Intro to MKT Final

Retailing

Retailing includes all transactions in which the buyer is the ultimate consumer and intends to use the product for personal, family, or household purposes. A retailer is an organization that purchases products for the purpose of reselling them to ultimate consumers. Although most retailers' sales are made directly to the consumer, nonretail transactions occur occasionally when retailers sell products to other businesses. Retailing is vital to the U.S. economy. Every time you buy a meal, a smartphone, a movie ticket, or some other product from a retailer, the money you spend flows through the economy to the store's employees, to the government, and to other businesses and consumers. There are 3.8 million retail establishments in the United States, and they employ nearly 29 million people. Retailers contribute $1.2 trillion, or 7.7 percent, directly to the U.S. gross domestic product.Footnote Retailers add value for customers by providing services and assisting in making product selections. They can enhance customers' perceptions of the value of products by making buyers' shopping experiences easier or more convenient, such as providing free delivery or offering a mobile shopping option. Retailers can facilitate comparison shopping, which allows customers to evaluate different options. For instance, car dealerships often cluster in the same general vicinity, as do furniture stores. The Internet also allows consumers to comparison shop easily. Product value is also enhanced when retailers offer services, such as technical advice, delivery, credit, and repair. Finally, retail sales personnel are trained to be able to demonstrate to customers how products can satisfy their needs or solve problems. Retailers can add significant value to the supply chain, representing a critical link between producers and ultimate consumers by providing the environment in which exchanges occur. Retailers play a major role in creating time, place, possession and, in some cases, form utility. They perform marketing functions that benefit ultimate consumers by making available broad arrays of products that can satisfy their needs. Historically, retail stores have offered consumers a place to browse and compare merchandise to find just what they need. However, such traditional retailing is evolving to meet changing consumer demographics and buying behavior and is adopting new technologies to improve the shopping experience. Many retailers now engage in multichannel retailing by employing multiple distribution channels that complement their brick-and-mortar stores with websites, catalogs, and apps where consumers can research products, read other buyers' reviews, and make actual purchases. The most effective multichannel retail strategies integrate the firm's goals, products, systems, and technologies seamlessly across all platforms so that a customer can research a product through the firm's website at home, find specific information about the product and locate the nearest one through an app on their smartphone while in the car, and check out in a store or online. Regardless of platform, the key to success in retailing is to have a strong customer focus with a retail strategy that provides the level of service, product quality, and innovation that consumers desire. New store formats, service innovations, and advances in information technology have helped retailers to serve customers better. For example, through Domino's Pizza AnyWare program, regular customers who have set up profiles with the firm can text or tweet a pizza slice emoji, send a message through some smart TVs and automobiles, use the company's app, or call their local Domino's store, and their favorite regular order will be promptly delivered.Footnote Retailing is also increasingly international. In particular, many retailers see significant growth potential in international markets. The market for a product category such as cell phones is mature in North America and Europe. However, demand remains strong in places like India, China, and Brazil. These countries all have large, relatively new middle classes with consumers hungry for goods and services. After recognizing that Indians with increasing discretionary income were buying Coach bags and accessories abroad, the luxury fashion icon partnered with a local firm to open Coach stores in India, one of the largest consumer economies.Footnote Many major U.S. retailers have international outlets in order to capitalize on international growth. On the other hand, international retailers, such as Aldi, IKEA, and Zara, have also found receptive markets in the United States. Types of retailers- General-Merchandise Retailers Specialty Retailers Although retailers are the most visible members of the supply chain, many products are sold outside the confines of a retail store. Direct selling and direct marketing account for a huge proportion of the sale of goods globally. Products also may be sold in automatic vending machines, but these account for a very small minority of total retail sales.

Types of Contractual Relationships (e.g., franchise)

Retailing, direct marketing, franchising, wholesaling

Differences among advertising, personal selling, PR, and sales promotion

1. Advertising- non-personal but slightly changing, highly flexible, cost efficient, repetitive, enhance image of organization, add to product value. Disadvantages: Absolute dollar outlay expensive, rare rapid feedback, hard to use celebrities, infomercials can cause disengagement. Continuous or cyclical. 2. Personal selling- Specific messages directed at one or several people, greater impact on individual customer, immediate feedback an adjustable selling. Disadvantages= technical, time consuming. Personal. Continuous or cyclical. 3. Public Relations- Increase image, generic, can be negative if perceived poorly 4. Sales Promotion- Generic, more time than advertising, faster-growing than advertising, irregular timing, decrease value to customer

Strengths of various elements of the Promotion Mix (e.g., advertising vs. selling)

1. Advertising- paid, non-personal communication about an organization and its products transmitted to a target audience through mass media, including tv, radio, internet, newspapers, magazines, video games, direct mail, outdoor displays, and billboards. Changes with consumption habits. Now more digital and cater to smaller more personal audiences. Used to promote goods, services, ideas, issues, and people. 2. Personal selling-paid, personal communication that seeks to inform customers and persuade them to purchase products in an exchange situation. Most extensively used for business-to-business sales. Also for business-to-consumer selling of high-end products. 3. Public Relations-Communication to customers and other stakeholders. Broad set of communication efforts used to create and maintain favorable relationship between the organization and the stakeholders. Includes annual reports, brochures, sponsorships. Create and enhance public image of the organization. Now going directly to consumer through tech (how to videos). Publicity is component- it is non-personal communication transmitted through mass media with no charge (news releases, press conferences, featured articles). Also give away to celebrities to generate publicity but celebrities must disclose if they are using it to endorse the product. Could be through the organization or be through independent agency. Not used in crises. 4. Sales Promotion- Activities and materials that act as a direct inducement, offering added value or incentive for the product to resellers, consumers, and salespeople. Include rebates, samples, sweepstakes, games, premiums, coupons. Used to improve effectiveness other promotion mix elements.

Elements of a product (good, service, idea)

A product is a good, a service, or an idea Good- A tangible physical entity Service- An intangible result of the application of human and mechanical efforts to people or objects Idea- A concept, philosophy, image, or issue

Transactional, Administered, Contractual, and Corporate Relationships

A corporate VMS combines all stages of the marketing channel, from producers to consumers, under a single owner. For example, the Inditex Group, which owns popular clothing retailer Zara, utilizes a corporate VMS to achieve channel efficiencies and maintain a maximum amount of control over the supply chain. Zara's clothing is trendy, requiring the shortest time possible from product development to offering the clothing in stores. Inventory is characterized by very high turnover and frequent changes. Because it has control over all stages of the supply chain, Inditex can maintain an advantage through speed and keeping prices low.Footnote In an administered VMS, channel members are independent, but informal coordination achieves a high level of inter-organizational management. Members of an administered VMS may adopt uniform accounting and ordering procedures and cooperate in promotional activities for the benefit of all partners. Although individual channel members maintain autonomy, as in conventional marketing channels, one channel member (such as a producer or large retailer) dominates the administered VMS so that distribution decisions take the whole system into account. A contractual VMS is the most popular type of vertical marketing system. Channel members are linked by legal agreements spelling out each member's rights and obligations. Franchise organizations, such as McDonald's and KFC, are contractual VMSs. Other contractual VMSs include wholesaler-sponsored groups, such as IGA (Independent Grocers' Alliance) stores, in which independent retailers band together under the contractual leadership of a wholesaler. Retailer-sponsored cooperatives, which own and operate their own wholesalers, are a third type of contractual VMS. Ace Hardware is a retail cooperative of 4,794 stores with revenues of $4.7 billion and strong growth despite competition from so-called big box stores like Home Depot and Lowe's. Each Ace Hardware store contributes to advertising and marketing for the whole group and can capitalize on the well-known brand to build their neighborhood stores.Footnote

Targeting strategies

A target market is a group of people or organizations for which a business creates and maintains a marketing mix specifically designed to satisfy the needs of group members. The strategy used to select a target market is affected by target market characteristics, product attributes, and the organization's objectives and resources. The three basic targeting strategies: undifferentiated, concentrated, and differentiated.

Category killer

A very large specialty store that concentrates on a major product category and competes on the basis of low prices and product availability (Toys-R-Us)

Undifferentiated

An organization sometimes defines an entire market for a product as its target market. When a company designs a single marketing mix and directs it at the entire market for a particular product, it is using an undifferentiated targeting strategy. As Figure 6.2 shows, the strategy assumes that all customers in the target market have similar needs, and thus the organization can satisfy most customers with a single marketing mix with little or no variation. Products marketed successfully through the undifferentiated strategy include commodities and staple food items, such as sugar, salt, and conventionally raised produce. The undifferentiated targeting strategy is effective under two conditions. First, a large proportion of customers in a total market must have similar needs for the product, a situation termed a homogeneous market. A marketer using a single marketing mix for a total market of customers with a variety of needs would find that the marketing mix satisfies very few people. For example, marketers would have little success using an undifferentiated strategy to sell a "universal car" because different customers have varying needs. Second, the organization must have the resources to develop a single marketing mix that satisfies customers' needs in a large portion of a total market and the managerial skills to maintain it. The reality is that although customers may have similar needs for a few products, for most products their needs are different enough to warrant separate marketing mixes. In such instances, a company should use a concentrated or a differentiated strategy.

New product development process

Before a product is introduced, it goes through the seven phases of the new-product development process: Idea generation Screening Concept testing Business analysis Product development Test marketing Commercialization A product may be dropped at any stage of development. In this section, we look at the process through which products are developed, from idea inception to fully commercialized product.

Branding strategies (e.g., co-branding, family branding)

Before establishing branding strategies, a firm must decide whether to brand its products at all. If a company's product is homogeneous and similar to competitors' products, it may be difficult to brand in a way that will result in consumer loyalty. Raw materials and commodities such as coal, carrots, or gravel are hard to brand because of their homogeneity and their physical characteristics. If a firm chooses to brand its products, it may use individual or family branding, or a combination. Individual branding is a policy of naming each product differently. Nestlé S.A., the world's largest food and nutrition company, uses individual branding for many of its 6,000 different brands, such as Nescafé coffee, PowerBar nutritional food, Maggi soups, and Häagen-Dazs ice cream. A major advantage of individual branding is that if an organization introduces a product that fails in the marketplace, the negative images associated with it do not influence consumers' decisions to purchase the company's other products. An individual branding strategy may also facilitate market segmentation when a firm wishes to enter many segments of the same market. Separate, unrelated names can be used, and each brand can be aimed at a specific segment. With individual branding, however, a firm cannot capitalize on the positive image associated with successful products. When using family branding, all of a firm's products are branded with the same name, or part of the name, such as the cereals Kellogg's Frosted Flakes, Kellogg's Rice Krispies, and Kellogg's Corn Flakes. In some cases, a company's name is combined with other words, such as with Arm & Hammer Heavy Duty Detergent, Arm & Hammer Pure Baking Soda, and Arm & Hammer Carpet Deodorizer, which uses the "Arm & Hammer" name followed by a description. Unlike individual branding, family branding means that the promotion of one item with the family brand promotes the firm's other products. Family branding can be a benefit when consumers have positive associations with brands, or a drawback if something happens to make consumers think negatively of the brand. For example, Johnson's Baby, a brand produced by Johnson & Johnson, was criticized for putting potentially harmful chemicals in some of its products, causing some health-conscious consumers to mistrust all the products carrying the brand name. In response to consumer outrage, Johnson & Johnson reformulated the products, restoring trust in the entire family of products.Footnote An organization is not limited to a single branding strategy. A company that uses primarily individual branding for many of its products also may use family branding for a specific product line. Branding strategy is influenced by the number of products and product lines the company produces, the number and types of competing products available, and the size of the firm. Co-branding- Using two or more brands on one product Examples: Betty Crocker's brownie mix includes Hershey's Chocolate Syrup

Buy-grid framework

Buygrid framework as a generic conceptual model for buying processes of organisations. They saw industrial buying not as single events, but as organisational decision-making processes where multiple individuals decide on a purchase. Their framework consists of a matrix of buyclasses and buyphases. The buy-grid model is a business model depicting rational organizational decision making. Business marketers use the buy-grid model to portray the steps businesses go through in making purchase decisions. The model includes two components: buy phase and buy class. Buy phase represents the logical eight steps businesses (or consumers involved in extensive problem solving) go through need recognition definition of PRODUCT type needed development of detailed specifications search for qualified suppliers acquisition and analysis of proposals evaluation of proposals and selection of a supplier selection of an order procedure evaluation of product performance

Deciders

Deciders actually choose the products. Although buyers may be deciders, it is not unusual for different people to occupy these roles. For routinely purchased items, buyers are commonly deciders. However, a buyer may not be authorized to make purchases that exceed a certain dollar limit, in which case higher-level management personnel are deciders.

Derived Demand

Demand for business products that stems from demand for consumer products Goods that are needed by the producers to further produce goods and services are said to have a derived demand. So all factors of production like Land, Labour and Capital have a derived demand. By contrast, derived demand refers to demand for goods which are needed for further production; it is the demand for producers' goods like industrial raw materials, machine tools and equipments.

