BMKT 325 Final Exam

Regional Trade Alliances, Markets, and Agreements

Although many more firms are beginning to view the world as one huge marketplace, various regional trade alliances and specific markets affect companies engaging in international marketing; some create opportunities, and others impose constraints. In fact, while trade agreements in various forms have been around for centuries, the last century can be classified as the trade agreement period in the world's international development. Today, there are nearly 200 trade agreements around the world compared with only a select handful in the early 1960s. In this section, we examine several of the more critical regional trade alliances, markets, and changing conditions affecting markets. These include the North American Free Trade Agreement, European Union, Southern Common Market, Asia-Pacific Economic Cooperation, Association of Southeast Asian Nations, and World Trade Organization.

price elasticity of demand formula

% change in quantity demanded / % change in price

globalization

"For many firms, globalization of marketing is the goal; it involves developing marketing strategies as though the entire world (or its major regions) were a single entity: a globalized firm markets standardized products in the same way everywhere. Global brands are emerging that are rapidly losing their associations with individual countries.Footnote Nike and Adidas shoes, for example, are standardized worldwide. Other examples of globalized products include electronic communications equipment, Western-style clothing, movies, soft drinks, music, cosmetics, and toothpaste. In this advertisement, UPS demonstrates globalization through its depiction of flags from various countries. UPS is using this advertisement to inform consumers that it is a global logistics firm that reaches across the world. For many years, organizations have attempted to globalize their marketing mixes as much as possible by employing standardized products, distribution channels, promotion campaigns, and prices for all markets. The economic and competitive payoffs for globalized marketing strategies are certainly great. Brand name, product characteristics, packaging, and labeling are among the easiest marketing mix variables to standardize; media allocation, retail outlets, and price may be more difficult. In the end, the degree of similarity among the various environmental and market conditions determines the feasibility and degree of globalization. A successful globalization strategy often depends on the extent to which a firm is able to implement the idea of "think globally, act locally."Footnote Even take-out food lends itself to globalization: McDonald's, KFC, and Taco Bell restaurants satisfy hungry customers in both hemispheres, although menus may be altered slightly to satisfy local tastes. When 7-Eleven opened stores in the United Arab Emirates, it sold its signature Slurpee drinks but also offered more local fare such as hummus, curries, and samosas. International marketing demands some strategic planning if a firm is to incorporate foreign sales into its overall marketing strategy. International marketing activities often require customized marketing mixes to achieve the firm's goals. Globalization requires a total commitment to the world, regions, or multinational areas as an integral part of the firm's markets; world or regional markets become as important as domestic ones. Global brands exist in an increasingly local world where consumer behavior, economic conditions, and distribution systems differ. Therefore, global brands may shift to local responsibility for marketing strategy implementation.Footnote Regardless of the extent to which a firm chooses to globalize its marketing strategy, extensive environmental analysis and marketing research are necessary to understand the needs and desires of the target market(s) and successfully implement the chosen marketing strategy. A global presence does not automatically result in a global competitive advantage. However, a global presence generates five opportunities for creating value: adapt to local market differences, exploit economies of global scale, to exploit economies of global scope, to mine optimal locations for activities and resources, and maximize the transfer of knowledge across locations. To exploit these opportunities, marketers need to conduct marketing research and work within the constraints of the international environment and regional trade alliances, markets, and agreements.

Public Relations

Although many promotional activities focus on a firm's customers, other stakeholders—suppliers, employees, stockholders, the media, educators, potential investors, government officials, and society in general—are important to an organization as well. To communicate with customers and stakeholders, a company employs public relations. Public relations is a broad set of communication efforts used to create and maintain favorable relationships between an organization and its stakeholders. Maintaining a positive relationship with one or more stakeholders can affect a firm's current sales and profits, as well as its long-term survival. Public relations uses a variety of tools, including annual reports, brochures, event sponsorship, and sponsorship of socially responsible programs aimed at protecting the environment or helping disadvantaged individuals. The goal of public relations is to create and enhance a positive image of the organization. Increasingly, marketers are going directly to consumers with their public relations efforts to bypass the traditional media intermediary (newspapers, magazines, and television). Pampered Chef placed content on YouTube that shows consumers how to make certain recipes. This content familiarizes consumers with Pampered Chef and positions the organization as a helper in the kitchen. Other tools arise from the use of publicity, which is a component of public relations. Publicity is nonpersonal communication in news-story form about an organization or its products, or both, transmitted through a mass medium at no charge. A few examples of publicity-based public relations tools are news releases, press conferences, and feature articles. To generate publicity, companies sometimes give away products to celebrities in the hope that the celebrities will be seen and photographed with the product, and those photos will stimulate awareness and product trial among their fans. However, to ensure that consumers are not deceived, the Federal Trade Commission requires bloggers, celebrities, and anyone else who receives something of value for endorsing a product to disclose this fact.Footnote Ordinarily, public relations efforts are planned and implemented to be consistent with and support other elements of the promotion mix. Public relations efforts may be the responsibility of an individual or of a department within the organization, or the organization may hire an independent public relations agency. Unpleasant situations and negative events, such as product tampering or an environmental disaster, may generate unfavorable public relations for an organization. For instance, one Krispy Kreme doughnut location in the United Kingdom wanted to promote an event on Wednesdays called Krispy Kreme Klub. Unfortunately, its post on Facebook was abbreviated as KKK Wednesday, sparking outrage from consumers. The company removed the post and issued an apology.Footnote To minimize the damaging effects of unfavorable coverage, effective marketers have policies and procedures in place to help manage any public relations problems. Public relations should not be viewed as a set of tools to be used only during crises. To get the most from public relations, an organization should have someone responsible for public relations either internally or externally and should have an ongoing public relations program.

Copy

Copy is the verbal portion of an advertisement and may include headlines, subheadlines, body copy, and a signature. Not all advertising contains all of these copy elements. Even handwritten notes on direct-mail advertising that say, "Try this. It works!" seem to increase requests for free samples. The headline is critical because often it is the only part of the copy that people read. It should attract readers' attention and create enough interest to make them want to read the body copy or visit the website. The subheadline, if there is one, links the headline to the body copy and sometimes serves to explain the headline. Body copy for most advertisements consists of an introductory statement or paragraph, several explanatory paragraphs, and a closing paragraph. Some copywriters have adopted guidelines for developing body copy systematically: identify a specific desire or problem, recommend the product as the best way to satisfy that desire or solve that problem, state product benefits and indicate why the product is best for the buyer's particular situation, substantiate advertising claims, and ask the buyer to take action. When substantiating claims, it is important to present the substantiation in a credible manner. The proof of claims should help strengthen both the image of the product and company integrity. A shortcut explanation of what much advertising is designed to accomplish is the AIDA model. Advertising should create awareness, produce interest, create desire, and ultimately result in a purchase (action). Typeface selection can help advertisers create a desired impression using fonts that are engaging, reassuring, or very prominent. The signature identifies the advertisement's sponsor. It may contain several elements, including the firm's trademark, logo, name, and address. The signature should be attractive, legible, distinctive, and easy to identify in a variety of sizes. Often, because radio listeners are not fully "tuned in" mentally to what they're hearing on the radio, radio copy should be informal and conversational to attract listeners' attention. Radio messages are highly perishable and should consist of short, familiar terms, which increase their impact. The length should not require a rate of speech exceeding approximately 2.5 words per second. In television copy, the audio material must not overpower the visual material, and vice versa. However, a television message should make optimal use of its visual portion, which can be very effective for product use, applications, and demonstrations. Copy for a television commercial is sometimes initially written in parallel script form. Video is described in the left column and audio in the right. When the parallel script is approved, the copywriter and artist combine copy with visual material by using a storyboard, which depicts a series of miniature television screens showing the sequence of major scenes in the commercial. Beneath each screen is a description of the audio portion to be used with that video segment. Technical personnel use the storyboard as a blueprint when producing the commercial.

Direct Selling

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. 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. 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.

Characteristics of the Product

Generally, promotion mixes for business products concentrate on personal selling, whereas advertising plays a major role in promoting consumer goods. This generalization should be treated cautiously, however. Marketers of business products use some advertising to promote products. Advertisements for computers, road-building equipment, and aircraft are fairly common, and some sales promotion is also used occasionally to promote business products. Personal selling is used extensively for consumer durables, such as home appliances, automobiles, and houses, whereas consumer convenience items are promoted mainly through advertising and sales promotion. Public relations appears in promotion mixes for both business and consumer products. Marketers of highly seasonal products often emphasize advertising—and sometimes sales promotion as well—because off-season sales generally will not support an extensive year-round sales force. Although most toy producers have sales forces to sell to resellers, many of these companies depend chiefly on advertising and strong distribution channels to promote their products. A product's price also influences the composition of the promotion mix. High-priced products call for personal selling, because consumers associate greater risk with the purchase of such products and usually want information from a salesperson. For low-priced convenience items, marketers use advertising rather than personal selling. Research suggests that consumers visiting a store specifically to purchase a product on sale are more likely to have read flyers and purchased other sale-priced products than consumers visiting the same store for other reasons. Another consideration in creating an effective promotion mix is the stage of the product life cycle. During the introduction stage, advertising is used to create awareness for both business and consumer products. Apple released commercials promoting the ease and convenience of its Apple Watch. It released six different ads showing situations in which people from all walks of life can use the smart watch to manage and transform the messiness of life to achieve their objectives happily and efficiently.Footnote For many products, personal selling and sales promotion are also helpful in this stage. In the growth and maturity stages, consumer products require heavy emphasis on advertising, whereas business products often call for a concentration of personal selling and some sales promotion. In the decline stage, marketers usually decrease all promotional activities, especially advertising. Intensity of market coverage is still another factor affecting the composition of the promotion mix. When products are marketed through intensive distribution, firms depend strongly on advertising and sales promotion. Many convenience products like lotions, cereals, and coffee are promoted through samples, coupons, and refunds. When marketers choose selective distribution, promotion mixes vary considerably. Items handled through exclusive distribution—such as expensive watches, furs, and high-quality furniture—typically require a significant amount of personal selling. A product's use also affects the combination of promotional methods. Manufacturers of highly personal products, such as laxatives, nonprescription contraceptives, and feminine hygiene products, depend on advertising because many customers do not want to talk with salespeople about these products. Service businesses often use tangible products to promote their intangible services. Standard Life Investments released an advertisement depicting coal on one side of the ad and a diamond on the other to demonstrate how its services can deliver a person's potential from opportunity to value. These tangible elements reassure the audience about the value of Standard Life Investments services.

Supply chain management

Supply-chain management (SCM) refers to the coordination of all the activities involved with the flow and transformation of supplies, products, and information throughout the supply chain to the ultimate consumer. It integrates the functions of operations management, logistics management, supply management, and marketing channel management so that products are produced and distributed in the right quantities, to the right locations, and at the right times. It includes activities such as manufacturing, research, sales, advertising, and shipping. SCM involves all entities that facilitate product distribution and benefit from cooperative efforts, including suppliers of raw materials and other components to make goods and services, logistics and transportation firms, communication firms, and other firms that indirectly take part in marketing exchanges. The key tasks involved in supply-chain management are outlined in Table 14.1. Supply-chain managers must encourage cooperation between organizations in the supply chain and understand the trade-offs required to achieve optimal levels of efficiency and service. In an efficient supply chain, upstream firms provide direct or indirect input to make the product, while downstream firms are responsible for delivery of the product and after-market services to the ultimate customers. To ensure quality and customer satisfaction, firms must be involved in the management of every aspect of their supply chain, in close partnership with all involved upstream and downstream organizations. Supply-chain management should begin with a focus on the customer, who is the ultimate consumer and whose satisfaction should be the goal of all the efforts of channel members. Cooperation between channel members should improve customer satisfaction while also increasing coordination, reducing costs, and increasing profits. When the buyer, the seller, marketing intermediaries, and facilitating agencies work together, the cooperative relationship results in compromise and adjustments that meet customers' needs regarding delivery, scheduling, packaging, or other requirements. Consider that today's technology-savvy consumer expects retailers like Office Depot to offer multiple options for fulfilling orders—in the store, online via desktop computer or smartphone, or shipped to a nearby store—and to be able to deliver their orders quickly—even the very same day. Retailers must adjust their physical distribution strategies in response or risk losing their customers to other retailers who will provide what they want. Each supply-chain member requires information from other channel members. For instance, suppliers need order and forecast information from the manufacturer. They also may need availability information from their own suppliers. Customer relationship management (CRM) systems exploit the information in supply-chain partners' information systems and make it available for easy reference. CRM systems can help all channel members make better marketing strategy decisions that develop and sustain desirable customer relationships. Companies now offer online programs that integrate business data into a social networking site format. Tibbr and Yammer are two such programs. By inputting all data into a single, easy-to-use online system, businesses can achieve greater efficiencies and improve their CRM. Demand for innovative goods and services has increased and changed over time. Marketers need to be flexible in order to respond to the fluctuating needs and desires of customers by developing and distributing new products and modifying existing ones. Supply-chain managers can exploit data available through improved information technology to learn about a firm's customers, which helps to improve products in the downstream portion of the supply chain. Customers are also increasingly a knowledge source in developing the right product in the downstream portion of the supply chain. Marketers now understand that managing the entire supply chain is critically important in ensuring that customers get the products when, where, and how they want them. In fact, supply-chain management is one of the industries poised for strong future growth because of the increasing importance of getting the right products where they need to go safely and on time.Footnote Amazon has set the gold standard for supply-chain management—offering customers nearly anything they can imagine at low prices, through a user-friendly website that features product reviews and ratings, perks like offering a variety of shipping options, and an easy return policy. Amazon has even moved into selling and distributing everyday items, like toilet paper or cleaning supplies, teaming up with suppliers all over the country to create a seamless distribution system.Footnote Many companies have struggled to compete with and adapt to such a large and flexible competitor. Technology has improved supply-chain management capabilities globally. Advances in information technology, in particular, have created an almost seamless distribution process for matching inventory needs to manufacturer requirements in the upstream portion of the supply chain and to customers' requirements in the downstream portion of the chain. With integrated information sharing among chain members, firms can reduce costs, improve services, and provide increased value to the end customer. Information is a crucial component in operating supply chains efficiently and effectively.

The European Union (EU)

The European Union (EU), sometimes also referred to as the European Community or Common Market, was established in 1958 to promote trade among its members, which initially included Belgium, France, Italy, West Germany, Luxembourg, and the Netherlands. Today the Euro Zone (countries that have adopted the euro as their currency) consists of 28 separate countries with varying political landscapes. In 1991, East and West Germany united, and by 2015, the EU included the United Kingdom, Spain, Denmark, Greece, Portugal, Ireland, Austria, Finland, Sweden, Republic of Cyprus, Poland, Hungary, the Czech Republic, Slovenia, Estonia, Latvia, Lithuania, Slovakia, Malta, Romania, Bulgaria, and Croatia. The Former Yugoslav Republic of Macedonia and Turkey are candidate countries that hope to join the European Union in the near future. However, in 2016 the United Kingdom voted by a slim margin to exit the EU. Known as 'Brexit,' this vote means the U.K. will become the first country to exit the trade bloc. Some U.K. consumers are calling for another vote because of the impact this could have on the economy. Even if the vote stands, exiting the EU will likely take years. The European Union consists of more than half a billion consumers and has a combined GDP of nearly $18 trillion. In recent years, a worldwide recession has slowed Europe's economic growth and created a debt crisis. Several members have budget deficits and are struggling to recover. Exiting the EU could have an even greater impact on the economy. For instance, economists are predicting that Brexit will slow growth in the U.K., create barriers to trade, and lead to conflict among the U.K. and other countries in the EU. The EU is a relatively diverse set of democratic European countries. It is not a state that is intended to replace existing country states, nor is it an organization for international cooperation. Instead, its member states have common institutions to which they delegate some of their sovereignty to allow specific matters of joint interest to be decided at the European level. The primary goals of the EU are to establish European citizenship; ensure freedom, security, and justice; promote economic and social progress; and assert Europe's role in world trade.Footnote To facilitate free trade among members, the EU is working toward standardizing business regulations and requirements, import duties, and value-added taxes; eliminating customs checks; and creating a standardized currency for use by all members. Many European nations (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Greece, and Spain) are linked to a common currency, the euro, but several EU members have rejected the euro in their countries (e.g., Denmark, Sweden, and the United Kingdom). Although the common currency may necessitate that marketers modify their pricing strategies and subjects them to increased competition, it also frees companies that sell products among European countries from the complexities of exchange rates. The European Central Bank is committed to supporting the value of the euro, even in countries in the Euro Zone like Greece that required financial support. The long-term goals are to eliminate all trade barriers within the EU, improve the economic efficiency of the EU nations, and stimulate economic growth, thus making the union's economy more competitive in global markets, particularly against Japan and other Pacific Rim nations and North America. As the EU nations attempt to function as one large market, consumers in the EU may become more homogeneous in their needs and wants. Marketers should be aware, however, that cultural differences among the nations may require modifications in the marketing mix for customers in each nation. Differences in tastes and preferences in these diverse markets are significant for international marketers. But there is evidence that such differences may be diminishing, especially within the younger population that includes teenagers and young professionals. Gathering information about these distinct tastes and preferences is likely to remain a very important factor in developing marketing mixes that satisfy the needs of European customers. Although the United States and the EU do not always agree, partnerships between the two have been profitable and the two entities generally have a positive relationship. Much of this success can be attributed to the shared values of the United States and EU. The EU is mostly democratic and has a strong commitment to human rights, fairness, and the rule of law. As a result, the United States and EU have been able to collaborate on mutually beneficial projects with fewer problems than partnerships with other trade alliances that do not share similar values.Footnote There have been discussions about the possibility of a trade agreement between the two entities. In many respects, the United States, the EU, and Asia have become largely interdependent in trade and investment. For instance, the United States and the EU have adopted the "Open Skies" agreement to remove some of the restrictions on transatlantic flights, and the two often collaborate on ways to prevent terrorist attacks, cyber hacking, and crime. The United States and the EU hope that by working together, they can create mutually beneficial relationships that will provide benefits to millions of their citizens.

Creating the Advertising Message

The basic content and form of an advertising message are a function of several factors. A product's features, uses, and benefits affect the content of the message. The intensity of the advertising can also have an impact. For instance, push advertising on digital devices refers to advertising that is not requested by the user. Although push advertising might alienate some consumers, younger consumers are more accepting of push advertising if the source is trusted, permission has been given, and the messages are relevant or entertaining. However, research has shown that advertising that pushes too hard to the point that consumers feel uncomfortable may cause consumers to consider the product negatively. With the increase in digital technology, the cost of advertising for marketers is decreasing and advertising is becoming more frequent in venues such as mobile games. Marketers must make sure their advertising is not too intrusive as this could alienate consumers. Additionally, characteristics of the people in the target audience—gender, age, education, race, income, occupation, lifestyle, life stage, and other attributes—influence both content and form. For instance, gender affects how people respond to advertising claims that use hedging words like may and probably and pledging words, such as definitely and absolutely. Researchers have found that women respond negatively to both types of claims, but pledging claims have little effect on men.Footnote When Procter & Gamble promotes Crest toothpaste to children, the company emphasizes daily brushing and cavity control, focusing on fun and good flavors like bubblegum. When marketing Crest to adults, P&G focuses on functionality, stressing whitening, enamel protection, breath enhancement, and tartar and plaque control. To communicate effectively, advertisers use words, symbols, and illustrations that are meaningful, familiar, and appealing to people in the target audience. Another controversy for advertisers is whether to advertise to children. Many countries have restrictions on advertising to this demographic. Sweden and Norway ban advertising directed at children, and Great Britain limits the advertising of foods high in fat, salt, or sugar on television and radio to children under the age of 16. Many firms in the European Union and the United States are attempting self-regulation, developing codes of conduct regarding this type of advertising.An advertising campaign's objectives and platform also affect the content and form of its messages. If a firm's advertising objectives involve large sales increases, the message may include hard-hitting, high-impact language, symbols, and messages. Slogans such as Home Depot's basic message, "More saving. More doing", can aid in brand recall. When designing slogans, marketers should make them short, retain them for a long period of time, and provide large marketing budgets to make the slogan memorable.Footnote The use of spokescharacters or design elements can also be highly effective. Spokescharacters are visual images that can convey a brand's features, benefits, or brand personality. Flo from Progressive Insurance and the Geico gecko are examples of spokescharacters representing specific brands. The spokescharacter can provide a personality and improve brand equity by directly and indirectly enhancing excitement, sincerity, and trust.Footnote Keebler uses the elves as spokescharacters for their cookies. Viewers have come to associate these spokescharacters with the company. In the advertisement, Keebler uses the elves to show the 'elfin magic' that goes into making the cookies so tasty. Thus, the advertising platform is the foundation on which campaign messages are built. Choice of media obviously influences the content and form of the message. Effective outdoor displays and short broadcast spot announcements require concise, simple messages. Magazine and newspaper advertisements can include considerable detail and long explanations. Because several kinds of media offer geographic selectivity, a precise message can be tailored to a particular geographic section of the target audience. Some magazine publishers produce regional issues, in which advertisements and editorial content of copies appearing in one geographic area differ from those appearing in other areas. For instance, the AAA Publishing Network publishes 23 regional magazine titles, including AAA Horizons (Connecticut, Massachusetts, and Rhode Island), Go Magazine (North Carolina and South Carolina), and Western Journey (Idaho and Washington).Footnote A company advertising with the AAA Publishing Network might decide to use one message in the New England region and another in the rest of the nation. A company may also choose to advertise in only one region. Such geographic selectivity lets a firm use the same message in different regions at different times.

freight absorbtion pricing

When the seller absorbs all or part of the actual freight costs. The seller might choose this method because it wishes to do business with a particular customer or to get more business; more business will cause the average cost to fall and counterbalance the extra freight cost. This strategy is used to improve market penetration and retain a hold in an increasingly competitive market.

Reliance on the Internet and Other Technology

Whereas in the past, an organization seeking a type of product might contact product suppliers, speak with someone on the sales force, and request a catalog or brochure, business customers today first turn to the Internet to search for information and find sources. The Internet has become a major channel in organizational buying, accounting for $780 billion in sales.Footnote Indeed, 62 percent of business buyers now purchase products online, and 30 percent of them researched at least 90 percent of products online before making a purchase. Moreover, 94 percent of B2B buyers engaged in online research prior to purchasing a product, and 55 percent report researching at least half their organizations' purchases online.Footnote In many cases, business buyers' needs and wants have been shaped by their experiences as consumers shopping at sites such as Amazon.com, LandsEnd.com, and Walmart.com. Organizational buyers often begin searching for a product after recognizing a need or problem. The Internet allows buyers to research potential solutions, talk with peers about their experiences with those products, read blogs, consult webinars and watch YouTube videos, examine specifications, and even find reviews of potential products long before beginning a formal buying process. Interactions with a sales representative now may occur much later in the process than in the past. For this reason, marketers should ensure that they post informative content through blogs, webinars, videos, eBooks, white papers, and even responses to forum queries with a variety of information about how their products might solve customers' problems or address their needs.Footnote John Deere, for example, uses its comprehensive website to showcase its products so that business buyers can research product details and find the right one to match their needs. The screenshot for John Deere's backhoe loaders offers general information about the features of its backhoe loaders as well as detailed specifications for different models. It also highlights a quote from a user who appreciated being asked for input when Deere designed new machines with improvements to boost productivity. For most firms, online marketing efforts make the buying process far more efficient because it saves time and reduces costs. Boga Paddle and Surf Company processes 80 percent of its dealer customers' orders online. The company, which relies on TradeGecko e-commerce software, has been able to capitalize on the growing trend of stand-up paddle-boarding to grow 55 percent a year since its inception. The software allows Boga's sales representatives to access the firm's entire catalog on their smartphones in the field so that retailers know exactly what the firm has in stock and where their orders are.Footnote As we shall see in Chapter 14, Internet technology has streamlined physical distribution and other supply chain activities, resulting in significant cost savings. Organizations can make purchases directly from a firm's website, such as computers from dell.com or hp.com. Like many larger companies, Dell and Hewlett Packard offer special access through a password-protected portal to B2B customers where they can track orders, see past orders, and access relevant information. Organizations can also purchase supplies from a retailer's website. Amazon Business, for example, offers business buyers 2.2 million products in 17 categories using the successful and secure e-commerce platform of its parent, Amazon.com

Marginal Cost

is the extra cost a firm incurs when it produces one more unit of a product.

Reference pricing

pricing a product at a moderate level and physically positioning it next to a more expensive model or brand in the hope that the customer will use the higher price as a reference price (i.e., a comparison price)

Status quo pricing objective

Status quo objectives can focus on several dimensions, such as maintaining a certain market share, meeting (but not beating) competitors' prices, achieving price stability, and maintaining a favorable public image. A status quo pricing objective can reduce a firm's risks by helping to stabilize demand for its products. A firm that chooses status quo pricing objectives risks minimizing pricing as a competitive tool, which could lead to a climate of nonprice competition. Professionals such as accountants and attorneys often operate in such an environment.

Customary pricing

certain goods are priced on the basis of tradition. This is a less common pricing strategy now than it was in the past. An example would be the 25-cent gumballs sold in gumball machines—the price has remained at that level for probably as long as you can remember

Differential Pricing

charging different prices to different buyers for the same quality and quantity of product. For differential pricing to be effective, the market must consist of multiple segments with different price sensitivities

Markup pricing

commonly used by retailers, a product's price is derived by adding a predetermined percentage of the cost, called markup, to the cost of the product

Pricing objectives

survival, profit, return on investment, market share, status quo

costs pricing objective

temporarily sell products below cost, reducing costs, Labor-saving technologies, a focus on quality, and efficient manufacturing processes have brought productivity gains that translate into reduced costs and lower prices for customers.

