Principles of Marketing Unit 2 - Chapters 6-12

1. Idea Generation

- Basic idea is created and designed. - Ideas can come from anywhere - employees, customers, suppliers, one's competitors, etc. However, if you're using the marketing concept, then ideas should come from customers, primarily lead users (potential customers who are innovative and develop new applications or new products for their own use without the aid of the supplier). - Least expensive step - Many products aren't truly new but rather version so products and services already available.

Benefits of Adding Channel Members

- Middlemen limits # of transactions and deliveries that occurs from manufacturers to consumers. - A distributor can, oftentimes, deliver products much more cheaply than you ever could alone.

Functions of packaging

1) Communicate brand and its benefits. 2) Protect the product from damage and contamination. 3) Prevent leakage 4) Present gov't required warning and info labels.

How do you classify products by type of user?

1) Consumer products: anything sold to the final consumer. 2) Business products: anything sold to anyone else.

7 Step New Offering Development Process

1) Idea Generation 2) Idea Screening 3) Feature Specification 4) Development 5) Testing (Alpha and Beta) 6) Market Introduction / launch / commercialization 7) Evaluation

What are the three major components of an offering?

1) The product (a tangible good). 2) Price 3) Service

Methods of concept testing

1. Focus Group: a group of potential buyers brought together to discuss a marketing research topic with one another (i.e.: 20/20 research). A company's way of discerning what their target market values by employing synergy of group discussion. 2. Depth Interviews: an exploratory research technique of engaging in detailed, one-one-one, question-and-answer sessions with potential buyers. 3. Concept Testing: use artwork, art, and words to describe an idea in as much detail as possible (test idea before testing reality). Example: story board. 4. Lead Users: Ask people who think like the majority of the market what they think of an offering idea (more secretive than other forms of market research).

Functions performed by channel members

1. Improve quality, lower cost, and communicate offering to consumers via marketing communications. 2. Sort and Regroup Products: "breaking bulk" 3. Store and Manage Inventory (for retailers): channel members "stock," or carry, reserve inventory so they can satisfy customer demand. 4. Distribute products: move goods from one channel member to another. 5. Assume Ownership Risk (take title): ownership risk is distributed among channel members depending on the contracts they have with one another. 6. Extend credit - aid in possession. 7. Share Marketing & other info: sharing info within a marketing channel can help each firm perform its functions better and overcome competitive obstacles.

The uniqueness of services (the four I's)

1. Intangibility 2. Inconsistency 3. Inseparability (impossible to separate production of the service from its consumption). 4. Inventory (services are perishable)

Free on Board Provision

A contract term that designates which party is responsible for a product's shipping costs and owns the title to the goods and when.

7. Evaluation

A firm's executives carefully monitor its progress.

What is a product/offering?

A good or service that is designed to deliver VALUE to customers (by fulfilling needs and satisfying wants). Purpose = satisfy a market's needs.

Product Line

A group of related offerings (i.e.: clothing, including shirts AND pants). A group of offerings that serve similar needs and are sold under the same name. (i.e.: all home goods manufactured by Arm & Hammer).

Exploratory Research Design

A less structured type of research design used to initially investigate a marketing research project that hasn't yet been defined well enough for an in-depth study to be conducted. Methods: 1. Depth Interviews: engaging in detailed, one-on-one Q&A sessions with potential buyers (questions are open-ended). 2. Focus Group: A group of potential buyers brought together to discuss a marketing research topic with one another (collaborative interview setting). 3. Case study: A study that looks at how another company solved a problem being researched. 4. Projective Technique: Used to reveal information research respondents might not reveal by being asked directly. (Example: asking a person to complete sentences, asking someone to finish a story that presents a certain scenario, using word associations, completing cartoons, etc.)

Direct Channel

A marketing channel that consists of a producer and a consumer (Firm -> Consumer).