Decline

During the decline stage, sales fall rapidly (see Figure 11.2). When this happens, the marketer must consider eliminating items from the product line that no longer earn a profit. The marketer also may cut promotion efforts, eliminate marginal distributors, and finally, plan to phase out the product. This can be seen in the decline in demand for most sweetened carbonated beverages such as soda, which has been continuing for decades as consumers turn instead to bottled teas and flavored waters. Companies have responded to this shift in consumer preference by expanding their offerings of juices, waters, and healthier drink options. In the decline stage, marketers must decide whether to reposition the product to extend its life, or whether it is better to eliminate it. Usually a declining product has lost its distinctiveness because similar competing or superior products have been introduced. Competition engenders increased substitution and brand switching among consumers as they become increasingly insensitive to minor product differences. For these reasons, marketers do little to change a product's style, design, or other attributes during its decline. New technology or social trends, product substitutes, or environmental considerations may also indicate that the time has come to delete the product. During a product's decline, spending on promotion efforts is usually reduced considerably. Advertising of special offers and sales promotions, such as coupons and premiums, may slow the rate of decline temporarily. Firms will maintain outlets with strong sales volumes and eliminate unprofitable outlets. An entire marketing channel may be eliminated if it does not contribute adequately to profits. A channel not used previously, such as a factory outlet or Internet retailer, can help liquidate remaining inventory of a product that is being eliminated. As sales decline, the product becomes harder for consumers to find, but loyal buyers will seek out resellers who still carry it. As the product continues to decline, the sales staff at outlets where it is still sold will shift emphasis to more profitable products.

Growth

During the growth stage, sales rise rapidly and profits reach a peak and then start to decline (see Figure 11.2). The growth stage is critical to a product's survival because competitive reactions to the product's success during this period will affect the product's life expectancy. 3D printers are in the growth stage. Profits begin to decline late in the growth stage as more competitors enter the market, driving prices down and creating the need for heavy promotional expenses. At this point, a typical marketing strategy seeks to strengthen market share and position the product favorably against aggressive competitors by emphasizing product benefits. Marketers should analyze competing brands' product positions relative to their own and adjust the marketing mix in response to their findings. Aggressive pricing, including price cuts, is also typical during this stage as a means of gaining market share—even if it means short-term loss of profits. The goal of the marketing strategy in the growth stage is to establish and fortify the product's market position by encouraging adoption and brand loyalty. The advertisement for Silk Almond Milk, for example, strives to encourage adoption of the product by promoting that more people in a taste test found it tastier than milk. The ad pictures an almond-encircled carton spouting almond milk that almost seems to shout the taste comparison results, while the text promotes that almond milk is smooth and tasty. In the case of Silk, promotional effort must help minimize indirect competition from milk as well as direct competition from dairy replacement products. Firms should seek to fill gaps in geographic market coverage during the growth period. As a product gains market acceptance, new distribution outlets usually become easier to secure. Marketers sometimes move from an exclusive or a selective exposure to a more intensive network of dealers to achieve greater market penetration. Marketers must also make sure the physical distribution system is running efficiently so that customers' orders are processed accurately and delivered on time. Promotion expenditures in the growth stage may be slightly lower than during the introductory stage, but are still large. As sales continue to increase, promotion costs should drop as a percentage of total sales, which contributes significantly to increased profits. Advertising messages should stress brand benefits.

Gatekeepers

Gatekeepers, such as administrative assistants and technical personnel, control the flow of information to and among the different roles in the buying center. Buyers who deal directly with vendors also may be gatekeepers because they can control information flows. The flow of information from a supplier's sales representatives to users and influencers is often controlled by personnel in the purchasing department.

Franchising

Franchising is an arrangement in which a supplier, or franchisor, grants a dealer, or franchisee, the right to sell products in exchange for some type of consideration. The franchisor may receive a percentage of total sales in exchange for furnishing equipment, buildings, management know-how, and marketing assistance to the franchisee. The franchisee supplies labor and capital, operates the franchised business, and agrees to abide by the provisions of the franchise agreement. Table 15.2 lists the leading U.S. franchises as well as the types of products they sell and start-up costs. Because of changes in the international marketplace, shifting employment options in the United States, the large U.S. service economy, and corporate interest in more joint-venture activity, franchising is a very popular retail option. There are more than 782,753 franchise establishments in the United States, which provide 8.8 million jobs across a variety of industries, and generate $892 billion in sales.Footnote Franchising offers several advantages to both the franchisee and the franchisor. It enables a franchisee to start a business with limited capital and benefit from the business experience of others. Generally speaking, franchises have lower failure rates than independent retail establishments and are often more successful because they can build on the established reputation of a national brand. Nationally, about 57 percent of first-time franchise chains fail, and about 61 percent of independent operators are equally unsuccessful.Footnote However, franchise failure rates vary greatly depending on the particular franchise. Nationally advertised franchises, such as Subway and Burger King, are often assured of sales as soon as they open because customers already know what to expect. If business problems arise, the franchisee can obtain guidance and advice from the franchisor at little or no cost. Also, the franchisee receives materials to use in local advertising and can benefit from national promotional campaigns sponsored by the franchisor. Through franchise arrangements, the franchisor gains fast and selective product distribution without incurring the high cost of constructing and operating its own outlets. The franchisor, therefore, has more available capital for expanding production and advertising. It can also ensure, through the franchise agreement, that outlets are maintained and operated according to its own standards. Some franchisors do permit their franchisees to modify their menus, hours, or other operating elements to better match their target market's needs. The franchisor benefits from the fact that the franchisee, being a sole proprietor in most cases, is likely to be very highly motivated to succeed. Success of the franchise means more sales, which translates into higher income for the franchisor. This advertisement for Merle Norman Cosmetics touts not only the benefits of using Merle Norman products but also the advantages of becoming a franchisee, including being able to "take control of your destiny." Clearly, this advertisement is targeted at potential franchisees as well as potential customers. Franchise arrangements also have several drawbacks. The franchisor can dictate many aspects of the business: décor, menu, design of employees' uniforms, types of signs, hours of operation, and numerous details of business operations. In addition, franchisees must pay to use the franchisor's name, products, and assistance. Usually, there is a one-time franchise fee and continuing royalty and advertising fees, often collected as a percentage of sales. Franchisees often must work very hard, putting in 10- to 12-hour days six or seven days a week. In some cases, franchise agreements are not uniform, meaning one franchisee may pay more than another for the same services. Finally, the franchisor gives up a certain amount of control when entering into a franchise agreement with an entrepreneur. Consequently, individual establishments may not be operated exactly according to the franchisor's standards.

Geographic

Geographic variables—climate, terrain, city size, population density, and urban/rural areas—also influence consumer product needs. Markets may be divided using geographic variables because differences in location, climate, and terrain will influence consumers' needs. Consumers in the South, for instance, rarely have a need for snow tires. A company that sells products to a national market might divide the United States into Pacific, Southwest, Central, Midwest, Southeast, Middle Atlantic, and New England regions. A firm that is operating in one or several states might regionalize its market by counties, cities, zip code areas, or other units. City size can be an important segmentation variable. Many firms choose to limit marketing efforts on cities above a certain size because small populations have been calculated to generate inadequate profits. Other firms actively seek opportunities in smaller towns. A classic example is Walmart, which initially was located only in small towns and even today can be found in towns where other large retailers stay away. If a marketer chooses to divide by a geographic variable, such as by city size, the U.S. Census Bureau provides reporting on population and demographics that can be of considerable assistance to marketers. Because cities often cut across political boundaries, the U.S. Census Bureau developed a system to classify metropolitan areas (any area with a city or urbanized area with a population of at least 50,000 and a total metropolitan population of at least 100,000). Metropolitan areas are categorized as one of the following: a metropolitan statistical area (MSA), a primary metropolitan statistical area (PMSA), or a consolidated metropolitan statistical area (CMSA). An MSA is an urbanized area encircled by nonmetropolitan counties and is neither socially nor economically dependent on any other metropolitan area. A metropolitan area within a complex of at least 1 million inhabitants can elect to be named a PMSA. A CMSA is a metropolitan area of at least 1 million that has two or more PMSAs. Of the 20 CMSAs, the five largest—New York, Los Angeles, Chicago, San Francisco, and Philadelphia—account for 20 percent of the U.S. population. The federal government provides a considerable amount of socioeconomic information about MSAs, PMSAs, and CMSAs that can aid in market analysis and segmentation. Market density refers to the number of potential customers within a unit of land area, such as a square mile. Although market density relates generally to population density, the correlation is not exact. For instance, in two different geographic markets of approximately equal size and population, market density for office supplies would be much higher in an area containing a large number of business customers, such as a city downtown, than in another area that is largely residential. Market density may be a useful segmentation variable for firms because low-density markets often require different sales, advertising, and distribution activities than do high-density markets. Marketers may also use geodemographic segmentation. Geodemographic segmentation clusters people by zip codes or neighborhood units based on lifestyle and demographic information. Targeting this way can be effective because people often choose to live in an area that shares their basic lifestyle and political beliefs. Information companies such as Nielsen provide geodemographic data services and products. PRIZM, for example, classifies zip code areas into 66 different cluster types, based on demographic information of residents.Footnote Geodemographic segmentation allows marketers to engage in micromarketing. Micromarketing involves focusing precise marketing efforts on very small geographic markets, such as community and even individual neighborhoods. Providers of financial and health-care services, retailers, and consumer product companies use micro marketing. Many retailers use micromarketing to determine the merchandise mix for individual stores. Increasingly, firms can engage in micromarketing in online retailing, given the Internet's ability to target precise interest groups. Unlike traditional micromarketing, online micromarketing is not limited by geography. The wealth of consumer information available online allows marketers to appeal efficiently and effectively to very specific consumer niches. Climate is commonly used as a geographic segmentation variable because of its broad impact on people's behavior and product needs. Product markets affected by climate include air-conditioning and heating equipment, fireplace accessories, clothing, gardening equipment, recreational products, and building materials.

Market development vs. market penetration

Market development is the use of an existing product or service offering to attract new customer market. Market development is a strategy in which the company sells existing products in a new market. Market penetration is an effort to dig deeper within an existing marketplace. market penetration is a strategy in which the company sells existing products in the existing market in order to obtain more market share.

Profit vs revenue vs market share

Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. Profit= amount of revenue gained from a business activity exceeds the expenses, costs and taxes Market share represents the percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period.

Customer satisfaction

Satisfaction People's willingness to spend—their inclination to buy because of expected satisfaction from a product The amount of satisfaction received from a product already owned may also influence customers' desires to buy other products. Satisfaction depends not only on the quality of the currently owned product but also on numerous psychological and social forces.

Skimming vs. Penetration pricing

Skimming- Charging the highest possible price that buyers who most desire the product will pay, considered a new product pricing method. Helps recover high cost of R&D. Provides most flexible introductory base price. Limited production capacity can be met with the high prices. Can be dangerous if they misjudge demand and have prices too high. Penetration- Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly. Less flexible because it is hard to increase price. Not unusual for companies to first skim and then penetrate. Good if competitors can enter easily.

Distribution (Place)

To satisfy customers, products must be available at the right time and in appropriate locations. In dealing with the distribution variable, a marketing manager makes products available in the quantities desired to as many target-market customers as possible, keeping total inventory, transportation, and storage costs as efficient as possible. A marketing manager also may select and motivate intermediaries (wholesalers and retailers), establish and maintain inventory control procedures, and develop and manage transportation and storage systems. All companies must depend on intermediaries to move their final products to the market. The advent of the Internet and electronic commerce also has dramatically influenced the distribution variable.

Users

Users are the organizational members who will actually use the product. They frequently initiate the purchase process and/or generate purchase specifications. After the purchase, they evaluate product performance relative to the specifications.

Bases of segmentation for consumers

A marketer that is using segmentation to reach a consumer market can choose one or several variables. Segmentation variables can be grouped into four major categories: demographic, geographic, psychographic, and behavioristic.

Value of intermediaries

All companies must depend on intermediaries to move their final products to the market. When an organization believes that an intermediary is not promoting its products adequately or does not offer the correct mix of services, it may reconsider its channel choices. In these instances, the company may choose another channel member to handle its products, it may select a new intermediary, or it might choose to eliminate intermediaries altogether and perform the functions itself. Marketing intermediaries- Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products Brokers- Intermediaries that bring buyers and sellers together temporarily Sales branches- Manufacturer-owned intermediaries that sell products and provide support services to the manufacturer's sales force Reseller markets- Intermediaries that buy finished goods and resell them for a profit Agents- Intermediaries that represent either buyers or sellers on a permanent basis Selling agents- Intermediaries that market a whole product line or a manufacturer's entire output Manufacturers' agents- Independent intermediaries that represent two or more sellers and usually offer customers complete product lines