Special event pricing

To increase sales volume, many organizations coordinate price with advertising or sales promotions for seasonal or special situations. Special-event pricing involves advertised sales or price cutting linked to a holiday, season, or event

Advertising

Advertising is a paid nonpersonal communication about an organization and its products transmitted to a target audience through mass media, including television, radio, the Internet, newspapers, magazines, video games, direct mail, outdoor displays, and signs on mass transit vehicles. Advertising is changing as consumers' mass media consumption habits are changing. Companies are striving to maximize their presence and impact through digital media; ads are being designed that cater to smaller, more personalized audiences; and traditional media like newspapers are in a decline due to a drop in readership. Individuals and organizations use advertising to promote goods, services, ideas, issues, and people. Being highly flexible, advertising can reach an extremely large target audience or focus on a small, precisely defined segment. For instance, Sonic's advertising focuses on a large audience of potential fast-food customers, ranging from children to adults, whereas advertising for Gulfstream jets aims at a much smaller and more specialized target market. Advertising offers several benefits. It is extremely cost-efficient when it reaches a vast number of people at a low cost per person. For example, the cost of a 4-color, full-page advertisement in the national edition of Time magazine costs $352,500. With a circulation of 1.6 million, this makes the cost of reaching roughly a thousand subscribers $220.Footnote Advertising also lets the source repeat the message several times. Subway credits its promotional and advertising success to a catchy theme and heavy repetition of its "$5.00 footlong" sub sandwich campaign. Furthermore, advertising a product a certain way can add to the product's value, and the visibility an organization gains from advertising can enhance its image. For instance, incorporating touchable elements that generate positive sensory feedback in print advertising can be a positive persuasive tool.Footnote At times, a firm tries to enhance its own or its product's image by including celebrity endorsers in advertisements. ZICO Beverages LLC partnered with actress Jessica Alba to endorse its Zico® Premium Coconut Water™. The advertisement shows Jessica Alba happily holding up her bottle of coconut water. By using Alba as an endorser, ZICO is able to capitalize on her status as a celebrity. Advertising has disadvantages as well. Even though the cost per person reached may be low, the absolute dollar outlay can be extremely high, especially for commercials during popular television shows and those associated with popular websites. High costs can limit, and sometimes preclude, the use of advertising in a promotion mix. Moreover, advertising rarely provides rapid feedback. Measuring its effect on sales is often difficult, and it is ordinarily less persuasive than personal selling. However, advertising can be highly effective in driving sales for products such as fast foods. One research study found that half of McDonald's growth could be explained by variables related to the quality of its advertising.Footnote For example, McDonald's breakfast-all-day advertising caused its sales to spike. In most instances, the time available to communicate a message to customers is limited to seconds, because people look at a print advertisement for only a few seconds, and most broadcast commercials are 30 seconds or less. Of course, the use of infomercials can increase exposure time for viewers; however, the format can disengage more sophisticated buyers. Finally, using spokespeople such as celebrities can be challenging as well. When Subway endorser Jared Fogle, well-known for losing vast amounts of weight on the Subway diet, was convicted of sexual misconduct involving underage women, Subway sought to distance itself from its long-time spokesman.

The Asia-Pacific Economic Cooperation (APEC)

The Asia-Pacific Economic Cooperation (APEC), established in 1989, promotes open trade and economic and technical cooperation among member nations, which initially included Australia, Brunei Darussalam, Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and the United States. Since then, the alliance has grown to include China, Hong Kong, Taiwan, Mexico, Papua New Guinea, Chile, Peru, Russia, and Vietnam. The 21-member alliance represents approximately 2.8 billion people, 57 percent of world GDP, and 47 percent of global trade. APEC differs from other international trade alliances in its commitment to facilitating business and its practice of allowing the business/private sector to participate in a wide range of APEC activities.Footnote Companies of the APEC have become increasingly competitive and sophisticated in global business in the last few decades. Moreover, the markets of the APEC offer tremendous opportunities to marketers who understand them. In fact, the APEC region has consistently been one of the most economically dynamic parts of the world. Japanese firms in particular have made tremendous inroads on world markets for automobiles, motorcycles, watches, cameras, and audio and video equipment. Products from Sony, Sanyo, Toyota, Mitsubishi, Canon, Suzuki, and Toshiba are sold all over the world and have set standards of quality by which other products are often judged. Despite the high volume of trade between the United States and Japan, the two economies are less integrated than the U.S. economy is with Canada and the European Union. If Japan imported goods at the same rate as other major nations, the United States would sell billions of dollars more each year to Japan. The most important emerging economic power in APEC is China, which has become one of the most productive manufacturing nations. China, which is now the United States' second-largest trading partner, has initiated economic reforms to stimulate its economy by privatizing many industries, restructuring its banking system, and increasing public spending on infrastructure. Many foreign companies, including Apple and Samsung, have opened factories in China to take advantage of its low labor costs, and China has become a major global supplier in virtually every product category. For international businesses, the potential of China's consumer market is so vast that it is almost impossible to measure. However, doing business in China entails many risks. Political and economic instability—especially inflation, corruption, and erratic policy shifts—have undercut marketers' efforts to stake a claim in what could become the world's largest market. Piracy, in particular, is a major issue, and protecting a brand name in China is difficult. Because copying is a tradition in China, and laws that protect copyrights and intellectual property are weak and minimally enforced, the country is flooded with counterfeit media, computer software, furniture, and clothing. However, there are signs that piracy laws are beginning to be more greatly enforced in China. China's National Copyright Administration is taking an active role in combating music piracy, removing 2.2 million songs from online music platforms deemed to be unlicensed. Pacific Rim regions like South Korea, Thailand, Singapore, Taiwan, and Hong Kong are also major manufacturing and financial centers. Even before Korean brand names, such as Samsung, Daewoo, and Hyundai, became household words, these products prospered under U.S. company labels, including GE, GTE, RCA, and JCPenney. Singapore boasts huge global markets for rubber goods and pharmaceuticals. Hong Kong is still a strong commercial center after being transferred to Chinese control. Vietnam is one of Asia's fastest-growing markets for U.S. businesses, and more businesses are choosing to open factories in Vietnam as China's labor costs continue to grow.Footnote Taiwan, given its stability and high educational attainment, has the most promising future of all the Pacific Rim nations as a strong local economy and low import barriers draw increasing imports. The markets of APEC offer tremendous opportunities to marketers who understand them. Another important trade agreement involving countries bordering the Pacific is the Trans-Pacific Partnership (TPP), a proposed trade agreement between Singapore, Brunei, Chile, New Zealand, Vietnam, Malaysia, Japan, Peru, the United States, Canada, Mexico, and Australia.Footnote The agreement would create standards for state-owned enterprises, labor, international property, and the environment.Footnote Supporters of the partnership believe it will increase the overall global competitiveness of member countries, bring the United States closer to some Asian countries, and could act as a standard for future trade agreements. Opponents fear the plan would increase competition for U.S. companies by eliminating tariffs. The Obama administration supported the agreement, and the United States is working with the other countries on how to implement the TPP.Footnote If approved by Congress, the TPP will eliminate tariffs on thousands of items traded among the countries.

Cash-and-carry wholesalers

Cash-and-carry wholesalers are intermediaries whose customers—often small businesses—pay cash and furnish transportation. Cash-and-carry wholesalers usually handle a limited line of products with a high turnover rate, such as groceries, building materials, and electrical or office supplies. Many small retailers that other types of wholesalers will not take on because of their small size survive because of cash-and-carry wholesalers.

The Southern Common Market (MERCOSUR)

The Southern Common Market (MERCOSUR) was established in 1991 under the Treaty of Asunción to unite Argentina, Brazil, Paraguay, and Uruguay as a free trade alliance. Venezuela and Bolivia joined in 2006 and 2015, respectively.Footnote Currently, Chile, Colombia, Ecuador, and Peru are associate members. The alliance represents two-thirds of South America's population and has a combined GDP of more than $2.9 trillion, making it the fourth-largest trading bloc behind NAFTA, the EU, and ASEAN. Like NAFTA, MERCOSUR promotes "the free circulation of goods, services, and production factors among the countries" and establishes a common external tariff and commercial policy. South America and Latin America are drawing the attention of many international businesses. The region is advancing economically with an estimated growth rate of four to five percent. Another trend is that several of the countries, including some of the MERCOSUR alliance, are starting to experience more stable democracies. Even Cuba, one of the traditionally harshest critics of capitalism in Latin America, is accepting more privatization. Cuba has become more open to privatization, fueling 10 percent of GDP.

Routing and Scheduling Salespeople

The geographic size and shape of a sales territory are the most important factors affecting the routing and scheduling of sales calls. Next in importance are the number and distribution of customers within the territory, followed by sales call frequency and duration. Those in charge of routing and scheduling must consider the sequence in which customers are called on, specific roads or transportation schedules to be used, number of calls to be made in a given period, and time of day the calls will occur. In some firms, salespeople plan their own routes and schedules with little or no assistance from the sales manager. In others, the sales manager maintains significant responsibility. No matter who plans the routing and scheduling, the major goals should be to minimize salespeople's non-selling time (time spent traveling and waiting) and maximize their selling time. Sales managers should try to achieve these goals so that a salesperson's travel and lodging costs are held to a minimum.

Prestige sensative buyers

focus on purchasing products that signify prominence and status

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. 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.

Integrated marketing communications

Integrated marketing communications refer to the coordination of promotion and other marketing efforts to ensure maximum informational and persuasive impact on customers. Coordinating multiple marketing tools to produce this synergistic effect requires a marketer to employ a broad perspective. A major goal of integrated marketing communications is to send a consistent message to customers. For instance, Domino's Pizza adopted a new ordering option in which its customers could order pies through a pizza emoji (smiley icons used in electronic messaging) sent to Domino's through text message or tweet. To market this new way of ordering, Domino's used a mixture of traditional television advertising and nontraditional digital media. An advertisement featuring an NFL player ordering pizza through Twitter was highly effective. Twitter feeds were also released written entirely in pizza emojis. The integrated marketing campaign was a success, and Domino's emoji ordering was mentioned 599 times on television shows. By the end of the year, 50 percent of Domino's orders in the United States was done digitally. Because various units both inside and outside most companies have traditionally planned and implemented promotional efforts, customers have not always received consistent messages. Integrated marketing communications allow an organization to coordinate and manage its promotional efforts to transmit consistent messages. Integrated marketing communications also enable synchronization of promotion elements and can improve the efficiency and effectiveness of promotion budgets. Thus, this approach fosters not only long-term customer relationships but also the efficient use of promotional resources. The concept of integrated marketing communications is increasingly effective for several reasons. Mass media advertising, a very popular promotional method in the past, is used less frequently today because of its high cost and lower effectiveness in reaching some target markets. Marketers can now take advantage of more precisely targeted promotional tools, such as TV, direct mail, the Internet, special-interest magazines, smartphones, mobile applications, social media, sales calls, and outdoor boards. Database marketing and marketing analytics are also allowing marketers to target individual customers more precisely. Until recently, suppliers of marketing communications were specialists. Advertising agencies provided advertising campaigns, sales promotion companies provided sales promotion activities and materials, and public relations organizations engaged in publicity efforts. Today, a number of promotion-related companies provide one-stop shopping for the client seeking advertising, sales promotion, and public relations, thus reducing coordination problems for the sponsoring company. Because the overall cost of marketing communications has risen significantly, marketers demand systematic evaluations of communication efforts and a reasonable return on investment. The specific communication vehicles employed and the precision with which they are used are changing as both information technology and customer interests become increasingly dynamic. For instance, companies and politicians can hold press conferences where viewers can tweet their questions and have them answered on-screen. Some companies are creating their own branded content to exploit the many vehicles through which consumers obtain information. IKEA, for instance, developed branded content featuring its catalog. Poking fun at technology, IKEA created a video that used tech language to rave about the many benefits of its catalog, including its "eternal battery life." A press release was also sent out to proclaim the marvels of the catalog over other technology.Footnote Companies are turning toward branded content and other innovative communication media to engage users in ways that they can feel entertained without the pressure of being inundated with marketing messages. Today, marketers and customers have almost unlimited access to data about each other. Integrating and customizing marketing communications while protecting customer privacy has become a major challenge. Through digital media, companies can provide product information and services that are coordinated with traditional promotional activities. In fact, gathering information about goods and services is one of the main reasons people go online. This has made digital marketing a growing business. Digital channels have become the second most common medium for advertisements after television.Footnote College students in particular say they are influenced by Internet ads when buying online or just researching product purchases. The sharing of information and use of technology to facilitate communication between buyers and sellers are essential for successful customer relationship management.

Bundle pricing

the packaging together of two or more products, usually of a complementary nature, to be sold for a single price. To be attractive to customers, the single price generally is markedly less than the sum of the prices of the individual products

overcoming objectives

An effective salesperson usually seeks out a prospect's objections in order to address them

Specialty-line wholesalers

ffer the narrowest range of products, usually a single product line or a few items within a product line

F.O.B. Factory price

indicates the price of the merchandise at the factory, before it is loaded onto the carrier, and thus excludes transportation costs

Negociated pricing

occurs when the final price is established through bargaining between the seller and the customer. Negotiated pricing occurs in a number of industries and at all levels of distribution

Premium pricing

occurs when the highest-quality product, or the most-versatile and most desirable version of a product in a product line, is assigned the highest price.

Price conscious individuals

strive to pay low prices. They want the lowest prices, even if the products are not of the highest quality.

reciever

A receiver is the individual, group, or organization that decodes a coded message, and an audience is two or more receivers.

Channels for Business Products

Channel E illustrates the direct channel for business products. In contrast to consumer goods, business products, especially expensive equipment, are most likely to be sold through direct channels. Business customers prefer to communicate directly with producers, especially when expensive or technically complex products are involved. For instance, business buyers of Xerox products not only receive devices and equipment, but ongoing maintenance, technical support, and data analytics. Xerox has moved from being a company known for its copiers to a creative powerhouse that delivers a variety of solutions to its clients. Service through direct channels is a big part of Xerox's success. It digitally collects ongoing information from many of the products it sells to companies and performs preemptive repairs on machines it senses are about to malfunction. This level of service would be impossible through an intermediary. In channel F, an industrial distributor facilitates exchanges between the producer and the customer. An industrial distributor is an independent business that takes title to products and carries inventories. Industrial distributors usually sell standardized items, such as maintenance supplies, production tools, and small operating equipment. Some industrial distributors carry a wide variety of product lines. Applied Industrial Technologies Inc., for instance, carries millions of products from more than 4,000 manufacturers and works with a wide variety of companies from small janitorial services companies to giant manufacturers such as Boeing.Footnote Other industrial distributors specialize in one or a small number of lines. Industrial distributors carry an increasing percentage of business products. Overall, these distributors can be most effective when a product has broad market appeal, is easily stocked and serviced, is sold in small quantities, and is needed on demand to avoid high losses. Industrial distributors offer sellers several advantages. They can perform the needed selling activities in local markets at a relatively low cost to a manufacturer and reduce a producer's financial burden by providing customers with credit services. Also, because industrial distributors usually maintain close relationships with their customers, they are aware of local needs and can pass on market information to producers. By holding adequate inventories in local markets, industrial distributors reduce producers' capital requirements. Using industrial distributors has several disadvantages. They may be difficult to manage because they are independent firms. They often stock competing brands, so a producer cannot depend on them to sell its brand aggressively. Furthermore, industrial distributors incur expenses from maintaining inventories and are less likely to handle bulky or slow-selling items, or items that need specialized facilities or extraordinary selling efforts. In some cases, industrial distributors lack the specialized knowledge necessary to sell and service technical products. The third channel for business products, channel G, employs a manufacturers' agent, an independent businessperson who sells complementary products of several producers in assigned territories and is compensated through commissions. Unlike an industrial distributor, a manufacturers' agent does not acquire title to the products and usually does not take possession. Acting as a salesperson on behalf of the producers, a manufacturers' agent has little or no latitude in negotiating prices or sales terms. Using manufacturers' agents can benefit an organizational marketer. They usually possess considerable technical and market information and have an established set of customers. For an organizational seller with highly seasonal demand, a manufacturers' agent can be an asset because the seller does not have to support a year-round sales force. The fact that manufacturers' agents are typically paid on a commission basis may also be an economical alternative for a firm that has highly limited resources and cannot afford a full-time sales force. The use of manufacturers' agents also has drawbacks. The seller has little control over the actions of manufacturers' agents. Because they work on commission, manufacturers' agents prefer to concentrate on larger accounts. They are often reluctant to spend time following up with customers after the sale, putting forth special selling efforts, or providing sellers with market information because they are not compensated for these activities and they reduce the amount of productive selling time. Because they rarely maintain inventories, manufacturers' agents have a limited ability to provide customers with parts or repair services quickly. Finally, channel H includes both a manufacturers' agent and an industrial distributor. This channel may be appropriate when the producer wishes to cover a large geographic area, but maintains no sales force due to highly seasonal demand or because it cannot afford one. This channel can also be useful for a business marketer that wants to enter a new geographic market without expanding its sales force.

Quantity discounts

Deductions from list price that reflect the economies of purchasing in large quantities

Ethical and Social Responsibility Forces in gloabal markets

Differences in national standards are illustrated by what the Mexicans call la mordida: "the bite." The use of payoffs and bribes is deeply entrenched in many parts of the world. Because U.S. trade and corporate policy, as well as U.S. law, prohibits direct involvement in payoffs and bribes, it may be difficult for U.S. companies to compete with foreign firms that engage in these practices. Some U.S. businesses that refuse to make payoffs are forced to hire local consultants, public relations firms, or advertising agencies, which results in indirect payoffs that are also illegal under U.S. law. The ultimate decision about whether to give small tips or gifts where they are customary must be based on a company's code of ethics. However, under the Foreign Corrupt Practices Act (FCPA) of 1977, it is illegal for U.S. firms to attempt to make large payments or bribes to influence policy decisions of foreign governments. Nevertheless, facilitating payments, or small payments to support the performance of standard tasks, are often acceptable. The FCPA also subjects all publicly held U.S. corporations to rigorous internal controls and record-keeping requirements for their overseas operations. Many other countries have outlawed bribery. As we discussed in Chapter 3, the U.K. Bribery Act redefined what many companies consider to be bribery versus gift-giving. Companies with operations in the United Kingdom could still face penalties for bribery, even if the bribery occurred outside the country and managers were not aware of the misconduct. In this case, the U.K. Bribery Act might be considered stricter than the U.S. Foreign Corrupt Practices Act. It is thus essential for global marketers to understand the major laws in the countries in which their companies operate. Differences in ethical standards can also affect marketing efforts. In China and Vietnam, for example, standards regarding intellectual property differ dramatically from those in the United States, creating potential conflicts for marketers of computer software, music, and books. Pirated and counterfeit goods consume $1 trillion from the world's economy.Footnote This influx of counterfeit goods is presenting a hurdle for Chinese Internet firm Alibaba as it expands globally. Although Alibaba claims it is building systems that allow it to more effectively detect counterfeit goods, it has been heavily criticized for the number of counterfeit goods found through its site.Footnote The enormous amount of counterfeit products available worldwide, the time it takes to track them down, and legal barriers in certain countries make the pursuit of counterfeiters challenging for many companies. When marketers do business abroad, they sometimes perceive that other business cultures have different modes of operation. This sensitivity is especially pronounced in marketers who have not traveled extensively or interacted much with foreigners in business or social settings. For example, a perception exists among many in the United States that U.S. firms are different from those in other countries. This implied perspective of "us" versus "them" is also common in other countries. In business, the idea that "we" differ from "them" is called the self-reference criterion (SRC). The SRC is the unconscious reference to one's own cultural values, experiences, and knowledge. When confronted with a situation, we react on the basis of knowledge we have accumulated over a lifetime, which is usually grounded in our culture of origin. Our reactions are based on meanings, values, and symbols that relate to our culture but may not have the same relevance to people of other cultures. Many companies try to conduct global business based on the local culture. These business-people adapt to the cultural practices of the country they are in and use the host country's cultural practices as the rationalization for sometimes straying from their own ethical values when doing business internationally. For instance, by defending the payment of bribes or "greasing the wheels of business" and other questionable practices in this fashion, some business-people are resorting to cultural relativism—the concept that morality varies from one culture to another and that business practices are therefore differentially defined as right or wrong by particular cultures. Table 9.4 indicates the countries that business people, risk analysts, and the general public perceive as having the most and least corrupt public sectors. Most global companies are recognizing that they must establish values and standards that are consistent throughout the world. Because of differences in cultural and ethical standards, many companies work both individually and collectively to establish ethics programs and standards for international business conduct. Levi Strauss's code of ethics, for example, bars the firm from manufacturing in countries where workers are known to be abused. Many firms, including Texas Instruments, Coca-Cola, DuPont, Hewlett-Packard, and Walmart, endorse following international business practices responsibly. These companies support a globally based resource system called Business for Social Responsibility (BSR). BSR tracks emerging issues and trends, provides information on corporate leadership and best practices, conducts educational workshops and training, and assists organizations in developing practical business ethics tools

Influences on the Business Buying Decision Process

Figure 8.2 also lists the four major factors that influence business buying decisions: environmental, organizational, interpersonal, and individual. Environmental factors include competitive and economic factors, political forces, legal and regulatory forces, technological changes, and sociocultural issues. These factors can generate considerable uncertainty for an organization, including in buying decisions. Changes in one or more environmental forces, such as new government regulations or increased competition, can create opportunities and threats that affect purchasing decisions. Organizational factors that influence the buying decision process include the company's objectives, purchasing policies, resources, and the size and composition of its buying center. An organization may also have certain buying policies to which buying center participants must conform that limit buying decisions. For instance, a firm's policies may mandate contract lengths that are undesirable to many sellers. An organization's financial resources may require special credit arrangements. Any of these conditions could affect purchase decisions. Interpersonal factors are the relationships among people in the buying center. Trust is crucial in collaborative partnerships. This is especially true when customized products are involved—the buyer may not see the product until it is finished and must trust that the producer is creating it to specifications. Trust and clear communication will ensure that all parties are satisfied with the outcome. Interpersonal dynamics and varying communication abilities within the buying center may complicate processes. Individual factors are the personal characteristics of participants in the buying center, such as age, education level, personality, and tenure and position in the organization. Consider a 55-year-old manager who has been in the organization for 25 years. This manager is likely to have a greater influence and power over buying center decisions than a 30-year-old employed at the firm only two years. The influence of various factors, such as age and tenure, on the buying decision process depends on the buying situation, the type of product, and the type of purchase (new task, modified rebuy, or straight rebuy). Employees' negotiating styles will vary, as well. To be effective, marketers must know customers well enough to be aware of these individual factors and their potential effects on purchase decisions. Promotion targeted to individuals in the buying center can influence individual decision making as well. Most trade publications carry advertising to influence buyers. Cintas, for example, launched its first-ever national advertising campaign using television, radio, print, and online ads to show how the commercial laundry and uniform provider can help a variety of businesses be "ready."Footnote Trade shows are very popular when products can be demonstrated and samples provided. Personal selling is by far the most important influence of trust in maintaining strong relationships. Interestingly, business-to-business marketers seem to hesitate in embracing social media as a relationship marketing tool. When they use social media, they tend to focus on emotional appeals rather than on functional or rational appeals for purchases.Footnote When using Twitter or other social media sites, business-to-business marketers should try to craft messages to convey useful information and develop trust rather than close the sale.

Stages of the Business Buying Decision Process

In the first stage, one or more individuals recognize that a problem or need exists. Problem recognition may arise under a variety of circumstances—for instance, when machines malfunction or a firm modifies an existing product or introduces a new one. It may be individuals in the buying center or other individuals in the firm who initially recognize that a problem exists. The second stage of the process, development of product specifications, requires that buying center participants assess the problem or need and determine what is necessary to resolve or satisfy it. During this stage, users and influencers, such as engineers, provide information and advice for developing product specifications. By assessing and describing needs, the organization should be able to establish product specifications. Searching for and evaluating potential products and suppliers is the third stage in the decision process. Search activities may involve looking in company files and trade directories, looking at websites, contacting suppliers for information, soliciting proposals from known vendors, and examining various online and print publications. It is common for organizations, particularly those with a reputation for having open hiring policies, to specify a desire to work with diverse vendors, such as those owned by women or by minorities. During this stage, some organizations engage in value analysis, an evaluation of each component of a potential purchase. Value analysis examines quality, design, materials, and possibly item reduction or deletion to acquire the product in the most cost-effective way. Some vendors may be deemed unacceptable because they are not large enough to supply needed quantities. Others may be excluded because of poor delivery and service records. Sometimes the product is not available from any vendor and the buyer will work with an innovative supplier to design and produce it. Buyers evaluate products to make sure they meet or exceed product specifications developed in the second stage of the business buying decision process. Usually suppliers are judged according to multiple criteria. A number of firms employ vendor analysis, a formal, systematic evaluation of current and potential vendors, focusing on such characteristics as price, product quality, delivery service, product availability, and overall reliability. The results of deliberations and assessments in the third stage are used during the fourth stage of the process to select the product to be purchased and the supplier. In some cases, the buyer selects and uses several suppliers, a process known as multiple sourcing. Firms with federal government contracts are generally required to have several sources for an item to ensure a steady supply. At times, only one supplier is selected, a situation called sole sourcing. For organizations that outsource their insurance services, many of these companies will use just one provider. The Zurich Insurance advertisement focuses on the insurance solutions that Zurich can provide businesses—ranging from employee benefits to liability and property insurance. The ad shows an employee placing a hard hat on an industrial robot to symbolize reducing risk for all aspects of a company's business. Sole sourcing has historically been discouraged except in the cases where a product is only available from one company. Though still not common, more organizations now choose sole sourcing, partly because the arrangement often means better communications between buyer and supplier, greater stability and higher profits for suppliers, and lower prices for buyers. However, multiple sourcing remains preferable for most firms because it lessens the possibility of disruption caused by strikes, shortages, or bankruptcies. The actual product is ordered in this fourth stage, and specific details regarding terms, credit arrangements, delivery dates and methods, and technical assistance are finalized. In the final stage, members of the buying center evaluate the supplier's and product's performance by comparing it with specifications. Sometimes the product meets the specifications, but its performance fails to adequately solve the problem or satisfy the need recognized in the first stage. In that case, product specifications must be adjusted. The supplier's performance is also evaluated during this stage. If supplier performance is inadequate, the business purchaser seeks corrective action from the supplier or searches for a new one. Results of the evaluation become useful feedback in future business purchase decisions. This business buying decision process is used in its entirety primarily for new-task purchases. Several stages, but not necessarily all, are used for modified rebuy and straight rebuy situations.

Marginal Analysis

Marginal analysis examines what happens to a firm's costs and revenues when production (or sales volume) changes by a single unit

Safety stock

Safety stock is the amount of extra inventory a firm keeps to guard against stockouts resulting from above-average usage rates and/or longer-than-expected lead times.

Selecting Marketing Channels

Selecting appropriate marketing channels is important because they are difficult to change once chosen. Although the process varies across organizations, channel selection decisions are usually affected significantly by one or more of the following factors: customer characteristics, product attributes, type of organization, competition, marketing environmental forces, and characteristics of intermediaries

consumer jury

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.