Indirect Channel

A marketing channel that consists of a producer, a consumer, and one or more intermediaries (i.e.: a wholesaler, a distributor, or a broker/agent). (Firm -> Retailer -> Consumer).

Brand

A name, picture, design, or symbol used by a seller to identify its offerings and to differentiate its offerings from competitors' offerings.

Quality Function Deployment (QFD)

A specific process for designing new offerings that begins by specifying a customer's requirements and then designing a product to meet those needs.

Push Strategy

A strategy in which businesses are the target of promotions so products get "pushed" through their marketing channels and sold to customers. (Main focus is to sell to intermediaries). The producer promotes and motivates channels to move more of their product.

Pull Strategy

A strategy in which consumers are targeted with sales promotions (coupons, contests, games, rebates, and mail-in offers). Focuses on creating demand for a product among consumers so that businesses agree to sell the product. The producer promotes and motivates end users to request the product.

Vertical Integration

A strategy of disintermediation, or growth through acquisition or development of operations. Forward: company adds downstream operations (i.e.: P&G, a manufacturer of household products, now owns retail stores such as the Art of Shaving). Backward: a form of vertical integration where the company integrating channel operations moves upstream, toward manufacturing (i.e. Walmart bough McLane, a grocery warehousing and distributing company).

Intensive Distribution

A strategy of selling a product in as many outlets as possible (often used for convenience offerings). Objective: maximize outlets for products to assure the widest availability.

Selective Distribution

A strategy of selling products at specific outlets and/or locations. Objective: appeal to different markets by limiting the number of locations. By selling different models with different features and price points at different outlets, a manufacturer can appeal to different target markets.

Channel captain/leader

A strong channel member that wields channel power (i.e.: big retailers like Target and Walmart are bombarded with products that wholesalers and manufacturers want them to sell, so hey are increasingly able to call the shots.)

Brand mark

A symbol or logo used to identify a brand.

Vertical Marketing System

A system in which channel members located at different levels within a channel formally agree to cooperate with one another. Types: corporate, contractual, administered.

Horizontal Marketing System

A system in which two companies at the same channel level agree to cooperate with one another to sell their products and make the most of their marketing opportunities (Example: Skype & Nokia Phones).

Marketing Information System

A system to manage marketing information (on-going). - internally generated data, ongoing basis.

Types of vertical marketing systems for consumer goods and services.

A. Producer -> Consumer B. Producer -> Retailer -> Consumer C. Producer -> Wholesaler / Distributor -> Retailer -> Consumer D. Producer -> Agent/Broker -> Wholesaler / Distributor -> Retailer -> Consumer.

Types of Vertical Marketing Systems for business goods and services

A. Producer -> Industrial User B. Producer -> Industrial Distributor -> Industrial User C. Producer -> Agent / Broker -> Industrial User D. Producer -> Agent / Broker -> Industrial Distributor -> Industrial User

Marketing Channel

A.K.A. Distribution channel. The group of organizations involved in selling and promoting goods from the time they are produced until they reach end users. A pathway that a product follows from where it's made to where it's consumed. A group of organizations between the creation of a good or service and the consumer.

Horizontal Integration

Adding to operations at the same level in the distribution channel, usually through acquisition of competitors.

Supply Chain

All the organizations that participate in the production, promotion, and delivery of a product or service from the producer to the end consumer (more holistic than just intermediaries - not merely suppliers but also producers of raw materials, transportation companies, and outsourcing jobs).

Strategic Channel Alliance

An agreement formed by > 2 firms to deliver their products via a channel (i.e.: Harley Davidson has a strategic alliance with Best Western).

Product Dominant Approach

An approach to products and offerings that clearly separates the physical product from services and from price. Has its roots in the industrial revolution; focus was on creating products cheaply. Firms then became product oriented, believing the best way to gain market share was with better products at lower prices.)

Unsought Offering

An offering that consumers don't typically shop for until it is needed (i.e. tow service, funeral services).