Evaluation of creative advertisements

Advertising can be evaluated before, during, and after the campaign. An evaluation performed before the campaign begins is called a pretest. A pretest usually attempts to evaluate the effectiveness of one or more elements of the message. To pretest advertisements, marketers sometimes use a consumer jury, a panel of existing or potential buyers of the advertised product. Jurors judge one or several dimensions of two or more advertisements. Such tests are based on the belief that consumers are more likely than advertising experts to know what influences them. Companies can also solicit the assistance of marketing research firms, such as Information Resources Inc. (IRI), to help assess ads. To measure advertising effectiveness during a campaign, marketers usually rely on "inquiries" or responses. In a campaign's initial stages, an advertiser may use several advertisements simultaneously, each containing a coupon, form, toll-free phone number, QR code, social media, or website through which potential customers can request information. The advertiser records the number of inquiries or responses returned from each type of advertisement. If an advertiser receives 78,528 inquiries from advertisement A, 37,072 from advertisement B, and 47,932 from advertisement C, advertisement A is judged superior to advertisements B and C. Internet advertisers can also assess how many people "clicked" on an ad to obtain more product information. For the outdoor advertising industry, its independent auditor developed an out-of-home ratings system to determine the audiences likely to see an advertisement. Previous measurement systems used "Daily Effective Circulation," which essentially evolved around traffic counts, not on interested audiences. The industry has modified its rating system to account for new information, including vehicle speed and traffic congestion.Footnote Evaluation of advertising effectiveness after the campaign is called a posttest. Advertising objectives often determine what kind of posttest is appropriate. If the objectives' focus is on communication—to increase awareness of product features or brands or to create more favorable customer attitudes—the posttest should measure changes in these dimensions. Advertisers sometimes use consumer surveys or experiments to evaluate a campaign based on communication objectives. These methods are costly, however. In posttests, generalizations can be made about why advertising is failing or why media vehicles are not delivering the desired results. For campaign objectives stated in terms of sales, advertisers should determine the change in sales or market share attributable to the campaign. Sales of Lincoln's MKZ sedan increased 5.1 percent in an eight-month period and is largely attributed to its advertising campaign featuring actor Matthew McConaughey.Footnote However, changes in sales or market share brought about by advertising cannot be measured precisely; many factors independent of advertisements affect a firm's sales and market share. Competitors' actions, regulatory actions, and changes in economic conditions, consumer preferences, and weather are only a few factors that might enhance or diminish a company's sales or market share. By using data about past and current sales and advertising expenditures, advertisers can make gross estimates of the effects of a campaign on sales or market share. Because it is difficult to determine the direct effects of advertising on sales, many advertisers evaluate print advertisements according to how well consumers can remember them. As more advertisers turn to mobile technology, measuring the recall rate of mobile advertisements is becoming increasingly important. Despite this fact, studies suggest that print ads are still the most effective. Recall was approximately 70 percent higher among those who looked at a direct mail ad than a digital one.Footnote Researchers have found that ads that play on the theme of social desirability are more memorable when viewed in the presence of other people. Posttest methods based on memory include recognition and recall tests. Such tests are usually performed by research organizations through surveys. In a recognition test, respondents are shown the actual advertisement and asked whether they recognize it. If they do, the interviewer asks additional questions to determine how much of the advertisement each respondent read. When recall is evaluated, respondents are not shown the actual advertisement but instead are asked about what they have seen or heard recently. For Internet advertising, research suggests that the longer a person is exposed to a website containing a banner advertisement, the more likely he or she is to recall the ad.Footnote Recall can be measured through either unaided or aided recall methods. In an unaided recall test, respondents identify advertisements they have seen recently but are not shown any clues to help them remember. A similar procedure is used with an aided recall test, but respondents are shown a list of products, brands, company names, or trademarks to jog their memories. Research has shown that brand recall is 1.7 times higher among users of a product than non-users.Footnote The major justification for using recognition and recall methods is that people are more likely to buy a product if they can remember an advertisement about it than if they cannot. However, recalling an advertisement does not necessarily lead to buying the product or brand advertised. Researchers also use a sophisticated technique called single-source data to help evaluate advertisements. With this technique, individuals' behaviors are tracked from television sets to checkout counters. Monitors are placed in preselected homes, and microcomputers record when the television set is on and which station is being viewed. At the supermarket checkout, the individual in the sample household presents an identification card. Checkers then record the purchases by scanner, and data are sent to the research facility. Some single-source data companies provide sample households with scanning equipment for use at home to record purchases after returning from shopping trips. Single-source data supplies information that links exposure to advertisements with purchase behavior.

Types of advertising and roles of advertising

Advertising permeates our daily lives. At times, we view it positively; at other times, we feel bombarded and try to avoid it. Some advertising informs, persuades, or entertains us; some bores, annoys, or even offends us. Many companies are taking a different approach to their marketing, even using satire or criticism of their companies as a way to create awareness. Arby's bought two commercials in former television host Jon Stewart's final episode of the "Daily Show" despite the fact that Stewart poked fun at the company's products several times during his show. Rather than acting defensively to Stewart's ridicule, Arby's chose to use his popularity among younger people to reach this demographic.Footnote As mentioned in Chapter 16, advertising is a paid form of nonpersonal communication that is transmitted to a target audience through mass media, such as television, radio, the Internet, newspapers, magazines, direct mail, outdoor displays, and signs on mass transit vehicles. Advertising can have a profound impact on how consumers view certain products. One example is locally grown and organic produce. Consumers are likely to view locally grown and organic produce as healthier. Whole Foods and other supermarkets promote locally grown food as being more sustainable since it eliminates emissions from transporting food long distances and supports local farmers. Advertisements even influence how a brand's own sales force views company products. Salesperson perception of brand advertising is positively related to effort and performance because it influences how the salesperson identifies with the brand.Footnote Organizations use advertising to reach a variety of audiences ranging from small, specific groups, such as stamp collectors in Idaho, to extremely large groups, such as all athletic-shoe purchasers in the United States. When asked to name major advertisers, most people immediately mention business organizations. However, many nonbusiness organizations—including governments, churches, universities, and charitable organizations—employ advertising to communicate with stakeholders. Each year, the U.S. government spends hundreds of millions of dollars in advertising to advise and influence the behavior of its citizens. Although this chapter analyzes advertising in the context of business organizations, much of the following material applies to all types of organizations. For instance, the advertisement for the Cayman Islands is meant to entice consumers to vacation within the region. It shows photos of people having a good time rather than promoting any particular type of business or product. It is important for cities and states to advertise because tourism generates significant income for their locations. Advertising is used to promote goods, services, ideas, images, issues, people, and anything else advertisers want to publicize or foster. Depending on what is being promoted, advertising can be classified as institutional or product advertising. institutional advertising promotes organizational images, ideas, and political issues. It can be used to create or maintain an organizational image. Institutional advertisements may deal with broad image issues, such as organizational strengths or the friendliness of employees. Monsanto, for instance, took out an advertisement to describe its supplier diversity. It shows photos of people from different backgrounds to demonstrate its commitment toward inclusion and diversity. Marketers may also aim to create a more favorable view of the organization in the eyes of noncustomer groups, such as shareholders, consumer advocacy groups, potential shareholders, or the general public. When a company promotes its position on a public issue—for instance, a tax increase, sustainability, regulations, or international trade coalitions—institutional advertising is referred to as advocacy advertising. Such advertising may be used to promote socially approved behavior, such as recycling or moderation in consuming alcoholic beverages. AT&T, for instance, ran an advertising campaign called "It Can Wait" that showed a terrible car crash in reverse. Its intent was to discourage people from texting and driving.Footnote This type of advertising not only has social benefits but also helps build an organization's image. Product advertising promotes the uses, features, and benefits of products. There are two types of product advertising: pioneer and competitive. Pioneer advertising focuses on stimulating demand for a product category (rather than a specific brand) by informing potential customers about the product's features, uses, and benefits. Toyota's marketing of its hydrogen-based FCV is an example of pioneer advertising. To help consumers understand the benefits of hydrogen-fuel technology, Toyota announced plans to spend $385 million to subsidize fuel-cell vehicles and hydrogen stations for the 2020 Olympics.Footnote Sometimes marketers will begin advertising a product before it hits the market. Apple has had great success using this type of advertising for its iPod and iPad. Product advertising that focuses on products before they are available tends to cause people to think about the product more and evaluate it more positively.Footnote Pioneer advertising is also employed when the product is in the introductory stage of the product life cycle, exemplified in the launch of the Samsung Galaxy Gear in the smartwatch category. Competitive advertising attempts to stimulate demand for a specific brand by promoting the brand's features, uses, and advantages, sometimes through indirect or direct comparisons with competing brands. Cell phone service providers use competitive advertising to position their brands—for example, Verizon against T-Mobile. Advertising effects on sales must reflect competitors' advertising activities. The type of competitive environment will determine the most effective industry approach. To make direct product comparisons, marketers use a form of competitive advertising called comparative advertising, which compares the sponsored brand with one or more identified competing brands on the basis of one or more product characteristics. Surveys show that top creative advertising practitioners view comparative advertising favorably when it clearly identifies the competition.Footnote Samsung has used comparative advertising that compares its products' superior features to its rival Apple's. Often, the brands that are promoted through comparative advertisements have low market shares and are compared with competitors that have the highest market shares in the product category. Product categories that commonly use comparative advertising include soft drinks, toothpaste, pain relievers, foods, tires, automobiles, and detergents. Under the provisions of the 1988 Trademark Law Revision Act, marketers using comparative advertisements in the United States must not misrepresent the qualities or characteristics of competing products. Other countries may have laws that are stricter or less strict with regard to comparative advertising. For instance, Brazil has ruled that comparative advertising is acceptable as long as the comparison is fair and truthful. However, determining the fairness of an advertisement can be subjective and can vary in different situations.Footnote Other forms of competitive advertising include reminder and reinforcement advertising. Reminder advertising tells customers that an established brand is still around and still offers certain characteristics, uses, and advantages. Clorox, for example, reminds customers about the many advantages of its bleach products, such as their ability to kill germs, whiten clothes, and remove stains. Reinforcement advertising assures current users that they have made the right brand choice and tells them how to get the most satisfaction from that brand. Arm & Hammer baking soda does advertisements to remind purchasers to keep using the product for many different purposes. For example, if a box of baking soda is put into the refrigerator to reduce odors, then advertising reminds consumers to change out the baking soda on a periodic basis. One growing trend among marketers has been the use of native advertising, or digital advertising, that matches the appearance and purpose of the content in which it is embedded. The word "native" refers to the fact that this form of advertising is meant to resemble the content itself. Native advertising differs from content marketing in that it uses a platform outside of its own media. For instance, Netflix used native advertising to promote its "Orange Is the New Black" series on The New York Times website. Rather than promoting the show directly, Netflix created a 1,500 word feature article describing the current state of female incarceration in the United States, complete with graphs and other visuals. The native advertisement fits with Netflix's theme of a woman's experience in prison while resembling the form and content of a New York Times article.Footnote In a world inundated with advertisements, native advertising offers marketers the opportunity to reach consumers in new and innovative ways. It also increases advertising revenue for the sites that host them. For instance, the professional social networking site LinkedIn has opened up a lucrative native advertising platform allowing brands to publish sponsored content. It is estimated that LinkedIn receives 45 percent of its advertising revenue from native advertising.Footnote On the other hand, native advertising is potentially misleading when consumers do not realize that a video or post is sponsored by an organization. One survey revealed that two-thirds of respondents felt deceived upon realizing an article or video was sponsored content.Footnote To avoid deception and possible legal repercussions, brands should clearly identify sponsored content on digital media sites.

Product Adoption Process

Awareness: The buyer becomes aware of the product. Interest: The buyer seeks information and is receptive to learning about the product. Evaluation: The buyer considers the product's benefits and decides whether to try it, considering its value versus the competition. Trial: The buyer examines, tests, or tries the product to determine if it meets his or her needs. Adoption: The buyer purchases the product and can be expected to use it again whenever the need for this product arises.

Organizational buying behavior and decision making

Business (organizational) buying behavior refers to the purchase behavior of producers, government units, institutions, and resellers. Although several factors that affect consumer buying behavior (discussed in Chapter 7) also influence business buying behavior, a number of factors are unique to businesses. In this section, we analyze the buying center to learn who participates in business buying decisions. Then we focus on the stages of the buying decision process and the factors that affect it.

Demographic

Demographic Variables Demographers study aggregate population characteristics such as the distribution of age and gender, fertility rates, migration patterns, and mortality rates. Demographic characteristics that marketers commonly use include age, gender, race, ethnicity, income, education, occupation, family size, family life cycle, religion, and social class. Marketers segment markets by demographic characteristics because they are often closely linked to customers' needs and purchasing behaviors and can be readily measured. Age is a common variable for segmentation purposes. A trip to the shopping mall highlights the fact that many retailers, including Zara, Forever 21, and American Eagle Outfitters, target teens and very young adults. If considering segmenting by age, marketers need to be aware of age distribution, how that distribution is changing, and how it will affect the demand for different types of products. The proportion of consumers under age 55 is expected to continue to decrease over time as Baby Boomers (born between 1946 and 1964) age. In 1970, the median age of a U.S. citizen was 27.9. It is currently 37.3.Footnote Because of the increasing average age of Americans, many marketers are searching for ways to market their products to older adults. As Figure 6.4 shows, Americans in different age groups have different product needs because of their different lifestyles and health situations. Citizens age 65 and older, for instance, spend the most on health care, while those under age 35 spend the most on entertainment and transportation. Gender is another demographic variable that is commonly used to segment markets, including clothing, soft drinks, nonprescription medications, magazines, some food items, and personal care products. The U.S. Census Bureau reports that females account for 50.8 percent, and males for 49.2 percent, of the total U.S. population.Footnote Although they represent only slightly more than half of the population, women disproportionately influence buying decisions. It is estimated that women account for 85 percent of all consumer purchases, causing many marketers to consider female customers when making marketing decisions.Footnote Consider the advertisement for Clinique. Because marketers know that women do the majority of household shopping and do more housework than men, this ad is clearly targeted at females. The ad depicts the Clinique Sonic Cleansing brush and touts that the device can promote clear, fresh, and glowing skin. The colors of the ad are predominantly bright pink, yellow, and orange—all very feminine colors. Even the background in the ad contains modern floral motifs that suggest the spinning brush head. Marketers also use race and ethnicity as variables for segmenting markets for such products as food, music, clothing, cosmetics, banking, and insurance. Cosmetics, for example, is an industry where it is important to match the shade of the products with the skin colors of the target market to maintain customer satisfaction and loyalty. Iman Cosmetics is a line created by the Ethiopian supermodel Iman, with deeper colors designed to flatter the skin tones of women of color, be they Black, Hispanic, or Asian. These products are not made for, nor marketed to, light-skinned women.Footnote Because income strongly influences people's product purchases, it often provides a way to divide markets. Income affects customers' lifestyles and what they can afford to buy. Product markets segmented by income include sporting goods, housing, furniture, cosmetics, clothing, jewelry, home appliances, automobiles, and electronics. Although it may seem obvious to target higher-income consumers because of their larger purchasing power, many marketers choose to target lower-income segments because they represent a much larger population globally. Among the factors that influence household income and product needs are marital status and the presence and age of children. These characteristics, often combined and called the family life cycle, affect needs for housing, appliances, food and beverages, automobiles, and recreational equipment. Transitions between life cycle stages can also be lucrative for marketers, such as weddings. Consider that there are 2 million weddings performed in the United States each year, and the average cost of each wedding is $31,213. Marketers know that engaged couples will be highly receptive to wedding-related marketing messages, much like parents-to-be will be receptive to baby-themed marketing, making them a very desirable market segment.Footnote Family life cycles can be divided in various ways, as Figure 6.5 shows. This figure depicts the process broken down into nine categories. The composition of the U.S. household in relation to the family life cycle has changed considerably over the last several decades. Single-parent families are on the rise, meaning that the "typical" family no longer necessarily consists of a married couple with children. In fact, husband-and-wife households only account for 48.4 percent of all households in the United States, whereas they used to account for a majority of living arrangements. An estimated 26.7 percent of Americans live alone. Recently, previously small groups have risen in prominence, prompting an interest from marketers. Unmarried households represent 6.6 percent of the total, an increase of 41 percent since 2000. Same-sex partners represent 0.6 percent of households, which is a small proportion of the total population of households, but an increase of more than 81 percent since 2000.Footnote People live in many different situations, all of which have different requirements for goods and services. Tracking demographic shifts such as these helps marketers be informed and prepared to satisfy the needs of target markets through new marketing mixes that address their changing lifestyles.