Retail Technology

Today's consumers expect to be able to research and shop for a product wherever and whenever they want—in a mall, subway train, classroom, living room, or anywhere else. Younger shoppers in particular expect retailers to offer convenience, information, and a seamless experience across multiple platforms. Consider Nordstrom's, which is famously guided by its mission to "provide a fabulous customer experience by empowering customers and the employees who serve them." The retailer has made strategic investments into technologies such as point-of-sale systems that allow salespeople to view a customer's requests and needs online, an innovation lab, apps, mobile checkout, support for salespeople texting, a cloud-based men's personalized clothing service, and it began to use social media to build relationships with consumers and generate buzz. The firm's websites and apps are integrated with its inventory management control system so that customers can find an item in a store or online and have it delivered to a third place such as their home or office. Mobile checkout lets a salesperson who has been helping a customer in the store check them out on the spot rather than having to look for a register. All of these efforts contribute to Nordstrom's mission and ensure that customers have a great experience across all of the firm's platforms. Nowadays, of course, most retailers have websites that, at a minimum, tell shoppers where they are, when their hours are, who they are, and what they sell. Many small retailers' websites also highlight products in current inventory even if they are unable to offer online transactions. For most retailers today, however, a website that customers can use to research products, purchase them, and otherwise interact with the firm is vital. Larger retailers such as Starbucks, Best Buy, and Kohl's are now developing and launching their own apps for customers to carry out those activities on their tablet or smartphone wherever they may be. Starbucks' app, for example, allows customers to pay right from their phone and accumulate loyalty reward points. When implemented well, retailer apps can foster loyalty, repeat purchases, and the customer experience. However, developing a retail app can cost $2 million or more and 80 percent of that per year to maintain it. Retailers of all sizes can take advantage of technology to improve the store experience for a variety of customers. One way is through the use of beacons that can send real-time messages and offers to customers with Bluetooth-enabled smartphones. For example, at Gamestop outlets in Texas, beacons can trigger a customer's access to product details, reviews, and available special offers on games and systems, expediting their product research right in the store.Footnote For this technology to work, however, customers must have downloaded the retailer's app onto their smartphones. The inexpensive beacons can activate apps that consumers may not otherwise use once they've downloaded them, thereby advancing a firm's engagement with the customer. Simon Malls has installed nearly 5,000 of the devices in 192 malls and shopping centers around the country to welcome users of its apps and to alert them about special offers in the mall, new fashion trends, and more. Thus far, indications are that beacons do boost retail store sales, and beacon-influenced in-store sales are expected to grow to $44 billion by 2016. There are a number of exciting new technologies designed to improve consumers' shopping experience whether they are in the store or at home shopping online. At Neiman Marcus, for example, virtual or smart mirrors can improve the dressing room experience by letting customers view clothing in different colors and compare multiple looks side by side without actually changing outfits or having to leave the dressing room.Footnote Virtual fit lets shoppers see how a product, such as eyeglasses, might look on them, using the cameras built into today's computers and smart devices. Self-checkout lets shoppers scan the items in their own shopping cart with their smartphone and pay for the merchandise out of a digital wallet, such as Apple Pay, so they don't have to wait in line. The technology even allows shoppers who subscribe to loyalty programs to get their rewards as they scan their own items. The reality is that evolving consumer demographics and preferences are spurring retailers to adapt in a variety of ways that are blurring the line between the various types of retailers more than ever before. Consider that most shoppers now research products online and then head to the nearest store to make the actual purchase—a practice sometimes called webrooming. For most consumers, there is no clear line between the brick-and-mortar store, the store's website, and its app, and they move back and forth depending on their circumstances and desires.

Pricing strategy

a course of action designed to achieve pricing objectives, which are set to help marketers solve the practical problems of setting prices.

Value

a customer's subjective assessment of benefits relative to costs in determining the worth of a product

elastic demand

If demand is elastic, a change in price causes an opposite change in total revenue: An increase in price will decrease total revenue, and a decrease in price will increase total revenue.The less elastic the demand, the more beneficial it is for the seller to raise the price

Inside sales force

Inside salespeople support personnel or take orders, follow up on deliveries, and provide technical information

Transportation Modes

The basic transportation modes for moving physical goods are railroads, trucks, waterways, airways, and pipelines. Each has distinct advantages. Many companies adopt physical handling procedures that facilitate the use of two or more modes in combination. Table 14.3 gives more detail on the characteristics of each transportation mode. Railroads like Union Pacific and Canadian National carry heavy, bulky freight that must be shipped long distances over land. Railroads commonly haul minerals, sand, lumber, chemicals, and farm products, as well as automobiles and low-value manufactured goods. Railroads are especially efficient for transporting full carloads, which can be shipped at lower rates than smaller quantities, because they require less handling. Many companies locate factories or warehouses near rail lines for convenient loading and unloading. Trucks provide the most flexible schedules and routes of all major transportation modes in the United States, because they can go almost anywhere. Because trucks do not have to conform to a set schedule and can move goods from factory or warehouse to customer, wherever there are roads, they are often used in conjunction with other forms of transport that cannot provide door-to-door deliveries, such as waterways and railroads. Trucks are more expensive and somewhat more vulnerable to bad weather than trains. They are also subject to size and weight restrictions on the loads they carry. Trucks are sometimes criticized for high levels of loss and damage to freight and for delays caused by the re-handling of small shipments. Waterways are the cheapest method of shipping heavy, low-value, nonperishable goods. Water carriers offer considerable capacity. Powered by tugboats and towboats, barges that travel along intra-coastal canals, inland rivers, and navigation systems can haul at least 10 times the weight of one rail car, and oceangoing vessels can haul thousands of containers. The vast majority of international cargo is transported by water at least part of the way. However, many markets are inaccessible by water transportation and must be supplemented by rail or truck. Droughts and floods also may create difficulties for users of inland waterway transportation. Nevertheless, the growing need to transport goods long distances across the globe will likely increase its use in the future. Air transportation is the fastest but most expensive form of shipping. It is used most often for perishable goods, for high-value and/or low-bulk items, and for products that require quick delivery over long distances. Some air carriers transport combinations of passengers, freight, and mail. Despite its expense, air transit can reduce warehousing and packaging costs and losses from theft and damage, thus helping the aggregate cost of the mode. Although air transport accounts for a small minority of total cargo carried, it is an important form of transportation in an increasingly time-sensitive business environment.Footnote In fact, the success of many businesses is now based on the availability of overnight air delivery service provided by such organizations as UPS, FedEx, DHL, RPS Air, and the U.S. Postal Service. Many firms offer overnight or same-day shipping to customers. Pipelines, the most automated transportation mode, usually belong to the shipper and carry the shipper's products. Most pipelines carry petroleum products or chemicals. Slurry pipelines carry pulverized coal, grain, or wood chips suspended in water. Pipelines move products slowly but continuously and at relatively low cost. They are dependable and minimize the problems of product damage and theft. However, contents are subject to as much as 1 percent shrinkage, usually from evaporation—which can result in profit losses. Pipelines also have been a concern to environmentalists, who fear installation and leaks could harm plants and animals.

Bait pricing

To attract customers, marketers may put a low price on one item in the product line with the intention of selling a higher-priced item in the line.

Cash discounts

A cash discount, or price reduction, is given to a buyer for prompt payment or cash payment

Seasonal discount

A price reduction to buyers who purchase goods or services out of season. These discounts let the seller maintain steadier production during the year.

Prospecting

Developing a database of potential customers. Most salespeople prefer to use referrals—recommendations from current customers—to find prospects.

profit equation

Profit = total revenue - total costs and Profit = (price x quanitity sold) - total costs

The North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA), implemented in 1994, effectively merged Canada, Mexico, and the United States into one market of nearly 454 million consumers. NAFTA eliminated virtually all tariffs on goods produced and traded among Canada, Mexico, and the United States to create a free trade area. The estimated annual output for this trade alliance is more than $17 trillion. NAFTA makes it easier for U.S. businesses to invest in Mexico and Canada; provides protection for intellectual property (of special interest to high-technology and entertainment industries); expands trade by requiring equal treatment of U.S. firms in both countries; and simplifies country-of-origin rules, hindering Japan's use of Mexico as a staging ground for further penetration into U.S. markets. Although most tariffs on products coming to the United States were lifted, duties on more sensitive products, such as household glassware, footwear, and some fruits and vegetables, were phased out over a 15-year period. Canada's more than 35 million consumers are relatively affluent, with a per capita GDP of $45,000.Footnote Trade between the United States and Canada totals approximately $575 billion.Footnote Canada is the single largest trading partner of the United States, which in turn supports millions of U.S. jobs. NAFTA has also facilitated additional trade between Canada and Mexico. Mexico is Canada's fifth largest export market and third largest import market. With a per capita GDP of $18,000, Mexico's more than 121 million consumers are less affluent than Canadian consumers.Footnote However, they buy more than $236 billion worth of U.S. products.Footnote Many U.S. companies, including Hewlett-Packard, IBM, and General Motors, have taken advantage of Mexico's low labor costs and close proximity to the United States to set up production facilities, sometimes called maquiladoras. Production at the maquiladoras, especially in the automotive, electronics, and apparel industries, has grown rapidly as companies as diverse as Ford, John Deere, Motorola, Kimberly-Clark, and VF Corporation set up facilities in north-central Mexican states. Although Mexico suffered financial instability throughout the 1990s—as well as the more recent drug cartel violence—privatization of some government-owned firms and other measures instituted by the Mexican government and businesses have helped Mexico's economy. Moreover, increasing trade between the United States and Canada constitutes a strong base of support for the ultimate success of NAFTA. Mexico's membership in NAFTA links the United States and Canada with other Latin American countries, providing additional opportunities to integrate trade among all the nations in the Western Hemisphere. Indeed, efforts to create a free trade agreement among the 34 nations of North and South America are under way. A related trade agreement—the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR)—among Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States has also been ratified in all those countries except Costa Rica. The United States exports $30 billion to the CAFTA-DR countries annually.

usage rate

The usage rate is the rate at which a product's inventory is used or sold during a specific time period

Location of Retail Stores

You have likely heard the phrase "Location, location, location," commonly used in the real estate business. Location is also critical to business success. Making a good location decision is even more important because, once decided, it is the least flexible variable of the marketing mix. Location is an important strategic decision that dictates the limited geographic trading area from which a store draws its customers. Retailers consider various factors when evaluating potential locations, including position of the firm's target market within the trading area, kinds of products being sold, availability of public transportation, customer characteristics, and placement of competitors' stores. In choosing a location, a retailer evaluates the relative ease of movement to and from the site, including factors such as pedestrian and vehicular traffic, parking, and transportation. Retailers also evaluate the characteristics of the site itself. They research the types of stores in the area and the size, shape, and visibility of the lot or building under consideration. In addition, they must scrutinize the rental, leasing, or ownership terms. Retailers should look for compatibility with nearby retailers because stores that complement one another draw more customers with similar product needs for everyone. Some retailers choose to locate in central business districts, whereas others prefer sites within shopping centers. Some retailers, including Toys 'R' Us, Walmart, Home Depot, and many fast-food restaurants, opt for freestanding structures that are not connected to other buildings, but may be located within planned shopping centers. Sometimes, retailers choose to locate in less orthodox settings where competition will be lower and where consumers have limited other options. Pop-up retailers, which are only located in a space for a short time, and retailers that share space are becoming increasingly common as a means of generating consumer buzz while also cutting down on rental costs for all businesses involved. Pop-ups—inside another retailer, stand alone, or at special events—can help restaurateurs and specialty retailers determine if there is sufficient interest in their concept before investing significant resources in a conventional space. Sharing space can let multiple small retailers save costs or afford a storefront in a more desirable location.Footnote For instance, Atlanta's Octane Coffee shares a space with Little Tart Bakeshop, with Little Tart selling its baked goods during the day alongside Octane coffee products, and Octane serving bar snacks and appetizers when the bakeshop closes at 5 p.m. There are several different types of shopping centers, including neighborhood, community, regional, superregional, lifestyle, power, and outlet centers. Neighborhood shopping centers, also called strip malls, usually consist of several small convenience and specialty stores, such as small grocery stores, gas stations, and fast-food restaurants. These retailers consider their target markets to be consumers who live within two to three miles of their stores, or 10 minutes' driving time. Because most purchases are based on convenience or personal contact, stores within a neighborhood shopping center generally do not coordinate selling efforts. Generally, product mixes consist of essential products, and depth of the product lines is limited. Community shopping centers include one or two department stores and some specialty stores, as well as convenience stores. They draw consumers looking for shopping and specialty products not available in neighborhood shopping centers. Because these offer a wider variety of stores, they serve larger geographic areas and consumers are willing to drive longer distances to community shopping centers to shop. Community shopping centers are planned, and retailer efforts are coordinated to attract shoppers. Special events, such as art exhibits, automobile shows, and sidewalk sales, stimulate traffic. Managers of community shopping centers look for tenants that complement the centers' total assortment of products. Such centers have wide product mixes and deep product lines. Regional shopping centers usually have the largest department stores, widest product mixes, and deepest product lines of all shopping centers. Many shopping malls are regional shopping centers, although some are community shopping centers. With 150,000 or more consumers in their target market, regional shopping centers must have well-coordinated management and marketing activities. Target markets may include consumers traveling from a distance to find products and prices not available in their hometowns. Because of the expense of leasing space in regional shopping centers, tenants are likely to be national chains. Large centers usually advertise, have special events, furnish transportation to some consumer groups (such as seniors), maintain their own security forces, and carefully select the mix of stores. The largest of these centers, sometimes called superregional shopping centers, have the widest and deepest product mixes and attract customers from many miles away. Superregional centers often have special attractions beyond stores, such as skating rinks, amusement centers, or upscale restaurants. Mall of America, in the Minneapolis area, is the largest shopping mall in the United States with 520 stores, including Nordstrom and Bloomingdale's, and 50 restaurants. The shopping center also includes a walk-through aquarium, a museum, a seven-acre Nickelodeon theme park, a 14-screen movie theater, hotels, and many special events.

Premium money (push money)

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.

Cost plus investment

calculated as full cost plus, the cost of a portion of the selling unit's assets used for internal needs.

Fixed Costs

do not vary with changes in the number of units produced or sold

Tensile pricing

making a broad statement about price reductions, as opposed to detailing specific price discounts. Examples of tensile pricing would be statements like "20 to 50 percent off," "up to 75 percent off," and "save 10 percent or more."

Product advertising

promotes the uses, features, and benefits of products. There are two types of product advertising: pioneer and competitive

Customer interpretation

refers to what the price means or what it communicates to customers. Does the price signal "high quality" or "low quality," or "great deal," "fair price," or "rip-off"?

Approach

the manner in which a salesperson contacts a potential customer.

Coupons

Coupons reduce a product's price and aim to prompt customers to try new or established products, increase sales volume quickly, attract repeat purchasers, or introduce new package sizes or features. Savings are deducted from the purchase price. Coupons are the most widely used consumer sales promotion technique. Although coupon usage had been spiraling downward for years, the economic downturn started to reverse this trend. However, coupon redemption has once again started to decrease. Although part of the reason is greater spending power, consumers have indicated that a primary reason for not using coupons is they cannot find coupons for what they want to buy. Digital coupons via websites and mobile apps are also becoming popular. Social deal sites like Groupon, Living Social, and Crowd Cut, while not exactly in the coupon area, are encouraging consumers to look for deals or better prices. Bed, Bath & Beyond frequently sends 20-percent off coupons to consumers through the mail. However, these coupons are becoming so common that some analysts believe it could hurt Bed, Bath & Beyond because consumers are so used to getting coupons that they will not shop without them. To take advantage of the new consumer interest in coupons, digital marketing—including mobile, social, and other platforms—is being used for couponing. However, research shows that most Americans still prefer paper coupons over digital. For best results, coupons should be easily recognized and state the offer clearly. The nature of the product (seasonal demand for it, life-cycle stage, and frequency of purchase) is the prime consideration in setting up a coupon promotion. Paper coupons are distributed on and inside packages, through freestanding inserts, in print advertising, on the back of cash register receipts, and through direct mail. Electronic coupons are distributed online, via in-store kiosks, through shelf dispensers in stores, and at checkout counters.Footnote Figure 18.3 indicates that nearly half of companies in the United States have used mobile coupons, and this number is likely to grow. When deciding on the distribution method for coupons, marketers should consider strategies and objectives, redemption rates, availability, circulation, and exclusivity. This advertisement for Centrum MultiGummies provides a coupon that takes $3.00 off the purchase price. The manufacturer hopes this coupon will increase sales of its product. The coupon distribution and redemption arena has become very competitive. To avoid losing customers, many grocery stores will redeem any coupons offered by competitors. Also, to draw customers to their stores, grocers double and sometimes even triple the value of customers' coupons. Coupons offer several advantages. Print advertisements with coupons are often more effective at generating brand awareness than print ads without coupons. Generally, the larger the coupon's cash offer, the better the recognition generated. Coupons reward current product users, win back former users, and encourage purchases in larger quantities. Because they are returned, coupons also help a manufacturer determine whether it reached the intended target market. The advantages of using electronic coupons over paper coupons include lower cost per redemption, greater targeting ability, improved data-gathering capabilities, and greater experimentation capabilities to determine optimal face values and expiration cycles. Drawbacks of coupon use include fraud and misredemption, which can be expensive for manufacturers. Coupon fraud—including counterfeit Internet coupons as well as coupons cashed in under false retailer names—costs manufacturers hundreds of millions in losses each year.Footnote Another disadvantage, according to some experts, is that coupons are losing their value; because so many manufacturers offer them, consumers have learned not to buy without some incentive, whether that pertains to a coupon, a rebate, or a refund. Furthermore, brand loyalty among heavy coupon users has diminished, and many consumers redeem coupons only for products they normally buy. It is believed that about three-fourths of coupons are redeemed by people already using the brand on the coupon. Thus, coupons have questionable success as an incentive for consumers to try a new brand or product. An additional problem with coupons is that stores often do not have enough of the coupon item in stock. This situation generates ill will toward both the store and the product.

Consumer Contests

In consumer contests, individuals compete for prizes based on their analytical or creative skills. This method can be used to generate retail traffic and frequency of exposure to promotional messages. Contestants are usually more highly involved in consumer contests than in games or sweepstakes, even though total participation may be lower. Contests may also be used in conjunction with other sales promotional methods, such as coupons. During March Madness, Quicken Loans held a consumer contest in which consumers could win the possibility of a $1 billion prize if they successfully picked the winner of every tournament game. After the contest began, brand awareness of Quicken Loans increased 300 percent.

Store Image

To attract customers, a retail store must project an image—a functional and psychological picture in the consumer's mind—that appeals to its target market. Store environment, merchandise quality, and service quality are key determinants of store image. Atmospherics, the physical elements in a store's design that appeal to consumers' emotions and encourage buying, help to create an image and position a retailer. Retailers can use different elements—music, color, and complexity of layout and merchandise presentation—to influence customer attention, mood, and shopping behavior. Exterior atmospheric elements include the appearance of the storefront, display windows, store entrances, and degree of traffic congestion. Exterior atmospherics are particularly important to new customers, who tend to base their judgment of an unfamiliar store on its outside appearance and may not ever enter if they feel intimidated by the appearance of the façade or if the location is inconvenient or unhospitable. Interior atmospheric elements include aesthetic considerations, such as lighting, wall and floor coverings, dressing facilities, and store fixtures. Interior sensory elements contribute significantly to atmosphere. Bars, for example, consider several factors when it comes to atmospherics, including music tempo and volume, lighting, cleanliness, and physical layout. Most bars tend to sell a similar range of products, so they use atmospherics extensively to differentiate themselves and create a unique environment. In order for a bar to be successful and retain customers, it must monitor atmospheric variables and focus on maintaining customer comfort levels, which may vary depending on target audience. Bar patrons tend to be recreationally and socially motivated, rather than task motivated, so the layout must create a sense of flow and spread the crowd to the right places so customers do not feel claustrophobic. Color can attract shoppers to a retail display. Many fast-food restaurants use bright colors because these have been shown to make customers feel hungrier and eat faster, which increases turnover.Footnote For instance, red is associated with impulsivity and hunger, and yellow is associated with feeling good—both of these colors are common in fast-food restaurants. Green, on the other hand, is calming and associated with wellness, so it is more commonly seen in natural foods stores and restaurants.Footnote Sound is another important sensory component of atmosphere. A low-end, family dining restaurant might play fast pop music to encourage customers to eat quickly and leave, increasing turnover and sales. A high-end restaurant, on the other hand, will opt to play soft classical music to enhance the experience and encourage patrons to indulge in multiple courses. Retailers may even employ scent, especially food aromas, to attract customers. Most consumers expect the scent of a store to be congruent with the products that are sold there. Thus, Starbucks should smell like its coffee, Panera like its freshly baked bread, and Yankee Candle like its scented candles. Online retailers are not exempt from concern over atmospherics. Studies have demonstrated that such elements as the layout of a site and the content of digital ads that appear on that site can affect consumer mood and shopping behavior.

Dealing with Unfavorable Public Relations

Thus far, we have discussed public relations as a planned element of the promotion mix. However, companies may have to deal with unexpected and unfavorable publicity resulting from an unsafe product, an accident resulting from product use, controversial actions of employees, or some other negative event or situation. Product recalls or products that could harm consumers can create a crisis and damage a brand. The extent of negative publicity and whether the brand has to publicly take blame will affect the amount of damage. Many companies have experienced unfavorable publicity connected with defective or contaminated products, such as faulty car parts, E.coli in fast food, and industrial compounds in pet foods. Unfavorable coverage can have quick and dramatic effects. Coca-Cola was forced to quickly pull an advertisement it featured in Germany to celebrate Fanta's 75th anniversary in the country. Its marketing referred to the 1940s as "the good old times." Coca-Cola experienced immediate backlash as the 1940s in Germany was marked by the Nazi era. Negative events that generate public relations can wipe out a company's favorable image and destroy positive customer attitudes established through years of expensive advertising campaigns and other promotional efforts. Target, for instance, suffered reputational damage after hackers hacked into its system and stole credit card information from millions of its customers. Reputation is often considered a valuable company asset. How an organization deals with unfavorable actions and outcomes can have a significant impact on firm valuation. Moreover, today's mass media, including online services and the Internet, disseminate information faster than ever before, and bad news generally receives more media attention than corporate social responsibility. To protect its image, an organization needs to prevent unfavorable public relations or at least lessen its effect if it occurs. First and foremost, the organization should try to prevent negative incidents and events through safety programs, inspections, training, and effective quality control procedures. Experts insist that sending consistent brand messages and images throughout all communications at all times can help a brand maintain its strength even during a crisis.Footnote However, because negative events can strike even the most cautious firms, an organization should have plans in place to handle them when they do occur. Firms need to establish policies and procedures for reducing the adverse impact of news coverage of a crisis or controversy. In most cases, organizations should expedite news coverage of negative events rather than try to discourage or block them. If news coverage is suppressed, rumors and other misinformation may replace facts and create public scrutiny. An unfavorable event can easily balloon into serious problems or public issues and become very damaging. By being forthright with the press and public and taking prompt action, a firm may be able to convince the public of its honest attempts to deal with the situation, and news personnel may be more willing to help explain complex issues to the public. Dealing effectively with a negative event allows an organization to lessen, if not eliminate, the unfavorable impact on its image. Experts generally advise companies that are dealing with negative publicity to respond quickly and honestly to the situation and to keep the lines of communication with all stakeholders open. Digital media has enhanced the organizational ability to communicate with key stakeholders and develop dialogues on current issues.

Recruiting and Selecting Salespeople

To create and maintain an effective sales force, sales managers must recruit the right type of salespeople. In recruiting, the sales manager develops a list of qualified applicants for sales positions. Effective recruiting efforts are a vital part of implementing the strategic sales force plan and can help assure successful organizational performance. The costs of hiring and training a salesperson are soaring, reaching more than $60,000 in some industries. Thus, recruiting errors are expensive. To ensure that the recruiting process results in a pool of qualified applicants, a sales manager establishes a set of qualifications before beginning to recruit. Although marketers have tried for years to identify a set of traits characterizing effective salespeople, no set of generally accepted characteristics exists yet. Experts agree that good salespeople exhibit optimism, flexibility, self-motivation, good time management skills, empathy, and the ability to network and maintain long-term customer relationships. There also seems to be a connection between high sales performance, motivational leadership, and employees who are coachable and highly competitive.Footnote Today, companies are increasingly seeking applicants capable of employing relationship-building and consultative approaches as well as the ability to work effectively in team selling efforts. It is desirable to hire salespeople who are disciplined and adaptive with their time. Sales managers must determine what set of traits best fits their companies' particular sales tasks. Two activities help establish this set of required attributes. First, the sales manager should prepare a job description listing specific tasks salespeople are to perform. Second, the manager should analyze characteristics of the firm's successful salespeople, as well as those of ineffective sales personnel. From the job description and analysis of traits, the sales manager should be able to develop a set of specific requirements and be aware of potential weaknesses that could lead to failure. A sales manager generally recruits applicants from several sources: departments within the firm, other firms, employment agencies, educational institutions, respondents to advertisements, websites (like Monster.com), and individuals recommended by current employees. The specific sources depend on the type of salesperson required and the manager's experiences and successes with particular recruiting tactics. The process of recruiting and selecting salespeople varies considerably from one company to another. Companies intent on reducing sales force turnover are likely to have strict recruiting and selection procedures. Sales management should design a selection procedure that satisfies the company's specific needs. Some organizations use the specialized services of other companies to hire sales personnel. The process should include steps that yield the information required to make accurate selection decisions. However, because each step incurs a certain amount of expense, there should be no more steps than necessary. Stages of the selection process should be sequenced so that the more expensive steps, such as a physical examination, occur near the end. Fewer people will then move through higher-cost stages. Recruitment should not be sporadic; it should be a continuous activity aimed at reaching the best applicants. The selection process should systematically and effectively match applicants' characteristics and needs with the requirements of specific selling tasks. Finally, the selection process should ensure that new sales personnel are available where and when needed.

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.

trial close

asking questions that assume the prospect will buy. The salesperson might ask the potential customer about financial terms, desired colors or sizes, or delivery arrangements. Reactions to such questions usually indicate how close the prospect is to buying.

Value conscious customers

concerned about both price and quality of a product

creative selling

requires that salespeople recognize potential buyers' needs and give them necessary information

Bait and switch

Bait and switch occurs when retailers have no intention of selling the bait product. They use the low price merely to entice customers into the store to sell them higher-priced products. Bait and switch is unethical, and in some states it is even illegal.

Competition

Competition is another important factor for supply-chain managers to consider. The success or failure of a competitor's marketing channel may encourage or dissuade an organization from taking a similar approach. In a highly competitive market, it is important for a company to maintain low costs so it can offer lower prices than its competitors if necessary to maintain a competitive advantage.

Consumer Sales Promotion Methods

Consumer sales promotion methods encourage or stimulate consumers to patronize specific retail stores or try particular products. Online sales promotion can create a higher level of product and brand recall. Consumer sales promotion methods initiated by retailers often aim to attract customers to specific locations, whereas those used by manufacturers generally introduce new products or promote established brands. In this section, we discuss coupons, cents-off offers, money refunds and rebates, frequent-user incentives, point-of-purchase displays, demonstrations, free samples, premiums, consumer contests and games, and consumer sweepstakes.

Criticisms and Defenses of Promotion

Even though promotional activities can help customers make informed purchasing decisions, social scientists, consumer groups, government agencies, and members of society in general have long criticized promotion. There are two main reasons for such criticism: Promotion does have flaws, and it is a highly visible business activity that pervades our daily lives. Although complaints about too much promotional activity are almost universal, a number of more specific criticisms have been lodged. In this section, we discuss some of the criticisms and defenses of promotion.

Government Markets

Federal, state, county, and local governments make up government markets. These markets spend billions of dollars annually for a wide range of goods and services—from office supplies and health-care services to vehicles, heavy equipment, and weapons—to support their internal operations and provide citizens with such products as highways, education, water service, energy, and national defense. Government spending accounts for about 36 percent of the U.S. total gross domestic product (GDP). The government also purchases services such as hotel rooms, food services, vehicle rentals, and legal and consulting services. The amount spent by federal, state, and local governments over the decades has gone up on average because the total number of government units and the services they provide have both increased. Costs of providing these services have also risen.

