want to buy, then you'll need to purchase 200 bottles. There is a direct link between your sales levels and the expenses related to those sales. Your premium classes are another variable expense. The instructor for your premium bootcamp class charges $50 per class. If you don't have any members who want that class, you won't need to pay that $50 instructor charge. But if you have enough members to put that class on 10 times each week, you'll need to pay the instructor $500 ($50 x 10) per week to run the class. However, it's important to note that while variable costs may rise as production or sales increase, it's possible that the per unit costs associated with the variable costs could decline due to production efficiencies. For the bootcamp example, the $500 you are paying for the instructor each week might initially serve 100 total members. This equates to a cost of $5 per member each week. However, if the popularity of the class grows to 200 members (which is your maximum weekly capacity for these classes), this drops your cost per member to $2.50. Cost efficiencies like this are common in manufacturing, especially printing. Due to costs associated with setting up a production run, printing 500 brochures might cost $500, resulting in a per unit cost of $1. However, running 1,000 brochures might cost $600—just $100 more—resulting in a per unit cost of 60 cents.

Merchandising Strategy

A retailer's merchandising strategy guides decisions regarding the items it will offer. A retailer must decide on general merchandise categories, product lines, specific items within lines, and the depth and width of its assortments. One retailer might sell only one category of merchandise, while others might sell in a variety of categories. In its effort to sell "all things beauty," Ulta sells well-known brands like Maybelline and Cover Girl as well as high-end cosmetics and professional hair care products. Store associates are knowledgeable about the products Ulta sells and can answer questions and make suggestions to customers. In contrast, Target also carries well-known cosmetic brands, but sells clothing, electronics, groceries, and other items as well.

Pricing Using Margin

A second pricing method is margin or gross margin percentage, which is the portion of sales revenue left over after paying product costs. Margin is also called gross profit. Utilizing the margin approach enables firms to price their products to realize a desired percentage of profit. Like markup percentages, target margins are often based on industry norms, historical markup percentages used by the business, or certain profitability objectives. To calculate the sales price using margin, divide the cost by one minus the target margin percentage. Suppose a shoe retailer wants to make 35% margin, or gross profit, on all pairs they sell. One pair of women's dress shoes costs them $100. They could calculate their sales price as follows:

Competition Objectives

A second set of pricing objectives is driven mainly by competition. The first type of competitive objective is to maintain pricing parity. Pricing is a highly visible component of a firm's marketing mix and an easy tool for obtaining a differential advantage over competitors. However, when competitors continually undercut each other to gain that advantage, it can lead to a price war that damages all companies involved. Many firms attempt to promote stable prices by meeting competitors' prices, but not drastically undercutting them. This objective is commonly seen in the airline industry, where one airline will put a particular flight route on sale, only to have their price immediately matched by competitors who fly that same route. It's also commonly seen in fiercely competitive categories dominated by two market leaders whose strategy has shifted from gaining market share to maintaining market share. Examples are Coca-Cola and Pepsi in the soda category, and McDonald's and Burger King in the fast-food category. Value pricing is another competitive pricing objective that incorporates other elements of the marketing mix. In value pricing, a firm emphasizes the benefits a product provides in comparison to the price and quality levels of competing offerings. By emphasizing overall product value, firms can avoid direct price comparisons and even increase profits. Trader Joe's—a rapidly growing grocery chain that began in the Los Angeles area and has since expanded nationwide—uses value pricing for the more than 2,000 upscale food products it develops or imports. It sells wines, cheeses, meats, fish, and other unique gourmet items at slightly higher prices than you might find for similar items at a regular grocery store, but can do so by emphasizing quality and sustainability. For example, Trader Joe's tuna is caught without environmentally dangerous nets, its dried apricots contain no sulfur preservatives, and its peanut butter is organic.

agents

A third-party person who represents the producers to wholesalers and retailers.

Ads Based on Sex

Ads with sex-based appeals immediately attract attention. Advertisements for Victoria's Secret lingerie and clothing are designed this way. While many people accept these and other ads, they do not appeal to everyone. In other cultures, sex-based ads may cause offense. Marketers using sex-based appeals know they walk a fine line between what is acceptable to the consumers they want to reach and what is not.

Advertising

Advertising is paid, nonpersonal communication through various mass media, such as television, radio, magazines, or online. It is a major promotional mix component for thousands of organizations—total ad spending in the United States is estimated at more than $200 billion; digital ad spending alone is estimated at more than $72 billion. Mass consumption and geographically dispersed markets make advertising particularly appropriate for marketing goods and services aimed at large audiences likely to respond to the same promotional messages. Advertising campaigns are increasingly augmented by two related practices: product placement and sponsorship. In product placement, marketers pay a fee to display a product prominently in a film or TV show. Today, hundreds of products appear in movies and on television shows, and the fees charged for these placements have soared. Recently, product placement even became the reason for making a movie—as in the case of The LEGO Movie. In sponsorship, an organization supports an event or activity with money or in-kind resources in exchange for a direct association with that event or activity. The sponsor purchases access to the activity's audience and the image associated with the activity. Today's sponsorships are most prevalent in sports—LPGA events, NASCAR, the World Cup, the Super Bowl, NCAA basketball, and more. Companies may also sponsor reading and child-care programs, concerts, art exhibits, and humanitarian programs. In the case of naming rights of venues like sports arenas, the name serves as a perpetual advertisement. For example, Dallas Cowboys fans stream into AT&T Stadium. In some cities, sponsors are now getting access to public facilities; Los Angeles County offers naming rights to its rail, bus, and transit stations, while New Orleans courts sponsors for its city parks.

modes of transportation - Pipelines

Although the pipeline industry ranks third after railroads and motor carriers in ton-miles transported, many people are unaware that it even exists. More than 2.5 million miles of pipelines crisscross the United States transporting energy products—enough to circle the planet 100 times. The pipelines are operated by about 3,000 large and small firms. Oil pipelines carry two types of commodities: crude (unprocessed) oil and refined products, such as gasoline, jet fuel, and kerosene. Although pipelines offer low maintenance and dependable methods of transportation, a number of characteristics limit their applications. They have fewer locations than water carriers, and they can accommodate shipments of only a small number of products. Finally, pipelines represent a relatively slow method of transportation; liquids travel through pipelines at an average speed of only three to four miles per hour.

Classification by Shopping Effort

Another classification system is based on the reasons consumers shop at particular retail outlets. This approach categorizes stores as convenience, shopping, or specialty retailers. Convenience retailers focus their marketing appeals on accessible locations, extended store hours, rapid checkout service, and adequate parking facilities. Local food stores, gasoline stations, and dry cleaners fit this category. Pennsylvania-based Wawa convenience stores offer customers various items, including gasoline and private-label breakfast treats, ready-to-eat salads, and seasonal fresh fruit. Shopping stores typically include furniture stores such as Ethan Allen, appliance retailers, clothing outlets, and sporting goods stores. Consumers usually compare prices, assortments, and quality levels at competing outlets before making purchase decisions. Consequently, managers of shopping stores attempt to differentiate their outlets through advertising, in-store displays, well-trained and knowledgeable salespeople, and appropriate merchandise assortments. Specialty retailers combine carefully defined product lines, services, and reputations in attempts to persuade consumers to expend considerable effort to shop at their stores. Examples include Macy's, Sephora, and Footlocker.