Commercialization

During the commercialization phase, plans for full-scale manufacturing and marketing must be refined and settled and budgets for the project prepared. Early in the commercialization phase, marketing management analyzes the results of test marketing to find out what changes in the marketing mix are needed before introducing the product. The results of test marketing may tell marketers to change one or more of the product's physical attributes, modify the distribution plans to include more retail outlets, alter promotional efforts, or change the product's price. However, as more and more changes are made based on test marketing findings, the test marketing projections may become less valid. During the early part of this stage, marketers must not only gear up for large-scale production, but also make decisions about warranties, repairs, and replacement parts. The type of warranty a firm provides can be a critical issue for buyers, especially for expensive, technically complex goods, such as appliances, or frequently used items, such as mattresses. Establishing an effective system for providing repair services and replacement parts is necessary to maintain favorable customer relationships. Although the producer may furnish these services directly to buyers, it is more common for the producer to provide such services through regional service centers. Regardless of how services are provided, it is important to customers that they be performed quickly and correctly. The product enters the market during the commercialization phase. When introducing a product, a firm may spend enormous sums for advertising, personal selling, and other types of promotion, as well as on manufacturing and equipment costs. Such expenditures may not be recovered for several years. Smaller firms may find this process difficult, but even so they may use press releases, blogs, podcasts, and other tools to capture quick feedback as well as to promote the new product. Another low-cost promotional tool is product reviews in newspapers, magazines, or blogs, which can be especially helpful when they are positive and target the same customers. Products are not usually launched nationwide overnight, but are introduced in stages through a process called a rollout. With a rollout, a product is introduced starting in one geographic area or set of areas and gradually expands into adjacent ones. It may take several years to reach national marketing coverage. Sometimes, the test cities are used as initial marketing areas, and the introduction of the product becomes a natural extension of test marketing. A product test marketed in Sacramento, California and Fort Collins, Colorado could be introduced first in those cities. After the stage 1 introduction is complete, stage 2 usually includes market coverage of the states where the test cities are located. In stage 3, marketing efforts might be extended to adjacent states. All remaining states would then be covered in stage 4. Product rollouts do not always occur state by state. Other geographic combinations, such as groups of counties that overlap across state borders, are sometimes used. Products destined for multinational markets may also be rolled out one country or region at a time. Gradual product introduction is desirable for several reasons. First, it reduces the risks of introducing a new product. If the product fails, the firm will experience smaller losses if it introduced the item in only a few geographic areas than if it marketed the product nationally. Second, a company cannot introduce a product nationwide overnight, because a system of wholesalers and retailers to distribute the product cannot be established so quickly. Developing a distribution network can take considerable time. Third, if the product is successful from launch, the number of units needed to satisfy nationwide demand for it may be too large for the firm to produce in a short time. Finally, gradual introduction allows for fine-tuning of the marketing mix to satisfy target customers. As electric charging stations become more prevalent around the nation, Tesla Motors has used a rollout strategy to build demand for its innovative electric vehicles. The rollout strategy has also allowed the company to expand production capacity to accommodate the growing demand.Footnote Despite the good reasons for introducing a product gradually, marketers realize this approach creates problems. A gradual introduction allows competitors to observe what the firm is doing and monitor results just as the firm's own marketers are doing. If competitors see that the newly introduced product is successful, they may quickly enter the same target market with similar products. In addition, as a product is introduced region by region, competitors may expand their marketing efforts to offset promotion of the new product. Marketers should realize that too much delay in launching a product can cause the firm to miss out on seizing market opportunities, creating competitive offerings, and forming cooperative relationships with channel members.

Maturity

During the maturity stage, sales peak and start to level off or decline, and profits continue to fall (see Figure 11.2). DVDs are an example of a product in the maturity phase as Internet streaming of entertainment grows in popularity. This stage is characterized by intense competition because many brands are now in the market. Competitors emphasize improvements and differences in their versions of the product. Another example of a product that has many competitors and many variations available on the market is tablets. The advertisement for Amazon's Fire HD8, a product in the maturity stage, touts that the tablet is more durable than the Apple iPad. The advertisement further underscores the comparison to the iPad by pointing out the Fire HD8's ready access to millions of movies, TV episodes, songs, books, and more. Finally, the ad informs that the Fire HD8 starts at $149.99, significantly less than an iPad. Weaker competitors are squeezed out of the market during this stage. During the maturity phase, the producers who remain in the market are likely to change their promotional and distribution efforts. Advertising and dealer-oriented promotions are typical during this stage of the product life cycle. Marketers also must take into account that as it reaches maturity, buyers' knowledge of the product is likely to be high. Consumers are no longer inexperienced generalists. They have become experienced specialists. Marketers of mature products sometimes expand distribution into global markets, in which case products may have to be adapted to fit differing needs of global customers more precisely. For instance, as Barbie doll sales decline in the United States, Mattel has been trying to increase interest for Barbie in China. Because parents have a different view of toys in China than those of the United States, Mattel has had to adapt Barbie to focus more on learning and intellectual pursuits. If the iconic doll fails to take off there, Mattel may have to shift to a decline strategy for Barbie. Because many products are in the maturity stage of their life cycles, marketers must know how to deal with them and be prepared to adjust their marketing strategies. There are many approaches to altering marketing strategies during the maturity stage. To increase the sales of mature products, marketers may suggest new uses for them. As customers become more experienced and knowledgeable about products during the maturity stage (particularly about business products), the benefits they seek may change as well, necessitating product modifications. Nestlé, for example, reformulated Baby Ruth, Butterfinger, and other chocolate bars so that they would be free of artificial flavors and colors. Because consumers today are increasingly concerned about the safety of artificial ingredients, Nestlé recognized this as an opportunity to differentiate its mature products from rivals. Nestlé hopes its reformulated candy bars will turn critics of artificial ingredients into loyal customers.Footnote During the maturity stage, marketers actively encourage resellers to support the product. Resellers may be offered promotional assistance to lower their inventory costs. In general, marketers go to great lengths to serve resellers and provide incentives for displaying and selling their brand. Maintaining market share during the maturity stage requires promotion expenditures, which can be large if a firm seeks to increase a product's market share through new uses. Advertising messages in this stage may focus on differentiating a brand from the field of competitors, and sales promotion efforts may be aimed at both consumers and resellers.

Sales cannibalization

In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

Innovators and early adopters

Innovators are the first to adopt a new product because they enjoy trying new products and do not mind taking a risk. Early adopters choose new products carefully and are viewed as people who are in-the-know by those in the remaining adopter categories

Bases of segmentation for business

Like consumer markets, business markets are frequently segmented for marketing purposes. Marketers segment business markets according to geographic location, type of organization, customer size, and product use. Geographic Location Earlier we noted that the demand for some consumer products can vary considerably among geographic areas because of differences in climate, terrain, or regional customer preferences. Demand for business products also varies according to geographic location. For instance, producers of lumber may divide their markets geographically because customers' needs vary by region. Geographic segmentation may be especially appropriate for producers seeking to reach industries concentrated in certain locations, such as furniture and textile producers concentrated in the Southeast. Type of Organization A company sometimes segments a market by types of organizations within that market because they often require different product features, distribution systems, price structures, and selling strategies. Given these variations, a firm may either concentrate on a single segment with one marketing mix (a concentration targeting strategy) or focus on several groups with multiple mixes (a differentiated targeting strategy). A carpet producer could segment potential customers into several groups, such as automobile makers, commercial carpet contractors (firms that carpet large office buildings), apartment complex developers, carpet wholesalers, and large retail carpet outlets. Customer Size An organization's size may affect its purchasing procedures and the types and quantities of products it wants. Size can thus be an effective variable for segmenting a business market. To reach a segment of a particular size, marketers may have to adjust one or more marketing mix ingredients. For instance, marketers may want to offer customers who buy in large quantities a discount as a purchase incentive. Personal selling is common and expected in business markets, where a higher level of customer service may be required—larger customers may require a higher level of customer service because of the size and complexity of their orders. Because the needs of large and small buyers tend to be distinct, marketers frequently use different marketing practices to reach target customer groups. Examine the advertisement for the Capital One Spark Business credit card, for example. Credit cards are a product that can be used for a variety of purposes and targeted at many different markets. In this ad, Capital One is targeting its Spark Business credit card at small businesses. The ad depicts a woman working in a small industrial setting pondering some detail. The ad informs small business owners that they can get cash back for purchases they make on the Spark card, something every small business owner could use. The ad also refers small business owners to a webpage for additional information relevant to their needs. Product Use Certain products, particularly raw materials like steel, petroleum, plastics, and lumber, can be used in numerous ways in the production of goods. These variations will affect the types and amounts of products purchased, as well as the purchasing method. An industrial paint manufacturer, for example, might target different paint products at construction companies for painting bridges and at automakers for painting vehicles.

Psychographic Variables

Marketers sometimes use psychographic variables, such as personality characteristics, motives, and lifestyles, to segment markets. A psychographic variable can be used by itself or in combination with other types of segmentation variables. Personality characteristics can be a useful means of segmentation when a product resembles many competing products and consumers' needs are not significantly related to other segmentation variables. However, segmenting a market according to personality traits can be risky. Although marketing practitioners have long believed consumer choice and product use vary with personality, marketing research has generally indicated only a weak relationship. It is difficult to measure personality traits accurately, especially because most personality tests were developed for clinical use, not for segmentation purposes. When appealing to a personality characteristic, a marketer almost always selects one that many people view positively. Individuals with this characteristic, as well as those who aspire to have it, may be influenced to buy that marketer's brand. Marketers taking this approach do not worry about measuring how many people have the positively valued characteristic. They assume a sizable proportion of people in the target market either have it or aspire to have it. When motives are used to segment a market, the market is divided according to consumers' reasons for making a purchase. Personal appearance, affiliation, status, safety, and health are examples of motives affecting the types of products purchased and the choice of stores in which they are bought. Marketing efforts based on particular motives can be a point of competitive advantage for a firm. Look at the advertisement for Vicks ZzzQuil, a night-time sleep aid, which targets consumers who are motivated by their desire for a good night's sleep. The ad emphasizes the fact that ZzzQuil is made by the same firm that produces NyQuil, a cold-care product often used as a sleep aid, to convey the product's ability to help users fall asleep easily, sleep soundly, and wake refreshed. The picture of a soundly sleeping man dressed in the ZzzQuil brand's purple color further reinforces the idea of a good night's sleep, which should appeal to those who haven't been sleeping well. Lifestyle segmentation groups individuals according to how they spend their time, the importance of things in their surroundings (homes or jobs, for example), beliefs about themselves and broad issues, and some demographic characteristics, such as income and education.Footnote Lifestyle analysis provides a broad view of buyers because it encompasses numerous characteristics related to people's activities (e.g., work, hobbies, entertainment, sports), interests (e.g., family, home, fashion, food, technology), and opinions (e.g., politics, social issues, education, the future). PRIZM, by Nielsen, is commonly used by marketers to segment by demographic variables. It can also be used to segment by lifestyles. PRIZM combines demographics, consumer behavior, and geographic data to help marketers identify, understand, and reach their customers and prospects, resulting in a highly robust tool for marketers.Footnote PRIZM divides U.S. households into demographically and behaviorally distinct segments that take into account such factors as likes, dislikes, lifestyles, and purchase behaviors. Used by thousands of marketers, including many within Fortune 500 companies, PRIZM provides marketers with a common tool for understanding and reaching customers in a highly diverse and complex marketplace.