Refusal to Deal

For nearly a century, courts have held that producers have the right to choose or reject the channel members with which they will do business. Within existing distribution channels, however, suppliers may not legally refuse to deal with wholesalers or dealers merely because these wholesalers or dealers resist policies that are anticompetitive or in restraint of trade. Suppliers are further prohibited from organizing some channel members in refusal-to-deal actions against other members that choose not to comply with illegal policies.

Full-service wholesalers

Full-service wholesalers perform the widest possible range of wholesaling functions. Customers rely on them for product availability, suitable product assortments, breaking large quantities into smaller ones, financial assistance, and technical advice and service. Full-service wholesalers handle either consumer or business products and provide numerous marketing services to their customers. Many large grocery wholesalers, for instance, help retailers with store design, site selection, personnel training, financing, merchandising, advertising, coupon redemption, and scanning. Macdonalds Consolidated is a full-service wholesaler of meat, dairy, and produce goods for grocery retailers in North America. Macdonalds offers many services, including communication management, document management, retailer flyers and merchandising, and rebates for valued customers. Although full-service wholesalers often earn higher gross margins than other wholesalers, their operating expenses are also higher because they perform a wider range of functions.

General-merchandise wholesalers

General-merchandise wholesalers carry a wide product mix but offer limited depth within product lines. They deal in products such as drugs, nonperishable foods, cosmetics, detergents, and tobacco.

Intermodal transportation

It combines the flexibility of trucking with the low cost or speed of other forms of transport. Containerization facilitates intermodal transportation by consolidating shipments into sealed containers for transport by piggyback (using truck trailers and railway flatcars), fishyback (using water carriers), and birdyback (using air carriers). As transportation costs have increased and firms seek to find the most efficient methods possible, intermodal shipping has gained popularity.

Profitablity

MR minus MC tells us whether the unit is profitable. Profit is the highest where MC = MR. any unit for which MR exceeds MC adds to a firm's profits, and any unit for which MC exceeds MR subtracts from profits. The firm should produce at the point where MR equals MC, because this is the most profitable level of production.

free merchandise

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.

Manufacturers' agents

Manufacturers' agents, which account for more than half of all agent wholesalers, are independent intermediaries that represent two or more sellers and usually offer complete product lines to customers. They sell and take orders year-round, much as a manufacturer's sales force does. Restricted to a particular territory, a manufacturer's agent handles noncompeting and complementary products. The relationship between the agent and the manufacturer is governed by written contracts that outline territories, selling price, order handling, and terms of sale relating to delivery, service, and warranties. Manufacturers' agents have little or no control over producers' pricing and marketing policies. They do not extend credit and may be unable to provide technical advice. Manufacturers' agents are commonly used in sales of apparel, machinery and equipment, steel, furniture, automotive products, electrical goods, and some food items.

Training Sales Personnel

Many organizations have formal training programs; others depend on informal, on-the-job training. Some systematic training programs are quite extensive, whereas others are rather short and rudimentary. Whether the training program is complex or simple, developers must consider what to teach, whom to train, and how to train them. On average businesses that are considered to be the "best places to work" train their managers and professionals an average of 78 hours and their hourly and administrative staffers an average of 94 hours. A sales training program can concentrate on the company, its products, or its selling methods. Training programs often cover all three. Such programs can be aimed at newly hired salespeople, experienced salespeople, or both. The type of leadership is especially important for new salespeople who are just getting familiar with the selling process. Transformational leadership that involves coaching to foster trust and motivation has proven highly effective in training new hires when sales managers observe them making errors during customer interactions. This reduces feelings of helplessness among new salespeople when they encounter difficulties in the process. Training for experienced company salespeople usually emphasizes product information or the use of new technology, although salespeople must also be informed about new selling techniques and changes in company plans, policies, and procedures. Sales managers should use ethics training to institutionalize an ethical climate, improve employee satisfaction, and help prevent misconduct. Empowering the sales force through comprehensive training increases their effectiveness. The most successful sales forces tend to be those that clearly define the steps of the sales process, spend time each month on managing their sales representatives' networks, and train sales managers on how to manage efficiently.Footnote Ordinarily, new sales personnel require comprehensive training, whereas experienced personnel need both refresher courses on established products and training regarding new-product information and technology changes. At the Container Store new full-time store employees are given 263 hours of training. Because retail store employees will be interacting with customers on a consistent basis, the organization believes extensive training will increase employees' personal selling skills and help them form relationships with customers. As the advertisement indicates, the Container Store places great emphasis on its employees' happiness. Sales training may be done in the field, at educational institutions, in company facilities, and/or online using web-based technology. For many companies, online training saves time and money and helps salespeople learn about new products quickly. Sales managers might even choose to use online platforms from companies such as GoToMeeting to interact with their sales force face-to-face. Others put them into the field immediately, providing formal training only after they have gained some experience. Training programs for new personnel can be as short as several days or as long as three years; some are even longer. Sales training for experienced personnel is often scheduled when sales activities are not too demanding. Because experienced salespeople usually need periodic retraining, a firm's sales management must determine the frequency, sequencing, and duration of these efforts. Sales managers, as well as other salespeople, often engage in sales training, whether daily on the job or periodically during sales meetings. In addition, a number of outside companies specialize in providing sales training programs. Materials for sales training programs range from videos, texts, online materials, manuals, and cases to programmed learning devices and digital media. Lectures, demonstrations, simulation exercises, role-plays, and on-the-job training can all be effective training methods. Self-directed learning to supplement traditional sales training has the potential to improve sales performance. The choice of methods and materials for a particular sales training program depends on the type and number of trainees, program content and complexity, length and location, size of the training budget, number of trainers, and a trainer's expertise.

Nonstore retailing

Nonstore retailing is the selling of products outside the confines of a retail facility. It is a form of direct marketing that accounts for an increasing percentage of total retail sales, particularly as online retailing becomes more popular. Direct marketing can occur through online retailing, catalog marketing, direct-response marketing, telemarketing, and television home shopping.

Offshoring

Offshoring is defined as moving a business process that was done domestically at the local factory to a foreign country, regardless of whether the production accomplished in the foreign country is performed by the local company (e.g., in a wholly owned subsidiary) or a third party (e.g., subcontractor). Typically, the production is moved to reap the advantages of lower cost of operations in the foreign location.

Team Selling and Relationship Selling

Personal selling has become an increasingly complex process due in large part to rapid technological innovation. Most importantly, the focus of personal selling is shifting from selling a specific product to building long-term relationships with customers by finding solutions to their needs, problems, and challenges. As a result, the roles of salespeople are changing. Among the newer philosophies for personal selling are team selling and relationship selling.

recognition test

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.

Does Promotion Increase Prices?

Promotion is also criticized for raising prices, but in fact it can lower them. The ultimate purpose of promotion is to stimulate demand. If it does, the business should be able to produce and market products in larger quantities and thus reduce per-unit production research and development, overhead, and marketing costs, which can result in lower prices. As demand for flat-screen TVs and MP3 players increased, their prices dropped. When promotion fails to stimulate demand, the price of the promoted product increases because promotion costs must be added to other costs. Promotion also helps keep prices lower by facilitating price competition. When firms advertise prices, their prices tend to remain lower than when they are not promoting prices. Gasoline pricing illustrates how promotion fosters price competition. Service stations with the highest prices seldom have highly visible price signs. In addition, results of an analysis for the long-term economic growth for 64 countries indicated that there is a direct relationship between advertising and economic growth. The research findings indicate that advertising not only is related to economic growth but can also bring about economic growth. A Deloitte study found that for every £1 billion ($1.64 billion) spent on advertising in the United Kingdom, a £6 billion ($9.86 billion) increase in annual GDP occurs. This should help clarify debates over the role of promotion in society.

Publicity

Publicity is a part of public relations. Publicity is communication in news-story form about the organization, its products, or both, transmitted through a mass medium at no charge. For instance, each time Apple CEO Tim Cook announces that the company will introduce a new model of the iPhone and iPad, the story is covered in newspapers and television news shows throughout the world for months afterward. Although public relations has a larger, more comprehensive communication function than publicity, publicity is a very important aspect of public relations. Publicity can be used to provide information about goods or services; to announce expansions or contractions, acquisitions, research, or new-product launches; or to enhance a company's image.

The Promotion Mix

Several promotional methods can be used to communicate with individuals, groups, and organizations. When an organization combines specific methods to manage the integrated marketing communications for a particular product, that combination constitutes the promotion mix for that product. The four possible elements of a promotion mix are advertising, personal selling, public relations, and sales promotion (see Figure 16.4). For some products, firms use all four elements; for others, they use only two or three. In this section, we provide an overview of each promotion mix element; they are covered in greater detail in the next two chapters.

The distribution component of the marketing mix

The distribution component of the marketing mix focuses on the decisions and activities involved in making products available to customers when and where they want to purchase them. Because of the perishability of its product, Farmgirl must choose its distribution channels and partners carefully to ensure customer satisfaction. Choosing which channels of distribution to use is a major decision in the development of marketing strategies.

elastic vs inelastic demand

The percentage change in quantity demanded caused by a percentage change in price is much greater for products with elastic demand than for inelastic demand. For a product like electricity, demand is relatively inelastic: When its price increases from P1 to P2, quantity demanded goes down only a little, from Q1 to Q2. For products like recreational vehicles, demand is relatively elastic: When price rises sharply, from P1 to P2, quantity demanded goes down a great deal, from Q1 to Q2.

Political, Legal, and Regulatory Forces in gloabal markets

The political, legal, and regulatory forces of the environment are closely intertwined in the United States. To a large degree, the same is true in many countries internationally. Typically, legislation is enacted, legal decisions are interpreted, and regulatory agencies are operated by elected or appointed officials. A country's legal and regulatory infrastructure is a direct reflection of its political climate. In some countries, this political climate is decided by the people via elections, whereas in other countries leaders are appointed or have assumed leadership based on certain powers. Although laws and regulations have direct effects on a firm's operations in a country, political forces are indirect and often not clearly known in all countries. Additionally, businesses from different countries might be similar in nature but operate differently based on legal, political, or regulatory conditions in their home countries. For instance, in the United States airlines operate as private companies. Emirates airlines is owned by the government of Dubai, although it operates as a commercial enterprise that does not receive government financial support.Footnote This advertisement for Emirates airlines stresses the choices that consumers have when they choose to fly with Emirates airlines. It is the largest airline in the Middle East with 120 destinations across the world. On the other hand, some countries have political climates that make it easier for international entrepreneurs to start their own businesses. Table 9.3 lists some of the best countries in which to start a business, according to Forbes. The United States is not in the top ten, possibly due to fewer incentives, regulations, and taxes. The political climate in a country or region, political officials in a country, and political officials in charge of trade agreements directly affect the legislation and regulations (or lack thereof). Within industries, elected or appointed officials of influential industry associations also set the tone for the regulatory environment that guides operations in a particular industry. Consider the American Marketing Association, which has one of the largest professional associations for marketers with 30,000 members worldwide in every area of marketing. It has established a statement of ethics, called "Ethical Norms and Values for Marketers," that guides the marketing profession in the United States. A nation's political system, laws, regulatory bodies, special-interest groups, and courts all have a great impact on international marketing. Laws regarding competition may serve as trade barriers. For example, the European Union has stronger antitrust laws than in the United States. Being found guilty of anticompetitive behavior has cost companies like Intel billions of dollars. Because some companies do not have the resources to comply with more stringent laws, this can act as a barrier to trade. Many nontariff barriers, such as quotas and minimum price levels set on imports, port-of-entry taxes, and stringent health and safety requirements, still make it difficult for U.S. companies to export their products. For instance, the collectivist nature of Japanese culture and the high-context nature of Japanese communication make some types of direct marketing messages through the Internet and mass media less effective and may predispose many Japanese to support greater regulation of direct marketing practices.Footnote Because of their collectivist culture, direct selling involving face-to-face communication may be more acceptable. A government's attitude toward importers has a direct impact on the economic feasibility of exporting to that country.

order lead time

To calculate the reorder point, the marketer must know the order lead time, the usage rate, and the amount of safety stock required. The order lead time refers to the average time lapse between placing the order and receiving it.

tactile communication

Touching, or tactile communication, is also a form of communication, although less popular in the United States than in many other countries. Handshaking is a common form of tactile communication both in the United States and elsewhere.

Primary Concerns of Business Customers

When making purchasing decisions, business customers take into account a variety of factors. Among their chief considerations are price, product quality, service, and supplier relationships. Price is an essential consideration for business customers because it influences operating costs and costs of goods sold, which affects selling price, profit margin, and ultimately the ability to compete. A business customer is likely to compare the price of a product with the benefits the product will yield to the organization, often over a period of years. When purchasing major equipment, a business customer views price as the amount of investment necessary to obtain a certain level of return or savings on business operations. On the other hand, excellent service and product quality also enter into the decision. A product with a higher price could yield lower operating costs for the buyer in terms of service and quality. For instance, Caterpillar construction equipment may be sold at a higher price with superior service and parts availability. Because their purchases tend to be large and sometimes complicated, business buyers value service. Services offered by suppliers directly and indirectly influence customers' costs, sales, and profits. Typical services business customers desire from suppliers are market information, inventory maintenance, on-time delivery, and repair services. Business buyers may need technical product information, data regarding demand, information about general economic conditions, or supply and delivery information. Purchasers of machinery are especially concerned about obtaining repair services and replacement parts quickly because inoperable equipment is costly, in terms of both repairs and lost productivity. Offering quality customer service can be a means of gaining a competitive advantage over other firms, which leads some businesses to seek out ways to improve their customer service. Long known for its quality customer service and strong customer devotion, Bain & Company targets these businesses with programs to improve their clients' service operations in retail establishments, call centers, and a variety of other service situations. For example, it has developed multiple frameworks of different steps their clients can take to become customer-centered service providers. Maintaining adequate inventory is critical to quality, customer service, customer satisfaction, and managing inventory costs and distribution efficiency. Furthermore, on-time delivery is crucial to ensuring that products are available as needed. Reliable on-time delivery saves business customers money because it enables them to carry only the inventory needed at any given time. Consider the advertisement for Saia Freight. The ad shows an eager looking truck driver with his paperwork all ready to go to illustrate Saia's commitment to reliable performance and on-time delivery. The ad also describes how Saia's systems can help its customers achieve their goals and have confidence that their shipments will be delivered properly and on time. Customer expectations about quality of service have increased and broadened over time. Using traditional service quality standards based only on traditional manufacturing and accounting systems is not sufficient. Customers also expect to have access to communication channels that allow them to ask questions, voice complaints, submit orders, and track shipments. Increasingly, they expect to be able to do that on the fly through their cell phone or other mobile device. Marketers should develop customer service objectives and monitor customer service programs, striving for uniformity of service, simplicity, truthfulness, and accuracy. Firms can observe service by formally surveying customers or informally calling on customers and asking questions about the service they receive. Spending the time and effort to ensure that customers are satisfied can greatly benefit marketers by increasing customer retention. Businesses are also increasingly concerned about ethics and social responsibility. Sustainability in particular is rising as a consideration among customers making purchases. Managers are playing a key role in green marketing strategies through the integration of environmental values into the organizational culture.Footnote This results in purchase decisions that favor sustainable and environmentally friendly products. In fact, improvement of environmental performance can indirectly improve financial performance. For instance, the government places a high priority on sustainable purchasing. The Environmental Protection Agency created an Environmentally Preferable Purchasing program to help the federal government comply with green purchasing guidelines and support suppliers selling eco-friendly products. Finally, business customers are concerned about the costs of developing and maintaining relationships with their suppliers. By building trust with a particular supplier, buyers can reduce their search efforts and uncertainty about prices. Business customers have to keep in mind the overall fit of a supplier and its products with marketing objectives, including distribution and inventory-maintenance costs and efficiency.

support personell

facilitate selling but usually are not involved solely with making sales. They engage primarily in marketing industrial products, locating prospects, educating customers, building goodwill, and providing service after the sale. There are many kinds of sales support personnel; the three most common are missionary, trade, and technical salespeople.

Truck wholesalers

sometimes called truck jobbers, transport a limited line of products directly to customers for on-the-spot inspection and selection. They are often small operators who own and drive their own trucks. They usually have regular routes, calling on retailers and other institutions to determine their needs.

Effective nonprice competition

A company must be able to distinguish its brand through unique product features, higher product quality, effective promotion, distinctive packaging, and/or excellent customer service. the firm must extensively promote the brand's distinguishing characteristics to establish its superiority and set it apart from competitors in the minds of buyers. Even a marketer that is competing on a nonprice basis cannot ignore competitors' prices. price remains a crucial marketing-mix component even in environments that call for nonprice competition.

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.

Does Promotion Encourage Materialism?

Another frequent criticism of promotion is that it leads to materialism. The purpose of promoting goods is to persuade people to buy them; thus, if promotion works, consumers will want to buy more and more things. Marketers assert that values are instilled in the home and that promotion does not change people into materialistic consumers. However, the behavior of today's children and teenagers contradicts this view; many insist on high-priced, brandname apparel, such as Gucci, Coach, Abercrombie & Fitch, 7 For All Mankind, Jersey Couture, and Ralph Lauren.

Public Relations Tools

Companies use a variety of public relations tools to convey messages and create images. Public relations professionals prepare written materials and use digital media to deliver brochures, newsletters, company magazines, news releases, blogs, managed social media sites, and annual reports that reach and influence their various stakeholders. Sometimes, organizations use less conventional tools in their public relations campaigns. Burger King paid boxer Floyd Mayweather to allow its mascot, the King, to accompany him as he walked in to one of his boxing matches. Burger King has become known for its buzz marketing stunts, which has led to increased sales among franchisees. Public relations personnel also create corporate identity materials—such as logos, business cards, stationery, signs, and promotional materials—that make firms immediately recognizable. Speeches are another public relations tool. Because what a company executive says publicly at meetings or to the media can affect the organization's image, the speech must convey the desired message clearly. Event sponsorship, in which a company pays for part or all of a special event, like a benefit concert or a tennis tournament, is another public relations tool. One example is Pizza Hut's sponsorship of ESPN's College GameDay.Footnote Sponsoring special events can be an effective means of increasing company or brand recognition with relatively minimal investment. Event sponsorship can gain companies considerable amounts of free media coverage. An organization tries to ensure that its product and the sponsored event target a similar audience and that the two are easily associated in customers' minds. Many companies as well as individuals also assist in their charitable giving. Walmart, for instance, contributes approximately $1.4 billion in cash and in-kind donations.Footnote Public relations personnel also organize unique events to "create news" about the company. These may include grand openings with celebrities, prizes, hot-air balloon rides, and other attractions that appeal to a firm's public. Publicity-based public relations tools offer several advantages, including credibility, news value, significant word-of-mouth communications, and a perception of media endorsement. The public may consider news coverage more truthful and credible than an advertisement because news media are not paid to provide the information. In addition, stories regarding a new-product introduction or a new environmentally responsible company policy, for example, are handled as news items and are likely to receive notice. Finally, the cost of publicity is low compared with the cost of advertising. Publicity-based public relations tools have some limitations. Media personnel must judge company messages to be newsworthy if the messages are to be published or broadcast at all. Consequently, messages must be timely, interesting, accurate, and in the public interest. It may take a great deal of time and effort to convince media personnel of the news value of publicity releases, and many communications fail to qualify. Although public relations personnel usually encourage the media to air publicity releases at certain times, they control neither the content nor the timing of the communication. Media personnel alter length and content of publicity releases to fit publishers' or broadcasters' requirements and may even delete the parts of messages that company personnel view as most important. Furthermore, media personnel use publicity releases in time slots or positions most convenient for them. Other outside public relations messages can be picked up during slow news times. Thus, messages sometimes appear in locations or at times that may not reach the firm's target audiences. Although these limitations can be frustrating, properly managed publicity-based public relations tools offer an organization substantial benefits.

Selecting Promotion Mix Factors

Marketers vary the composition of promotion mixes for many reasons. Although a promotion mix can include all four elements, frequently, a marketer selects fewer than four. Many firms that market multiple product lines use several promotion mixes simultaneously.

noise

Noise is anything that reduces the clarity and accuracy of the communication; it has many sources and may affect any or all parts of the communication process. Noise sometimes arises within the communications channel itself. Radio or television transmission difficulties, poor or slow Internet connections, and laryngitis are sources of noise. Noise also occurs when a source uses signs or symbols that are unfamiliar to the receiver or have a meaning different from the one intended. Noise may also originate in the receiver; a receiver may be unaware of a coded message when perceptual processes block it out. Those who do not recycle, for instance, can block messages encouraging "green behaviors" such as recycling.

Price in the marketing mix

Price is a key element in the marketing mix because it relates directly to the generation of total revenue.

Encourage Product Trial

When attempting to move customers through the product adoption process, a marketer may successfully create awareness and interest, but customers may stall during the evaluation stage. In this case, certain types of promotion—such as free samples, coupons, test drives, or limited free-use offers, contests, and games—are employed to encourage product trial. Texas supermarket chain H.E.B. uses free sampling kiosks and demo kitchens to offer free samples throughout its stores. Whether a marketer's product is the first in a new product category, a new brand in an existing category, or simply an existing brand seeking customers, trial-inducing promotional efforts aim to make product trial convenient and low risk for potential customers.

Dealer listings

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.

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

Motivating Salespeople

Although financial compensation is an important incentive, additional programs are necessary for motivating sales personnel. The nature of the jobs, job security, and pay are considered to be the most important factors for the college student going into the sales area today.Footnote A sales manager should develop a systematic approach for motivating salespeople to be productive. Sales managers act as models for their sales force. When salespeople perceive their managers as being more customer-oriented and adaptive, they are more likely to imitate these positive behaviors.Footnote Salespeople who can identify with their sales managers tend to have higher sales performance and customer satisfaction.Footnote Effective sales force motivation is achieved through an organized set of activities performed continuously by the company's sales management. Sales personnel, like other people, join organizations to satisfy personal needs and achieve personal goals. Sales managers must identify those needs and goals and strive to create an organizational climate that allows each salesperson to fulfill them. Enjoyable working conditions, power and authority, job security, and opportunity to excel are effective motivators, as are company efforts to make sales jobs more productive and efficient. Sales managers who are emotionally intelligent tend to have a positive impact on the creativity of their workers.Footnote A strong positive corporate culture leads to higher levels of job satisfaction and organizational commitment and lower levels of job stress. Sales contests and other incentive programs can also be effective motivators. These can motivate salespeople to increase sales or add new accounts, promote special items, achieve greater volume per sales call, and cover territories more thoroughly. However, companies need to understand salespersons' preferences when designing contests in order to make them effective in increasing sales. Some companies find such contests powerful tools for motivating sales personnel to achieve company goals. Managers should be careful to craft sales contests that support a strong customer orientation as well as motivate salespeople. In smaller firms lacking the resources for a formal incentive program, a simple but public "thank you" and the recognition from management at a sales meeting, along with a small-denomination gift card, can be very rewarding. Salesperson turnover is one of the most critical concerns of organizations. Lower organizational commitment has been found to relate directly to job turnover. Identifying with the organization and performance are tied directly to organizational commitment that reduces turnover.Footnote Properly designed incentive programs pay for themselves many times over, and sales managers are relying on incentives more than ever. Recognition programs that acknowledge outstanding performance with symbolic awards, such as plaques, can be very effective when carried out in a peer setting. The most common incentive offered by companies is cash, followed by gift cards and travel.Footnote Travel reward programs can confer a high-profile honor, provide a unique experience that makes recipients feel special, and build camaraderie among award-winning salespeople. However, some recipients of travel awards may feel they already travel too much on the job. Limited travel packages might also be a turn-off. In one study, 70 percent of participants claimed they would be more motivated if they had more choices in travel destinations.Footnote Cash rewards are easy to administer, are always appreciated by recipients, and appeal to all demographic groups. However, cash has no visible "trophy" value and provides few "bragging rights." The benefits of awarding merchandise are that the items have visible trophy value. In addition, recipients who are allowed to select the merchandise experience a sense of control, and merchandise awards can help build momentum for the sales force. The disadvantages of using merchandise are that employees may have a lower perceived value of the merchandise and the company may experience greater administrative problems. Some companies outsource their incentive programs to companies that specialize in the creation and management of such programs.

Buzz marketing

Buzz marketing is an attempt to incite publicity and public excitement surrounding a product through a creative event. Event attendance has a positive effect on brand equity. Some marketers are piggybacking off the events of other companies, using long lines for an event or product launch as marketing opportunities. As long lines waited for the newest iPhones outside Apple's London store, a British apple juice brand carried a placard advertising "the latest in apple technology." Buzz marketing can be an effective way of allowing a company to stand out from competing brands. Red Bull is another brand that excels at buzz marketing. Buzz marketing works best as a part of an integrated marketing communication program that also uses advertising, personal selling, sales promotion, and publicity. However, marketers should also take care that buzz marketing campaigns do not violate any laws or have the potential to be misconstrued and cause undue alarm. For instance, stenciling a brand's name or logo on the sidewalk might be an effective buzz marketing technique but can also be viewed as illegal graffiti by city authorities.

Category Management

Category management is a retail strategy of managing groups of similar, often substitutable products produced by different manufacturers. It first developed in the food industry because supermarkets were concerned about competitive behavior among manufacturers. Supermarkets use category management to allocate space for their many product categories, such as cosmetics, cereals, and soups. The strategy is effective for many different types of retailers. The assortment of merchandise a store chooses through category management is strategic and meant to improve sales and enhance customer satisfaction. Category management is an important part of developing a collaborative supply chain, which enhances value for customers. Successful category management involves collecting and analyzing data on sales and consumers and sharing the information between the retailer and manufacturer. Walmart, for example, has developed strong supplier relationships with many of its manufacturers, like Procter & Gamble. Collaborative supply chains should designate a single source to develop a system for collecting information on demand, consumer behavior, and optimal product allocations. The key is cooperative interaction between the manufacturers of category products and the retailer to create maximum success for all parties in the supply chain.

Retain Loyal Customers

Clearly, maintaining long-term customer relationships is a major goal of most marketers. Such relationships are quite valuable. Promotional efforts directed at customer retention can help an organization control its costs, because the costs of retaining customers are usually considerably lower than those of acquiring new ones. Frequent-user programs, such as those sponsored by airlines, car rental agencies, and hotels, aim to reward loyal customers and encourage them to remain loyal. Often airlines provide frequent flyer miles and other benefits for upgrades as well as the use of the company's credit card. Some organizations employ special offers that only their existing customers can use. To retain loyal customers, marketers not only advertise loyalty programs but also use reinforcement advertising, which assures current users that they have made the right brand choice and tells them how to get the most satisfaction from the product.