Specialty Offerings

An offering that is highly differentiated from other offerings and is designed to satisfy a specific need or want; highly differentiated offering, and the brands under which they are marketed are very different across companies. A unique offering (go out of your way to buy it, price isn't necessarily important. example: exotic perfume). Available only through limited channels. Purchased less frequently than convenience offerings, so the profit margin tends to be greater. Marketing these goods requires building brand recognition.

How do you calculate break even point?

BEP = (Total fixed cost) / (Contribution margin). *measured in units, not dollars. At this point, the money coming in meets both fixed and variable costs. After you break even, you are no longer accruing a contribution margin; you are making a profit.

Sales branch vs. Sales office

Branch - has local inventory. Office - no local inventory.

Wholesalers

Businesses that purchase products in large quantities, can store the products, can break the pallets down into cases or units, and can deliver the desired quantity of a product to distributors, retailers, and/or consumers.

Marketing Intelligence System

Collecting data on an ONGOING basis on matters OUTSIDE your organization.

Head-on (Head-to-Head)

Compare yourself directly with competition and show how you're better. Concentrate on an attribute or benefit prized by members of a given market segment. Example: "Where's the Beef?" Ad campaign for Wendy's, which criticized the size of McDonald's beef patties. Example: Pepsi Taste Challenge. Essentially, find something you're better at than competition and compare yourself directly.

Horizontal Conflict

Conflict that occurs between organizations of the same type (often competition driven) - i.e.: two manufacturers that each want a powerful wholesaler to carry only its products.

Vertical Conflict

Conflict that occurs between two different types of members of the channel (i.e.: wholesalers against agent, manufacturer against retailer.)

Review: How do you calculate contribution margin?

Contribution Margin = price - per unit variable cost. * This does not account for fixed costs; the contribution margin helps pay off fixed costs.

Types of consumer offerings:

Convenience goods, shopping goods, specialty goods, unsought goods.

Secondary Data

Data already collected (by your firm or another organization) for purposes other than the marketing research project at hand. External Secondary Data: Census data, web sites, publications, trade associations, syndicated research. Internal Secondary Data: Salespeople reports, product reports, clickstream data (Google analytics). Clickstream Data: Data collected from web pages visitors clicked on.

Primary Data

Data collected using hands-on tools such as interviews or surveys to answer a question for a specific research project. Collected either through observation or more direct methods, such as surveys, interview, and Focus groups.

Agent or Broker Wholesaler

Doesn't take title. Representatives of one or more manufacturers who sell products on their behalf to consumers, wholesalers, and distributors but do not take title to them.

Differentiation

Explicate how you are different than competition ("we aren't the same, we're different.") Example: Seven-up is the "Uncola". Example: Pork, the other white meat. Example: Perdue chickens are yellow. Example: Purity has yellow milk jugs.

Service Dominant Approach

Focus on what customers want. Integrates the product, price, and service dimensions into the total offering. Defines the product. Service has become the major part of our economy (contributes more than goods to the U.S. gross domestic product). Most future jobs are service related. Measure quality of a service by how well it meets consumers' needs.

Contractual Systems

Gain control by entering into contract (i.e.: a franchise).

Branding Strategies & Positioning

Head on, Differentiation, and Niche

Product line breadth (width)

How many different/distinct product lines are offered by a company. Example: Campbell's has chunky soup line, condensed soup line, kids' soup line, lower sodium soup line, and a number of nonsoup lines.

Webber's Gaps

In order to counteract competition, you find gaps in Distribution, Price, New Uses, New Product Features, and New Markets (customer gaps) and then you fill these gaps. A gap is where no one is really doing anything and there is opportunity for growth.

Market Intelligence

Information gathered on a regular, ongoing basis to enable a firm's decision makers to stay in touch with what's happening in the marketplace.