Direct Marketing

Another element in a firm's integrated promotional mix is direct marketing, the use of direct communication to generate a response in the form of an order, a request for further information (lead generation), or a visit to a place of business to purchase specific goods or services (traffic generation). While many people equate direct marketing with direct mail, this important promotional category also includes direct-response advertising and infomercials on television, direct-response print advertising, and direct-response online advertising.

sales process relates to the AIDA concept

As discussed in Chapter 17, the AIDA concept (attention, interest, desire, action) describes the steps consumers pass through when reaching a purchase decision. Marketers must first ensure the promotional message gains the potential consumer's attention. They then seek to stimulate interest in the good or service. Next, marketers must spark desire by convincing the would-be buyer of the product's ability to satisfy his or her needs. Finally, marketing communication—whether a sales presentation, advertisement, or sales promotion technique—attempts to produce action in the form of a purchase. These steps in the selling process can and should be aligned with the AIDA concept to be in sync with the consumer's decision process (see Exhibit 18.2). Once a sales prospect has been qualified, an attempt is made to secure his or her attention. The presentation and demonstration steps are designed to generate interest and desire. Successful handling of buyer objections should prompt further desire. Action occurs at the close of the sale. Salespeople modify the steps in the sales process to match their customers' buying processes. A consumer who eagerly looks forward to the local baseball team's new season each year needs no presentation except for details about scheduled games, special events, and pricing. But the same consumer might expect to test drive new cars and receive a demonstration from an auto dealer when looking for a new car, or might appreciate a presentation that compares different models when evaluating the purchase of a new television.

Lower Cost of Logistics

By using intermediaries, a manufacturer does not need to incur the cost of buying or leasing a network of its own warehouses to inventory product, or operate its own fleet of vehicles to deliver product. Instead, it can partner with a logistics company to ship product or a wholesaler who can inventory and deliver product to retailers or end-users.

Categorizing Retailers

Classification by Form of Ownership, Classification by Form of Ownership, Classification by Services Provided, Classification by Product Lines,

Volume or Sales Objectives

Companies may price to drive a particular amount of sales volume. This volume could relate to production capacity, distribution opportunities, profit requirements, or comparisons with previous year sales. Consider the prices charged for various makes and models of automobiles. Ford may have utilized volume or sales objectives when pricing its popular Fiesta model at $13,500, which created a 20% increase in sales compared to the previous year. Presumably, the list price is sufficient to cover the costs of production, marketing, and distribution—plus provides an acceptable level of profitability to both Ford and the dealership who sells the car. Another volume-related pricing objective relates to market share—specifically the practice of reducing prices, at least temporarily, to gain market share. Gaining market share is often pursued as a goal since research supports a positive relationship between a firm's market share and profitability. Using price cuts alone to gain market share can be risky though, because customers can become dependent on them. Procter & Gamble experienced poor sales growth in some markets after increasing prices on some products to better cover their costs. In the hope of winning back some of the market share it lost, the company announced it would roll back those price increases. Often companies are better off utilizing all aspects of the marketing mix to maximize market share, with temporary price cuts being just one tactic for winning more customers.

Competition and Pricing Decisions

Competition also affects a firm's pricing strategy, perhaps even more than cost. Suppose LG can produce a TV for $500, which normally would represent the price floor for a product. If all of LG's competitors can offer a similar TV for $300, LG would have a tough time selling any of their TV's for $500 or more. In this case, LG would need to either cut costs so they could price competitively, or enhance features to differentiate their product and justify the higher price. Frequently, companies do both. In the wireless phone industry, the three major carriers have fairly similar pricing and data plans. However, they differentiate themselves in other ways, such as by the conditions they put on data use, charges for additional lines, and network speed. Exhibit 13.1 summarizes the price differences and details offered by various cell phone providers. Some companies may seek to match or beat competitor prices to remain attractive to consumers. Consider the competitive landscape of the fast-food market, where McDonald's, Burger King, and Taco Bell constantly battle it out for market share. While each maintains a full menu of items at "regular prices" they also offer value menus to attract price conscious customers. The use of value menus has increased over the years as these companies seek to remain competitive. However, value pricing sometimes creates other difficulties in that restaurant chains can struggle to remain profitable when prices are barely above production costs. In response, some of these restaurants have actually launched premium products to differentiate themselves and command higher prices. The launch of the artisan grilled chicken sandwich at McDonald's is an example of this strategy.

Stimulate Demand

Consumers may be aware of a product but uninterested in buying it until they know how it stacks up against competition. In this situation, the objective of promotion is to stimulate demand by differentiating the product from alternatives. For Special Sweets, advertising or other promotional efforts would highlight the high quality and great taste of the products. This approach is known as building selective demand- demand for a specific brand based on attributes important to potential purchasers. Promotion may also seek to build demand for a product category, not for a particular brand within that category. Known as primary demand stimulation, this approach is used when a category is new and unfamiliar to prospective buyers. For example, instead of concentrating on its brand, Special Sweets could emphasize the health and environmental sustainability of organic chocolate as compared to mass produced chocolates.

Pricing Using Markup

Cost-based pricing is using the product cost plus a target markup percentage to calculate the sales price. Because the markup percentage is related to cost, this is called cost-based pricing. For cost, a manufacturer would use their production cost, which is materials plus production labor. A retailer would use their wholesale cost of purchasing from a manufacturer or distributor. The desired markup percentage is often based on industry norms, historical markup percentages used by the business, or certain profitability objectives. To calculate the sales price using markup, multiply the cost by one plus the target markup percentage. A California winery may determine that the cost associated with one bottle of merlot wine is $10 and the target markup for this type of product is 40%. The sales price would be calculated as follows:

Digital Media

Digital media—especially websites and social media sites—are being used more and more by advertisers. Keyword ads dominate spending on online advertising. In a recent year, Google's ad revenues totaled nearly $80 billion, and many firms are increasing their interactive advertising budgets. In a recent year, mobile advertising revenues in the United States exceeded $20 billion and are expected to continue their explosive growth. Through emerging technology known as augmented reality, virtual imaging can be incorporated into real-time video on a mobile phone, creating an exciting new experience for cell phone users. Pokemon Go is an example of augmented reality, and this technology may offer benefits to local advertisers, such as restaurants and retail stores. While advertising on digital media can be highly targeted, costs-per-click can be high and it can sometimes be difficult to measure return on investment.

Four Distribution channels

Direct Channel, Channels using marketing intermediaries (Retailers, Wholesalers, Agents), Dual Distribution, Reverse channels

five basic types of direct marketing and nonstore (online) retailing

Direct Mail, Direct Selling, Online Retailing, Direct-Response Retailing, Automatic Merchandising

Direct Mail

Direct mail is a form of direct marketing that comes in many forms: sales letters, postcards, brochures, booklets, catalogs, and DVDs. Both not-for-profit and profit-seeking organizations make extensive use of this distribution channel. Direct mail offers several advantages, such as the ability to select a narrow target market, achieve intensive coverage, send messages quickly, choose from various formats, provide complete information, and personalize each mailing piece. Response rates are measurable and higher than other types of advertising. In addition, direct mailings stand alone and do not compete for attention with magazine articles and television programs. On the other hand, the per-reader cost of direct mail is high, effectiveness depends on the quality of the mailing list, and some consumers object to direct mail, considering it "junk mail." Marketers are making a shift from direct mail to digital advertisements. In 2015, direct mail volume fell with marketers spending $47 billion. Overall digital ad spending jumped 19% to $59 billion and, in 2016, passed television ad spending with over $75 billion.

Direct Mail

Direct-mail advertising includes sales letters, postcards, leaflets, folders, booklets, and catalogs. This medium accounted for nearly $50 billion of spending in a recent year. Its advantages come from direct mail's ability to segment large numbers of prospective customers into narrow market niches. In addition, it offers speed, flexibility, detailed information, and personalization. Disadvantages of direct mail include high production costs, reliance on the quality of mailing lists, and some consumers' resistance to it. A particular downside to direct mail is clutter, which explains why it is commonly derided as "junk mail." So much advertising material is stuffed into people's mailboxes every day that the task of grabbing consumers' attention and evoking interest can be daunting to direct-mail advertisers.