Price dumping

Price Dumping A kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price. As dumping usually involves substantial export volumes of the product, it often has the effect of endangering the financial viability of manufacturers or producers of the product in the importing nation.

Price Fixing

Price fixing is an agreement among competing firms to raise, lower, or maintain prices for mutual benefit. To avoid the appearance of price fixing, marketers must develop independent pricing policies and set prices in ways that do not even hint at collusion.

Consumer reference price

Reference prices Internal reference price- Price in mind through experience External reference price- Comparison price provided by others

Switching costs

Switching costs are the costs that a consumer incurs as a result of changing brands, suppliers or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs. A switching cost can manifest itself in the form of significant time and effort necessary to change suppliers, the risk of disrupting normal operations of a business during a transition period, high cancellation fees, and a failure to obtain similar replacement of products or services.

Test marketing

Test marketing is a limited introduction of a product in geographic areas chosen to represent the intended market. Fast-food chain Chipotle, for example, test marketed a chorizo (Mexican-style sausage) option for its burrito, bowl, salad, and tacos at its Kansas City locations.Footnote The aim of test marketing is to determine the extent to which potential customers will buy the product. Test marketing is not an extension of the development stage, but rather a sample launching of the entire marketing mix. It should be conducted only after the product has gone through development and initial plans have been made regarding the other marketing mix variables. Companies use test marketing to lessen the risk of product failure. The dangers of introducing an untested product include undercutting already profitable products and, should the new product fail, loss of credibility with distributors and customers. Test marketing provides several benefits. It lets marketers expose a product in a natural marketing environment to measure its sales performance. The company can strive to identify weaknesses in the product or in other parts of the marketing mix. Planet Smoothie, for example, recognized in test marketing that its new Lemon Cayenne Kick smoothie was spicier than its customers preferred, so the firm dialed back the amount of cayenne. On the other hand, Wing Zone found that its new Mango Fire flavor wasn't spicy enough for its patrons, so it ramped up the heat in the final product.Footnote A product weakness discovered after a nationwide introduction can be expensive to correct. Moreover, if consumers' early reactions are negative, marketers may be unable to persuade consumers to try the product again. Thus, making adjustments after test marketing can be crucial to the success of a new product. On the other hand, test marketing results may be positive enough to warrant accelerating the product's introduction. Test marketing also allows marketers to experiment with variations in advertising, pricing, and packaging in different test areas and to measure the extent of brand awareness, brand switching, and repeat purchases resulting from these alterations in the marketing mix. Selection of appropriate test areas is very important because the validity of test marketing results depends heavily on selecting test sites that provide accurate representations of the intended target market. U.S. cities commonly used for test marketing appear in Table 12.1. The criteria used for choosing test cities depend upon the product's attributes, the target market's characteristics, and the firm's objectives and resources. Test marketing is not without risks. It is expensive, and competitors may try to interfere. A competitor may attempt to "jam" the test program by increasing its own advertising or promotions, lowering prices, and offering special incentives, all to combat consumer recognition and purchase of the new brand. Such tactics can invalidate test results. Sometimes competitors copy the product in the testing stage and rush to introduce a similar product. It is therefore desirable to move to the commercialization phase as soon as possible after successful testing. Because of these risks, many companies use alternative methods to measure customer preferences. One such method is simulated test marketing. Typically, consumers at shopping centers are asked to view an advertisement for a new product and are given a free sample to take home. These consumers are subsequently interviewed over the phone or through online panels and asked to rate the product. The major advantages of simulated test marketing are greater speed, lower costs, and tighter security, which reduce the flow of information to competitors and reduce jamming. Several marketing research firms, such as ACNielsen Company, offer test marketing services to provide independent assessment of proposed products. Not all products that are test marketed are launched. At times, problems discovered during test marketing cannot be resolved.

Price

The price variable relates to decisions and actions associated with pricing objectives and policies and actual product prices. Price is a critical component of the marketing mix because customers are concerned about the value obtained in an exchange. Price is often used as a competitive tool, and intense price competition sometimes leads to price wars. Higher prices can be used competitively to establish a product's premium image.

Marketing

The process of creating, distributing, promoting, and pricing goods, services, and ideas to facilitate satisfying exchange relationships with customers and to develop and maintain favorable relationships with stakeholders in a dynamic environment

Sales promotions targeted at B2B customers

To encourage resellers, especially retailers, to carry their products and promote them effectively, producers use trade sales promotion methods. Trade sales promotion methods attempt to persuade wholesalers and retailers to carry a producer's products and market them more aggressively. Marketers use trade sales methods for many reasons, including countering the effect of lower-priced store brands, passing along a discount to a price-sensitive market segment, boosting brand exposure among target consumers, or providing additional incentives to move excess inventory or counteract competitors. These methods include buying allowances, buy-back allowances, scan-back allowances, merchandise allowances, cooperative advertising, dealer listings, free merchandise, dealer loaders, premium or push money, and sales contests. Trade Allowances Many manufacturers offer trade allowances to encourage resellers to carry a product or stock more of it. One such trade allowance is a buying allowance, a temporary price reduction offered to resellers for purchasing specified quantities of a product. A soap producer, for example, might give retailers $1 for each case of soap purchased. Such offers provide an incentive for resellers to handle new products, achieve temporary price reductions, or stimulate purchase of items in larger-than-normal quantities. The buying allowance, which takes the form of money, yields profits to resellers and is simple and straightforward. There are no restrictions on how resellers use the money, which increases the method's effectiveness. One drawback of buying allowances is that customers may buy "forward"—that is, buy large amounts that keep them supplied for many months. Another problem is that competitors may match (or beat) the reduced price, which can lower profits for all sellers. A buy-back allowance is a sum of money that a producer gives to a reseller for each unit the reseller buys after an initial promotional deal is over. This method is a secondary incentive in which the total amount of money resellers receive is proportional to their purchases during an initial consumer promotion, such as a coupon offer. Buy-back allowances foster cooperation during an initial sales promotion effort and stimulate repurchase afterward. The main disadvantage of this method is expense. A scan-back allowance is a manufacturer's reward to retailers based on the number of pieces moved through the retailers' scanners during a specific time period. To participate in scan-back programs, retailers are usually expected to pass along savings to consumers through special pricing. Scan-backs are becoming widely used by manufacturers because they link trade spending directly to product movement at the retail level. A merchandise allowance is a manufacturer's agreement to pay resellers certain amounts of money for providing promotional efforts like advertising or point-of-purchase displays. This method is best suited to high-volume, high-profit, easily handled products. A drawback is that some retailers perform activities at a minimally acceptable level simply to obtain allowances. Before paying retailers, manufacturers usually verify their performance. Manufacturers hope that retailers' additional promotional efforts will yield substantial sales increases. Cooperative Advertising and Dealer Listings Cooperative advertising is an arrangement in which a manufacturer agrees to pay a certain amount of a retailer's media costs for advertising the manufacturer's products. The amount allowed is usually based on the quantities purchased. As with merchandise allowances, a retailer must show proof that advertisements did appear before the manufacturer pays the agreed-upon portion of the advertising costs. These payments give retailers additional funds for advertising. Some retailers exploit cooperative-advertising agreements by crowding too many products into one advertisement. Not all available cooperative-advertising dollars are used. Some retailers cannot afford to advertise, while others can afford it but do not want to advertise. A large proportion of all cooperative-advertising dollars is spent on newspaper advertisements. Dealer listings are advertisements promoting a product and identifying participating retailers that sell the product. Dealer listings can influence retailers to carry the product, build traffic at the retail level, and encourage consumers to buy the product at participating dealers. Free Merchandise and Gifts Manufacturers sometimes offer free merchandise to resellers that purchase a stated quantity of products. Occasionally, free merchandise is used as payment for allowances provided through other sales promotion methods. To avoid handling and bookkeeping problems, the "free" merchandise usually takes the form of a reduced invoice. A dealer loader is a gift to a retailer that purchases a specified quantity of merchandise. Dealer loaders are often used to obtain special display efforts from retailers by offering essential display parts as premiums. Thus, a manufacturer might design a display that includes a sterling silver tray as a major component and give the tray to the retailer. Marketers use dealer loaders to obtain new distributors and push larger quantities of goods. Premium Money Premium money (push money) is additional compensation offered by the manufacturer to salespeople as an incentive to push a line of goods. This method is appropriate when personal selling is an important part of the marketing effort; it is not effective for promoting products sold through self-service. Premium money often helps a manufacturer obtain a commitment from the sales force, but it can be very expensive. The use of this incentive must be in compliance with retailers' policies as well as state and local laws. Sales Contest A sales contest is designed to motivate distributors, retailers, and sales personnel by recognizing outstanding achievements. To be effective, this method must be equitable for all individuals involved. One advantage is that it can achieve participation at all distribution levels. Positive effects may be temporary, however, and prizes are usually expensive.

Transactions between businesses differ from consumer sales

Transactions between businesses differ from consumer sales in several ways. Orders by business customers tend to be much larger than individual consumer sales. Major government contractor Booz Allen Hamilton is sometimes awarded contracts worth up to half a billion dollars to supply medical and IT support assessments and services to various government agencies.Footnote Suppliers of large, expensive, or complex goods often must sell products in large quantities to make profits. Consequently, they may prefer not to sell to customers who place small orders. Some business purchases involve expensive items, such as complex computer systems. For instance, aerospace and defense technology firm Northrop Grumman signed a $1.7 billion contract with the North Atlantic Treaty Organization (NATO) to provide a five-drone surveillance and intelligence system by 2017. Company executives hope that the deal will lead to additional orders throughout Europe.Footnote Other products, such as raw materials and component items, are used continuously in production, and their supply may need frequent replenishing. The contract regarding terms of sale of these items is likely to be a long-term agreement. Discussions and negotiations associated with business purchases can require considerable marketing time and selling effort. Purchasing decisions are often made by committee, orders are frequently large and expensive, and products may be custom built. Several people or departments in the purchasing organization are often involved. For instance, one department expresses a need for a product, a second department develops the specifications, a third stipulates maximum expenditures, and a fourth places the order. Business customers look for solutions to reach their objectives. Therefore, suppliers need to identify and promote their competencies to position their products so as to indicate how they provide customer value. Staples recognized this need when it ran a television and radio advertising campaign illustrating how the office-supply retailer can help small businesses succeed in affordable ways.Footnote To be successful, suppliers also have to differentiate their products from competitors. Building a brand reputation is an effective way to develop long-term relationships.Footnote For instance, Federal Express develops long-term relationships with business customers by integrating customer solutions as a provider of many tracking, transportation, and delivery services. One practice unique to business markets is reciprocity, an arrangement in which two organizations agree to buy from each other. Reciprocal agreements that threaten competition are illegal. The Federal Trade Commission and the Justice Department monitor and take actions to stop anticompetitive reciprocal practices, particularly among large firms. Nonetheless, a certain amount of reciprocal activity occurs among small businesses and, to a lesser extent, among larger companies. Because reciprocity influences purchasing agents to deal only with certain suppliers, it can lead to less-than-optimal purchases.

Customer perceived value

What they get for what they pay

Product lines and product mix

Width of product mix- The number of product lines a company offers Depth of product mix The average number of different products offered in each product line Product line- A group of closely related product items viewed as a unit because of marketing, technical, or end-use considerations

Customer lifetime value (CLV)

Customer lifetime value (CLV) predicts the net value (profit or loss) for the future relationship with the customer.

What stages in the PLC do managers want to extend

Growth (and maybe maturity)

Culture

The accumulation of values, knowledge, beliefs, customs, objects, and concepts that a society uses to cope with its environment and passes on to future generations

Customer retention and how it is related to satisfaction, value and switching costs

The term relationship marketing refers to "long-term, mutually beneficial arrangements in which both the buyer and seller focus on value enhancement through the creation of more satisfying exchanges." Relationship marketing continually deepens the buyer's trust in the company, and as the customer's confidence grows, this, in turn, increases the firm's understanding of the customer's needs. Buyers and marketers can thus enter into a close relationship in which both participate in the creation of value. Successful marketers respond to customer needs and strive to increase value to buyers over time. Eventually, this interaction becomes a solid relationship that allows for cooperation and mutual dependency. Satisfaction People's willingness to spend—their inclination to buy because of expected satisfaction from a product The amount of satisfaction received from a product already owned may also influence customers' desires to buy other products. Satisfaction depends not only on the quality of the currently owned product but also on numerous psychological and social forces. Switching Costs Switching costs are the costs that a consumer incurs as a result of changing brands, suppliers or products. Although most prevalent switching costs are monetary in nature, there are also psychological, effort- and time-based switching costs. A switching cost can manifest itself in the form of significant time and effort necessary to change suppliers, the risk of disrupting normal operations of a business during a transition period, high cancellation fees, and a failure to obtain similar replacement of products or services.

Differences between direct, indirect, and multiple channels of distribution

A direct distribution channel is organized and managed by the firm itself. Firms that use direct distribution require their own logistics teams and transport vehicles. An indirect distribution channel relies on intermediaries to perform most or all distribution functions, otherwise known as wholesale distribution. Those with indirect distribution channels have to set up relationships with third-party selling systems. Multichannel distribution- The use of a variety of marketing channels to ensure maximum distribution

Market-by-market pricing

A market-based pricing strategy is also known as a competition-based strategy. In this pricing strategy, the company will evaluate the prices of similar products that are on the market. It is important to only consider those products that are similar to the product being offered. Depending on if the product has more or less features than the competition, the company sets the price higher or lower than the competitor pricing. For example, if this product has an extra feature over the competitor's product, the company could either decide to price it the same, therefore making it the better value or could price it slightly higher to account for the additional feature.