Internal Report System

Internally generated data and reports inside the organization (continuous)

Exclusive Distribution

Involves selling products through one or a few retailers in a specific location. Objective: appeal to a specific market and control brand image. Applies scarcity principle to create demand and heighten the sense of quality. Applies primarily to speciality goods.

What causes channel conflict?

Lack of control Solution: Try to structure channel to minimize conflict.

The Catch 22 of New Product Development

Long-term survival of firm is tied into new product development, but it is expensive to launch new products, and many new products fail (Recent studies put failure rate of U.S. Consumer products @ 95%). It takes about 3,000 raw, unwritten ideas to produce a single, commercially successful new product.

Multiple Channels

Many people regularly interact with companies via numerous channels before making buying decisions. These selling channels should be integrated so users get a consistent experience.

Beta Test

Market Test. The testing of a product (and it's marketing communication plan) by real customers in the customer's location (real live but on a limited basis).

Intermediaries / Channel Members

Middle people and organizations between creation and consumer. I.e.: retailer, agents, businesses "in between". - Third parties that facilitate the supply and sale of products from manufacturers to users. - Can help companies sell their products better than they could working alone. They create efficiency by streamlining the number of transactions an organization must make.

Corporate Systems

Most control of all vertical marketing systems. Example: all employees of Cracker Barrel are employed by the corporation (not franchised).

Types of new products

New to the world, new to the firm, product-line extensions, and product improvements. Reminder: Line extension - a new idea or offering that occurs when a company comes out with another model (a related product or service) based upon the same platform or brand as one of its existing products.

6. Launch or commercialization

Offering is made available to customers.

5. Testing

Offering is tested, first in the lab and then with real customers.

Analytics Software System

Organizes data in a form that decision makers can use. Sometimes uses statistical methods to interpret data. - Makes sense of internally generated info. - Uses statistical methods to help managers answer "what if" types of questions.

Tertiary Packaging

Packaging designed for the shipping and efficient handling of large quantities of a product.

Primary Packaging

Packaging designed to hold a single retail unit of a product. Use to protect and promote products.

Secondary Packaging

Packaging designed to hold a single wholesale unit of a product. Designed more for retailers than consumers and can serve as part of an in-store display.

Concept Testing

Presenting an idea for an offering to consumers for their reaction early in the offering development process. (Identify what customers want through research.)

Syndicated Research

Primary data marketing research firms collect on a regular basis and sell to other companies. (Primary data collected from many sources and sold to many users of information).

Alpha Test

Product Test. The testing of a product in a laboratory setting - ensures that offering works like it's supposed to in a variety of different environments.

RFID

Radio Frequency Identification: Radio Transmitter + Battery with an electronic product code. This method will soon replace bar codes. Allows for better control of inventory / promotes efficiency.

Niche

Target an extremely selective group. Pick out a specific area that you learn more about to give you credibility. Appeal to those with unique wants and needs.

4. New Product Development

The actual offering is designed, specifications for it are written, and prototypes (demos) of it are developed. - At this point, the firm considers the manufacturing process. - Oftentimes it is most effective to use the same technology platform as another product.

Administered Systems

The channel captain has administrative power over the other channel members.

2. Idea Screening

The costs, profits, and potential sales of the offering are calculated at different price levels. Purpose: to try to avoid mistakes early in the development process. Screening considers: 1. Process feasibility - the degree to which an organization can actually make and service a product. Affects financial feasibility - an offering's ability to make money. 2. Investment Risk - the potential of losing one's money and time should a new offering fail. 3. Opportunity Risk - potential loss of revenue a company risks when it chooses an alternative course of action, such as launching a different offering.

Product mix

The entire assortment of products that a firm offers.

Disintermediation

The practice of cutting out intermediaries in the marketing channel (make channel shorter). This trend has been facilitated by the internet.