Direct-Response Retailing

Direct-response retailing is often a hybrid of physical retail, online retail, and direct mail promotion. Customers of a direct-response retailer can order merchandise by mail or telephone, by visiting a mail-order desk in a retail store, or online. The retailer then ships the merchandise to the customer's home or to a local retail store for pickup. Many direct-response retailers rely on direct mail, such as catalogs, to create telephone and mail-order sales and to promote online purchases of products featured in the catalogs. Some firms, such as Lillian Vernon, make almost all their sales through catalog orders. Mail-order sales have grown at about twice the rate of retail store sales in recent years. Direct-response retailers are increasingly interacting with customers online. With no retail locations, L.L. Bean was historically a direct mail company that relied entirely on their mailed catalogs to generate phone and mail-in sales. Now the catalog is more likely to drive sales at their e-commerce site.

types of appeals used by advertisers

Fear Appeals, Humor in Advertising Messages, Ads Based on Sex, Celebrity Testimonials, Comparative Advertising

field selling

Field selling involves making sales calls on prospective and existing customers at their businesses or homes. Field sales of large software installations or large industrial installations, such as Airbus's A380 double-deck airliner, often require considerable effort and technical expertise. Largely because it involves travel, field selling is typically more expensive than other selling options. In fairly routine field selling situations, such as calling on established customers, the salesperson basically acts as an order-taker. Consider the PepsiCo route delivery salesperson who ensures that convenience stores, groceries, and large box stores have Pepsi products. They deliver product, install point-of-sale materials, and ensure the retailer has appropriate inventory. But more complex situations may involve weeks or months of preparation, formal presentations, and many hours of post-sales call work. According to its Fact Book, Grainger uses multiple channels, including dedicated sales account executives to serve customers. The field sales representatives typically interact with larger customers who are relationship driven, have more complex needs, operate multiple locations, and are interested in working with fewer suppliers. Grainger believes their multi-pronged approach enables them to effectively and efficiently reach a broad group of customers from small accounts to large, multi-national companies.

Classification by Product Lines

Grouping retailers by product lines produces three major categories: specialty stores, general-merchandise retailers, and food retailers. A specialty store typically focuses on a single product category. However, it stocks this category in considerable depth or variety. Specialty stores include a wide range of retail outlets, including fish markets, health food stores, shoe stores, and bakeries. Although some specialty stores are chain outlets, many are independent, small-scale operations. They represent perhaps the greatest concentration of independent retailers who develop expertise in one product area and provide narrow lines of products for their local markets. Specialty stores should not be confused with specialty products. Specialty stores often carry convenience and shopping goods. The label specialty reflects the practice of handling a specific, narrow category of merchandise, whether it be low-priced goods or luxury items. For example, Office Depot is a specialty store that offers a wide selection of office-related needs such as copy paper, printer ink, writing utensils, and office furniture. Gloria Jean's Coffees sells whole-bean coffees, beverages, and gifts. IKEA sells an extensive variety of home furnishings and housewares. General merchandise retailers carry a wide variety of product lines stocked in some depth, distinguish themselves from specialty retailers by the large number of product lines they carry. Target and Walmart are examples of general merchandise retailers. This category also includes variety stores, department stores, and mass merchandisers, such as discount houses, and off-price retailers. Food retailers and supermarkets are a unique category of retailer that represents a mix between specialty and general merchandise. While they mainly sell a wide variety of items in the grocery category, many food retailers also sell merchandise in other categories, such as floral, office supplies, and medicine. This category is differentiated by size, variety, assortment, service levels, and other characteristics. Whole Foods is a higher-end food retailer selling a variety of natural and organic items, while Fred Meyer is a supermarket focused on groceries, but also selling electronics, and even hardware. Conventional supermarkets, limited assortment supermarkets, and warehouse clubs, like Costco, are included in this category.

Retailers

Have open stores, they hire sales staff

roles of cross-promotion

In recent years, marketers have begun to combine their promotions with other companies using a technique called cross-promotion, in which marketing partners share the cost of a promotional campaign that meets their mutual needs. Often cross-promotion is utilized for similar or complementary products, but not always. For example, in a partnership between Nestle's Kit Kat and Google's Android, 50 million Kit Kat bars were created with Android's branding; candy buyers got a chance to win a Nexus Tablet or Google Play gift cards. Marketers realize these joint efforts between established brands provide greater benefits in return for both organizations; investments of time and money on such promotions will become increasingly important to many partners' growth prospects.

Fear Appeals

In recent years, marketers have relied increasingly on fear appeals. Ads for insurance, autos, and even batteries, imply that the wrong buying decision could lead to property loss, injury, or other bad outcomes. Recent Allstate commercials feature "Mayhem," a wild-eyed character who describes the adverse consequences of being uninsured. Fear appeals can backfire when viewers practice selective perception and tune out statements they perceive as too strong, implausible, tasteless, or simply overdone. For example, prescription drug advertising based on people's fear of illness has become so pervasive that some consumer researchers predict a consumer backlash.

Encourage Product Trial

Let's say prospective customers are aware of a product and favorably impressed by what it offers compared to the competition, but they're still not buying. What's wrong? Often the problem is inertia: without an incentive to change their routines, consumers won't take the time or risk involved in trying something different. The objective of promotion in these situations is to encourage product trial by making it easy and reducing risk. For example, to attract new readers, newspapers like the New York Times and Wall Street Journal offer weekly or monthly access to their websites on a trial basis. The trial costs nothing and is not intrusive; dissatisfied readers can simply ignore the publications. For Special Sweets, giving away free samples outside the store or offering half-price coupons on your website may be effective ways to achieve this objective. You might also run an online contest: anyone who posts a funny chocolate-eating photo on the store's Facebook page gets the chance to win a year's supply.

Potential Demand and Pricing Decisions

Marketers should also understand how price might affect a consumer's willingness to buy the product. For most products, as the price increases fewer consumers are willing to buy the product. Out of a group of 100 college students, most might be willing to buy a mobile phone at $200, but a smaller group would be willing to buy one at $600 if it had better features and was higher quality. However, very few-if any-would be willing to buy a phone at $10,000 no matter what features it had. If costs represent the price floor, the price point at which no more customers are willing to buy represents the price ceiling. The relationship between price and potential demand can be driven by many factors and varies over time. For example, consider the savvy umbrella salespeople who appear seemingly out of nowhere on the streets of New York when a rain storm hits. How much would you be willing to pay for an umbrella during a rain storm? Probably a lot more than on a sunny day, when it's hard to sell an umbrella at any price. When gas is less expensive, sales of hybrid cars usually slow down because they cost more than conventional gas-fueled cars. However, when gas prices spike, more consumers are willing to pay the higher price for hybrid cars because the increased fuel efficiency saves them money overall.

Competitive Factors

Marketers sometimes choose distribution channels to either avoid competitors or compete with them head-to-head. Sometimes businesses will only work with distributors who offer exclusivity, meaning they will not carry a competitor's line. In many categories, this is not possible, as wholesalers often carry most major brands so that they can provide the best assortment to their retail customers. Businesses that explore new distribution channels must be careful to avoid upsetting their channel intermediaries. Distribution channels work smoothly only when members cooperate in well-organized efforts to achieve maximum operating efficiencies. Two types of conflict—horizontal and vertical—can hinder the normal functioning of a distribution channel.

Newspaper

Newspaper advertising as a whole is losing ground to alternative media vehicles. However, it continues to be strong in local markets and is estimated to account for $16.2 billion in annual advertising expenditures. Despite the downward trend, newspaper innovations like interactive websites, virtual reality reporting, (which enables readers to "experience" the news) and "chatbots" (which provide personalized headlines) hold promise for the industry and are likely to create new promotional opportunities. The primary advantage of newspaper advertising is the flexibility it offers, because the ads can vary from one locality to the next. Unlike television or radio advertising messages, newspaper readers can keep printed advertising messages and refer back to them. Newspaper advertising does have some disadvantages. One of these is relatively poor reproduction quality, although that is changing as technology improves. Newspapers also struggle to "get through the noise" of other advertisers. To retain big advertisers like trendy designers and national retailers, some newspapers like The New York Times and Wall Street Journal have launched their own annual or semiannual fashion magazines, taking advantage of their finely tuned distribution capabilities.