How do you extend the PLC?

A more likely scenario for companies at in the Early Maturity stage is to investigate new ways to grow the market in an effort to extend the growth stage of the PLC. The use of resurgence tactics include such measures as: Changing how customers use the product such as: encourage more frequent use or more consumption per usage (e.g., consume 2 units instead of 1 unit); suggest new benefits that can be obtained from using the product (e.g., has added health benefits not previously promoted); or suggest new uses for the product. Finding new markets not previously targeted. Developing new product options (i.e., product line extensions) that offer more or better features (e.g., easier to use, safer, more attractive) that may get existing customers to re-purchase more quickly then they would normally. Heightening interest by changing image through heavy promotion and package redesign. Competing with lower priced brands by offering own low price product through private label branding arrangement with distribution partners.

Umbrella pricing

A price umbrella, also known as the umbrella effect, is a pricing effect often created by a dominant company, in which competing firms can find buyers as long as they set their price at or below the level of the dominant one. A system of pricing mainly found in markets with few sellers where the largest firms keep prices high, allowing room for smaller companies with high costs to operate beneath them. Umbrella Pricing is also used to deter advanced technology by potential competitors. As a result, the rival company enters the market with an less advanced technology creating little threat to the established firm. Mutual benefit is generally gained with the umbrella pricing method.

Product

A product is a good, a service, or an idea The product variable of the marketing mix deals with researching customers' needs and wants and designing a product that satisfies them. The product variable also involves creating or modifying brand names and packaging and may include decisions regarding warranty and repair services.

Predatory pricing

Also called undercutting, involves the intent to set a product's price so low that rival firms cannot compete and therefore withdraw from the marketplace Determining whether predatory pricing is occurring can be difficult in actual practice and thus actionable charges have been rare. It is not unusual for a company to set a price that is below cost temporarily in order to sell off unsalable products or excess capacity; without the intent to drive out competitors, there is no predatory pricing.

Concentrated

Although most people will be satisfied with the same white sugar, not everyone wants or needs the same car, furniture, or clothes. A market comprised of individuals or organizations with diverse product needs is called a heterogeneous market. Some individuals, for instance, want a Ford truck because they have to haul heavy loads for their work, while others live in the city and enjoy the ease of parking and good gas mileage of a Smart car. The automobile market thus is heterogeneous. For heterogeneous markets, market segmentation is the best approach. Market segmentation is the process of dividing a total market into groups, or segments, that consist of people or organizations with relatively similar product needs. The purpose is to enable a marketer to design a marketing mix that more precisely matches the needs of customers in the selected market segment. A market segment consists of individuals, groups, or organizations that share one or more similar characteristics that cause them to have relatively similar product needs. The total market for blue jeans is divided into multiple segments. Price-sensitive customers can buy bargain jeans at Walmart or Ross. Others may need functional jeans, like the Carhartt brand, for work. Still other customers wear jeans as a fashion statement and are willing to spend hundreds of dollars on an exclusive brand such as 7 for All Mankind. The rationale for segmenting heterogeneous markets is that a company will be most successful in developing a satisfying marketing mix for a portion of a total market whose needs are relatively similar, since customers' needs tend to vary. The majority of organizations use market segmentation to best satisfy their customers. For market segmentation to succeed, five conditions must exist. First, customers' needs for the product must be heterogeneous. Otherwise, there is no reason to waste resources segmenting the market. Second, segments must be identifiable and divisible. The company must be able to find a characteristic, or variable, for effectively separating a total market into groups comprised of individuals with relatively uniform product needs. Third, marketers must be able to compare the different market segments with respect to estimated sales potential, costs, and profits. Fourth, at least one segment must have enough profit potential to justify developing and maintaining a special marketing mix for it. Finally, the company must be able to reach the chosen segment with a particular marketing mix. Some market segments may be difficult or impossible to reach because of legal, social, or distribution constraints. Producers of Cuban rum and cigars, for instance, cannot market to U.S. consumers because of a trade embargo. When an organization directs its marketing efforts toward a single market segment using one marketing mix, it is employing a concentrated targeting strategy. Notice in Figure 6.2 that the organization using the concentrated strategy is aiming its marketing mix only at "B" customers. Take a look at the two advertisements for Rolex watches and Yeti coolers. Both of these brands are using a concentrated marketing strategy to reach a specific target market, but are aiming their advertisements at very different market segments. Rolex is a very high-end watch company with products that sell for thousands of dollars. The simplicity and elegance of the advertisement speaks to the luxury of the product. The ad for Yeti, on the other hand, concentrates on outdoor-inclined consumers who want the toughest and most insulated cooler available for their adventures. The ad depicts two outdoorsmen enjoying themselves in severe conditions that require the most durable cooler. As you can see with these two ads, the chief advantage of the concentrated strategy is that it allows a firm to specialize. The firm analyzes the characteristics and needs of a distinct customer group and then focuses all its energies on satisfying that group's needs. If the group is big enough, a firm may generate a large sales volume by reaching a single segment. Concentrating on a single segment can also permit a firm with limited resources to compete with larger organizations that may have overlooked smaller segments. Specialization, however, means that a company allocates all of its resources for one target segment, which can be hazardous. If a company's sales depend on a single segment and the segment's demand for the product declines, the company's financial health also deteriorates. The strategy can also prevent a firm from targeting other segments that might be successful, because when a firm penetrates one segment, its popularity may keep it from extending its marketing efforts into other segments.

Direct Marketing, Direct Selling, and Vending

Although retailers are the most visible members of the supply chain, many products are sold outside the confines of a retail store. Direct selling and direct marketing account for a huge proportion of the sale of goods globally. Products also may be sold in automatic vending machines, but these account for a very small minority of total retail sales. Direct marketing is the use of the telephone, Internet, and nonpersonal media to communicate product and organizational information to customers, who can then purchase products via mail, telephone, or the Internet. Direct marketing is one type of nonstore retailing. Sales through direct marketing activities are significant, accounting for about 8.7 percent of the entire U.S. GDP. Direct selling is the marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace. For example Cutco, as shown here, is a direct seller of high-quality cutlery. This product is sold through face-to-face selling. The top five global direct selling companies are Amway, Avon, Herbalife, Mary Kay, and Vorwerk.Footnote Four of these companies are based in the United States. Direct selling is a highly valuable industry. Amway alone has $10.8 billion in annual sales.Footnote Direct selling was once associated with door-to-door sales, but it has evolved into a highly professional industry where most contacts with buyers are prearranged through electronic communication or another means of prior communication. Today, companies identify customers through the mail, telephone, Internet, social networks, or shopping-mall intercepts and then set up appointments with salespeople. Direct selling is most successful in other countries, particularly collective societies like China, where Amway has achieved higher sales than its domestic market, the United States. Collective societies prize the one-on-one attention and feeling like they are connecting with the salesperson. Although the majority of direct selling takes place on an individual, or person-to-person, basis, it sometimes may be carried out in a group, or "party," plan format. With a party plan, a consumer acts as a host and invites friends and associates to view merchandise, often at someone's home. The informal atmosphere helps to overcome customers' reluctance and encourages them to try out and buy products. Tupperware and Mary Kay were the pioneers of this selling technique and remain global leaders. Direct selling has benefits and limitations. It gives the marketer an opportunity to demonstrate the product in a comfortable environment where it most likely would be used. The seller can give the customer personal attention, and the product can be presented to the customer at a convenient time and location. Product categories that have been highly successful for direct selling include cosmetics and personal-care products, health products, jewelry, accessories, and household products. Personal attention to the customer is the foundation on which many direct sellers have built their businesses. However, because commissions for salespeople are high, around 30 to 50 percent of the sales price, and great effort is required to isolate promising prospects, overall costs of direct selling make it the most expensive form of retailing. Furthermore, some customers view direct selling negatively, owing to unscrupulous and fraudulent practices used by some direct sellers. Some communities even have local ordinances that control or, in some cases, prohibit direct selling. Despite these negative views held by some individuals, direct selling is still alive and well, bringing in annual revenues of more than $34 billion in the United States.Footnote

Customer response hierarchies

Attention, Interest, Desire and Action. The AIDA model is widely used in marketing and advertising to describe the steps or stages that occur from the time when a consumer first becomes aware of a product or brand through to when the consumer trials a product or makes a purchase decision. Given that many consumers become aware of brands via advertising or marketing communications, the AIDA model helps to explain how an advertisement or marketing communications message engages and involves consumers in brand choice.

Brand equity and how to manage it

Brand equity- The marketing and financial value associated with a brand's strength in a market A well-managed brand is an asset to an organization. The value of this asset is often referred to as brand equity. Brand equity is the marketing and financial value associated with a brand's strength in a market. In addition to actual proprietary brand assets, such as patents and trademarks, four major elements underlie brand equity: brand name awareness, brand loyalty, perceived brand quality, and brand associations. Being aware of a brand leads to brand familiarity, which results in a level of comfort with the brand. A consumer is more likely to select a familiar brand than an unfamiliar one because the familiar brand is more likely to be viewed as reliable and of an acceptable level of quality. The familiar brand is also likely to be in a customer's consideration set, whereas the unfamiliar brand is not.

Customer loyalty

Brand loyalty- A customer's favorable attitude toward a specific brand Brand insistence- The degree of brand loyalty in which a customer strongly prefers a specific brand and will accept no substitute

Attributes of Business Customers

Business customers also differ from consumers in their purchasing behavior because they are generally better informed about the products they purchase. They typically demand detailed information about a product's functional features and technical specifications to ensure that it meets their needs. Personal goals, however, may also influence business buying behavior. Most purchasing agents seek the psychological satisfaction that comes with organizational advancement and financial rewards. Agents who consistently exhibit rational business buying behavior are likely to attain their personal goals because they help their firms achieve organizational objectives. Suppliers need to take into account organizational behavior in the form of individual-level decisions. Often the reaction of an individual buyer triggers the purchase of products and affects the broader organizational acceptance of them.Footnote Today, many suppliers and their customers build and maintain mutually beneficial relationships, sometimes called partnerships. Researchers find that even in a partnership between a small vendor and a large corporate buyer, a strong partnership can exist because high levels of interpersonal trust can lead to higher levels of commitment to the partnership by both organizations.Footnote Consider JetBlue Airways' program to mentor small food businesses and prepare them for success, hopefully as future JetBlue suppliers of sustainable food items. The BlueBud program connects promising small firms with resources and opportunities to work with its leaders to develop business strategies aligned with JetBlue's.Footnote

Idea generation

Businesses and other organizations seek product ideas that will help them achieve their objectives. This activity is idea generation. The fact that only a few ideas are good enough to be commercially successful underscores the challenge of the task. Although some organizations get their ideas by chance, firms that are most successful at managing their product mixes usually develop systematic approaches for generating new product ideas. At the heart of innovation is a purposeful, focused effort to identify new ways to serve a market.Footnote New product ideas can come from several sources. They may stem from internal sources—marketing managers, researchers, sales personnel, engineers, franchisees, or other organizational personnel. Brainstorming and incentives for good ideas are typical intra-firm devices for stimulating the development of ideas. New product ideas may also arise from sources outside the firm, such as customers, competitors, advertising agencies, management consultants, and private research organizations. Increasingly, firms are bringing consumers into the product idea development process through online campaigns. The Internet gives marketers the chance to tap into consumer ideas by building online communities and listening to their product needs and wants. These communities provide consumers with a sense of empowerment and allow them to provide insight for new product ideas that can prove invaluable to the firm.Footnote The Internet and social media have become very important tools for gathering information from stakeholders, particularly when a firm is targeting younger consumers. When outsourcing new-product development activities to outside organizations, firms should spell out the specific details of the arrangement and include detailed contractual specifications. Asking customers what they want from products has helped many firms become successful and remain competitive. As more global consumers become interconnected through the Internet, marketers have the chance to tap into consumer ideas by building online communities with them.

Buyers

Buyers select suppliers and negotiate terms of purchase. They may also be involved in developing specifications. Buyers are sometimes called purchasing agents or purchasing managers. Their choices of vendors and products, especially for new-task purchases, are heavily influenced by others in the buying center. For straight rebuy purchases, the buyer plays a major role in vendor selection and negotiations.

Convenience, shopping, and specialty products

Convenience products- Relatively inexpensive, frequently purchased items for which buyers exert minimal purchasing effort Shopping products- Items for which buyers are willing to expend considerable effort in planning and making purchases Specialty products- Items with unique characteristics that buyers are willing to expend considerable effort to obtain

Core, Expected, Augmented Products

Core benefit: The fundamental need or want that consumers satisfy by consuming the product or service. For example, the need to process digital images. Generic product: A version of the product containing only those attributes or characteristics absolutely necessary for it to function. For example, the need to process digital images could be satisfied by a generic, low-end, personal computer using free image processing software or a processing laboratory. Expected product: The set of attributes or characteristics that buyers normally expect and agree to when they purchase a product. For example, the computer is specified to deliver fast image processing and has a high-resolution, accurate colour screen. Augmented product: The inclusion of additional features, benefits, attributes or related services that serve to differentiate the product from its competitors. For example, the computer comes pre-loaded with a high-end image processing software for no extra cost or at a deeply discounted, incremental cost. Potential product: This includes all the augmentations and transformations a product might undergo in the future. To ensure future customer loyalty, a business must aim to surprise and delight customers in the future by continuing to augment products. For example, the customer receives ongoing image processing software upgrades with new and useful features.