Contract manufacturing

Contract manufacturing occurs when a company hires a foreign firm to produce a designated volume of the firm's product (or a component of a product) to specification and the final product carries the domestic firm's name. The Gap, for example, relies on contract manufacturing for some of its apparel; Nike uses contract manufacturers in Vietnam to produce many of its athletic shoes. Marketing may be handled by the contract manufacturer or by the contracting company. Three specific forms of contract manufacturing have become popular in the last decade: outsourcing, offshoring, and offshore outsourcing.

channel capacity

Each communication channel has a limit on the volume of information it can handle effectively. This limit, called channel capacity, is determined by the least efficient component of the communication process. Consider communications that depend on speech. An individual source can speak only so fast, and there is a limit to how much an individual receiver can take in through listening. Beyond that point, additional messages cannot be decoded; thus, meaning cannot be shared. Although a radio announcer can read several hundred words a minute, a 1-minute advertising message should not exceed 150 words, because most announcers cannot articulate words into understandable messages at a rate beyond 150 words per minute.

percent-of-sales approach

In the more widely used percent-of-sales approach, marketers simply multiply the firm's past sales, plus a factor for planned sales growth or decline, by a standard percentage based on both what the firm traditionally spends on advertising and the industry average. This approach, too, has a major flaw: It is based on the incorrect assumption that sales create advertising rather than the reverse. A marketer using this approach during declining sales will reduce the amount spent on advertising, but such a reduction may further diminish sales. Though illogical, this technique has been favored because it is easy to implement.

Mail-order wholesalers

Mail-order wholesalers use catalogs instead of a sales force to sell products to retail and business buyers. Wholesale mail-order houses generally feature cosmetics, specialty foods, sporting goods, office supplies, and automotive parts. Mail-order wholesaling enables buyers to choose and order particular catalog items for delivery through various mail carriers. This is a convenient and effective method of selling items to customers in remote areas that other wholesalers might find unprofitable to serve. The Internet has provided an opportunity for mail-order wholesalers to serve a larger number of buyers, selling products over their websites and having the products shipped by the manufacturers.

Factors that effect pricing decisions

Organizational and marketing objectives, pricing objectives, costs, other marketing mix variables, channel member expectations, customer interpretation and response, competition, legal and regulatory issues

Selling Agents

Selling agents market either all of a specified product line or a manufacturer's entire output. They perform every wholesaling activity except taking title to products. Selling agents usually assume the sales function for several producers simultaneously, and some firms may use them in place of a marketing department. In fact, selling agents are used most often by small producers or by manufacturers that have difficulty maintaining a marketing department because of such factors as seasonal production. In contrast to manufacturers' agents, selling agents generally have no territorial limits and have complete authority over prices, promotion, and distribution. To avoid conflicts of interest, selling agents represent noncompeting product lines. They play a key role in advertising, marketing research, and credit policies of the sellers they represent, at times even advising on product development and packaging.

Cash flow pricing objective

Some companies set prices so they can recover cash as quickly as possible. the use of cash flow and recovery as an objective oversimplifies the contribution of price to profits. If this pricing objective results in high prices, competitors with lower prices may gain a large share of the market.

import tariff

Some countries have established import barriers, such as tariffs. An import tariff is any duty levied by a nation on goods bought outside its borders and brought into the country. Because they raise the prices of foreign goods, tariffs impede free trade between nations. Tariffs are usually designed either to raise revenue for a country or to protect domestic products. In the United States, tariff revenues account for a small percentage of total federal revenues, down from about 50 percent of total federal revenues in the early 1900s.

Yield management

a strategy of maximizing revenues by making numerous price changes in response to demand, competitors' prices, or environmental conditions.

Competition based pricing

an organization considers costs to be secondary to competitors' prices. This is a common method among producers of relatively homogeneous products, particularly when the target market considers price to be an important purchase consideration. A firm that uses competition-based pricing may choose to set their prices below competitors' or at the same level.

Dynamic pricing

balance supply and demand. For instance, all tickets for Los Angeles Angels' baseball games are sold using dynamic pricing. Ticket prices are adjusted based on real-time market conditions that include the popularity of opponents.

Standard full cost

calculated based on what it would cost to produce the goods at full plant capacity.

Actual full cost

calculated by dividing all fixed and variable expenses for a period into the number of units produced.

low pricing

marketers can emphasize a bargain and attract customers who go out of their way to save a small amount of money. Firms that stress low price as a key marketing-mix element tend to market standardized products.

Transfer pricing

occurs when one unit in an organization sells a product to another unit

profit pricing objective

profit objectives tend to be set at levels that the owners and top-level decision makers view as satisfactory and attainable. Specific profit objectives may be stated in terms of either actual dollar amounts or a percentage of sales revenues.

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. This type of advertising not only has social benefits but also helps build an organization's image.

Steps in the personal selling process

prospecting, preapproach, approach, making the presentation, overcoming objections, closing the sale, following up

price elasticity of demand

provides a measure of the sensitivity of demand to changes in price. It is formally defined as the percentage change in quantity demanded relative to a given percentage change in price. If marketers can determine a product's price elasticity of demand, setting a price is much easier. By analyzing total revenues as prices change, marketers can determine whether a product is price elastic.

unaided recall test,

respondents identify advertisements they have seen recently but are not shown any clues to help them remember.

Zone pricing

sets uniform prices for each of several major geographic zones; as the transportation costs across zones increase, so do the prices.

Multiple-unit pricing

setting a single price for two or more units of a product, such as two cans for 99 cents, rather than 50 cents per can. Especially for frequently-purchased products, this strategy can increase sales by encouraging consumers to purchase multiple units when they might otherwise have only purchased one at a time

Average Fixed cost

the fixed cost per unit produced and is calculated by dividing fixed costs by the number of units produced. Notice that average fixed cost declines as output increases.

Closing

the stage in the personal selling process when the salesperson asks the prospect to buy the product

Missionary salespeople

usually employed by manufacturers, assist the producer's customers in selling to their own customers. Missionary salespeople may call on retailers to inform and persuade them to buy the manufacturer's products. When they succeed, retailers purchase products from wholesalers, which are the producer's customers. Manufacturers of medical supplies and pharmaceuticals often use missionary salespeople, called detail reps, to promote their products to physicians, hospitals, and pharmacists.

variable costs

vary directly with changes in the number of units produced or sold

competitive pricing environment

whenever one firm changes its prices, its rivals usually respond quickly and aggressively.

dealer loader

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.

feature article

A feature article is a manuscript of up to 3,000 words prepared for a specific publication.

Category killer

A more recent kind of specialty retailer is called the category killer, which is a very large specialty store that concentrates on a major product category and competes on the basis of low prices and broad product availability. These stores are referred to as category killers because they expand rapidly and gain sizable market shares, taking business away from smaller, higher-cost retail outlets. Examples of category killers include Home Depot and Lowe's (home improvement), Staples (office supply), Barnes & Noble (bookseller), Petco and PetSmart (pet supply), Best Buy (consumer electronics), and Toys 'R' Us (toys). Just as category killers took business away from traditional specialty retailers by competing largely on price, online retailing has taken market share away from category killers in recent years. One of the original category killers, Toys 'R' Us, now struggles to compete against online retailers, particularly Amazon. To retain a competitive advantage in toys, Toys 'R' Us is working to improve its store experience—brighter lights, faster checkouts, better controlled stock, and more frequent cleanings, and some new stores will include play areas for children to play and interact with products—as well as customer service.

Agents and Brokers

Agents and brokers negotiate purchases and expedite sales but do not take title to products (see Figure 15.2 for types of agents and brokers). Sometimes called functional middlemen, they perform a limited number of services in exchange for a commission, which generally is based on the product's selling price. Agents represent either buyers or sellers on a permanent basis, whereas brokers are intermediaries that buyers or sellers employ temporarily. Although agents and brokers perform even fewer functions than limited-service wholesalers, they are usually specialists in particular products or types of customers and can provide valuable sales expertise. They know their markets well and often form long-lasting associations with customers. Agents and brokers enable manufacturers to expand sales when resources are limited, benefit from the services of a trained sales force, and hold down personal selling costs. Table 15.4 summarizes the services provided by agents and brokers.

Fluctuating Demand

Because the demand for business products is derived from consumer demand, it is subject to dramatic fluctuations. In general, when consumer products are in high demand, producers buy large quantities of raw materials and components to ensure that they meet long-run production requirements. These producers may expand production capacity to meet demands as well, which entails acquiring new equipment and machinery, more workers, and more raw materials and component parts. Conversely, a decline in demand for certain consumer goods reduces demand for business products used to produce those goods. Sometimes, price changes lead to surprising temporary changes in demand. A price increase for a business product initially may cause business customers to buy more of the item in an attempt to stock up because they expect the price to continue to rise. Similarly, demand for a business product may decrease significantly following a price cut because buyers are waiting for further price reductions. Fluctuations in demand can be substantial in industries in which prices change frequently.

Channel Cooperation

Because the supply chain is an interrelated system, the success of one firm in the channel depends in part on other member firms. Cooperation enables retailers, wholesalers, suppliers, and logistics providers to speed up inventory replenishment, improve customer service, and cut the costs of bringing products to the consumer.Footnote Without cooperation, neither overall channel goals nor individual member goals can be realized. Thus, marketing channel members should make a coordinated effort to satisfy market requirements. Channel cooperation leads to greater trust among channel members and improves the overall functioning of the channel. Cooperation also leads to more satisfying relationships among channel members. There are several ways to improve channel cooperation. If a marketing channel is viewed as a unified supply chain competing with other systems, individual members will be less likely to take actions that create disadvantages for other members. Channel members should agree to direct efforts toward common objectives, and their tasks should be defined precisely so that roles can be structured for maximum effectiveness in working toward achieving objectives. Starting from a common basis allows channel members to set benchmarks for reviewing intermediaries' performance and helps to reduce conflicts as each channel member knows what is expected of it.

Joint Demand

Certain business products, especially raw materials and components, are subject to joint demand. Joint demand occurs when two or more items are used in combination to produce a product. Consider the advertisement for Patron tequila, which emphasizes the quality of the ingredients that go into the products, even the material used in its corks. Demand for the special material Patron uses will increase or decrease jointly with tequila sales, as it is a required component of every bottle of tequila sold. Understanding the effects of joint demand is particularly important for a marketer that sells multiple jointly demanded items. Such a marketer realizes that when a customer begins purchasing one of the jointly demanded items, a good opportunity exists to sell related products.

Sociocultural Forces

Cultural and social differences among nations can have profound effects on marketing activities. Because marketing activities are primarily social in purpose, they are influenced by beliefs and values regarding family, religion, education, health, and recreation. By identifying, understanding, and respecting sociocultural deviations among countries, marketers lay the groundwork for effective adjustments of marketing strategy. When McDonald's expanded into Vietnam, the company offered not only its regular meal options but also introduced McPork sandwiches. These sandwiches are meant to appeal to local tastes since pork is very popular in Vietnam. Local preferences, tastes, and idioms can prove complicated for international marketers. For example, although football is a popular sport in the United States and a major opportunity for many television advertisers, soccer is the most popular televised sport in Europe and Latin America. Indeed, outside of the United States, the term "football" actually refers to soccer. Additionally, while middle-class consumers in some countries prefer to create their own unique fashion styles to demonstrate their individuality, in Turkey middle-class consumers accept fashion themes and demonstrate their creativity by "rotating" items in their wardrobe.Footnote And, of course, marketing communications often must be translated into other languages. Sometimes, the true meaning of translated messages can be misinterpreted or lost. Consider some translations that went awry in foreign markets: KFC's long-running slogan "Finger lickin' good" was translated in China as "Eat your fingers off," while Coors' "Turn it loose" campaign was translated into Spanish as "Drink Coors and get diarrhea." It can be difficult to transfer marketing symbols, trademarks, logos, and even products to international markets, especially if these are associated with objects that have profound religious or cultural significance in a particular culture. Consider the problem Kellogg had with its Corn Flakes brand in South Africa. Because South Africans are used to hot porridge for breakfast, many of them were boiling Kellogg's corn flakes and ruining the meal. To adapt to this cultural expectation, Kellogg's reformulated the product and released Corn Flakes Instant Porridge to the South African market. Cultural differences may also affect marketing negotiations and decision-making behavior. Differences in the emphasis placed on personal relationships, status, and decision-making styles have been known to complicate dealings between Americans and businesspeople from other countries. In many parts of Asia, a gift may be considered a necessary introduction before negotiation, whereas in the United States or Canada, a gift may be misconstrued as an illegal bribe. Buyers' perceptions of other countries can influence product adoption and use. Consumers that have a global orientation tend to have a positive attitude toward purchasing global brands. On the other hand, when consumers think local and are ethnocentric, they are more negative toward global brands.Footnote Multiple research studies have shown that consumer preferences for products depend on both the country of origin and the product category of competing products.Footnote When people are unfamiliar with products from another country, their perceptions of the country as a whole may affect their attitude toward the product and influence whether they will buy it. If a country has a reputation for producing quality products and therefore has a positive image in consumers' minds, marketers of products from that country will want to make the country of origin well known. BMW is a respected German brand that manufactures many of its vehicles in the United States, Mexico, and South Africa. In the case of BMW, the brand is more important than the country of origin to most consumers. On the other hand, marketers may want to distance themselves from a particular country in order to build a brand's reputation as truly global or because that country does not have a good reputation for quality. Traditionally, Chinese brands have been viewed as being of low quality. However, the global success of companies such as Lenovo, Xiaomi, and Alibaba are not only increasing China's brand reputation but are also challenging top competitors such as Hewlett-Packard, Apple, and Amazon. The extent to which a product's brand image and country of origin influence purchases is subject to considerable variation based on national culture characteristics. When products are introduced from one nation into another, acceptance is far more likely if similarities exist between the two cultures. In fact, many similar cultural characteristics exist across countries. For international marketers, cultural differences have implications for product development, advertising, packaging, and pricing. When Walmart expanded into China, for instance, it quickly found that it had to adapt its stores' seafood section because Chinese shoppers like to select their own seafood. This required the stores to build large tanks containing live fish so customers could choose which ones they wanted to purchase.

Direct Marketing

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.

Team Selling

Many products, particularly expensive high-tech business products, have become so complex that a single salesperson can no longer be an expert in every aspect of the product and purchase process. Team selling, which involves the salesperson joining with people from the firm's financial, engineering, and other functional areas, is appropriate for such products. The salesperson takes the lead in the personal selling process, but other members of the team bring their unique skills, knowledge, and resources to the process to help customers find solutions to their own business challenges. Selling teams may be created to address a particular short-term situation, or they may be formal, ongoing teams. Team selling is advantageous in situations calling for detailed knowledge of new, complex, and dynamic technologies like jet aircraft and medical equipment. It can be difficult, however, for highly competitive salespersons to adapt to a team selling environment.

market research and forecasting techniques

Marketers use marketing research and forecasting techniques to estimate sales potential and determine the relationship between a product's price and the quantity demanded.

Marketing Channels Create Utility

Marketing channels create four types of utility: time, place, possession, and form. Time utility is having products available when the customer wants them. Services like Netflix allow customers to watch a movie whenever they want. Place utility is making products available in locations where customers wish to purchase them. For example, Zappos allows customers to shop for shoes and accessories anywhere they have access to a mobile device and an Internet connection. Possession utility means that the customer has access to the product to use or to store for future use. Possession utility can occur through ownership or through arrangements that give the customer the right to use the product, such as a lease or rental agreement. Channel members sometimes create form utility by assembling, preparing, or otherwise refining the product to suit individual customer needs.

Is Promotion Deceptive?

One common criticism of promotion is that it is deceptive and unethical. During the 19th and early 20th centuries, much promotion was blatantly deceptive. Although no longer widespread, some deceptive promotion still occurs. For instance, the Federal Trade Commission filed a lawsuit against dietary supplement maker Sunrise Nutraceuticals, LLC to stop it from advertising that its products could be used to alleviate opiate withdrawal and cure addiction. According to the FTC, these claims were unsubstantiated at best and downright false at worst. Many industries suffer from claims of deception from time to time. One industry that is seemingly constantly bombarded with truthfulness-related claims is the diet products and exercise equipment industry. Some promotions are unintentionally deceiving; for instance, when advertising to children, it is easy to mislead them because they are more naïve than adults and less able to separate fantasy from reality. A promotion may also mislead some receivers, because words can have diverse meanings for different people. However, not all promotion should be condemned because a small portion is flawed. Laws, government regulation, and industry self-regulation have helped decrease deceptive promotion.

reciprocity

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.

Outsourcing

Outsourcing is defined as the contracting of noncore operations or jobs from internal production within a business to an external entity that specializes in that operation. For example, outsourcing certain elements of a firm's operations to China and Mexico has become popular. The majority of all footwear is now produced in China, regardless of the brand name on the shoe you wear.

buying center

Relatively few business purchase decisions are made by just one person. Often purchases are made through a buying center. The buying center is the group of people within the organization who make business buying decisions. They include users, influencers, buyers, deciders, and gatekeepers. One person may perform several roles within the buying center, and participants share goals and risks associated with their decisions. 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. 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. 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. 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. Finally, 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. 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.

Strategic alliances

Strategic alliances are partnerships formed to create a competitive advantage on a worldwide basis. They are very similar to joint ventures, but while joint ventures are defined in scope, strategic alliances are typically represented by an agreement to work together (which can ultimately mean greater involvement than a joint venture). In an international strategic alliance, the firms in the alliance may have been traditional rivals competing for the same market. They may also be competing in certain markets while working together in other markets where it is beneficial for both parties. One such strategic alliance was formed between accounting firm Ernst & Young and career networking site LinkedIn. The purpose of the relationship is to help companies in their ability to use technology, social networking, and sales.Footnote Whereas joint ventures are formed to create a new identity, partners in strategic alliances often retain their distinct identities, with each partner bringing a core competency to the union. The success rate of international alliances could be higher if a better fit between the companies existed. A strategic alliance should focus on a joint market opportunity from which all partners can benefit. In the automobile, computer, and airline industries, strategic alliances are becoming the predominant means of competing internationally. Competition in these industries is so fierce and the costs of competing on a global basis are so high that few firms have all the resources needed to do it alone. Firms that lack the internal resources essential for international success may seek to collaborate with other companies. A shared mode of leadership among partner corporations combines joint abilities and allows collaboration from a distance. Focusing on customer value and implementing innovative ways to compete create a winning strategy.

Supermarket

Supermarkets are large, self-service stores that carry a complete line of food products and some non-food products such as cosmetics and nonprescription drugs. Supermarkets are arranged by department for maximum efficiency in stocking and handling products, but have central checkout facilities. They offer lower prices than smaller neighborhood grocery stores, usually provide free parking, and may also provide services such as check cashing. Consumers make the majority of all their grocery purchases in supermarkets. However, increased availability of grocery items at discount stores, premium markets, other competitors, and online have eroded supermarkets' market share of the grocery segment. Online grocers, especially in larger cities, have done away with the need to go to grocery stores and have put pressure on supermarkets to increase promotions and marketing efforts and make shopping more convenient. Kroger, Whole Foods, and Costco have partnered with Instacart to provide personal shopping and pick-up or delivery services in 16 metropolitan areas. The service is especially useful to consumers who do not have or want a car or who just don't like shopping. In just a few years, Whole Foods has seen its Instacart sales bloom to $1 million a week.Footnote Safeway and Publix supermarket chains offer their own delivery services.

Type of Organization

The characteristics of the organization will have a great impact on the distribution channels chosen. Owing to their size, larger firms are in a better position to deal with vendors or other channel members. They are also likely to have more distribution centers, which reduce delivery times to customers. Large companies can also use an extensive product mix as a competitive tool. A smaller company that uses regional or local channel members, on the other hand, might be in a strong position to cater its marketing mix to serve customers in that particular area, compared with a larger and less-flexible organization. However, smaller firms may not have the resources to develop their own sales force, ship their products long distances, maintain a large inventory, or extend credit. In such cases, they might consider including other channel members that have the resources to provide these services to customers.

News release

The most common publicity-based public relations tool is the news release, sometimes called a press release, which is usually a single page of type-written copy containing fewer than 300 words and describing a company event or product. A news release gives the firm's or agency's name, address, phone number, and contact person. Companies sometimes use news releases when introducing new products or making significant announcements. Dozens of organizations, including Nike, Starbucks, and clean-energy companies, are partnering to create awareness of the economic benefits of national climate and energy legislation through press releases and other media.

Legal Issues in Channel Management

The numerous federal, state, and local laws governing distribution channel management in the United States are based on the principle that the public is best served by protecting competition and free trade. Under the authority of such federal legislation as the Sherman Antitrust Act and the Federal Trade Commission Act, courts and regulatory agencies determine under what circumstances channel management practices violate this underlying principle and must be restricted. Although channel managers are not expected to be legal experts, they should be aware that attempts to control distribution functions might have legal repercussions. When shipping internationally, managers must also be aware of international laws and regulations that might affect their distribution activities. The following practices are among those frequently subject to legal restraint.

Shopper, Loyalty, and Frequent-User Incentives

Various incentives exist for frequent product users and loyal customers. Organizations such as supermarkets often provide users with loyalty or shopper cards that allow them to track customer purchases while providing periodic discounts to shoppers for continued purchases. Shopper cards tend to have an impact on brand loyalty purchases for secondary brands, but not brands where there is strong brand performance.Footnote A key purpose of shopper and frequent-user cards is to encourage continued loyalty. Whole Foods began testing a rewards program at select stores to see if it would make a difference on sales. The program allows shoppers at these stores to earn points and discounts when they shop. Many firms have similar incentives for rewarding customers who engage in repeat (frequent) purchases. For instance, major airlines offer frequent-flyer programs that reward customers who have flown a specified number of miles with free tickets for additional travel. Frequent-user incentives foster customer loyalty to a specific company or group of cooperating companies. They are favored by service businesses, such as airlines, auto rental agencies, hotels, and local coffee shops. Frequent-user programs not only reward loyal customers but also generate data that can contribute significant information about customers that helps marketers foster desirable customer relationships.

factors for Reseller purchasing decisions

When making purchase decisions, resellers consider several factors. They evaluate the level of demand for a product to determine the quantity and the price at which the product can be resold. Retailers assess the amount of space required to handle a product relative to its potential profit, sometimes on the basis of sales per square foot of selling area. Because customers often depend on resellers to have products available when needed, resellers typically appraise a supplier's ability to provide adequate quantities when and where they are needed. Colgate Palmolive, for example, has an oral care division that helps retail customers such as Target assess their space and merchandise involving toothpaste, mouthwash, and other oral care products. Resellers also take into account the ease of placing orders and whether producers offer technical assistance or training programs. Before resellers buy a product for the first time, they will try to determine whether the product competes with or complements products they currently handle. These types of concerns distinguish reseller markets from other markets.

Inelastic Demand

With inelastic demand, a price increase or decrease does not significantly alter demand for a business product. A product has inelastic demand when the buyer is not sensitive to price or when there are no ready substitutes. Because many business products are more specialized than consumer products, buyers will continue to make purchases even as the price goes up. Because some business products contain many different parts, price increases that affect only one or two parts may yield only a slightly higher per-unit production cost. Because some business products contain a large number of parts that each comprise a small portion of the overall cost, price increases that affect only one or two parts may yield only a slightly higher per-unit production cost. However, when a sizable price increase for a component represents a large proportion of the product's cost, demand may become more elastic because the price increase in the component causes the price at the consumer level to rise sharply. If manufacturers of a key part of solar panels, for instance, substantially increase their prices, forcing the cost of solar photovoltaic panel units to skyrocket, the demand for that source of renewable energy will decrease (or become more elastic) as businesses and consumers reconsider whether there will be a return on investment in installing a solar energy system. Inelasticity of demand in the business market applies at the industry level, while demand for an individual firm's products may fluctuate. Suppose a spark plug producer increases the price of spark plugs sold to small-engine manufacturers, but its competitors continue to maintain lower prices. The spark plug company that raised its prices will experience reduced unit sales because most small-engine producers will switch to lower-priced brands. A specific firm, therefore, remains vulnerable to elastic demand, while demand across the industry as a whole will not fluctuate drastically.

advertising

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. 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.

Psycological pricing

attempts to influence a customer's perception of price to make a product's price more attractive. Psychological pricing strategies encourage purchases based on consumers' emotional responses, rather than on economically rational ones. These strategies are used primarily for consumer products, rather than business products, because most business purchases follow a systematic and rational approach.

a business 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. 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.

freight forwarders

these firms combine shipments from several organizations into efficient lot sizes. Small loads (less than 500 pounds) are much more expensive to ship than full carloads or truckloads and may make shipping cost-prohibitive for smaller firms. Freight forwarders help such firms by consolidating small loads from various organizations to allow them to qualify collectively for lower rates. Freight forwarders' profits come from the margin between the higher rates firms would have to pay and the lower car-load rates the freight forwarder pays for full loads. Because large shipments also require less handling, freight forwarders can reduce delivery time and the likelihood of shipment damage. Freight forwarders also have the insight to determine the most efficient carriers and routes and are useful for shipping goods to foreign markets, including in foreign markets. Shipping firms such as UPS and FedEx offer freight-forwarding services, as do dedicated freight forwarders such as NRA Global Logistics or Worldwide Express. Some companies may prefer to outsource their shipping to freight forwarders because the forwarders provide door-to-door service.

lifestyle shopping center

With traditional mall sales declining, some shopping center developers are looking to new formats that differ significantly from traditional shopping centers. A lifestyle shopping center is typically an open-air shopping center that features upscale specialty stores, dining, and entertainment, most usually owned by national chains. Like San Jose's Santana Row, they are often located near affluent neighborhoods and may have fountains, benches, and other amenities that encourage "casual browsing." Some, like Austin's Domain, include offices, hotels, and residences as well. Appealing architectural design is an important aspect of these "mini-cities," which may include urban streets or parks, and is intended to encourage consumer loyalty by creating a sense of place. Some lifestyle centers are designed to resemble traditional "Main Street" shopping centers or may have a central theme evidenced by the architecture.

External reference price

a comparison price provided by others, such as retailers or manufacturers. Some grocery and electronics stores, for example, will show other stores' prices next to their price of a particular good if their price is lower than the competitor's price. This provides a reference point for consumers unfamiliar with the product category.

Externl reference price

a comparison price provided by others, such as retailers or manufacturers. Some grocery and electronics stores, for example, will show other stores' prices next to their price of a particular good if their price is lower than the competitor's price. This provides a reference point for consumers unfamiliar with the product category.

Allowance discount

a concession in price to achieve a desired goal. Trade-in allowances, for example, are price reductions granted for turning in a used item when purchasing a new one. Allowances help make the buyer better able to make the new purchase.

Preapproach

involves identifying key decision makers, reviewing account histories and problems, contacting other clients for information, assessing credit histories and problems, preparing sales presentations, identifying product needs, and obtaining relevant literature.

Logistics management

involves 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. The costs of business logistics in the United States are huge, at nearly $1.5 trillion, about 8.3 percent of the entire U.S. annual gross domestic product (GDP).

Geographical pricing

involves reductions for transportation costs or other costs associated with the physical distance between buyer and seller.

demand curve

is a graph of the quantity of products a firm expects to sell at various prices if other factors remain constant. It illustrates that, as price falls, quantity demanded usually rises.

Cumulative discounts

quantity discounts aggregated over a stated time period. Purchases totaling $10,000 in a 3-month period, for example, might entitle the buyer to a 5 percent, or $500, rebate. Such discounts are intended to reflect economies in selling and encourage the buyer to purchase from one seller.