Approach

Once sales representatives have identified a qualified prospect, the next step involves gathering relevant information and planning an approach—the initial contact with the prospective customer. Before contacting the customer, it's important to gather information to develop an understanding of his or her business, current suppliers, and other pertinent details. The process of conducting research and gathering information is known as precall planning and the information obtained is utilized to tailor the approach and presentation to the prospective customer's needs and situation. Derek Hernandez with Sherwin-Williams finds it easy to obtain information as part of his precall planning process. He may use the Internet to find the company's website. However, many of Sherwin William's customers are small, independent businesses who often do not have their own website. In those cases, Derek checks LinkedIn to obtain information about key decision makers, or views sites such as Yelp to read reviews. He might also talk with other customers or those in the industry who may know the business or prospect to obtain greater insight. Derek strives to answer the following questions: Who am I contacting and what are their responsibilities within the company? What is their knowledge level? How much information do they already have about my products, services, or competition? What are their needs and objectives? Do they appreciate detailed technical information or prefer more general information? What type of information is most important to them and what are the issues that are driving the purchase? Are they looking to save time? Save money? Something else? Derek may not be able to gather information about all of these areas, but if he can obtain more insight about the prospect prior to contacting them, he's likely to be more successful in getting their attention and establishing rapport.

Demonstration

One of the most important advantages of personal selling is the opportunity to demonstrate a product. During a demonstration, the buyer gets a chance to try the product or physically see how it works. A demonstration might involve a test drive of the latest hybrid car or an in-store cooking class using pots and pans that are for sale. A tangible product such as paint, brushes, and other paint-related products are easily demonstrated by Sherwin-Williams representatives. Derek enjoys the opportunity to allow prospective buyers to use the product on a sample wall or test area so they can visualize how the product looks, smells, and covers the surface area. If Derek is meeting with a facility manager whose company maintains their own staff of painters, the paint contractors may participate in the discussion as well so they can ask questions, express their concerns, and use the product prior to purchase.

Retain Loyal Customers

Over time, successful businesses must do more than close one-time sales. It's far more expensive to find new buyers than to keep current ones, so marketers also use promotion to maintain and strengthen relationships with loyal customers. This is the promotional objective of frequent-buyer or reward programs, popularized by airlines and hotels but also widely used in other categories. For example, home goods retailer Big Lots offers a Buzz Club to frequent shoppers, who can earn 20% discount coupons, access to VIP events, and advance notice of special deals. Advertisements, too, play a role in customer retention. Persuasive ads for Special Sweets will not only attract new buyers, but also reassure existing purchasers about the choice they made, and encourage them to recommend the brand to others.

over-the-counter selling

Over-the-counter selling typically describes selling in retail or wholesale locations in which customers come to the seller's place of business. It is the most frequently used personal selling channel. Customers typically visit the seller's location on their own initiative to purchase desired items. Some visit their favorite stores because they enjoy shopping. Others respond to appeals, such as personal letters of invitation from store personnel and advertisements for sales, special events, and new-product introductions. A key differentiator for the over-the-counter-selling channel is the level of knowledge of the sales representatives. Business-to-business firms such as Enterprise Rent-A-Car and Grainger conduct training programs for their associates so they are better equipped to address customer needs. In contrast, retail operations such as Walmart and Kohl's utilize over-the-counter-selling but may not need to provide the same level of training to their associates. Grainger operates over 668 branch locations across the globe with about half in the United States, one third in Canada, and the remaining branches in Latin America and Europe. Customers may visit a local branch or have Grainger deliver in-stock products within two business days. This makes it easy for customers to obtain their desired items.

Classification by Form of Ownership

Perhaps the easiest method for categorizing retailers is by ownership structure, distinguishing between chain stores and independent retailers. Chain stores are groups of retail outlets that operate under central ownership and management, while an independent retailer is someone who is responsible for their own business. Chain stores can utilize economies of scale by purchasing large volumes of products for a lower price than independent retailers pay. Because a chain may have hundreds of retail stores, it can afford extensive advertising, sales training, and computerized systems for merchandise ordering, inventory management, forecasting, and accounting. Target, Sephora, and Safeway are all chain stores.

Personal Selling

Personal selling is a seller's promotional presentation conducted person-to-person with the buyer. It may take place face-to-face, over the telephone, or by online video. It may involve one salesperson and one buyer, or a team of salespeople pitching a group of buyers. Personal selling is the oldest form of promotion, dating back to the beginnings of commerce. It remains critical today: More than 14 million people in the United States have careers in sales and related occupations. They may sell real estate, insurance, and financial investments or tractors, automobiles, and vacuum cleaners; they may work in retail or wholesaling; they may be regional managers or in the field. In other words, the range of selling jobs, as well as the products they represent, is huge.

factors that favor use of personal selling vs advertising

Personal selling is person-to-person promotional presentation to a buyer. The sales process is essentially interpersonal, and it is basic to any enterprise. Accounting, engineering, human resource management, production, and other organizational activities produce no benefits unless a seller matches the needs of a customer. The more than 14 million people employed in sales occupations in the United States testify to the importance of selling. Personal selling is much costlier and time consuming than other types of promotion because of its direct contact with customers. This makes personal selling the single largest marketing expense in many firms. Since both advertising and personal selling represent large expense categories for firms, it's important to identify factors that may favor greater use of advertising or personal selling. Exhibit 18.1 provides a review of these factors (several of which were discussed in Chapter 17). personal selling factors Consumer Location, Consumer Location, Product Features-Complexity & Customization, Channels

Handling Objections

Potential customers often have legitimate questions and concerns about a good or service they are considering. Objections are expressions of resistance by the prospect, and it is reasonable to expect them. Objections might appear in the form of stalling or indecisiveness. "Let me call you back," your prospect might say, or "I just don't know about this." Or your buyer might focus on something negative, such as high price. Sales representatives should address objections without being aggressive or rude. Objections should be welcomed and treated as an opportunity to reassure the buyer about features, durability, availability, and the like. When Derek was new to his position as sales representative with Sherwin-Williams, he was somewhat afraid of objections. After being in the field for several years, he knows to expect a common set of objectives and he's prepared to respond. Over the years, he and other sales representatives at Sherwin-Williams have developed their top 10 objection list and give each other tips on how best to handle each one. Derek knows that customers who give objections are demonstrating interest in the product but need to be reassured that the product truly meets their needs. He also understands that they are business professionals and must justify their purchase decision. He looks forward to this stage in the process as it's one step closer to securing the business and getting an order for products.

Prestige Objectives

Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness. Such objectives reflect marketers' recognition of the role of price in creating an overall image of the firm and its product offerings. Prestige objectives affect the price tags of such products as David Yurman jewelry, Tag Heuer watches, Baccarat crystal, and Lenox china. When a perfume marketer sets a price of $400 or more per ounce, this choice reflects an emphasis on image far more than the cost of ingredients. Analyses have shown that ingredients account for less than 5% of a perfume's cost. Thus, advertisements for Clive Christian's No. 1 that promote the fragrance as "the world's most expensive perfume" use price to promote product prestige. Diamond jewelry also uses prestige pricing to convey an image of quality and timelessness. Prestige pricing can be seen in just about any category. While the majority of pens cost $3 or less, Mont Blanc pens can sell for $300 or more. While the majority of bottled waters cost $3 or less per liter, Veen bottled water can cost over $15 per liter.