Customer relationship management (CRM)

Customer relationship management (CRM) Using information about customers to create marketing strategies that develop and sustain desirable customer relationships. There are databases/systems and social CRM that provide information about the customer.

Deceptive Pricing

Deceptive pricing is the use of false or misleading statements or practices to persuade buyers that a product is a better deal than it really is.

Business analysis

During the business analysis stage, the product idea is evaluated to determine its potential contribution to the firm's sales, costs, and profits. In the course of a business analysis, evaluators ask a variety of questions: Does the product fit in with the organization's existing product mix? Is demand strong enough to justify entering the market, and will this demand endure? What types of environmental and competitive changes can be expected, and how will these changes affect the product's future sales, costs, and profits? It is also crucial that a firm determine whether its research, development, engineering, and production capabilities are adequate to develop the product; whether new facilities must be constructed, how quickly they can be built, and how much they will cost; and whether the necessary financing for development and commercialization is on hand or is obtainable based upon terms consistent with a favorable return on investment. In the business analysis stage, firms seek market information. The results of customer surveys, along with secondary data, supply the specifics needed to estimate potential sales, costs, and profits. For many product ideas in this stage, forecasting sales accurately is difficult. This is especially true for innovative and completely new products. Organizations sometimes employ breakeven analysis to determine how many units they would have to sell to begin making a profit. At times, an organization also uses payback analysis, in which marketers compute the time period required to recover the funds that would be invested in developing the new product. Because breakeven and payback analyses are based on estimates, they are usually viewed as useful but not particularly precise tools.

Price elasticity

Elasticity of demand A measure in the sensitivity of demand to changes in price Elastic: change in price has opposite effect on revenue Inelastic: demand results in the change in the same direction as price

Behavioristic Variables

Firms can divide a market according to consumer behavior toward a product, which commonly involves an aspect of product use. Therefore, a market may be separated into users—classified as heavy, moderate, or light—and nonusers. To satisfy a specific group, such as heavy users, marketers may create a distinctive product and price or initiate special promotion and distribution activities. Per capita consumption data help determine different levels of usage by product category. To satisfy customers who use a product in a certain way, some feature—packaging, size, texture, or color—may be designed precisely to make the product easier to use, safer, or more convenient. Benefit segmentation is the division of a market according to benefits that consumers want from the product. Although most types of market segmentation assume a relationship between the variable and customers' needs, benefit segmentation differs in that the benefits customers seek are their product needs. Consider that a customer who purchases over-the-counter cold relief medication may be specifically interested in two benefits: stopping a runny nose and relieving chest congestion. Thus, individuals are segmented directly according to their needs. By determining the desired benefits, marketers can divide people into groups by the benefits they seek. The effectiveness of such segmentation depends on three conditions: the benefits sought must be identifiable, using these benefits, marketers must be able to divide people into recognizable segments, and one or more of the resulting segments must be accessible to the firm's marketing efforts. Marketers can segment consumer markets using many characteristics. They do not, however, use the same variables to segment business characteristics. We will learn about business market segmentation in the next section.

Impact on currency fluctuations on international marketers

Fluctuating economic conditions in different countries require that marketers carefully monitor the global environment and adjust their marketing strategies accordingly. Economic instability can also disrupt the markets for U.S. products in places that otherwise might be excellent marketing opportunities. On the other hand, competition from the sustained economic growth of countries like China and India can disrupt markets for U.S. products. An important economic factor in the global business environment is currency valuation. The value of the dollar, euro, and yen has a major impact on the prices of products in many countries. Many countries have a floating exchange rate, which means the currencies of those countries fluctuate, or float, according to the foreign exchange market. Devaluing currency worries investors because it suggests that a country's economy is slowing down.Footnote The value of the U.S. dollar is also important. In the last few years, the value of the dollar has been strong relative to other currencies. This means that U.S. exports cost more if purchased using euros or yen. Because many countries float their exchange rates around the dollar, too much or too little U.S. currency in the economy could create inflationary effects or harm exports. Fluctuations in the international monetary market can change the prices charged across national boundaries on a daily basis. Thus, these fluctuations must be considered in any international marketing strategy.

80-20 rule

Focusing on share of customer requires recognizing that all customers have different needs and that not all customers weigh the value of a company equally. The most basic application of this idea is the 80/20 rule: 80 percent of business profits come from 20 percent of customers. The goal is to assess the worth of individual customers and thus estimate their lifetime value to the company.

The marketing mix

Four marketing activities—product, pricing, distribution, and promotion—that a firm can control to meet the needs of customers within its target market Marketing-mix decisions should have two additional characteristics: consistency and flexibility. All marketing-mix decisions should be consistent with the business-unit and corporate strategies. Such consistency allows the organization to achieve its objectives on all three levels of planning. Flexibility, on the other hand, permits the organization to alter the marketing mix in response to changes in market conditions, competition, and customer needs. Marketing strategy flexibility has a positive influence on organizational performance. The marketing-mix variables are often viewed as controllable because they can be modified. However, there are limits to how much marketing managers can alter them. Economic conditions, competitive structure, and government regulations may prevent a manager from adjusting prices frequently or significantly. Making changes in the size, shape, and design of most tangible goods is expensive; therefore, such product features cannot be altered very often. In addition, promotional campaigns and methods used to distribute products ordinarily cannot be rewritten or revamped overnight.

Direct demand

Goods that yield direct satisfaction to the consumer i.e. consumer goods are said to have a direct demand. So finished goods like food, clothes, house etc. have a direct demand. Direct demand refers to demand for goods meant for final consumption; it is the demand for consumers' goods like food items, readymade garments and houses.

Gray markets

Grey markets AKA the parallel market. Grey market is a market where a product is bought and sold outside of the manufacturer's authorized trading channels. Grey market products are products sold by a manufacturer or their authorized agent outside the terms of the agreement between the reseller and the manufacturer. For example, if a storeowner is an unauthorized dealer of a certain high-end electronics brand, the product is considered to be sold in the grey market. If the product were illegal, it would be selling on the "black market."

Screening

In the process of screening, the ideas with the greatest potential are selected for further review. During screening, product ideas are analyzed to determine if they match the organization's mission, objectives, and resources. A firm's overall abilities to produce and market the product are also analyzed. Other aspects of an idea to be weighed are the nature and wants of buyers and possible environmental changes. At times, a checklist of new-product requirements is used when making screening decisions. This practice encourages evaluators to be systematic and thus reduces the chances of overlooking some pertinent fact. Most new product ideas are rejected during the screening phase.

Influencers

Influencers are often technical personnel, such as engineers, who help develop product specifications and evaluate alternatives. Technical personnel are especially important influencers when the products being considered involve new, advanced technology.

Integrated Marketing Communications (IMC)

Integrated marketing communications (IMC) Coordination of promotion and other marketing efforts for maximum informational and persuasive impact on customers. One major goal is to send consistent message to consumer.

Just in Time inventory management (JIT)

Just in time (JIT) Inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires producers to forecast demand accurately. Aimed primarily at reducing flow times within production system as well as response times from suppliers and to customers Advantages: Production runs remain short, which means manufacturers can move from one type of product to another very easily. This method reduces costs by eliminating warehouse storage needs. Companies also spend less money on raw materials because they buy just enough to make the products and no more. Disadvantages: disruptions in the supply chain. If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can shut down the entire production process. A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.

Total Quality Management (TQM)

Logistics management Planning, implementing, and controlling the efficient and effective flow and storage of products and information from the point of origin to consumption to meet customers' needs and wants Operations management The total set of managerial activities used by an organization to transform resource inputs into products, services, or both Total Quality Management (TQM) describes a management approach to long-term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.

Individualist, collective, masculine, power distance, uncertainty avoidance, and tight cultural dimensions

Power distance: The power distance is defined as "the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally." In this dimension, inequality and power is perceived from the followers, or the lower level. A higher degree of distance indicates that hierarchy is clearly established and executed in society, without doubt or reason. Individualism vs. collectivism: This index explores the "degree to which people in a society are integrated into groups." Individualistic societies have loose ties that often only relates an individual to his/her immediate family. They emphasize the "I" versus the "we." Its counterpart, collectivism, describes a society in which tightly-integrated relationships tie extended families and others into in-groups. These in-groups are laced with undoubted loyalty and support each other when a conflict arises with another in-group. Uncertainty avoidance: The uncertainty avoidance index is defined as "a society's tolerance for ambiguity," in which people embrace or avert an event of something unexpected, unknown, or away from the status quo. Societies that score a high degree in this index opt for stiff codes of behavior, guidelines, laws, and generally rely on absolute Truth, or the belief that one lone Truth dictates everything and people know what it is. A lower degree in this index shows more acceptance of differing thoughts/ideas. Society tends to impose fewer regulations, ambiguity is more accustomed to, and the environment is more free-flowing. Masculinity vs. femininity: In this dimension, masculinity is defined as "a preference in society for achievement, heroism, assertiveness and material rewards for success." Its counterpart represents "a preference for cooperation, modesty, caring for the weak and quality of life." Women in the respective societies tend to display different values. In feminine societies, they share modest and caring views equally with men. In more masculine societies, women are more emphatic and competitive, but notably less emphatic than the men. Long-term orientation vs. short-term orientation: This dimension associates the connection of the past with the current and future actions/challenges. Short-term indicates that traditions are honored and kept, while steadfastness is valued. Long-term views adaptation and circumstantial, pragmatic problem-solving as a necessity. A poor country that is short-term oriented usually has little to no economic development, while long-term oriented countries continue to develop to a point

Product development

Product development is the phase in which the organization determines if it is technically feasible to produce the product and if it can be produced at costs low enough to make the final price reasonable. To test its acceptability, the idea or concept is converted into a prototype, or working model. The prototype should reveal tangible and intangible attributes associated with the product in consumers' minds. The product's design, mechanical features, and intangible aspects must be linked to wants in the marketplace. Through marketing research and concept testing, product attributes that are important to buyers are identified. These characteristics must be communicated to customers through the design of the product. After a prototype is developed, its overall functioning must be assessed. Its performance, safety, convenience, and other functional qualities are tested both in a laboratory and in the field. Functional testing should be rigorous and lengthy enough to test the product thoroughly. Studies have revealed that the form or design of a product can actually influence how consumers view the product's functional performance.Footnote Manufacturing issues that come to light at the prototype stage may require adjustments.

Product Life Cycle (PLC) and market conditions at each stage of the PLC

Product life cycles follow a similar trajectory to biological life cycles, progressing from birth to death. A product life cycle has four major stages: introduction, growth, maturity, and decline. As a product moves through each cycle, the strategies relating to competition, pricing, distribution, promotion, and market information must be evaluated and possibly adjusted. Astute marketing managers use the life-cycle concept to make sure that strategies relating to the introduction, alteration, and deletion of products are timed and executed properly. By understanding the typical life-cycle pattern, marketers can maintain profitable product mixes.

Difference between consumer and business markets

Products purchased to satisfy personal and family needs are consumer products. Those bought to use in a firm's operations, to resell, or to make other products are business products. Consumers buy products to satisfy their personal wants, whereas business buyers seek to satisfy the goals of their organizations. A business market (also called a business-to-business market or B2B market) consists of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes: resale, direct use in producing other products, or use in general daily operations. Marketing to businesses employs the same concepts—defining target markets, understanding buying behavior, and developing effective marketing mixes—as marketing to ultimate consumers. However, there are important structural and behavioral differences in business markets. A company that markets to another company must be aware of how its product will affect other firms in the marketing channel, such as resellers and other manufacturers. Business products can also be technically complex, and the market often consists of sophisticated buyers. Because the business market consists of relatively smaller customer populations, a segment of a market could be as small as a few customers—or even just one. The market for railway equipment in the United States, for example, is limited to a few major carriers, such as CSX. Some products can be both business and consumer products, especially commodities like corn, bolts, or screws, or supplies like light bulbs or furniture. An Apple iPad might customarily be thought of as a consumer product, but some restaurants are using them to list menu items or take orders. Salespeople at many car dealerships have also begun to use iPads for personal selling purposes. However, the quantity purchased and the buying methods differ significantly between the consumer and business markets, even for the same products. Business marketing is often based on long-term mutually profitable relationships across members of the marketing channel based on cooperation, trust, and collaboration. Manufacturers may even co-develop new products, with business customers sharing marketing research, production, scheduling, inventory management, and information systems. Business marketing can take a variety of forms, ranging from long-term buyer-seller relationships to quick exchanges of basic products at competitive market prices. For most business marketers, the goal is to understand customer needs and provide a value-added exchange that shifts from attracting customers to keeping customers and developing relationships. The four categories of business markets are producer, reseller, government, and institutional. In the remainder of this section, we discuss each of these types of markets.

Push and pull promotional strategies

Push and pull promotional strategies Push- Promoting a product only to the next institution down the marketing channel. Normally stresses personal selling. Sometimes advertising and sales promotion will also be used. Pull- Promoting a product directly to consumers to develop strong consumer demand that pulls products through the marketing channel. Primarily through sales promotion and advertising.

Types of market testing

Standard Test Markets Test the product through company's normal distribution channels Controlled Test Markets Company uses and outside research firm. They guarantee that distributor will put your product on the shelf. Simulated Test Markets Subjects are selected based on target market of test product. Typically, consumers at shopping centers are asked to view an advertisement for a new product and are given a free sample to take home. These consumers are subsequently interviewed over the phone or through online panels and asked to rate the product.