Making the presentation

During the sales presentation, the salesperson must attract and hold the prospect's attention, stimulate interest, and spark a desire for the product.

pull policy

a firm that uses a pull policy promotes directly to consumers to develop strong consumer demand for its products. It does so primarily through advertising and sales promotion. Because consumers are persuaded to seek the products in retail stores, retailers in turn go to wholesalers or the producers to buy the products. This policy is intended to pull the goods down through the channel by creating demand at the consumer level. Consumers are told that if the stores do not have it, then they should request that the stores begin carrying the product. Push and pull policies are not mutually exclusive. At times, an organization uses both simultaneously.

Total cost

is the sum of average fixed costs and average variable costs times the quantity produced

Average variable costs

the variable cost per unit produced, is calculated by dividing the variable costs by the number of units produced. Average variable cost follows a U shape

inelastic demand

results in a change in the same direction as total revenue: An increase in price will increase total revenue, and a decrease in price will decrease total revenue. Demand for gasoline, for example, is relatively inelastic. Products without readily available substitutes and for which consumers have strong needs (e.g., electricity or appendectomies) usually have inelastic demand

electronic data interchange (EDI)

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.

Modes of Entry Into International Markets

"Marketers enter international markets and continue to engage in marketing activities at several levels of international involvement. Traditionally, firms have adopted one of four different modes of entering an international market; each successive "stage" represents different degrees of international involvement: Stage 1: No regular export activities, Stage 2: Export via independent representatives (agents), Stage 3: Establishment of one or more sales subsidiaries internationally, Stage 4: Establishment of international production/manufacturing facilities. As Figure 9.1 shows, companies' international involvement today covers a wide spectrum, from purely domestic marketing to global marketing. Domestic marketing involves marketing strategies aimed at markets within the home country; at the other extreme, global marketing entails developing marketing strategies for the entire world (or at least more than one major region of the world). Many firms with an international presence start out as small companies serving local and regional domestic markets and expand to national markets before considering opportunities in foreign markets (the born global firm, described earlier, is one exception to this internationalization process). Limited exporting may occur even if a firm makes little or no effort to obtain foreign sales. Foreign buyers may seek out the company and/or its products, or a distributor may discover the firm's products and export them. The level of commitment to international marketing is a major variable in global marketing strategies. In this section, we examine importing and exporting, trading companies, licensing and franchising, contract manufacturing, joint ventures, direct ownership, and some of the other approaches to international involvement.

Services Provided by Wholesalers

"Wholesalers provide essential services to both producers and retailers. By initiating sales contacts with a producer and selling diverse products to retailers, wholesalers serve as an extension of the producer's sales force. Wholesalers also provide financial assistance. They often pay for transporting goods, reduce a producer's warehousing expenses and inventory investment by holding goods in inventory, extend credit and assume losses from buyers who turn out to be poor credit risks, and can be a source of working capital when they buy a producer's output in cash. Wholesalers also serve as conduits for information within the marketing channel, keeping producers up-to-date on market developments and passing along the manufacturers' promotional plans to other intermediaries. Using wholesalers, therefore, gives producers a distinct advantage because the specialized services wholesalers perform allow producers to concentrate on developing and manufacturing products that match customers' needs and wants. Wholesalers support retailers by assisting with marketing strategy, especially the distribution component. Wholesalers also help retailers select inventory. They are often specialists on market conditions and experts at negotiating final purchases. In industries in which obtaining supplies is important, skilled buying is indispensable. Effective wholesalers make an effort to understand the businesses of their customers. They also must now understand digital marketing and digital communications. Firms such as Williams Commerce specialize in helping wholesalers to adapt to an increasingly digital environment while maintaining the high level of consumer contact that is sometimes required. Wholesalers can also reduce a retailer's burden of looking for and coordinating supply sources. If the wholesaler purchases for several different buyers, expenses can be shared by all customers. Furthermore, whereas a manufacturer's salesperson offers retailers only a few products at a time, independent wholesalers always have a wide range of products available. Thus, through partnerships, wholesalers and retailers can forge successful relationships for the benefit of customers.

Supply management

(e.g., purchasing, procurement, sourcing) in its broadest form refers to the processes that enable the progress of value from raw material to final customer and back to redesign and final disposition.

Price Lining

the strategy of selling goods only at certain predetermined prices that reflect explicit price breaks

Create Awareness

A considerable amount of promotion efforts focus on creating awareness. For an organization that is introducing a new product or a line extension, making customers aware of the product is crucial to initiating the product adoption process. A marketer that has invested heavily in product development strives to create product awareness quickly to generate revenues to offset the high costs of product development and introduction. Apple often begins to build awareness about new products months before it releases them. It holds an annual developer conference, where CEO Tim Cook often discusses the features of products that will be released later in the year. The Penske advertisement creates awareness among business readers about the costliness of delays and how Penske can help solve this problem with its logistics services. Creating awareness is important for existing products, too. Promotional efforts may aim to increase awareness of brands, product features, image-related issues (such as organizational size or socially responsive behavior), or operational characteristics (such as store hours, locations, and credit availability). Some promotional programs are unsuccessful because marketers fail to generate awareness of critical issues among a significant portion of target market members. Other times, the campaign itself is at fault. Bud Light was criticized for a campaign in which it released 140 labels on its different bottles. In an attempt to portray the beer as the beer of choice for an exciting night, one of the labels claimed that Bud Light would eliminate the word "no" for the night. Critics believed this encouraged the concept of date rape. Bud Light apologized and removed the label.

Convience stores

A convenience store is a small, self-service store that is open long hours and carries a narrow assortment of products, usually convenience items such as soft drinks and other beverages, snacks, newspapers, tobacco, and gasoline, as well as services such as ATMs. According to the National Association of Convenience Stores, there are more than 152,000 convenience stores in the United States alone, which together boast nearly $700 billion in annual sales. They are typically less than 5,000 square feet, open 24 hours a day and 7 days a week, and stock about 500 items. The convenience store concept was developed in 1927 when Southland Ice in Dallas began stocking basics like milk and eggs along with ice for iceboxes to serve customers who wanted to replenish their supplies. In addition to national chains, there are many family-owned independent convenience stores.

Product placement

A growing technique for reaching consumers is the selective placement of products within the context of television programs viewed by the target market. Product placement is a form of advertising that strategically locates products or product promotions within entertainment media to reach the product's target markets. For instance, the James Bond film Spectre featured the vehicles Aston Martin and Land Rover. Apple is considered to be an expert at product placement, and its products are often seen in popular television shows and movies. Such product placement has become more important due to the increasing fragmentation of television viewers who have ever-expanding viewing options and technology that can screen advertisements (e.g., digital video recorders such as TiVo). Researchers have found that 60 to 80 percent of digital video recorder users skip over the commercials when they replay programming. In-program product placements have been successful in reaching consumers as they are being entertained. Research demonstrates that a TV series can impact consumers' intentions to purchase brands placed in those TV shows. Of course, individual traits, such as consumer sensitivity to social influences, may increase or decrease intentions to purchase a specific brand.Footnote As a result, product placement can be found in many of today's most popular shows. For instance, the show "Modern Family" featured a Toyota vehicle, while the Target brand has been featured prominently in episodes of "Jane the Virgin."Footnote Reality programming in particular has been a natural fit for product placements, because of the close interchange between the participants and the product (e.g., Sears and Extreme Makeover Home Edition; Subway and The Biggest Loser; Pepsi and The X Factor; Coca-Cola and American Idol). Product placement is not limited to U.S. television shows. The European Parliament approved limited use of product placement, albeit only during certain types of programs and only if consumers were informed at the beginning of the segment that companies had paid to have their products displayed. In general, the notion of product placement has not been favorably viewed in Europe and has been particularly controversial in the United Kingdom. However, legislation has legalized product placement in U.K. television programs.Footnote Supporting the use of product placement are findings that product placement can promote prosocial behavior such as healthy eating habits. For instance, product placements are effective in promoting the consumption of fruits and vegetables among children.

Marketing channel

A marketing channel (also called a channel of distribution or distribution channel) is a group of individuals and organizations that direct the flow of products from producers to customers within the supply chain. The major role of marketing channels is to make products available at the right time at the right place in the right quantities. This is accomplished through achieving synergy among operations management, logistics management, and supply management. Providing customer satisfaction should be the driving force behind marketing channel decisions. Buyers' needs and behavior are therefore important concerns of channel members. Some marketing channels are direct, meaning that the product goes directly from the producer to the customer. For instance, when you order pears online from Harry & David, the product is sent from the manufacturer to the customer.

Telemarketing

A number of organizations use the telephone to strengthen the effectiveness of traditional marketing methods. Telemarketing is the performance of marketing-related activities by telephone. Some organizations use a prescreened list of prospective clients. Telemarketing can help to generate sales leads, improve customer service, speed up payments on past-due accounts, raise funds for nonprofit organizations, and gather marketing data. However, increasingly restrictive telemarketing laws have made it a less appealing and less popular marketing method. In 2003, the U.S. Congress implemented a national do-not-call registry, which has more than 200 million numbers on it. The Federal Trade Commission (FTC) enforces violations, and companies are subject to fines of up to $16,000 for each call made to numbers on the list.Footnote The Federal Communications Commission (FCC) ruled that companies are no longer allowed to call customers using prerecorded marketing calls simply because they had done business in the past. The law also requires that an "opt-out" mechanism be embedded in the call for consumers who do not wish to receive the calls. Companies that are still allowed to make telemarketing phone calls must pay for access to the do-not-call registry and must obtain updated numbers from the registry at least every three days. Certain exceptions do apply to no-call lists. For example, charitable, political, and telephone survey organizations are not restricted by the national registry.Footnote In spite of regulations, many consumers still find robocalls to be a nuisance, and Congress is seeking further measures to curb them.

Trade discounts

A reduction off the list price given by a producer to an intermediary for performing certain functions. A trade discount is usually stated in terms of a percentage or series of percentages off the list price

general-merchandise retailer

A retail establishment that offers a variety of product lines that are stocked in considerable depth is referred to as a general-merchandise retailer. The types of product offerings, mixes of customer services, and operating styles of retailers in this category vary considerably. The primary types of general-merchandise retailers are department stores, discount stores, convenience stores, supermarkets, superstores, hypermarkets, warehouse clubs, and warehouse showrooms.

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.

kinesic communication

A salesperson and customer frequently use kinesic communication, or communication through the movement of head, eyes, arms, hands, legs, or torso. Winking, head nodding, hand gestures, and arm motions are some forms of kinesic communication. A good salesperson can often evaluate a prospect's interest in a product or presentation by noting eye contact and head nodding.

aided recall test

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

source

A source is a person, group, or organization with a meaning it attempts to share with an audience. A source could be an electronics salesperson wishing to communicate the attributes of 4D television to a buyer in the store or a TV manufacturer using television ads to inform thousands of consumers about its products. Developing a strategy can enhance the effectiveness of the source's communication. For example, a strategy in which a salesperson attempts to influence a customer's decision by eliminating competitive products from consideration has been found to be effective.

straight rebuy purchase

A straight rebuy purchase occurs when buyers purchase the same products routinely under approximately the same terms of sale. Buyers require little information for routine purchase decisions and tend to use familiar suppliers that have provided satisfactory service and products in the past. These marketers may set up automatic systems to make reordering easy and convenient for business buyers. A supplier may even monitor the business buyer's inventories and communicate to the buyer what should be ordered and when.

strategic channel alliance

A strategic channel alliance exists when the products of one firm are distributed through the marketing channels of another. The products of the two firms are often similar with respect to target markets or uses, but they are not direct competitors. A brand of bottled water might be distributed through a marketing channel for soft drinks, or a cereal producer in the United States might form a strategic channel alliance with a European food processor to facilitate international distribution. Such alliances can provide benefits for both the organization that owns the marketing channel and the company whose brand is being distributed through the channel.

Evaluating Advertising Effectiveness

A variety of ways exist to test the effectiveness of advertising. They include measuring achievement of advertising objectives; assessing effectiveness of copy, illustrations, or layouts; and evaluating certain media. 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. 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.

srurvival pricing objective

Achieving this objective generally involves temporarily setting prices low, at times below costs, in order to attract more sales. Because price is a flexible ingredient in the marketing mix, survival strategy can be useful in keeping a company afloat by increasing sales volume

Technological Forces in global markets

Advances in technology have made international marketing much easier. Interactive websites, instant messaging, and podcast downloads (along with the traditional vehicles of voice mail, e-mail, and smart phones) make international marketing activities more affordable and convenient. Internet use and social networking activities have accelerated dramatically within the United States and abroad. In Japan 109.3 million have Internet access, and 84.4 million Russians, 237.3 million Indians, and 626.6 million Chinese are logging on to the Internet. In many developing countries that lack the level of technological infrastructure found in the United States and Japan, marketers are beginning to capitalize on opportunities to leap-frog existing technology. For example, cellular and wireless phone technology is reaching many countries at a more affordable rate than traditional hard-wired telephone systems. Consequently, opportunities for growth in the cell phone market remain strong in Southeast Asia, Africa, and the Middle East. One opportunity created by the rapid growth in mobile devices in Africa is mobile banking. Africa tends to have low infrastructure for physical banks, providing unique opportunities to encourage the growth of electronic banking. Kenya-based mobile phone operator Safaricom runs a money-transfer system called M-PESA that has been adopted by 14 million adult Kenyans. Despite the enormous benefits of digital technology, however, the digital economy may actually be increasing the divide between skilled wealthy workers and the rest of the labor force. Instead of increasing wages overall, wages have remained relatively flat. There is also the fear that technology will take over people's jobs. At a Foxconn factory in China, automation replaced many workers to reduce the risk of injury. However, technology also leads to the hire of skilled individuals to work on the automation. Despite the labor imbalance that some technologies are causing, they offer a great opportunity for entrepreneurs in developing countries to reach the rest of the world.

Developing the Media Plan

Advertisers spend tremendous amounts on advertising media. These amounts have grown rapidly during the past two decades. Figure 17.2 shows the share of advertising revenue allocated to different media categories. Although television and print still comprise a greater share of advertising revenue than digital advertising, this last category is expected to grow rapidly during the next few years. To derive maximum results from media expenditures, marketers must develop effective media plans. A media plan sets forth the exact media vehicles to be used (specific magazines, television stations, social media, newspapers, and so forth) and the dates and times the advertisements will appear. Starbucks released a number of magazine and newspapers ads in its media plan for its new menu item, the Latte Macchiato. It also developed a graphic that it posts in stores to describe the differences between its different espresso options. The advertisement provides a side-by-side visual comparison of its Latte Macchiato with its signature Flat White. The plan determines how many people in the target audience will be exposed to the message. The method also determines, to some degree, the effects of the message on those specific target markets. Media planning is a complex task requiring thorough analysis of the target audience. Sophisticated computer models have been developed to attempt to maximize the effectiveness of media plans.

Channel Conflict

Although all channel members work toward the same general goal—distributing products profitably and efficiently—members sometimes may disagree about the best methods for attaining this goal. The Internet has increased the potential for conflict and resentment between manufacturers and intermediaries. When a manufacturer such as Apple or Dell makes its products available through the Internet, it is employing a direct channel that competes with the retailers that also sell its products. Take a look at the advertisement for Tag Heuer watches. This is a very exclusive brand, which is underscored by featuring the famous actor Leonardo DiCaprio as a model. The brand was previously only available via authorized jewelers. Consumers can now purchase the watches directly from the producer via the company's website, creating potential resentment among brick-and-mortar stores if they lose business. Channel conflicts also arise when intermediaries overemphasize competing products or diversify into product lines traditionally handled by other intermediaries. When a producer that has traditionally used franchised dealers broadens its retailer base to include other types of retail outlets, for example, conflict can arise with the traditional outlets. Sometimes conflict develops because producers strive to increase efficiency by circumventing intermediaries. If self-interest creates misunderstanding about role expectations, the end result is frustration and conflict for the whole channel. For individual organizations to function together, each channel member must clearly communicate and understand role expectations. For example, using social media to communicate helps supplier-retailer partners achieve common goals, develop relationships, increase customer interaction, and promote the supplier, brand, and competitive environment across the different levels.Footnote On the other hand, communication difficulties are a potential form of channel conflict because ineffective communication leads to frustration, misunderstandings, and ill-coordinated strategies, jeopardizing further coordination. Although there is no single method for resolving conflict, partnerships can be reestablished if two conditions are met. First, the role of each channel member must be clearly defined and followed. Channel members must have a clear understanding of goals and expectations as well as the metrics that different members will use to measure progress and determine incentive rates.Footnote To minimize misunderstanding, all members must be able to expect unambiguous performance levels from one another. Second, members of channel partnerships must agree on means of coordinating channels, which requires strong, but not polarizing, leadership. To prevent channel conflict, producers or other channel members may provide competing resellers with different brands, allocate markets among resellers, define policies for direct sales to avoid potential conflict over large accounts, negotiate territorial issues among regional distributors, and provide recognition to certain resellers for their importance in distributing to others.

The Significance of Marketing Channels

Although it is not necessary to make marketing channel decisions before other marketing decisions, they can have a strong influence on the other elements of the marketing mix (i.e., product, promotion, and pricing). Channel decisions are critical because they determine a product's market presence and accessibility. Without marketing channel operations that reach the right customers at the right time, even the best goods and services will not be successful. For example, in spite of spending massive amounts on marketing efforts, Target abandoned the Canadian market after losing a billion dollars in large part due to a poor distribution system. The retail company opened 133 stores in just two years, but Canadian shoppers routinely found empty shelves due to supply-chain issues the company might have identified sooner had it opened just a few stores at a time. Pricing issues and intense competition further hamstrung the U.S. retailer's first foray into a foreign market. Marketing channel decisions have strategic significance because they generally entail long-term commitments among a variety of firms (e.g., suppliers, logistics providers, and operations firms). Furthermore, it is the least flexible component of the marketing mix. Once a firm commits to a distribution channel, it is difficult to change. Marketing channels serve many functions, including creating utility and facilitating exchange efficiencies. Although some of these functions may be performed by a single channel member, most functions are accomplished through both independent and joint efforts of channel members.

Methods of Business Buying

Although no two business buyers do their jobs the same way, most use one or more of the following purchase methods: description, inspection, sampling, and negotiation. The most straightforward is description. When products are standardized and graded according to certain characteristics such as size, shape, weight, and color, a business buyer may be able to purchase simply by describing or specifying quantity, grade, and other attributes. Commodities and raw materials may be purchased this way. Sometimes buyers specify a particular brand or its equivalent when describing the desired product. Purchases based on description are especially common between a buyer and seller with an ongoing relationship built on trust. Certain products, such as industrial equipment, used vehicles, and buildings, have unique characteristics and may vary with regard to condition. Depending on how they were used and for how long, two products may be in very different conditions, even if they look identical on paper. Consequently, business buyers of such products should base purchase decisions on inspection. Sampling entails evaluating a portion of the product on the assumption that its characteristics represent the entire lot. This method is appropriate when the product is homogeneous—for instance, grain—and examining the entire lot is not physically or economically feasible. Some purchases by businesses are based on negotiated contracts. In certain instances, buyers describe exactly what they need and ask sellers to submit bids. They then negotiate with the suppliers that submit the most attractive bids. This approach is generally used for very large or expensive purchases, such as commercial vehicles. This is frequently how government departments conduct business. In other cases, the buyer may be unable to identify specifically what is to be purchased and can provide only a general description, as might be the case for a piece of custom-made equipment. A buyer and seller might negotiate a contract that specifies a base price and provides for the payment of additional costs and fees. These contracts are most commonly used for one-time projects such as buildings, capital equipment, and special projects.

Developing an Advertising Campaign

An advertising campaign involves designing a series of advertisements and placing them in various advertising media to reach a particular target audience. As Figure 17.1 shows, the major steps in creating an advertising campaign are: identifying and analyzing the target audience, defining the advertising objectives, creating the advertising platform, determining the advertising appropriation, developing the media plan, creating the advertising message, executing the campaign, and evaluating advertising effectiveness. The number of steps and the exact order in which they are carried out may vary according to the organization's resources, the nature of its product, and the type of target audience to be reached. Nevertheless, these general guidelines for developing an advertising campaign are appropriate for all types of organizations.

Who Develops the Advertising Campaign?

An advertising campaign may be handled by an individual, a few people within a firm, a firm's own advertising department, or an advertising agency. In very small firms, one or two individuals are responsible for advertising (and for many other activities as well). Usually, these individuals depend heavily on local media (TV, radio, and newspaper) for copywriting, artwork, and advice about scheduling media. In certain large businesses, especially large retail organizations, advertising departments create and implement advertising campaigns. Depending on the size of the advertising program, an advertising department may consist of a few multiskilled individuals or a sizable number of specialists, including copywriters, artists, social media experts, media buyers, and technical production coordinators. Advertising departments sometimes obtain the services of independent research organizations and hire freelance specialists when a particular project requires it. Many firms employ an advertising agency to develop advertising campaigns. For example, MillerCoors hired the advertising agency 72andSunny to revamp its advertising.Footnote When an organization uses an advertising agency, the firm and the agency usually develop the advertising campaign jointly. How much each participates in the campaign's total development depends on the working relationship between the firm and the agency. Ordinarily, a firm relies on the agency for copywriting, artwork, technical production, and formulation of the media plan. In addition, advertising agencies, because of their size and number of clients, have the ability to reach celebrities for sponsorship or endorsement. After Mullen Lowe U.S. became the advertising agency for Patrón tequila, it added the tagline "It Doesn't Have to Make Sense to Be Perfect." The additional tagline works well in complementing Patrón's "Simply Perfect" advertising platform.Footnote In addition to the tagline, the Patrón tequila advertisement displays three of its different colored tequila products against a white background to symbolize their amazing quality. Advertising agencies assist businesses in several ways. An agency, especially a large one, can supply the services of highly skilled specialists—not only copywriters, artists, and production coordinators, but also media experts, researchers, and legal advisers. Agency personnel often have broad advertising experience and are usually more objective than a firm's employees about the organization's products. Because an agency traditionally receives most of its compensation from a 15 percent commission paid by the media from which it makes purchases, firms can obtain some agency services at low or moderate costs. If an agency contracts for $400,000 of television time for a firm, it receives a commission of $60,000 from the television station. Although the traditional compensation method for agencies is changing and now includes other factors, media commissions still offset some costs of using an agency. Like advertising, public relations can be a vital element in a promotion mix. We turn to this topic next.

embargo

An embargo is a government's suspension of trade in a particular product or with a given country. Embargoes are generally directed at specific goods or countries and are established for political, health, or religious reasons. An embargo may be used to suspend the purchase of a commodity like oil from a country that is involved in questionable conduct, such as human rights violations or terrorism. Products that were created in the United States or by U.S. companies or those containing more than 20 percent of U.S.-manufactured parts cannot be sold to Cuba. Until recently, most Americans were banned from visiting Cuba because of the embargo. However, diplomatic relations between the U.S. and Cuba have resumed, and the Obama administration supported an end to the embargo. As the advertisement shows, access to Cuba is increasing, and cruise companies like Pearl Seas Cruises are offering trips to the island.

pretest

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.

cycle time

Another important goal of physical distribution involves cycle time, the time needed to complete a process. For instance, reducing cycle time while maintaining or reducing costs and/or maintaining or increasing customer service is a winning combination in supply chains and ultimately results in greater customer satisfaction. Firms should look for ways to reduce cycle time while maintaining or reducing costs and maintaining or improving customer service. Consider Dollar Shave Club, which grew from a tiny business with a highly popular viral video to a large business that ships razor blades to subscribers across the country. To reduce cycle time while maintaining high customer satisfaction and quality, the Venice, California, company turned to a third-party logistics specialist, which allowed it to focus on providing excellent customer service while ensuring on-time deliveries to subscribers. In the rest of this section, we take a closer look at a variety of physical distribution activities, including order processing, inventory management, materials handling, warehousing, and transportation.

megacarriers

Another transportation innovation is the development of megacarriers, freight transportation companies that offer several shipment methods, including rail, truck, and air service. Prior to the development of megacarriers, transportation companies generally only specialized in one mode. To compete with megacarriers, air carriers have increased their ground-transportation services. As the range of transportation alternatives expands, carriers also put greater emphasis on customer service in order to gain a competitive advantage.

competition-matching approach.

Another way to determine advertising appropriation is the competition-matching approach. Marketers following this approach try to match their major competitors' appropriations in absolute dollars or to allocate the same percentage of sales for advertising that their competitors do. Although a marketer should be aware of what competitors spend on advertising, this technique should not be used alone because the firm's competitors probably have different advertising objectives and different resources available for advertising. Many companies and advertising agencies review competitive spending on a quarterly basis, comparing competitors' dollar expenditures on print, radio, and television with their own spending levels. Competitive tracking of this nature occurs at both the national and regional levels.

Artwork

Artwork consists of an advertisement's illustrations and layout. Illustrations are often photographs but can also be drawings, graphs, charts, and tables. Illustrations are used to draw attention, encourage audiences to read or listen to the copy, communicate an idea quickly, or convey ideas that are difficult to express. Illustrations can be more important in capturing attention than text or brand elements, independent of size. They are especially important, because consumers tend to recall the visual portions of advertisements better than the verbal portions. Advertisers use a variety of illustration techniques. They may show the product alone, in a setting, or in use, or show the results of the product's use. For instance, the Lexus advertisement shows a close-up of a Lexus automobile next to a swimming pool. The setting reinforces the elegance of the Lexus brand. Illustrations can also take the form of comparisons, contrasts, diagrams, and testimonials.

International Divisions

As a company gains greater international exposure and sales, it may centralize all of the responsibility for international operations and all international activities into an international division. The typical international division concentrates human resources (with international expertise) into one unit and serves as the central point for all information flow related to international operations, such as international market opportunities or international research and development. At the same time, firms with an international division structure take advantage of economies of scale by keeping manufacturing and related functions within the domestic divisions. Firms may develop international divisions at any stage of their international development. However, an increasing number of firms are recognizing the importance of going global early on. As such, these firms use exporting, licensing and franchising, trading companies, contract manufacturing, and joint ventures as possible modes of international market entry. The implementation of an international division highlights the importance of coordination and cooperation among domestic and international operations within a firm. Frequent interaction and strategic planning meetings are required to make this structure work effectively. In particular, firms that use an international division structure are often organized domestically on the basis of functions or product divisions, while the international division is organized on the basis of geography. This means that coordination and strategic alignment across domestic divisions and the international division are critical to success. At the same time, lack of coordination between domestic and international operations is commonly the most significant flaw in the international division structure. An example of a firm that has used the international division structure to achieve worldwide success is Abbott Laboratories, a diversified health-care company that develops products that span prevention and diagnosis to treatment and cures. As international sales grew in the late 1960s, the firm added an international division to its structure. This international division structure has benefits and drawbacks for Abbott, as it does for other firms that use it. Some argue that to offset the natural "isolation" that may result between domestic and international operations in this structure, the international division structure should be used only when a company: intends to market only a small assortment of goods or services internationally and, when foreign sales account for only a small portion of total sales. When the product assortment increases or the percentage of foreign sales becomes significant, an internationally integrated structure may be more appropriate.

extreme value stores

As conventional discount stores have grown larger and pricier in recent years, low-income and thrifty consumers have turned to extreme-value stores (also known as dollar stores and single-price stores). Extreme-value stores are a fraction of the size of conventional discount stores and typically offer very low prices—generally $1 to $10—on smaller size name-brand nonperishable household items. Dollar General, Dollar Tree, and 99¢ Only Stores offer lower per unit prices than discount stores but often charge considerably more when priced per ounce than stores whose customers can afford to stock up on supersized items.