Product Factors

Product characteristics also guide the selection of the optimal distribution channel strategy. For example, perishable goods, such as fresh fruit and vegetables, milk, and fruit juice move through short distribution channels to reduce storage time. Products with low unit costs—such as cans of dog food, bars of soap, and packages of gum—typically travel through long channels so that they can gain the widest distribution possible.

prospecting and qualifying

Prospecting is the process of identifying potential customers. Leads for prospects come from many sources: online, trade show exhibits, previous customers, friends, vendors and suppliers, and social and professional contacts. Prospects are considered the life-blood of sales representatives since no sales can be made if the firm does not have potential customers. For each prospect, sales representatives must attempt to qualify whether or not the prospect is a suitable potential customer. Qualifying involves determining that the prospect meets certain criteria using the acronym NAME. Do prospects possess the appropriate Need for the product? Do prospects have the Authority to make the purchase decision? Do prospects have the Monetary resources to make the purchase? Are prospects Eligible to purchase? Even though an employee in a firm might like your products, he or she might not be authorized or eligible to make the purchase, or have the financial means to purchase the product. This is why qualifying is such an important step in the sales process. As a sales representative with Sherwin-Williams, Derek Hernandez uses a proprietary customer relationship management system to keep track of prospects and customers and monitor his progress toward goals. The company routinely adds prospect names to the database and Derek sets aside time each week to review new leads and gather information about them. Once a lead is qualified, Derek is ready to invest more time to pursue the business opportunity.

roles of public relations

Public relations (PR) is the firm's communications with various stakeholders, including customers, employees, stockholders, suppliers, government agencies, and the society in which it operates. It is concerned with building a positive image for all parts of the organization. In addition to its traditional activities, such as persuading public attitudes and creating a good corporate image, PR also supports advertising in promoting the organization's goods and services. Public relations has grown in importance as a result of increased public pressure on industries regarding corporate ethical conduct and environmental issues. Many top executives have become more involved in public relations as the public expects top managers to take greater responsibility for company actions. Some CEOs have been proactive in public relations, becoming the "face" of their companies in ways that enhance brand reputation. For example, Zappos CEO Tony Hsieh wrote a book about his company's values that put him—and Zappos—on the map as corporate culture innovators. The PR department is the link between the firm and the media. It provides press releases and holds news conferences to announce new products, the formation of strategic alliances, management changes, financial results, or similar developments. The PR department may also issue publications and documents such as newsletters, brochures, and reports.

Public Relations

Public relations refers to a firm's communications and relationships with its various stakeholders, including customers, suppliers, stockholders, employees, the government, and the general public. Publicity is the marketing-oriented aspect of public relations where marketers seek unpaid placement of news about the company or a product in mass media or on social media. Compared with personal selling, advertising, and sales promotion, expenditures for public relations are usually low in most firms. Because companies do not pay for publicity, they have less control over whether the press or electronic media publish good or bad news. This often means consumers find this type of news source more believable than company-disseminated information.

Radio

Radio advertising has always been a popular media choice for targeting advertising messages to local audiences. Most radio listening was traditionally done in cars. But podcast radio now allows customers to widen their listening times and choices through computers and mobile devices. With an estimated monthly audience of 155 million people—over half the U.S. adult population—online radio listenership continues to grow. Marketers frequently use traditional radio advertising to reach local audiences. Advertisers like radio for its ability to reach people while they drive because they are a captive audience. Other benefits include low cost, flexibility, and mobility. The variety of stations allows advertisers to easily target audiences and tailor their messages to those listeners. Disadvantages to radio advertising include distracted listeners and lack of visual imagery (unlike print, online, and TV ads).

modes of transportation - Railroads

Railroads continue to control the largest share of the freight business as measured by ton-miles. The term ton-mile refers to shipping activity required to move one ton of freight one mile. Rail shipments quickly rack up ton-miles because this mode provides the most efficient way for moving bulky commodities over long distances. Rail carriers generally transport huge quantities of coal, chemicals, grain, non-metallic minerals, wood products, and automobiles.

Location/Distribution Strategy

Retail experts often cite location as a potential determining factor in the success or failure of a retail business. A retailer may locate at an isolated site, in a central business district, or in a planned shopping center. The location decision depends on many factors, including the type of merchandise, the retailer's financial resources, characteristics of the target market, and site availability. Within the last few years, Ulta stores made a move from strip malls to locations near urban centers, changing the perception of the store from discount shopping to an "oasis for women." Additionally, Dillon recognized the importance of the company's e-commerce efforts. Ulta built two distribution centers to improve the delivery times for online purchases. In contrast, Avon, a direct-selling beauty company, distributes its products online and through independent representatives.

Retailing in the United States

Retailers are the marketing intermediaries in direct contact with ultimate consumers. Retailing describes the activities involved in selling merchandise to these consumers. Retailers represent the distribution channel to most consumers, because a typical shopper has little contact with manufacturers and virtually no contact with wholesaling intermediaries. Retailers determine locations, store hours, number of sales personnel, store layouts, merchandise selections, and return policies—factors that often influence consumers' images of the offerings more strongly than consumers' images of the products themselves. Consumers rely on retailers for everything from shoes and clothes to hardware supplies. In the United States, retail sales in 2016 were $5.5 trillion and the retail industry accounted for 16% of the U.S. GDP. Retail is the largest private-sector employer in the United States, providing 29 million Americans with jobs. The largest retailers in the United States are significant in both revenue and number of stores (see Exhibit 16.1). But while Walmart, Kroger, and Costco continue to build new locations each year, other retailers are forced to close stores due to lagging sales and changing consumer shopping habits. JCPenney, Macy's, The Limited, and RadioShack are just a few of the retailers that have recently announced store closings. Historically, shoppers have utilized brick-and-mortar locations to browse and compare products and make purchases, but technology is changing the way consumers shop. In the past decade, conventional retailers have recognized the increasing power of the Internet, and have responded by adding e-commerce sites to complement their brick-and-mortar stores. A survey by UPS found that shoppers now make 51% of their purchases online. E-commerce retailers like Amazon.com dominate online retail sales in comparison to the other top 10 retailers. Even though Walmart is six times larger overall than Amazon, Walmart's online sales are just a small piece of its overall sales, at less than 3% of total revenue. But Walmart's online presence is growing. The company reported 29% growth in U.S. e-commerce sales for the last quarter of 2016 and plans to slow store openings in order to invest in digital growth.

Sales Promotion

Sales promotion consists of marketing activities that provide a short-term incentive, usually in combination with other forms of promotion, to supplement or otherwise support the objectives of the promotional program. This broad category includes displays, trade shows, coupons, contests, samples, premiums, and product demonstrations. Restaurants, including those serving fast food, often place certain items on the menu at a lower price "for a limited time only." Advertisements may contain coupons for free or discounted items for a specified period of time. Or companies may conduct sweepstakes for prizes, such as new cars or vacations, which may even be completely unrelated to the products the companies are selling.

Direct Channel

Simplest and shortest channel of them all A direct channel carries goods directly from the producer to the ultimate user.

Wholesalers

Take title to the goods, store them in a warehouse and distribute them to retailers.