Marketing Research

The process of collecting, analyzing, and reporting marketing info that can be used to answer questions or solve problems so as to improve a company's bottom line. - Involves solving a specific marketing problem at a specific point in time. Stegerology: the more you know gives you a competitive advantage. Info/Knowledge is power. You should always know what is changing in your business environment, how your customers' needs are changing, and what your competitors are up to. Market research is what a company has to resort to if it can't answer a question by using market intelligence, internal company data, or analytic software applied to data. Not ongoing. Done as an as-needed or project basis. Expensive, takes time.

Branding

The set of activities designed to create a brand and position it in the minds of consumers.

4. Decline Stage

The stage of the life cycle at which sales drop and companies must decide whether to keep, modify, or drop a product. Often due to changes in consumer preferences, technological advances, and alternatives that satisfy the same need. Strategies: - Reduce promotional expenditure and # of distribution outlets. - Implement price cuts. - Harvest: reduce investment in a product (gradually reduce all costs spent on a product in order to increase profits until inventory runs out). - Divest: companies get rid of the product. - Choose to keep product - you will make money if competitors drop out. - Best strategy: modify the product in the maturity stage to avoid entering the decline stage.

Growth Stage

The stage of the life cycle in which sales increase but more competitors enter the market. Higher profits, but this growth attracts competitors. Promotional spending is less aimed at encouraging customers to try the product and more aimed at describing the offering's benefits relative to competitive offerings. *During this stage, your profits will peak.

Maturity Stage

The stage of the product life cycle at which sales peak and then level off. At this point, competitors have saturated the market (# of potential new customers declines). - Most consumer products are in the mature stage of their life cycle & buyers are repeat purchasers. Lasts longer than other stages. - Goal: extend life of business or product. -Companies are challenged to develop strategies that extend the maturity stage of their products so they remain competitive. Some of these strategies include: A. Modify target markets: company attracts different customers. B. Modify product: change its packaging, size, flavors, colors, or quality to extend the maturity stage. C. Modify marketing strategy.

Line extension

When new but similar products are added to the existing product line.

Merchant Wholesaler

Wholesalers that take title to the goods (a.k.a. distributors). Includes full & limited service. - Full Service: Rack Jobber - Limited Service: Drop Shipper

Channel conflict

a dispute among channel members. Common because each channel member has its own goals, which may not be shared. Each channel member will make decisions to further their own profits, even if it slights other members.

TCO: Total Cost of Ownership

amount paid to own, use, and dispose of a product (time + money + extraneous expenses).

Shopping offerings

an offering for which the consumer will make an effort to compare various firms' offerings and select a brand. - consumers believe there are differences between similar shopping offerings and want to find the right one or the best price (comparison process). - retailers pay more attention to competition - what characteristics of the products are consumers comparing?

Conventional Marketing System

channel members have no affiliation with one another. All the members operate independently.

3. Feature Specification

during this stage, detailed specifications are developed. This includes comparing the features that could be offered at different price levels and also by considering which features are most important to the target market.

Product oriented

focus on creating and manufacturing better products at lower prices.

Convenience goods

low-priced, frequently purchased products and services that require little shopping effort. - there is still a relationship between price and perceived quality. - marketing is limited to trying to get the product in as many places as possible where a purchase could occur. - 3 kinds: 1) Staple items: something you buy on a regular basis. 2) Impulse items: unplanned purchases. 3) Emergency items: product that fulfills an unexpected need.

Introduction Stage

the first stage of a product life cycle after a product is launched. A.k.a. commercialization. Marketing costs are typically higher in this stage than in other stages. Promotion is needed to generate awareness. Profits are often low (due to research and envelopment costs and marketing costs.)

Product line depth

the number of functionally related products (variation of the same product) in a single product line. * How many offerings there are in a single product line. Example: Campbell's condensed soup line consists of several dozen different flavors.

Brand name

the spoken part of a brand's identity.

Product Life Cycle

the stages that a product may go through over time: Introduction -> Growth -> Maturity -> Decline.

Cannibalization

when a new product takes sales away from the same company's existing products.