Export Departments

As we described earlier, the early stages of international development for most firms are often informal and not fully planned. During this early stage, sales opportunities in the global marketplace motivate a company to engage internationally. For instance, born global firms make exporting a primary objective from their inceptions. For most firms, however, very minimal, if any, organizational adjustments take place to accommodate international sales. Foreign sales are typically so small that many firms cannot justify allocating structural or other resources to the internationalization effort in the infancy of internationalization. Exporting, licensing, and using trading companies are preferred modes of international market entry for firms with an export department structure. Some firms develop an export department as a subunit of the marketing department, whereas others organize it as a separate department at an equal level with the other functional units. Some companies choose to hire outside export departments to handle their international operations. Lone Star Distribution, a distributor for sports and nutritional supplements, has an export department that helps its clients transport their goods internationally.Footnote Another unique case of developing a successful export operation early after its inception is the born global firm of Logitech International. Founded in 1981, Logitech is a Swiss company that designs personal computer peripherals that enable people to effectively work, play, and communicate in the digital world. As demand for a firm's goods and services grows or its commitments increase due to its internationalization efforts, it develops an international structure. Many firms evolve from using their export department structure to forming an international division.

Combat Competitive Promotional Efforts

At times, a marketer's objective in using promotion is to offset or lessen the effect of a competitor's promotional or marketing programs. This type of promotional activity does not necessarily increase the organization's sales or market share, but it may prevent a sales or market share loss. A combative promotional objective is used most often by firms in extremely competitive consumer markets, such as the fast-food, convenience store, and cable/Internet/phone markets. PepsiCo took a combative promotional approach to Coca-Cola to market its Pepsi loyalty program and Pepsi Pass app. The advertisement mocked the Coca-Cola polar bear and its popular "Share a Coke" campaign. It is not unusual for competitors to respond with a counter-pricing strategy or even match a competitor's pricing.

arbitrary approach,

At times, marketers use the arbitrary approach, which usually means a high-level executive in the firm states how much to spend on advertising for a certain period. The arbitrary approach often leads to underspending or overspending. Although hardly a scientific budgeting technique, it is expedient. In general, the corporate culture will drive advertising budget decisions but it is often not based on knowledge that will increase profits. However, budgeting is more complicated than relying on "rules of thumb." One research study found that 61 percent of top advertisers are inefficiently using their advertising budget by overspending an average of 34 percent. It is challenging to know how much to spend and measure advertising effectiveness. Deciding how large the advertising appropriation should be is critical. If the appropriation is set too low, the campaign cannot achieve its full potential. When too much money is appropriated, overspending results, and financial resources are wasted.

Automatic Vending

Automatic vending is the use of machines to dispense products. It is one of the most impersonal forms of retailing, and it accounts for a very small minority of all retail sales. Small, standardized, routinely purchased products (e.g., snacks and drinks) are best suited for sale in vending machines because consumers buy them out of convenience. Machines in areas of heavy foot traffic provide efficient and continuous service to consumers. High-volume areas, such as in commercial centers of large cities or in airports, may offer a wide range of automatic vending product options. In some markets, vending machines have taken on cult popularity, particularly among urban-dwelling consumers. In larger cities around the world, customers can find a wide variety of products dispensed via vending machine, even high-end and perishable items. For example, at the Emirates Palace hotel in Abu Dhabi, a vending machine dispenses gold bars, while another distributes mini-bottles of champagne in London. Vending machines around the world have been used to market hot pizza and burritos, cupcakes, fresh salad, and caviar, as well as skin-care products and even cars. Because vending machines need only a small amount of space and no sales personnel, this retailing method has some advantages over stores. The advantages are partly offset, however, by the high costs of equipment and frequent servicing and repairs. Many machines can now convey status reports via the Internet, helping marketers identify which items are selling and need to be restocked and which may have spoiled and need to be replaced with items with a greater likelihood of selling.

Demand for Business Products

Demand for business products (also called industrial demand) can be characterized as: derived, inelastic, joint, or fluctuating

Derived Demand

Because business customers, especially producers, buy products for direct or indirect use in the production of goods and services to satisfy consumers' needs, the demand for business products derives from the demand for consumer products—it is therefore called derived demand. In the long run, no demand for business products is totally unrelated to the demand for consumer products. The derived nature of demand is usually multilevel in that business marketers at different levels are affected by a change in consumer demand for a product. For example, demand for Intel processors derives from the demand for computers. The "Intel Inside" sticker featured on many computers is meant to stimulate derived demand by encouraging customers to choose a brand of computer with an Intel processor. Change in consumer demand for a product affects demand for all firms involved in the production of that product.

Evaluating Public Relations Effectiveness

Because of the potential benefits of good public relations, it is essential that organizations evaluate the effectiveness of their public relations campaigns. Research can be conducted to determine how well a firm is communicating its messages or image to its target audiences. Environmental monitoring identifies changes in public opinion affecting an organization. A public relations audit is used to assess an organization's image among the public or to evaluate the effect of a specific public relations program. A communications audit may include a content analysis of messages, a readability study, or a readership survey. If an organization wants to measure the extent to which stakeholders view it as being socially responsible, it can conduct a social audit. One approach to measuring the effectiveness of publicity-based public relations is to count the number of exposures in the media. To determine which releases are published in print media and how often, an organization can hire a clipping service, a firm that clips and sends news releases to client companies. To measure the effectiveness of television coverage, a firm can enclose a card with its publicity releases requesting that the television station record its name and the dates when the news item is broadcast (although station personnel do not always comply). Some multimedia tracking services exist, but they are quite costly. Counting the number of media exposures does not reveal how many people have actually read or heard the company's message or what they thought about the message afterward. However, measuring changes in product awareness, knowledge, and attitudes resulting from the publicity campaign helps yield this information. To assess these changes, companies must measure these levels before and after public relations campaigns. Although precise measures are difficult to obtain, a firm's marketers should attempt to assess the impact of public relations efforts on the organization's sales. For example, critics' reviews of films can affect the films' box office performance. Interestingly, negative reviews (publicity) harm revenue more than positive reviews help revenue in the early weeks of a film's release.

advertising platform

Before launching a political campaign, party leaders develop a political platform stating major issues that are the basis of the campaign. Like a political platform, an advertising platform consists of the basic issues or selling points that an advertiser wishes to include in the advertising campaign. For instance, Unilever wants to become the company associated with "sustainable living." As such, the end of two of its commercials for its products—laundry brand Persil and Hellman's Mayonnaise—discuss sustainability and responsible sourcing. A single advertisement in an advertising campaign may contain one or several issues from the platform. Although the platform sets forth the basic issues, it does not indicate how to present them. An advertising platform should consist of issues important to customers. One of the best ways to determine those issues is to survey customers about what they consider most important in the selection and use of the product involved. Selling features must not only be important to customers, but they should also be strongly competitive features of the advertised brand. For instance, Michelob Ultra capitalizes upon its positioning as a "superior light beer." Although research is the most effective method for determining what issues to include in an advertising platform, customer research can be expensive. Because the advertising platform is a base on which to build the advertising message, marketers should analyze this stage carefully. It has been found that, if the message is viewed as useful, it will create greater brand trust.Footnote A campaign can be perfect in terms of selection and analysis of its target audience, statement of its objectives, media strategy, and the form of its message. But the campaign will ultimately fail if the advertisements communicate information that consumers do not deem important when selecting and using the product.

Business (organizational) buying behavior

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.

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. 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.

Identify Prospects

Certain types of promotional efforts aim to identify customers who are interested in the firm's product and are likely potential buyers. A marketer may run a television advertisement encouraging the viewer to visit the company's website and share personal information in order to receive something of value from the company. Customers who respond to such a message usually have higher interest in the product, which makes them likely sales prospects. The organization can respond with phone calls, e-mail, or personal contact by salespeople.

Horizontal Channel Integration

Combining organizations at the same level of operation under one management constitutes horizontal channel integration. An organization may integrate horizontally by merging with other organizations at the same level in the marketing channel. The owner of a dry-cleaning firm, for example, might buy and combine several other existing dry-cleaning establishments. Likewise, Sherwin-Williams acquired rival paint firm Valspar for $11.3 billion in part to fast-track its move into international markets. Although horizontal integration permits efficiencies and economies of scale in purchasing, marketing research, advertising, and specialized personnel, it is not always the most effective method of improving distribution. Problems that come with increased size often follow, resulting in decreased flexibility, difficulties coordinating among members, and the need for additional marketing research and large-scale planning. Unless distribution functions for the various units can be performed more efficiently under unified management than under the previously separate managements, horizontal integration will neither reduce costs nor improve the competitive position of the integrating firm.

Commission merchants

Commission merchants receive goods on consignment from local sellers and negotiate sales in large, central markets. Sometimes called factor merchants, these agents have broad powers regarding prices and terms of sale. They specialize in obtaining the best price possible under market conditions. Most often found in agricultural marketing, commission merchants take possession of truckloads of commodities, arrange for necessary grading or storage, and transport the commodities to auction or markets where they are sold. When sales are completed, the agents deduct commissions and the expense of making the sale and turn over profits to the producer. Commission merchants also offer planning assistance and sometimes extend credit but usually do not provide promotional support. A broker's primary purpose is to bring buyers and sellers together. Thus, brokers perform fewer functions than other intermediaries. They are not involved in financing or physical possession, have no authority to set prices, and assume almost no risks. Instead, they offer customers specialized knowledge of a particular commodity and a network of established contacts. Brokers are especially useful to sellers of products such as supermarket goods and real estate. Food brokers, for example, connect food and general merchandise to retailer-owned and merchant wholesalers, grocery chains, food processors, and business buyers.

Private warehouses

Companies operate private warehouses for shipping and storing their own products. A firm usually leases or purchases a private warehouse when its warehousing needs in a given geographic market are substantial and stable enough to warrant a long-term commitment to a fixed facility. Private warehouses are also appropriate for firms that require special handling and storage and that want control of warehouse design and operation. Retailers like Sears find it economical to integrate private warehousing with purchasing and distribution for their retail outlets. When sales volumes are fairly stable, ownership and control of a private warehouse may be most convenient and offer cost benefits. Private warehouses, however, face fixed costs, such as insurance, taxes, maintenance, and debt expense. They limit firms' flexibility if they wish to move inventories to different locations. Many private warehouses are being eliminated by direct links between producers and customers, reduced cycle times, and outsourcing to public warehouses

Comparison discounting

Comparison discounting sets the price of a product at a specific level and simultaneously compares it with a higher price. The higher price may be the product's previous price, the price of a competing brand, the product's price at another retail outlet, or a manufacturer's suggested retail price. Customers may find comparative discounting informative, and it can have a significant impact on their purchases.

balance of trade

Countries may establish barriers to limit imports in order to maintain a favorable balance of trade. The balance of trade is the difference in value between a nation's exports and its imports. When a nation exports more products than it imports, a favorable balance of trade exists because money is flowing into the country. The United States has a negative balance of trade for goods and services of more than $700 billion. A negative balance of trade is considered harmful, because it means U.S. dollars are supporting foreign economies at the expense of U.S. companies and workers. At the same time, U.S. citizens benefit from the assortment of imported products and their typically lower prices.

Competitive Forces in global markets

Competition is often viewed as a staple of the global marketplace. Customers thrive on the choices offered by competition, and firms constantly seek opportunities to outmaneuver their competition to gain customers' loyalty. Firms typically identify their competition when they establish target markets worldwide. Customers who are seeking alternative solutions to their product needs find the firms that can solve those needs. However, the increasingly interconnected international marketplace and advances in technology have resulted in competitive forces that are unique to the international marketplace. Each country has unique competitive aspects—often founded in the other environmental forces (i.e., sociocultural, technological, political, legal, regulatory, and economic forces)—that are often independent of the competitors in that market. The most globally competitive countries are listed in Table 9.5. Although competitors drive competition, nations establish the infrastructure and the rules for the types of competition that can take place. For example, the privacy laws in the European Union are stricter than those in the United States. A wide-sweeping EU privacy law is much more stringent than U.S. privacy laws and is expected to change how Internet companies collect information. The new law will limit how companies can use the online information they collect. Instead of using a blanket statement to seek permission, companies collecting online information from EU consumers may now have to gain specific consent for each instance where they would like to use the collected data. Fines for violating the law could total up to 4 percent of a company's global revenue.Footnote However, like the United States, other countries allow some monopoly structures to exist. In Sweden, for example, all alcoholic beverage sales are made through the government store Systembolaget, which is legally supported by the Swedish Alcohol Retail Monopoly. According to Systembolaget, the Swedish Alcohol Retail Monopoly exists for one reason: "to minimize alcohol-related problems by selling alcohol in a responsible way." A new breed of customer—the global customer—has changed the landscape of international competition drastically. In the past, firms simply produced goods or services and provided local markets with information about the features and uses of their goods and services. Customers seldom had opportunities to compare products from competitors, know details about the competing products' features, and compare other options beyond the local (country or regional) markets. Now, however, not only do customers who travel the globe expect to be able to buy the same product in most of the world's 200 countries, but they also expect that the product they buy in their local store in Miami will have the same features as similar products sold in London or even in Beijing. If either the quality of the product or the product's features are more advanced in an international market, customers will soon demand that their local markets offer the same product at the same or lower prices.

costs and Availability of Promotional Methods

Costs of promotional methods are major factors to analyze when developing a promotion mix. National advertising and sales promotion require large expenditures. However, if these efforts succeed in reaching extremely large audiences, the cost per individual reached may be quite small, possibly a few pennies. Some forms of advertising are relatively inexpensive. Many small, local businesses advertise products through local newspapers, magazines, radio and television stations, outdoor displays, Internet ads, and signs on mass transit vehicles. Another consideration that marketers explore when formulating a promotion mix is the availability of promotional techniques. Despite the tremendous number of media vehicles in the United States, a firm may find that no available advertising medium effectively reaches a certain target market. The problem of media availability becomes more pronounced when marketers advertise in foreign countries. Some media, such as television, simply may not be available, or advertising on television may be illegal. For instance, the advertising of cigarettes on television is banned in many countries. In addition, regulations or standards for media content may be restrictive in varying global outlets. In some countries, advertisers are forbidden to make brand comparisons on television. Other promotional methods also have limitations. Thus, a firm may wish to increase its sales force but be unable to find qualified personnel.

Reduce Sales Fluctuations

Demand for many products varies from one month to another because of such factors as climate, holidays, and seasons. A business, however, cannot operate at peak efficiency when sales fluctuate rapidly. Changes in sales volume translate into changes in production, inventory levels, personnel needs, and financial resources. When promotional techniques reduce fluctuations by generating sales during slow periods, a firm can use its resources more efficiently. Promotional techniques are often designed to stimulate sales during sales slumps. Hence, Snapper may offer sales prices on lawn mowers into the fall season to extend the selling season. During peak periods, a marketer may refrain from advertising to prevent stimulating sales to the point at which the firm cannot handle all of the demand. On occasion, a company advertises that customers can be better served by coming in on certain days. An Italian restaurant, for example, might distribute coupons that are valid only Monday through Wednesday because on Thursday through Sunday the restaurant is extremely busy. To achieve the major objectives of promotion discussed here, companies must develop appropriate promotional programs. In the next section, we consider the basic components of such programs: the promotion mix elements.

Demonstrations

Demonstrations are excellent attention-getters. Manufacturers offer them temporarily to encourage trial use and purchase of a product or to show how a product works. Because labor costs can be extremely high, demonstrations are not used widely. They can be highly effective for promoting certain types of products, such as appliances, cosmetics, and cleaning supplies. Even automobiles can be demonstrated, not only by a salesperson but also by the prospective buyer during a test drive. Cosmetics marketers, such as Estée Lauder and Clinique, sometimes offer potential customers "makeovers" to demonstrate product benefits and proper application.

Department stores

Department stores are large retail organizations with at least 25 employees that are characterized by wide product mixes. To facilitate marketing efforts and internal management in these stores, department stores like Macy's, Sears, and Nordstrom's organize related product lines into separate departments such as cosmetics, housewares, apparel, home furnishings, and appliances. This arrangement facilitates marketing and internal management. Often, each department functions as a self-contained business, and buyers for individual departments are fairly autonomous in their decision making. Department stores are distinctly service-oriented. Their total product may include credit, delivery, personal assistance, merchandise returns, and a pleasant atmosphere. Although some so-called department stores are actually large, departmentalized specialty stores, most department stores are shopping stores. Consumers can compare price, quality, and service at one store with those at competing stores. Along with large discount stores, department stores are often considered retailing leaders in a community and are found in most places with populations of more than 50,000. At typical department stores, a large proportion of sales come from apparel, accessories, and cosmetics. These stores carry a broad assortment of other products as well, including luggage, electronics, home accessories, and sports equipment. Some department stores offer additional services such as automobile insurance, hair care, income tax preparation, and travel and optical services. In some cases, the department store leases space for these specialized services to other businesses, with proprietors managing their own operations and paying rent to the store. Most department stores also sell products through websites, which can service customers who live in smaller markets where no stores are located or who prefer to shop online or through apps. Macy's app, for example, takes a page from Instagram and lets users take photos of something they like in order to find similar products on Macys.com.

Discount stores

Department stores have lost sales and market share to discount stores, particularly Walmart and Target, in recent decades. Discount stores are self-service, general-merchandise outlets that regularly offer brand-name and private-brand products at low prices. Discounters accept lower profit margins than conventional retailers in exchange for high sales volume. To keep inventory turnover high, they carry a wide but carefully selected assortment of products, from appliances to housewares to clothing. Major discount establishments also offer food products, toys, automotive services, garden supplies, and sports equipment. Walmart and Target have grown to become not only the largest discount stores in the country, but also some of the largest retailers in the world. Walmart is the world's largest retailer, with revenues over six times higher than Target, which is ranked eleventh in retail sales.Footnote Not all discounters are large and international, however. Some, such as Meijer Inc., which has stores in the Midwestern United States, are regional discounters. Most discount stores operate in large (50,000 to 80,000 square feet), no-frills facilities. They usually offer everyday low prices (discussed in Chapter 20), rather than relying on sales events. Discount retailing developed on a large scale in the early 1950s, when postwar production caught up with strong consumer demand for goods. At first, they were often cash-only operations in warehouse districts, offering goods at savings of 20 to 30 percent over conventional retailers. Facing increased competition from department stores and other discount stores, some discounters improved store services, atmosphere, and location. Some also raised prices, blurring the distinction between discount store and department store. Consider Target, which has grown more upscale in appearance and offerings over the years. It regularly launches new low-cost clothing lines by popular designers, but it also offers fresh, organic groceries, a pharmacy, and trendy clothing, home goods, and electronics. These adjustments to the firm's strategy are designed to appeal to its customers, who are generally younger and have higher incomes than rival stores such as Walmart.

Direct-Response Marketing

Direct-response marketing occurs when a retailer advertises a product and makes it available through mail, telephone, or online orders. Generally, customers use a credit card, but other forms of payment may be permitted. Examples of direct-response marketing include a television commercial offering exercise machines, cosmetics, or household cleaning products available through a toll-free number, and a newspaper or magazine advertisement for a series of children's books available by filling out the form in the ad or calling a toll-free number. Direct-response marketing through television remains a multi-billion dollar industry, although it now competes with the Internet for customers' attention. This marketing method has resulted in many products gaining widespread popularity. Some firms, like Russ Reid, specialize in direct-response marketing and assist firms in developing successful promotions. Direct-response marketing is also conducted by sending letters, samples, brochures, or booklets to prospects on a mailing list and asking that they order the advertised products by mail or telephone. In general, products must be priced above $20 to justify the advertising and distribution costs associated with direct-response marketing.

Distribution centers

Distribution centers are large facilities used for receiving, warehousing, and redistributing products to stores or customers. They are specially designed for rapid flow of products and are usually one-story buildings with access to transportation networks, such as major highways and/or railway lines. Many distribution centers are automated, with computer-directed robots, forklifts, and hoists that collect and move products to loading docks. Amazon, for example, relies on 90 "fulfillment centers" around the world, each using robots, computer systems, and hundreds of employees to process and fulfill customer orders. Distribution over large geographic areas can be complicated, and having strategically located distribution centers can help a company meet consumer demand. Even Walmart had to build more distribution centers to accommodate a greater number of online sales as it positioned itself to compete directly with Amazon, especially in terms of next-day delivery. Although some public warehouses offer such specialized services, most distribution centers are privately owned. They serve customers in regional markets and, in some cases, function as consolidation points for a company's branch warehouses.

Channel Leadership, Cooperation, and Conflict

Each channel member performs a specific role in the distribution system and agrees (implicitly or explicitly) to accept rights, responsibilities, rewards, and sanctions for nonconformity. Moreover, each channel member holds certain expectations of other channel members. Retailers, for instance, expect wholesalers to maintain adequate inventories and deliver goods on time. Wholesalers expect retailers to honor payment agreements and keep them informed of inventory needs. Manufacturers, wholesalers, and retailers expect shipping companies to deliver products on schedule and at a reasonable cost. Any one organization's failure to meet expectations can disrupt the entire supply chain. When a labor dispute between shipping companies and dockworkers at West Coast ports disrupted vital shipping routes between the United States and Asia, the result was extremely delayed shipments and eventually higher prices as companies scrambled to reroute shipments to less congested but more distant ports. The resulting trade disruptions caused months of channel instability and frustration among supply-chain partners struggling to deal with the situation. Channel partnerships can facilitate effective supply-chain management when partners agree on objectives, policies, and procedures for physical distribution efforts associated with the supplier's products. Such partnerships eliminate redundancies and assign tasks for maximum system-wide efficiency. Channel cooperation reduces wasted resources, such as time, energy, or materials. A coordinated supply chain can also be more environmentally friendly, a consideration that is increasingly important to many organizations and their stakeholders. In fact, research findings show that companies with environmentally responsible supply chains tend to be more profitable, particularly when a firm's marketing efforts point out the fact that it has a sustainable supply chain.Footnote In order to reduce the carbon footprint of the U.S. auto industry's production processes, equipment manufacturers and suppliers partnered with the Environmental Protection Agency to form the Suppliers Partnership for the Environment. It is a forum for companies and their supply-chain partners to share environmental best practices and optimize supply-chain productivity. The result is a more efficient and less polluting supply chain.Footnote In this section, we discuss channel member behavior—including leadership, cooperation, and conflict—that marketers must understand to make effective channel decisions.

just in time appoach

Efficient inventory management with accurate reorder points is crucial for firms that use a just-in-time (JIT) approach, in which supplies arrive just as they are needed for use in production or for resale. Companies that use JIT (sometimes referred to as lean distribution) can maintain low inventory levels and purchase products and materials in small quantities only when needed. Usually there is no safety stock in a JIT system. Suppliers are expected to provide consistently high-quality products exactly when they are needed. JIT inventory management requires a high level of coordination between producers and suppliers, but it eliminates waste and reduces inventory costs. Toyota was a pioneer of JIT distribution. More recently, Trinity Health, which operates 90 U.S. hospitals, began to apply JIT distribution methods to save an estimated $20 million in inventory-carrying costs and improvements in supply-chain efficiency with the help of 3PL partner XPO Logistics. When a JIT approach is used in a supply chain, suppliers may move operations close to their major customers in order to provide goods as quickly as possible.

Sweepstakes

Entrants in a consumer sweepstakes submit their names for inclusion in a drawing for prizes. HGTV offered consumers a chance to own a beachfront dream home by entering a sweepstakes through HGTV.com or DIYNetwork.com. Sweepstakes are employed more often than consumer contests and tend to attract a greater number of participants. However, contestants are usually more involved in consumer contests and games than in sweepstakes, even though total participation may be lower. Contests, games, and sweepstakes may be used in conjunction with other sales promotion methods like coupons.

Environmental Forces

Environmental forces can play a role in channel selection. Adverse economic conditions might force an organization to use a low-cost channel, even though it reduces customer satisfaction. In contrast, a growing economy may allow a company to choose a channel that previously had been too costly. The introduction of new technology might cause an organization to add or modify its channel strategy. For instance, many marketers in a variety of industries are finding that it is valuable to maintain online social networking accounts to keep customers up-to-date on new products, offers, and events. Government regulations can also affect channel selection. As labor and environmental regulations change, an organization may be forced to modify its existing distribution channel structure to comply with new laws. Firms might choose to enact the changes before they are mandated in order to appear proactive. International governmental regulations can complicate the supply chain a great deal, as laws vary from country to country and businesses must make sure they comply with local regulations.

posttest

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.

Marketing Channels Facilitate Exchange Efficiencies

Even if producers and buyers are located in the same city, there are costs associated with exchanges. Marketing intermediaries can reduce the costs of exchanges by performing certain services or functions efficiently. As Figure 14.1 shows, when four buyers seek products from four producers, 16 separate transactions are possible. If one intermediary serves both producers and buyers, the number of possible transactions is cut in half. Intermediaries are specialists in facilitating exchanges. They provide valuable assistance because of their access to and control over important resources used in the proper functioning of marketing channels. Many firms exist to assist firms with creating supply-chain efficiencies. Take a look at the advertisement for Fidelitone. It shows a man and a woman reviewing a document while informing customers that Fidelitone is paying attention to what matters in your business. Firms like Fidelitone have expert knowledge and have developed distribution networks that can help firms to create supply-chain efficiencies. Nevertheless, the media, consumers, public officials, and even other marketers freely criticize intermediaries, especially wholesalers. Critics accuse wholesalers of being inefficient and adding to costs. Buyers often think that making the distribution channel as short as possible will decrease the prices for products, but this is not the case. Critics who suggest that eliminating wholesalers will lower prices for customers fail to recognize that this would not eliminate the need for the services the wholesalers provide. Although wholesalers can be eliminated, their functions cannot. Other channel members would have to perform those functions, perhaps not as efficiently, and customers still would have to pay for them. In addition, all producers would deal directly with retailers or customers, meaning that every producer would have to keep voluminous records and hire sufficient personnel to deal with a multitude of customers. In the end, customers might end up paying a great deal more for products, because prices would reflect the costs of an inefficient distribution channel. To mitigate criticisms, wholesalers should only perform the marketing activities that are desired, and they must strive to be as efficient and customer-focused as possible.

Does Promotion Help Customers without Costing Too Much?

Every year, firms spend billions of dollars for promotion. The question is whether promotion helps customers enough to be worth the cost. Consumers do benefit because promotion informs them about product uses, features, advantages, prices, and locations where they can buy the products. Thus, consumers gain more knowledge about available products and can make more intelligent buying decisions. Promotion also informs consumers about services—for instance, health care, educational programs, and day care—as well as about important social, political, and health-related issues. For example, several organizations, such as the California Department of Health Services, inform people about the health hazards associated with tobacco use.

exchange controls

Exchange controls, government restrictions on the amount of a particular currency that can be bought or sold, may also limit international trade. They can force businesspeople to buy and sell foreign products through a central agency, such as a central bank. On the other hand, to promote international trade, some countries have joined to form free trade zones, multinational economic communities that eliminate tariffs and other trade barriers. Such regional trade alliances are discussed later in the chapter. As mentioned earlier, foreign currency exchange rates also affect the prices marketers can charge in foreign markets. 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.