Telemarketing

Telemarketing is when the selling process is conducted by phone. It functions to provide sales and service to customers, and is used for both business-to-business and direct-to-customer markets. Both inbound and outbound telemarketing are forms of direct marketing. For outbound telemarketing, or phone sales, sales personnel contact potential buyers by phone, reducing the substantial costs of personal visits to customers' homes or businesses. A major drawback of consumer-oriented telemarketing is that most consumers dislike the practice, and more than 220 million have signed up for the national Do Not Call Registry. If an unauthorized telemarketer does call any of these numbers, the marketer is subject to a fine of up to $16,000. Phone sales is still very common, and somewhat more accepted, in the B2B markets though. Inbound telemarketing typically involves a toll-free number that customers can call to obtain information, make reservations, and purchase goods and services. Inbound reps are mainly order takers who handle straightforward questions or purchases. This form of selling provides maximum convenience for customers who initiate the sales process. Many large catalog merchants, such as Pottery Barn, L.L.Bean, Lands' End, and Performance Bike, keep their inbound telemarketing lines open 24/7.

seven different advertising media

Television, Radio, Newspaper, Magazines, Direct Mail, Outdoor Advertising, Digital Media

Television

Television—network and cable combined—accounts for just over 40 cents of every advertising dollar spent in the world. Television advertising is attractive because it allows marketers to reach local and national markets. Whereas most newspaper advertising revenues come from local advertisers, the greatest share of television advertising revenues comes from organizations that advertise nationally. In the past decade, cable television's share of ad spending and revenues has grown tremendously in tandem with the booming size of its audience. Cable advertising offers marketers access to more narrowly defined target audiences than other broadcast media can provide—a characteristic referred to as "narrowcasting." The great variety of special-interest channels devoted to subjects like cooking, golf, history, home and garden, health, fitness, and shopping attract specialized audiences and permit niche marketing. Television advertising offers the advantages of mass coverage, powerful impact on viewers, repetition of messages, flexibility, and prestige. It's disadvantages include high costs and it's easily forgettable. Also, due to DVR, many viewers are able to skip through advertisements.

roles of publicity

The aspect of public relations most directly related to promoting a firm's products is publicity, which focuses on unpaid placement of news regarding the product in a print, social, or broadcast medium. Firms generate publicity by creating special events, holding press conferences, and preparing news releases and media kits. Many businesses, like Starbucks and Sam's Club, built their brands with virtually no advertising. While publicity benefits from minimal costs compared with other forms of promotion, it does not deliver its message entirely for free. Publicity-related expenses include the costs of employing staff assigned to create and submit publicity releases, the costs of events, and other related expenses. Firms often pursue publicity to promote their images or viewpoints. Other publicity topics involve organizational activities such as plant expansions, mergers and acquisitions, management changes, and research breakthroughs. A significant amount of publicity provides information about goods and services, particularly new products. Because many consumers consider news stories to be more credible than advertisements, publicity releases are often sent to media editors for possible inclusion in news stories. The media audiences perceive the news as coming from the communications media, not the marketers. A key disadvantage of publicity is that the firm has little control over when a media outlet might run a story about its company or product, if they even run a story at all. In addition, the firm has little control over what that story might say. Sometimes, a press conference or publicity event can backfire by getting very little coverage, or generating media coverage that portrays the company in a negative light.

Closing

The moment of truth in selling is the closing- the point at which the salesperson asks the prospect for an order. If a presentation has been effective and the sales representative has handled all objections, a closing would be the natural conclusion to the meeting. But sellers may still find it difficult to close the sale. Closing does not have to be thought of in terms of a "hard sell." Instead, customers can be asked, "Would you like to give this a try?" or "Do I have your approval to proceed?" Other methods of closing Derek might use include the following: Addressing the prospect's major concern about a purchase and then offering a convincing argument. "If I can show you how our new fast-drying paint product will reduce the facility downtime by 40%, would you be willing to give it a try for this project?" Posing choices for the prospect in which either alternative represents a sale. "Would you prefer to order the paint and primer combination or purchase the items separately?" Advising the buyer that a product is about to be discontinued or will go up in price soon (but be completely honest about this—you don't want a customer to learn later that this was not true). Remaining silent so the buyer can make a decision on his or her own. Offering an extra inducement designed to motivate a favorable buyer response, such as a quantity discount, an extended service contract, or a low-interest payment plan. Even if the meeting or phone call ends without a sale, the effort is not over. Sales representatives can follow-up by e-mail or send a written note to keep communication open, letting the buyer know the seller is ready and waiting to be of service.

Magazines

The primary advantages of magazine advertising include the ability to reach precise target markets, quality reproduction of images, long life, and the prestige associated with some magazines known for visual artistry, such as National Geographic and Architectural Digest. The primary disadvantage is that magazines have high costs and require long lead times for marketers who want to place ads. Media buyers study circulation numbers and demographic information for various publications before choosing optimal placement opportunities and negotiating rates. The top magazine by circulation is AARP The Magazine, which reaches over 37 million readers. However, circulation isn't the only criteria important to marketers: an advertiser of specialized products like sports equipment or craft supplies might choose a magazine read by an audience that is not huge in numbers but is highly involved with such products.

Retailing Strategy

The retailing mix specifies merchandise strategy, customer service standards, pricing guidelines, promotion goals, location/distribution decisions, and store atmosphere choices

communication process relates to the AIDA concept

The three tasks just listed are related to the AIDA concept (attention, interest, desire, action), the steps consumers take in reaching a purchase decision. First, the promotional message must gain the potential consumer's attention. It then seeks to arouse interest in the good or service. Next, it stimulates desire by convincing the would-be buyer of the product's ability to satisfy his or her needs. Finally, the sales presentation, advertisement, or sales promotion technique attempts to produce action in the form of a purchase now or in the future. This process is demonstrated in Exhibit 17.2 for three different components of the promotional mix. The message begins with encoding—that is, translating it into understandable terms and transmitting it through a communications channel. Decoding the receiver's interpretation of the message. The receiver's response, known as feedback, completes the system. Throughout the process, noise (in such forms as ineffective promotional appeals, inappropriate advertising media, or poor radio or television reception) can interfere with the transmission of the message and reduce its effectiveness. The marketer is the message sender in Exhibit 17.2. He or she encodes the message in the form of sales presentations, advertising, displays, or publicity releases. The channel for delivering the message may be a salesperson, a PR outlet, a website, or an advertising medium. Decoding is often the toughest step in marketing communications because consumers do not always interpret messages the same way as senders do. Because receivers usually decode messages according to their own frame of reference or experience, a sender must carefully encode a message to match the target's frame of reference. Consumers are exposed daily to thousands of messages through many media channels. Because the typical person will choose to process only a few messages, poorly encoded messages are wasted communications expenditures. That's why feedback is important to marketers: It enables them to evaluate the effectiveness of their marketing communications process and tailor their future messages accordingly. Noise represents interference at some stage in the communication process. It may result from disruptions such as transmissions of competing promotional messages over the same communications channel, misinterpretation of a sales presentation or advertising message, receipt of the promotional message by the wrong person, or random events like people conversing or leaving the room during a television commercial. Noise can also result from distractions within an advertising message itself, like buzzwords and jargon that few consumers understand.

modes of transportation - Motor Carriers

The trucking industry is also an important factor in the freight industry—the American Trucking Association reports that trucks haul more than 10.5 billion tons of freight each year, making deliveries to areas railroads simply can't reach. Trucking offers important advantages over the other transportation modes, including relatively fast and consistent service for both large and small shipments. Technology has also improved the efficiency of trucking. Many trucking firms now track their fleets via satellite communications systems. In-truck computer systems allow drivers and dispatchers to make last-minute changes in scheduling and delivery.

Follow-Up

The word close can be misleading because the point at which the prospect accepts the seller's offer is where much of the real work of selling begins. It is not enough to close the sale and move on. Relationship selling involves reinforcing the purchase decision and ensuring the company delivers the highest-quality goods and services. Salespeople must also ensure that customer service needs are met and that satisfaction results from all of a customer's dealings with the supplier firm. Otherwise, some other supplier may get the next order. Follow-up activities are key for account representatives like Derek at Sherwin-Williams. Most customer orders are fulfilled at the local branch and delivered to the job site. This provides an opportunity to ensure the correct products were delivered as ordered. Derek often contacts his buyers by phone or e-mail to see if the customer is experiencing any issues. If there are problems with paint coverage or technical issues such as peeling, Derek or others at Sherwin-Williams can assist the customer and work to correct any problems. Derek hopes to provide a level of service where customers will continue to use Sherwin-Williams products and works hard to create loyal customers.