Stages in the sales process

Steps in the personal selling process 1. Prospecting 2. Pre-approach 3. Approach 4. Making the presentation 5. Overcoming objections 6. Closing the sale 7. Following up 1. Prospecting- Developing a database of potential customers. Comes from companies sales records, trade shows, commercial databases, newspaper announcements, public relations, telephone directories, trade associations, seminars, request forms, etc. Preference for referrals since they are more effective. 2. Pre-approach- find and analyze information about each prospect's specific product needs, current use of brands feelings about available products, and personal characteristics. 3. Approach- Manner in which salesperson contacts potential customer. Very important, good first impression, develop relationship and not just sell product. Variety of ways: referrals, cold calls, repeat contact. 4. Make the presentation- Hold attention, spark interest/desire, adapt presentation as needed, demonstrations, information exchange, threats, recommendations, listen, 5. Overcoming objections- Seeks out objections to deal with them, anticipate and counter objections, 6. Closing Sale- Trial close to judge answer, try to close at different points in presentation. 7. Following up- determines info like on-time delivery and installation, create solid relationship, most stop purchasing because of no contact rather than dissatisfaction.

Introduction

The introduction stage of the product life cycle begins at a product's first appearance in the marketplace. Sales start at zero and profits are negative because companies must invest in product development and launch prior to selling. Profits may remain low or below zero because initial revenues will be low while the company covers large expenses for promotion and distribution. Notice in Figure 11.2 how, as sales move upward from zero over time, profits also increase. Sales may be slow at first because potential buyers must be made aware of a new product's features, uses, and advantages through marketing. Apple, for instance, invited customers into Apple stores to try on and experience the Apple Watch before it was even available for sale. The company also used advertising and personal selling in stores to inform potential buyers and spark desire and excitement for the innovative smartwatch.Footnote Efforts to highlight a new product's value can create a foundation for building brand loyalty and customer relationships.Footnote Two difficulties may arise during the introduction stage. First, sellers may lack the resources, technological knowledge, and marketing expertise to launch the product successfully. A large marketing budget is not required to launch a successful product. Marketers can attract attention through such techniques as giving away free samples or through media appearances. Websites, such as Retailmenot.com, help firms with lost-cost promotion by listing coupons and samples for thousands of companies—exposing customers to great deals and new brands.Footnote Some firms also choose to host online brand communities to promote the new product and predict its success. Apple and eBay have become experts in hosting online brand communities to promote products.Footnote Second, the initial product price may have to be high to recoup expensive marketing research or development costs, which can depress sales. Given these difficulties, it is not surprising that many products never last beyond the introduction stage. Most new products start off slowly and seldom generate enough sales to bring immediate profits. Although new-product success rates vary a great deal between companies and in different industries, it is estimated that only 15 to 25 percent of new products succeed in the marketplace.Footnote Even among established and successful companies, new-product success rates are rarely above 50 percent. As buyers learn about the new product and express interest, the firm should constantly monitor the product and marketing strategy for weaknesses and make corrections quickly to prevent the product's early demise. A marketing strategy should be designed to attract the segment that is most interested in, most able, and most willing to buy the product. As sales increase, you can see in Figure 11.2 that eventually the firm reaches the breakeven point, which is when profits match expenses. It is after this point—when competitors enter the market—that the growth stage begins.

Buying center concepts and roles within a Buying Center

The people within an organization who make business purchase decisions Roles- Users, influencers, buyers, deciders, and gatekeepers The number and structure of an organization's buying centers are affected by the organization's size and market position, the volume and types of products being purchased, and the firm's overall managerial philosophy on who should make purchase decisions. The size of a buying center is influenced by the stage of the buying decision process and by the type of purchase (new task, straight rebuy, or modified rebuy). The size of the buying center is generally larger for a new-task purchase than for a straight rebuy. A marketer attempting to sell to a business customer should first determine who the people in the buying center are, the roles they play, and which individuals are most influential in the decision process. Although it may not be feasible to contact all those involved in the buying center, marketers should contact a few of the most influential people.

Promotion

The promotion variable relates to activities used to inform and persuade to create a desired response. Promotion can increase public awareness of the organization and of new or existing products. It can help create a direct response by including a link to access a website or order a product. Promotional activities can inform customers about product features. In addition, promotional activities can urge people to take a particular stance on a political or social issue, such as smoking or drug abuse. Promotion can also help to sustain interest in established products that have been available for decades Many companies are using the Internet to communicate information about themselves and their products.

Concept testing

To evaluate ideas properly, it may be necessary to test product concepts. In concept testing, a small sample of potential buyers is presented with a product idea through a written or oral description (and perhaps a few drawings) to determine their attitudes and initial buying intentions regarding the product. Sonic, for example, maintains a 40-seat dining room at its headquarters for potential new product sampling by employees and focus groups of consumers.Footnote For a single product idea, an organization can test one or several concepts of the same product. Concept testing is a low-cost procedure that allows a company to determine customers' initial reactions to a product idea before it invests considerable resources in research and development. During concept testing, the concept is described briefly, and then a series of questions is presented to a test panel. For a potential food product, a sample may be offered. The questions vary considerably depending on the type of product being tested. Typical questions can include the following: In general, do you find this proposed product attractive? Which benefits are especially attractive to you? Which features are of little or no interest to you? Do you feel that this proposed product would work better for you than the product you currently use? Compared with your current product, what are the primary advantages of the proposed product? If this product were available at an appropriate price, would you buy it? How often would you buy this product? How could the proposed product be improved?

Everyday Low "value" pricing

To reduce or eliminate the use of frequent short-term price reductions, some organizations use an approach referred to as everyday low prices (EDLP). When EDLPs are used, a marketer sets a low price for its products on a consistent basis, rather than setting higher prices and frequently discounting them. EDLPs, though not deeply discounted, are set low enough to make customers feel confident they are receiving a good deal. EDLPs are employed by retailers, such as Walmart, and by manufacturers, such as Procter & Gamble. A company that uses EDLP benefits from reduced promotional costs, reduced losses from frequent markdowns, and more stable sales.

Sales promotions targeted at consumers

Types of sales promotions Rebates- A consumer receives a specified amount of money for making a single purchase. On more expensive products. Reinforce brand loyalty. Given at point of sale or through mail-in process. For instant gratification= at point of sale. For a need= mail in. Redemption too complicated. Bad image of product that has rebate. Free Samples- trial of product, increase sales, most expensive due to production and delivery, effective, preference to get sample by mail or at supermarket. Sweepstakes- enter names for drawings, employed more often than contests and receive more participants. Games- compete for prizes by chance. Multiple purchase needed to collect items to win, only help with short-term increase in sales. Consumer Contests- Individuals compete for prizes based on their analytical or create skills. Increase exposure and traffic. More involved than games or sweepstakes. Premiums- items offered free or at minimal cost as a bonus for purchasing a product. Induce customer loyalty, introduce new product or product size, add variety to promotion. Best when good fit between premium and product. Coupons- Written price reductions used to encourage consumers to buy a specific product. Meant to attract repeat customers, increase sales volume, and introduce new features. Most widely used. Digital coupons becoming more popular. Should state offer clearly. Help increase brand awareness. Know how many were redeemed. Digital is more cost effective. Fraud is possible, used too much and people will not buy without, questionable if they bring in new customers. Cent-off Offers- Promotions that allow buyers to pay less than the regular price to encourage purchase. Incentive to try new product and is commonly used with product introduction. Short-lived sales increase and promote during off-season. Cheapen image. Reduce price for people that will already be buying it. Given at point of sale. Money Refunds- Sales promotion technique that offers consumers a specified amount of money when they mail in a proof of purchase, usually for multiple product purchases. Alternative to coupons to stimulate sales. Low in cost. Tend to have low response rate. Shopper/loyalty incentives- Track purchases and receive periodic discounts. Impact on brand loyalty. Point of Purchase Materials and demonstrations- POP- Signs, windows, displays, racks, and other devices used to attract customers. Attract attention, inform, and encourage retailers to carry specific products. Demonstrations- Encourage trial use and purchase of product or to show how a product works. High labor cost.

Vertical integration and disintermediation

Vertical channel integration combines two or more stages of the channel under one management. This may occur when one member of a marketing channel purchases the operations of another member or simply performs the functions of another member, eliminating the need for that intermediary. In the solar industry, for example, SolarCity, an installer and financier of solar panels, acquired the manufacturing firm Silevo, as well as a solar manufacturing facility previously owned by bankrupt Solyndra, in order to gain new technology and manufacturing capability to begin making its own highly efficient solar panels, bringing many stages of the channel under one roof.Footnote Vertical channel integration represents a more progressive approach to distribution, in which channel members become extensions of one another as they are combined under a single management. Vertically integrated channels can be more effective against competition because of increased bargaining power and the ease of sharing information and responsibilities. At one end of a vertically integrated channel, a manufacturer might provide advertising and training assistance. At the other end, the retailer might buy the manufacturer's products in large quantities and actively promote them. Integration has been successfully institutionalized in a marketing channel called the vertical marketing system (VMS), in which a single channel member coordinates or manages all activities to maximize efficiencies, resulting in an effective and low-cost distribution system that does not duplicate services. Vertical integration brings most or all stages of the marketing channel under common control or ownership. It can help speed the rate at which goods move through a marketing channel. VMSs account for a large share of retail sales in consumer goods. Most vertical marketing systems take one of three forms: corporate, administered, or contractual.

Characteristics of intermediaries

When an organization believes that an intermediary is not promoting its products adequately or does not offer the correct mix of services, it may reconsider its channel choices. In these instances, the company may choose another channel member to handle its products, it may select a new intermediary, or it might choose to eliminate intermediaries altogether and perform the functions itself. Marketing intermediaries- Middlemen that link producers to other intermediaries or ultimate consumers through contractual arrangements or through the purchase and resale of products Brokers- Intermediaries that bring buyers and sellers together temporarily Sales branches- Manufacturer-owned intermediaries that sell products and provide support services to the manufacturer's sales force Reseller markets- Intermediaries that buy finished goods and resell them for a profit Agents- Intermediaries that represent either buyers or sellers on a permanent basis Selling agents- Intermediaries that market a whole product line or a manufacturer's entire output Manufacturers' agents- Independent intermediaries that represent two or more sellers and usually offer customers complete product lines

Electronic Data Interchange (EDI)

Whether a company uses a manual or an electronic order-processing system depends on which method provides greater speed and accuracy within cost limits. Manual processing suffices for small-volume orders and can be more flexible in certain situations. Most companies, however, use electronic data interchange (EDI), which uses computer technology to integrate order processing with production, inventory, accounting, and transportation. Within the supply chain, EDI functions as an information system that links marketing channel members and outsourcing firms together. It boosts accuracy, reduces paperwork for all members of the supply chain, and allows them to share information on invoices, orders, payments, inquiries, and scheduling. Many companies encourage suppliers to adopt EDI to reduce distribution costs and cycle times.

Wholesaling

Wholesaling refers to all transactions in which products are bought for resale, making other products, or general business operations. It does not include exchanges with ultimate consumers. A wholesaler is an individual or organization that sells products that are bought for resale, making other products, or general business operations. In other words, wholesalers buy products and resell them to reseller, government, and institutional users. For instance, Sysco, the nation's number-one food-service distributor, supplies restaurants, hotels, schools, industrial caterers, and hospitals with everything from frozen and fresh food and paper products to medical and cleaning supplies. Wholesaling activities are not limited to goods. Service companies, such as financial institutions, also use active wholesale networks. There are 419,648 wholesaling establishments in the United States, and more than half of all products sold in this country pass through these firms.Footnote Wholesalers may engage in many supply-chain management activities, which we will discuss. In addition to bearing the primary responsibility for the physical distribution of products from manufacturers to retailers, wholesalers may establish information systems that help producers and retailers manage the supply chain from producer to customer. Many wholesalers use information technology and the Internet to share information among intermediaries, employees, customers, and suppliers and facilitating agencies, such as trucking companies and warehouse firms. Some firms make their databases and marketing information systems available to their supply-chain partners to facilitate order processing, shipping, and product development and to share information about changing market conditions and customer desires. As a result, some wholesalers play a key role in supply-chain management decision

Differentiated

With a differentiated targeting strategy, an organization directs its marketing efforts at two or more segments by developing a marketing mix for each segment (See Figure 6.2). After a firm uses a concentrated targeting strategy successfully in one market segment, it may expand its efforts to include additional segments. Enterprise Rent-A-Car is piloting Harley Davidson motorcycle rentals in Las Vegas to satisfy a demand for rental motorcycles among a more thrill-seeking segment of the tourist market. After conducting market research, Enterprise learned that motorcycle riders frequently wish they had more options to ride even when away from home and that they are not satisfied with renting a car. The company anticipates strong demand, especially from foreign tourists who want to visit nearby Southwest attractions like the Grand Canyon. If successful, the company will expand the availability to additional markets in the region.Footnote A benefit of a differentiated approach is that a firm may increase sales within the total market because its marketing mixes are aimed at more customers. For this reason, a company with excess production capacity may find a differentiated strategy advantageous because the sale of products to additional segments can help to absorb excess capacity. On the other hand, a differentiated strategy often demands more production processes, materials, and people because the different ingredients in each marketing mix will vary. Thus, production costs for a differentiated strategy may be higher than with a concentrated strategy.

Economies of scale

a proportionate saving in costs gained by an increased level of production