Promotional Strategy

To establish store images that entice more shoppers, retailers use various promotional techniques. Through its promotional strategy, a retailer seeks to communicate information about its stores—locations, merchandise selections, hours of operation, and prices. If merchandise selection changes frequently to follow fashion trends, advertising is typically used to promote current styles effectively. Promotions, such as frequent buyer rewards programs, help retailers attract shoppers and build customer loyalty. Ulta utilizes advertisements during prime-time television shows as well as direct mail and print advertisements in fashion magazines to promote the store. General merchandiser Walmart features makeup and beauty items in its weekly circular and places advertisements in magazines. Starbucks, on the other hand, does very little paid advertising, instead opting to generate traffic via word of mouth and by strategically locating their stores (which is part of their location/distribution strategy).

Automatic Merchandising

Today, nearly 26,000 vending machine operators sell about $7 billion in convenience goods annually in the United States alone. Although U.S. vending machines primarily sell items such as snacks, soft drinks, or lottery tickets, Japanese consumers use automatic merchandising for everything, including fresh sushi and new underwear. Recently, U.S. marketers have begun to realize the potential of this underused marketing tool. Several vending-machine companies, such as the California-based Fresh Healthy Vending and HUMAN Healthy Vending, with offices on both coasts, work with schools to replace traditional vending-machine offerings with fresh, healthy snacks.

modes of transportation - Water Carriers

Two basic types of transport methods move products over water: inland or barge lines, and oceangoing deepwater ships. Barge lines efficiently transport bulky, low-unit-value commodities such as grain, gravel, lumber, sand, and steel. A typical lower Mississippi River barge line may stretch more than a quarter mile across. Large ships also operate on the Great Lakes, transporting materials like iron ore from Minnesota and harvested grain for market. These lake carrier ships range in size from roughly 400 feet to more than 1,000 feet in length. Oceangoing supertankers from global companies like the Maersk Line are the size of three football fields and almost double the capacity of other vessels. At full capacity, the ships can cut one-fifth of the cost of shipping a container across the Pacific Ocean. Shippers that transport goods via water carriers incur low costs compared with the rates for other transportation modes. However, transit time is often longer than other options.

Celebrity Testimonials

Using celebrity spokespeople in ads can improve product recognition in a promotional environment filled with hundreds of competing 15- and 30-second commercials and online promotions. Advertisers use the term "cutting through clutter" to describe this advantage. Celebrity endorsements are also popular in foreign countries. Both the number of celebrity ads and the dollars spent on them have risen in recent years. Professional athletes like NBA star LeBron James are among the highest-paid product endorsers. In a recent year, James reportedly earned $42 million from endorsement deals with such firms as The Coca-Cola Company, McDonald's, Nike, Samsung, and State Farm. Studies of consumer behavior show that celebrities improve the product's believability, product recall, and brand recognition. However, celebrity endorsements can also go awry. A personality who endorses too many products may create marketplace confusion. Customers may remember the celebrity but not the product or brand; worse, they might connect the celebrity to a competing brand. Another problem arises if a celebrity isn't credible; for example, celebrities who endorse political candidates may lack credibility unless they're perceived as knowledgeable about the issues. Some advertisers try to avoid problems with celebrity endorsers by using cartoon characters as endorsers, like the GEICO gecko, the Kia Hamsters, or the Keebler elves. Some advertisers may actually prefer cartoon characters because the characters never say anything negative about the product, they do exactly what the marketers want them to do, and they cannot get involved in scandals.

Online Retailing

As discussed in Chapter 4, online retailers sell directly to customers via e-commerce stores. Amazon is the largest online retailer, selling everything from books to electronics to fresh groceries. While this type of nonstore retailing is only about two decades old, even the largest physical retailers, like Walmart, are aggressively investing in their online retailing operation in order to compete.

Direct Selling

Through direct selling, manufacturers completely bypass retailers and wholesalers. Instead, they set up their own channels to sell their products directly to consumers. Avon, Pampered Chef, LuLaRoe, and Tupperware are all direct sellers.

Customer Service Strategy

While some stores offer a no-frills shopping experience, others build their retailing strategy around heightened customer services for shoppers. Gift wrapping, alterations, return privileges, bridal registries, consultants, delivery and installation, and online shopping via store websites are all examples of services that add value to the shopping experience. A retailer's customer service strategy must specify which services the firm will offer and whether it will charge customers for these services. Unlike other beauty retailers, Ulta allows customers to try products before they buy. In-store samples and hair dryers that are plugged in encourage customers to see and feel the products. Ulta stores also boast full-service salons offering haircuts, facials, and manicures. These simple touches allow Ulta to attract and retain target customers while increasing sales and profits. Walgreens, which operates over 8,000 pharmacies, has plans to upgrade its beauty offerings. While it has traditionally been a self-serve shopping experience, about one-quarter of its stores now have beauty-trained associates that provide product demonstrations and consultations. Walgreens' website offers hair-styling tutorials with links to purchase products used to create the styles

Store Atmospherics

While store location, merchandise selection, customer service, pricing, and promotional activities all contribute to a retailer's brand identity, stores also project their personalities through atmospherics- physical characteristics and amenities that attract customers and satisfy their shopping needs. Atmospherics include both a store's exterior and interior décor. Ulta has created store interiors that are bright and clean with an open layout and wide aisles. The company believes this allows for a fashionable and calming shopping experience. In sharp contrast, another specialty beauty retailer, Sephora, has stores that feature sleek, black features and loud, thumping music—targeting a younger demographic.

Intensity Factors - Selective Distribution

a firm chooses only a limited number of retailers in a market area to handle its line. By limiting the number of retailers, marketers can reduce total marketing costs while establishing strong working relationships within the channel. Moreover, selected retailers often agree to comply with the company's strict rules for advertising, pricing, and displaying its products. This helps protect the company's brand.

five components of the promotional mix.

advertising, personal selling, sales promotion, direct marketing, and public relations

three foundations of pricing strategy

costs, potential demand, and competition

various objectives of promotion

create awareness, stimulate demand, encourage product trial, and retain loyal customers.

five factors that influence selection of distribution channels

market, product, organizational, competitive, and intensity factors.

four sales channels

over-the-counter selling (including online selling), field selling, telemarketing, and inside selling

Humor in Advertising Messages

A humorous ad seeks to create a positive mood related to a firm's goods or services, but advertising professionals differ in their opinions of the effectiveness. Some believe humor distracts attention from brand and product features; consumers remember the humor but not the product. Humorous ads, because they are so memorable, may lose their effectiveness sooner than ads with other kinds of appeals. In addition, humor can be tricky because what one group of consumers finds funny may not be funny at all to another group. For example, Mountain Dew's "PuppyMonkeyBaby" Super Bowl TV spot won raves among millennial males but elicited confusion and disgust from older viewers.

Facilitate the exchange process

A producer can cut the costs of buying and selling to multiple customers by using an intermediary.

modes of transportation - Air Freight

Air freight is defined as the shipment and transfer of goods through an air carrier. Though air freight doesn't haul anywhere near the amount of ton-miles as other modes of transportation, it provides a number of benefits to shippers. For example, products can be delivered to remote or hard-to-reach locations more easily via air; an airport at the destination is all that is required. Further, time sensitive material can more easily be shipped "express" via air, anywhere in the world. Smaller and mid-sized companies take advantage of express shipping, as it allows them to participate in international trade more easily than via other modes of transportation. Shipping by air freight also provides a higher level of security than many alternatives, as airport controls over cargo are strictly managed.

Market Factors

Business market purchasers usually prefer to deal directly with manufacturers (except for routine supplies or small accessory items), but most consumers make their purchases from retailers. Marketers often sell products that serve both business users and consumers through more than one channel. Other market factors also affect channel choice, including the market's needs, its geographic location, and its average order size.

Reverse channels

Channels designed to return goods back to their producers.

Organizational Factors

Companies with strong financial, management, and marketing resources feel less need for help from intermediaries. This affects distribution channel selection. A large, financially strong manufacturer can hire its own sales force, warehouse its own goods, and extend credit to retailers or consumers. A firm with a broad product line can usually market its products directly to retailers or business users, because its own sales force can offer a variety of products. High sales volume spreads selling costs over a large number of items, generating adequate returns from direct sales. By contrast, a small firm with fewer resources may do better with the aid of intermediaries. Single-product firms often view direct selling as unaffordable.

Comparative Advertising

Firms whose products are not the leaders in their markets often favor comparative advertising- an approach that emphasizes advertising messages with direct or indirect comparisons to dominant brands in the industry. For example, wireless telecommunications carriers Sprint and T-Mobile have invited comparison to market leader Verizon in a series of ads touting the strength of their networks and the speed of their services. By contrast, advertising by market leaders seldom acknowledges that competing products even exist, and when they do, they do not point out any benefits of the competing brands.

Inside Selling

Inside selling is a more advanced version of inbound telemarketing that requires more experienced sales reps. While accepting an order for products at Pottery Barn is a somewhat simple transaction, discussing technical specs for a custom piece of manufacturing equipment requires an inside sales rep with specialized expertise. Inside sales reps perform two primary jobs: they turn opportunities into actual sales, and they support technicians and purchasers with current solutions. A successful inside sales force relies on close working relationships with field representatives to solidify customer relationships. Grainger utilizes inside sales representatives who assist customers and provide "the support they need to solve problems." Further, these representatives utilize consultative selling techniques to establish rapport, ask questions to identify needs, recommend products to address needs, and effectively close the sale.

Increase Sales and Marketing Infrastructure

Intermediaries provide cost effective sales and marketing services to manufacturers as well.

The Influence of Costs on Pricing Decisions

Marketers must calculate the costs associated with making their products and set a price that, at a minimum, covers those costs. Consider the company LG, which sells a number of electronics and household appliances. When they produce an OLED television, there are material and labors costs directly attributed to the production of that TV. Those costs constitute a floor for the price of the televisions, because selling below those costs would mean LG is losing money on the sale of each TV. Ideally, the selling price of each TV brings in enough to cover the direct costs of production and helps contribute to the regular fixed costs (or operating costs) of the company, such as rent, utilities, and salaries of non-production staff. But at the very least, production costs should be covered for each unit. While some companies might sell a product below the production costs for short-term promotional purposes, this is not a sustainable strategy over the long term.

Create Awareness

New product marketers must clear a significant hurdle before anyone will buy what they're selling: potential customers need to know the product exists. That's why the objective of advertising and other promotion at the introductory stage of the product lifecycle is to create awareness. For many organizations, rapid accomplishment of this objective is critical to recoup the costs of product development and fund additional promotional efforts. But the importance of creating awareness isn't limited to new products. Growing or mature products may design promotions to raise the profile of a brand image, make untapped target audiences aware of the brand, or call attention to product features. For example, in light of recent concerns about childhood obesity, McDonald's promotes the inclusion of fruit in its kids meals. Billboards will surely help create awareness of Special Sweets. A new store could also benefit from simple repetition of its name in other promotional venues, like posters or streaming radio ads.

Presentation

Next in the process is the presentation, where sales representatives convey the marketing message to the potential customer. During the presentation, sellers typically connect a buyer's needs to the benefits of the product. They describe the product's major features, point out its strengths, and for additional support may mention how other customers have experienced success with the product. One popular form of presentation is a "features-benefits" framework, where sellers talk about the good or service in terms meaningful to the buyer. Sherwin-Williams sales representatives, such as Derek, customize their presentation according to the customer's situation. For example, Sherwin-Williams has developed coating products tailored to healthcare settings. These coating products are fast-drying and low-odor, which are important features to these clients. Hospitals, nursing homes, and physician offices are constantly in use and facility managers wish to minimize downtime and disruption. If Derek is meeting with a hospital facility manager, he can review product brochures, share customer testimonials, and discuss why the product line is best suited to the client's situation and needs.

Outdoor Advertising

Outdoor advertising is one of the oldest and simplest media businesses. Advertisers in the United States spent over $9 billion on outdoor advertising in a recent year. Traditional outdoor advertising takes the form of billboards, painted displays on the walls of buildings, and electronic displays. Transit advertising includes ads placed inside and outside buses, commuter trains, and stations. Outdoor advertising quickly communicates simple ideas. It also offers repeated exposure to a message and strong promotion for locally available products. But like every other type of ad, outdoor advertising produces clutter. It also suffers from the brevity of exposure to its messages by passing motorists. As a result, most of these ads use striking, simple illustrations, short selling points, and humor to attract people interested in products, such as beverages, vacations, local entertainment, and lodging. Another problem relates to public concerns over aesthetics. Legislation regulates the placement of outdoor advertising near interstate highways. Also, local ordinances in many cities regulate the size and placement of outdoor messages. Hawaii prohibits them altogether.

Pricing Strategy

Prices reflect a retailer's marketing objectives and policies. They also play a major role in consumer perceptions of a retailer. Consumers realize, for example, that when they enter an Hermès boutique, they will find expensive merchandise such as leather handbags priced at $3,800 and up, along with men's belts at $720 and up. In contrast, customers of Tuesday Morning or Big Lots expect totally different merchandise and much lower prices. Ulta accommodates a wide audience by offering both high-end brands and affordably priced products. Nordstrom department stores target a smaller audience by selling mainly high-end makeup brands such as Laura Mercier, Yves Saint Laurent, and Bobbi Brown.

Dual Distribution

The movement of products through two or more channels to reach the firm's target market

Intensity Factors - Exclusive Distribution

When a producer sells to only a small number of retailers or grants exclusive rights to a wholesaler or retailer to sell its products in a specific geographic region. The automobile industry provides a good example of exclusive distribution. A city with a population of 100,000 probably does not need more than a single Jaguar car dealer, for example. Exclusive distribution agreements also govern marketing for some major appliance and apparel brands.

Classification by Services Provided

nother category differentiates retailers by the services they provide to customers. This classification system is essentially a continuum between self-service and full-service retailers. The middle of that continuum is often called self-selection. A gas station is a self-service retailer because you can fill your car and pay without any assistance. On the other hand, LensCrafters is a full-service eyeglass retailer. Associates help customers choose frames and coordinate lens orders with the in-store lab. Most retailers fall somewhere in between, so they are considered self-selection. At Albertsons and Kroger grocery stores, you can usually purchase what you need with little assistance, but help is there if you need it. At Best Buy, you can choose to consult with a store associate, but you can also select products on your own. However, you will still need assistance for checkout.

seven steps of the sales process

prospecting and qualifying, approach, presentation, demonstration, handling objections, closing, and follow-up.

competitive factors - Vertical Conflict

results from disagreements among channel members at different levels.

competitive factors - Horizontal Conflict

results from disagreements among channel members at the same level, such as two or more wholesalers or retailers.

Intensity Factors - Intensive Distribution

seeks to distribute a product through all available retailers in a trade area. Because Dove practices intensive distribution for many of its products, you can pick up one of its chocolate bars or ice cream products just about anywhere—the supermarket, the convenience store, and even the drugstore. Usually, an intensive distribution strategy suits items with wide appeal across broad groups of consumers.

Intensity Factors

the number or percentage of intermediaries (usually retailers) through which a manufacturer distributes its goods in a particular market. Optimal distribution intensity should ensure adequate market coverage for a product. Adequate market coverage varies depending on the goals of the individual firm, the type of product, and the consumer segments in its target market. In general, distribution intensity varies along a continuum with three general categories: intensive distribution, selective distribution, and exclusive distribution.

Three Pricing Objectives

volume or sales, competition, and prestige