Exclusive distribution

Exclusive distribution uses only one outlet in a relatively large geographic area. This method is suitable for products purchased infrequently, consumed over a long period of time, or that require a high level of customer service or information. It is also used for expensive, high-quality products with high profit margins, such as Porsche, BMW, and other luxury automobiles. It is not appropriate for convenience products and many shopping products because an insufficient number of units would be sold to generate an acceptable level of profits on account of those products' lower profit margins. Exclusive distribution is often used as an incentive to sellers when only a limited market is available for products. Consider Patek Philippe watches that may sell for $10,000 or more. These watches, like luxury automobiles, are available in only a few select locations. Tourneau, featured in the advertisement, is an exclusive retail outlet that sells new and preowned high-end luxury watches, including Patek Philippe. There are only a few Tourneau outlets, all located in very large cities. Items can retail for tens of thousands of dollars, and the available brands shown in the ad are frequently worn as a status symbol. A producer using exclusive distribution expects dealers to carry a complete inventory, train personnel to ensure a high level of product knowledge and quality customer service, and participate in promotional programs. Some products are appropriate for exclusive distribution when first introduced, but as competitors enter the market and the product moves through its life cycle, other types of market coverage and distribution channels become necessary. A problem that can arise with exclusive (and selective) distribution is that unauthorized resellers acquire and sell products or counterfeits, violating the agreement between a manufacturer and its exclusive authorized dealers.

Executing the Campaign

Execution of an advertising campaign requires extensive planning and coordination, because many tasks must be completed on time and several people and firms are involved. Production companies, research organizations, media firms, printers, and commercial artists are just a few of the people and firms contributing to a campaign. Implementation requires detailed schedules to ensure that various phases of the work are done on time. Advertising management personnel must evaluate the quality of the work and take corrective action when necessary. When Target reduced its marketing after the recession hit, the company largely abandoned its Bullseye mascot (a bull terrier with a red circle around its eye) in advertising. However, after years of stagnant marketing, Target decided to take corrective action and reintroduced its mascot. Bullseye now stars in several Target commercials. In an attempt to revamp its marketing, Target spends almost the same on marketing as does its big-box rival Walmart.Footnote In some instances, changes are made during the campaign so it meets objectives more effectively. For example, an auto company focusing on gas mileage may need to add more information relative to the competition to achieve its objectives.

Channels for Consumer Products

Figure 14.2 illustrates several channels used in the distribution of consumer products. Channel A depicts the direct movement of products from producer to consumers. For instance, a haircut received at a barber shop moves through channel A because there is no intermediary between the person performing the service and the one receiving it. Direct marketing via the Internet has become a critically important part of some companies' distribution strategies, often as a complement to selling products in traditional retail stores. A firm must evaluate the benefits of going direct versus the transaction costs involved in using intermediaries. Channel B, which moves goods from the producer to a retailer and then to customers, is a frequent choice of large retailers because it allows them to buy in quantity from manufacturers. Retailers like Target and Walmart sell many items that were purchased directly from producers. New automobiles and new college textbooks are also sold through this type of marketing channel. Channel C is a common distribution channel for consumer products. It takes goods from the producer to a wholesaler, then to a retailer, and finally to consumers. It is a practical option for producers that sell to hundreds of thousands of customers through thousands of retailers. Some home appliances, hardware, and many convenience goods are marketed through this type of channel. Consider the number of retailers marketing KitchenAid mixers. It would be rather difficult, if not impossible, for KitchenAid to deal directly with each of the many retailers that sell its brand. Channel D, wherein goods pass from producer, to agents, to wholesalers, to retailers, and finally to consumers, is used frequently for products intended for mass distribution, such as processed foods. Consequently, to place its Wheat Thins crackers in specific retail outlets, supply-chain managers at Nabisco may hire an agent (or a food broker) to sell the crackers to wholesalers. Wholesalers then sell the Wheat Thins to supermarkets, vending-machine operators, and convenience stores. Contrary to what you might think, a long channel may actually be the most efficient distribution channel for some goods. When several channel intermediaries perform specialized functions, costs are likely to be lower than when one channel member tries to perform them all. Efficiencies arise when firms that specialize in certain elements of producing a product or moving it through the channel are more effective at performing specialized tasks than the manufacturer. This results in added value to customers and reduced costs throughout the distribution channel.

Internationally Integrated Structures

Finally, companies may choose to integrate international operations and activities throughout their entire organization in their quest to achieve global success. The product division structure, the geographic area structure, and the global matrix structure are three means of doing so. Firms with these varied structures have multiple choices for international market entry similar to international divisions (e.g., exporting, licensing and franchising, trading companies, contract manufacturing, and joint ventures). However, they are the most likely to engage in direct ownership activities internationally. The product division structure is the form used by the majority of multinational enterprises. This structure lends itself to firms that are diversified, often driven by their current domestic operations. Each division is a self-contained entity with responsibility for its own operations, whether it is based on a country or regional structure. The worldwide headquarters maintains the overall responsibility for the strategic direction of the firm, while each product division is in charge of its implementation. Procter & Gamble has a long-standing tradition of operating in a product division structure, with leading brands like Pampers, Tide, Pantene, Bounty, Charmin, Downy, Crest, and Olay. The geographic area structure is well suited to firms with a low degree of diversification. Under this domestically influenced functional structure, the world is divided into logical geographical areas based on the firms' operations and the customers' characteristics. Accenture, a global management consulting firm, operates worldwide largely based on a geographic area structure. Each area tends to be relatively self-contained, and integration across areas is typically via the worldwide or the regional headquarters. This structure facilitates local responsiveness, but it is not ideal for reducing global costs and transferring core knowledge across the firm's geographic units. A key issue in geographic area structures, as in almost all multinational corporations, is the need to become more regionally and globally integrated. The global matrix structure was designed to achieve both global integration and local responsiveness. Asea Brown Boveri (ABB), a Swedish-Swiss engineering multinational, is the best-known firm to implement a global matrix structure. ABB is an international leader in power and automation technologies that enable customers to improve their performance while lowering environmental impact. Global matrix structures theoretically facilitate a simultaneous focus on realizing local responsiveness, cost efficiencies, and knowledge transfers. However, few firms can operate a global matrix well, since the structure is based on, for example, product and geographic divisions simultaneously (or a combination of any two traditional structures). This means that employees belong to two divisions and often report to two managers throughout the hierarchies of the firm. An effectively implemented global matrix structure has the benefit of being global in scope while also being nimble and responsive locally. However, a poorly implemented global matrix structure results in added bureaucracy and indecisiveness in leadership and implementation.

Should Potentially Harmful Products Be Promoted?

Finally, some critics of promotion, including consumer groups and government officials, suggest that certain products should not be promoted at all. Primary targets are products associated with violence and other possibly unhealthy activities, such as handguns, alcohol, and tobacco. Cigarette advertisements, for example, promote smoking, a behavior proven to be harmful and even deadly. Tobacco companies, which spend billions on promotion, have countered criticism of their advertising by pointing out that advertisements for red meat and coffee are not censured, even though these products may also cause health problems. Consider the advertisement for Natural American Spirit. The company uses big letters to emphasize its American origins, organic tobacco, and lack of additives. The image of hands depicted as holding dirt reinforces this sustainability image. It also states in large letters that these benefits do not mean that its products are safer than other cigarettes. Despite these disclaimers, critics believe the marketing of these positive claims could deceive people into believing the cigarettes are safer since they are more eco-friendly. On the other hand, those who defend such promotion assert that, as long as it is legal to sell a product, promoting that product should be allowed.

Global Organizational Structures

Firms develop their international marketing strategies and manage their marketing mixes (i.e., product, distribution, promotion, and price) by developing and maintaining an organizational structure that best leverages their resources and core competencies. This organizational structure is defined as the way a firm divides its operations into separate functions and/or value-adding units and coordinates its activities. Most firms undergo a step-by-step development in their internationalization efforts of the firm's people, processes, functions, culture, and structure. The pyramid in Figure 9.2 symbolizes how deeply rooted the international operations and values are in the firm, with the base of the pyramid—structure—being the most difficult to change (especially in the short term). Three basic structures of international organizations exist: export departments, international divisions, and internationally integrated structures (e.g., product division structures, geographic area structures, and matrix structures). The existing structure of the firm, or the structure that the firm chooses to adopt, has implications for international marketing strategy.

Environmental Forces in Global Markets

Firms that enter international markets must often make significant adjustments to their marketing strategies. The environmental forces that affect foreign markets may differ dramatically from those that affect domestic markets, and failure to understand them can result in significant costs. Thus, a successful international marketing strategy requires a careful environmental analysis. Conducting research to understand the needs and desires of international customers is crucial to global marketing success. Many firms have demonstrated that such efforts can generate tremendous financial rewards, increase market share, and heighten customer awareness of their products around the world. In this section, we explore how differences in the sociocultural; economic; political, legal, and regulatory; social and ethical; competitive; and technological forces in other countries can profoundly affect marketing activities.

modified rebuy purchase

For a modified rebuy purchase, a new-task purchase is altered after two or three orders, or requirements associated with a straight rebuy purchase are modified. A business buyer might seek faster delivery, lower prices, or a different quality level of product specifications. Retaining existing customers should receive more attention than attracting new customers. If a long-term purchase contract does not exist, a firm should use all information available to develop retention strategies. This means knowing what customers are likely to purchase and how their purchases might change over time. For example, business customers of Dell computers, featured in the advertisement, probably use modified rebuy purchases as their computing needs change. For instance, a business might choose to upgrade to the Dell XPS 13 because it can reduce downtime, speed up performance, and last longer, thereby boosting productivity and minimizing downtime in the workplace. Orders are likely to be similar over time, but demand for specific business products and supplies may fluctuate in cycles that mirror periods of higher and lower customer demand. A modified rebuy situation may cause regular suppliers to compete to keep the account. When a firm changes the terms of a service contract, such as modifying the speed or comprehensiveness of a telecommunication services package, it has made a modified rebuy purchase.

Economic Forces in global mrkets

Global marketers also need to understand the international trade system, particularly the economic stability of individual nations, as well as trade barriers that may stifle marketing efforts. Economic differences among nations—differences in standards of living, credit, buying power, income distribution, national resources, exchange rates, and the like—dictate many of the adjustments firms must make in marketing internationally. Country-specific factors such as economic wealth and national culture have a direct influence on the success of a new product in specific countries. Instability is a constant in the global business environment. The United States and the European Union are more stable economically than many other regions of the world. However, even these economies have downturns in regular cycles. In recent years, a number of countries, including Greece, Russia, Spain, and Thailand, have experienced economic hardships, such as recessions, high unemployment, corporate bankruptcies, banking failures, instabilities in banking systems, and trade imbalances. 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. Table 9.1 compares the value of the dollar, euro, yen, and yuan. China has been criticized for devaluing its currency, or setting its currency's value below market value. This gives it an advantage in selling exports, since the Chinese yuan has a lower value than other nations' currencies. It also decreases demand for manufacturers and exporters from other countries. Devaluing currency worries investors because it suggests that China'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. Opportunities for international trade are not limited to countries with the highest incomes. The countries of Brazil, Russia, India, China, and South Africa (BRICS) have attracted attention as their economies are rapidly advancing. Relationship marketing has proven to be a highly effective tool in reaching these emerging markets. This is because businesses in these countries value long-term and close interactions with marketers that they can trust. Relationship marketing has been shown to be 55 percent more effective in the growing economies of Brazil, Russia, India, and China than in the United States.Footnote Other nations are progressing at a much faster rate than they were a few years ago, and these countries—especially in Latin America, Africa, eastern Europe, and the Middle East—have great market potential. Myanmar offers significant expansion opportunities for global firms, including Gap, Coca-Cola, and General Electric. Until recently U.S. sanctions against the country prohibited the United States from shipping goods into or out of the country. A temporary removal of sanctions increases opportunities for other U.S. companies to engage in trade with the country.Footnote Marketers must also understand the political and legal environments before they can convert buying power of customers in these countries into actual demand for specific products.

Hypermarkets

Hypermarkets combine supermarket and discount store shopping in one location. Larger than superstores, they range from 225,000 to 325,000 square feet and offer 45,000 to 60,000 different types of low-priced products. They commonly allocate 40 to 50 percent of their space to grocery products and the remainder to general merchandise, including apparel, appliances, housewares, jewelry, hardware, and automotive supplies. Many also lease space to noncompeting businesses, such as banks, optical shops, and fast-food restaurants. All hypermarkets focus on low prices and vast selections. Retailers have struggled with making the hypermarket concept successful in the United States. Although Kmart, Walmart, and Carrefour have operated hypermarkets in the United States, most of these stores ultimately closed. Such stores may be too large for time-constrained U.S. shoppers. Hypermarkets have been somewhat more popular in Europe, South America, Mexico, the Middle East, and parts of Asia.

Importing and Exporting

Importing and exporting require the least amount of effort and commitment of resources. Importing is the purchase of products from a foreign source. Exporting, the sale of products to foreign markets, enables firms of all sizes to participate in global business. The advertisement for Itaú bank in Latin America highlights the fact that 30 percent of the world's fresh water is in Latin America. This means that trade is a major—and often challenging—activity between Latin American regions and other parts of the world. The bank encourages businesses to invest with it because it knows the Latin American market and can provide valuable insights. A firm may also find an exporting intermediary to take over most marketing functions associated with marketing to other countries. This approach entails minimal effort and cost. Modifications in packaging, labeling, style, or color may be the major expenses in adapting a product for the foreign market. Export agents bring together buyers and sellers from different countries and collect a commission for arranging sales. Export houses and export merchants purchase products from different companies and then sell them abroad. They are specialists at understanding customers' needs in global markets. Using exporting intermediaries involves limited risk because no foreign direct investment is required. For example, China has an insatiable appetite for pork and pork imports, while Poland exports more apples than any other country. Buyers from foreign companies and governments provide a direct method of exporting and eliminate the need for an intermediary. These buyers encourage international exchange by contacting overseas firms about their needs and the opportunities available in exporting to them. Indeed, research suggests that many small firms tend to rely heavily on such native contacts, especially in developed markets, and remain production-oriented rather than market-oriented in their approach to international marketing.Footnote Domestic firms that want to export with minimal effort and investment should seek out export intermediaries. Once a company becomes involved in exporting, it usually develops more knowledge of the country and becomes more confident in its competitiveness.

Intensity of Market Coverage

In addition to deciding which marketing channels to use to distribute a product, marketers must determine the appropriate intensity of coverage—that is, the number and kinds of outlets in which a product will be sold. This decision depends on the characteristics of the product and the target market. To achieve the desired intensity of market coverage, distribution must correspond to behavior patterns of buyers. In Chapter 11, we divided consumer products into four categories—convenience, shopping, specialty, and unsought—according to how consumers make purchases. In considering products for purchase, consumers take into account such factors as replacement rate, product adjustment (services), duration of consumption, and time required to find the product. These variables directly affect the intensity of market coverage. As shown in Figure 14.5, the three major levels of market coverage are intensive, selective, and exclusive distribution.

Catalog Marketing

In catalog marketing, an organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet. Catalog marketing began in 1872, when Montgomery Ward issued its first catalog to rural families. There are thousands of catalog marketing companies in the United States, many of which also publish online. Some catalog marketers sell products spread over multiple product lines, while others are more specialized. Take, for example, this catalog cover for the Sharper Image. Sharper Image is a catalog marketer specializing in home electronics, as you can see in the photo of actor Josh Duhamel riding a Hover Board, a product available for sale through the catalog. The catalog cover shows the kinds of electronic "toys" a shopper can find via the catalog or the firm's website. Many companies, including Land's End, Pottery Barn, and Crate & Barrel, employ a multichannel strategy and sell via catalogs, online, and through retail stores in major metropolitan areas. These retailers generally offer considerable product depth for just a few lines of products. Still other catalog companies specialize in products from a single product line. The advantages of catalog retailing include efficiency and convenience for customers because they do not have to visit a store. The retailer benefits by being able to locate in remote, low-cost areas, save on expensive store fixtures, and reduce both personal selling and store operating expenses. On the other hand, catalog retailing is inflexible, provides limited service, and is most effective for a selected set of products.

Consumer Games

In consumer games, individuals compete for prizes based primarily on chance—often by collecting game pieces like bottle caps or a sticker on a carton of French fries. Because collecting multiple pieces may be necessary to win or increase an individual's chances of winning, the game stimulates repeated business. Development and management of consumer games is often outsourced to an independent public relations firm, which can help marketers navigate federal and state laws that regulate games. Although games may stimulate sales temporarily, there is no evidence to suggest that they affect a company's long-term sales. Marketers considering games should exercise care. Problems or errors may anger customers and could result in a lawsuit. McDonald's wildly popular Monopoly game promotion, in which customers collect Monopoly real estate pieces on drink and French fry packages, has been tarnished by past fraud after a crime ring, including employees of the promotional firm running the game, was convicted of stealing millions of dollars in winning game pieces. McDonald's later reintroduced the Monopoly game with heightened security.

Specialty Retailers

In contrast to general-merchandise retailers with their broad product mixes, specialty retailers emphasize narrow and deep assortments. Despite their name, specialty retailers do not sell specialty items (except when specialty goods complement the overall product mix). Instead, they offer substantial assortments in a few product lines. We examine three types of specialty retailers: traditional specialty retailers, category killers, and off-price retailers.

Joint Ventures

In international marketing, a joint venture is a partnership between a domestic firm and a foreign firm or government. Joint ventures are especially popular in industries that require large investments, such as natural resources extraction or automobile manufacturing. Control of the joint venture may be split equally, or one party may control decision making. Joint ventures are often a political necessity because of nationalism and government restrictions on foreign ownership. Qualcomm formed a joint venture with Chinese chip maker Semiconductor Manufacturing International Corporation to produce semiconductors. It is believed that this joint venture will allow Qualcomm to gain a foothold in selling chips in the Chinese market.Footnote Joint ventures may also occur when acquisition or internal development is not feasible or when the risks and constraints leave no other alternative. Joint ventures also provide legitimacy in the eyes of the host country's citizens. Local partners have firsthand knowledge of the economic and sociopolitical environment and the workings of available distribution networks, and they may have privileged access to local resources (raw materials, labor management, and so on). However, joint venture relationships require trust throughout the relationship to provide a foreign partner with a ready means of implementing its own marketing strategy. Joint ventures are assuming greater global importance because of cost advantages and the number of inexperienced firms that are entering foreign markets. They may be the result of a trade-off between a firm's desire for completely unambiguous control of an enterprise and its quest for additional resources.

GDP

In terms of the value of all products produced by a nation, the United States has the largest gross domestic product in the world at more than $18 trillion.Footnote Gross domestic product (GDP) is an overall measure of a nation's economic standing; it is the market value of a nation's total output of goods and services for a given period. However, it does not take into account the concept of GDP in relation to population (GDP per capita). The United States has a GDP per capita of $54,400. Switzerland is roughly 230 times smaller than the United States—a little larger than the state of Maryland—but its population density is six times greater than that of the United States. Although Switzerland's GDP is much smaller than the size of the United States' GDP, its GDP per capita is slightly higher. On the other hand, Canada, which is comparable in size to the United States, has a lower GDP and GDP per capita.Footnote Table 9.2 provides a comparative economic analysis of 15 countries, including the United States. Knowledge about per capita income, credit, and the distribution of income provides general insights into market potential.

decoding process

In the decoding process, signs or symbols are converted into concepts and ideas. Seldom does a receiver decode exactly the same meaning the source intended. When the result of decoding differs from what was coded, noise exists.

B2B e-commerce sites,

Increasingly, businesses are turning to B2B e-commerce sites, which serve as online marketplaces where business buyers and sellers from around the world can exchange information, goods, services, ideas, and payments. Variously known as trading exchanges, B2B exchanges, and ehubs, B2B e-commerce sites may be independent or private. Independent sites act as a neutral third party and charge a fee for providing a trading forum. Some sites may be focused on a specific industry, while others may offer products and attract businesses from many industries. AutoWurld.com, for example, is an independent e-commerce site for wholesale and retail buying and selling of motor vehicles. Dealers pay a flat fee of $395/month to gain access to unlimited vehicle listings and sales transactions. Alibaba, on the other hand, connects buyers from all over the world with Chinese manufacturing firms offering products for many industries and purposes. The Chinese e-marketer now handles thousands of industrial orders amounting to millions of dollars a day from millions of buyers around the world. Such exchanges are especially beneficial for small businesses because they allow them to expand their customer base while reducing the costs of marketing to and buying from other companies. Private B2B exchanges connect member firms, who typically share supply chains or complex customers, through a secure system that permits all the organizations to share significant information as well as facilitate exchanges. Exostar, for example, serves as a private exchange for companies in the aerospace, defense, health care, pharmaceutical, and financial markets. Businesses may also turn to online auctions, such as FreeMarkets, to find products. As with a traditional auction, a seller posts an item to an online auction, and potential buyers bid on the item against each other; the highest bidder wins the right to buy the item. Such auctions are especially popular for liquidating unsold, returned, and used merchandise. In a reverse auction, a buyer invites businesses to bid to supply the specified good or service in competition with each other; the lowest bidder wins the right to sell the product. FedBid, for example, offers reverse online auctions for government agencies; the federal government alone awarded $1.8 billion in government contracts through FedBid, saving those agencies an estimated $160 million by bidding the prices down

Competitive Priorities in Marketing Channels

Increasingly, firms are recognizing that supply chains can be a source of competitive advantage and a strong market orientation because supply-chain decisions cut across all functional areas of business. Building the most effective and efficient supply chain can sustain a business and help it to use resources effectively and be more efficient. Many well-known firms, including Amazon, Dell, FedEx, Toyota, and Walmart, owe much of their success to outmaneuvering rivals with unique supply-chain capabilities. Many countries offer firms opportunities to create an effective and efficient supply chain to support the development of competitive national industries. Although developed nations like Germany, the United States, and Canada remain highly competitive manufacturing countries, China has ranked number one on Deloitte's annual survey of global manufacturing competitiveness for years, indicating the country's superior capabilities to produce goods at a low price and efficiently distribute them. India, Mexico, and Taiwan have risen to prominence as well. To unlock the potential of a supply chain, activities must be coordinated into an effective system. Supply chains driven by firm-established goals focus on the "competitive priorities" of speed, quality, cost, or flexibility as the performance objective. Managers must remember, however, to keep a holistic view of the supply chain so that goals such as "speed" or "cost" do not result in dissatisfied or underpaid workers or other such abuses in factories. This should be a particular concern among firms that use international manufacturers because it can be more difficult to monitor working conditions internationally.

producer markets.

Individuals and business organizations that purchase products for the purpose of making a profit by using them to produce other products or using them in their operations are classified as producer markets. Producer markets include buyers of raw materials, as well as purchasers of semi-finished and finished items, used to make other products. Producer markets include a broad array of industries, including agriculture, forestry, fisheries, mining, construction, transportation, communications, and utilities. As Table 8.1 indicates, the number of business establishments in national producer markets is enormous. For instance, manufacturers buy raw materials and component parts for direct use in product creation. Grocery stores and supermarkets are part of producer markets for numerous support products, such as paper and plastic bags, shelves, counters, and scanners. Farmers are part of producer markets for farm machinery, fertilizer, seed, and livestock. Chemical manufacturing plants are also part of producer markets, as they produce materials and ingredients that other firms use in the production of other goods. Service providers such as delivery services, banks, and airlines are also an important part of producer markets.

vertical marketing system (VMS)

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. 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. 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.

Intensive distribution

Intensive distribution uses all available outlets for distributing a product. Intensive distribution is appropriate for products that have a high replacement rate, require almost no service, and are bought based on price cues. Most convenience products like bread, chewing gum, soft drinks, and newspapers are marketed through intensive distribution. Multiple channels may be used to sell through all possible outlets. For example, goods such as soft drinks, snacks, laundry detergent, and pain relievers are available at convenience stores, service stations, supermarkets, discount stores, and other types of retailers. To satisfy consumers seeking to buy these products, they must be available at a store nearby and be obtained with minimal search time. Consumers want to be able to buy these products wherever it is most convenient to them at the lowest price possible while maintaining a reliable level of quality. Sales of low-cost convenience products may be directly related to product availability. In Japan, McDonald's was temporarily forced to stop selling medium- and large-sized french fries due to a potato shortage. The shortage resulted from a labor dispute at ports along the United States' West Coast that interrupted shipments to Japan. The delays caused the company to receive little more than half its shipment during the month of the dispute.Footnote Companies like Procter & Gamble that produce consumer packaged items rely on intensive distribution for many of their products (e.g., soaps, detergents, food and juice products, and personal-care products) because consumers want ready availability.

International marketing

International marketing involves developing and performing marketing activities across national boundaries. Global marketing strategies require knowledge about the marketing environment and customers. For the United States, with just 7 percent of the world's population, tremendous opportunities exist globally. For instance, Walmart has approximately 2.2 million employees and operates 11,598 units in 28 countries outside the United States. General Motors sells more cars in China than it does in the United States. Consider the advertisement for Australia. The advertisement is trying to attract business to the continent by portraying Australia as a good place to hold business events. It emphasizes the uniqueness of Australia and how it offers the perfect setting for team meetings or business gatherings. Clearly, the advertisement is meant for an international audience. Firms are finding that international markets provide strong prospects for growth. To encourage international growth, many countries offer practical assistance and valuable research to help their domestic firms become more competitive globally. One example is Export.gov, a website managed by the U.S. Department of Commerce's International Trade Administration, which collects a variety of resources to help businesses that want to export to other countries.Footnote A major element of the assistance that government organizations can provide for firms (especially small and medium-sized firms) is knowledge of the internationalization process. Traditionally, most companies have entered the global marketplace gradually and incrementally as they gained knowledge and experience about various markets and opportunities. However, some firms—such as eBay, Google, and Twitter—were founded with the knowledge and resources to accelerate their participation and investment in the global marketplace. These "born globals"—typically small technology-based firms earning as much as 70 percent of their sales outside the domestic home market—export their products almost immediately after being established in market niches in which they compete with larger, more established firms.Footnote Whether a firm chooses to adopt the traditional approach, the born global approach, or an approach that merges attributes of both, international marketing strategy is a critical element of a firm's global operations. Today, global competition in most industries is intense and becoming increasingly fierce with the addition of newly emerging markets and firms.

Inventory management

Inventory management involves developing and maintaining adequate assortments of products to meet customers' needs. It is a key component of any effective physical distribution system. Inventory decisions have a major impact on physical distribution costs and the level of customer service provided. When too few products are carried in inventory, the result is stockouts, or shortages of products. Stockouts can result in customer dissatisfaction that leads to lower sales, even loss of customers and brand switching. On the other hand, when a firm maintains too many products (especially too many low-turnover products) in inventory, costs increase, as do risks of product obsolescence, pilferage, and damage. The objective of inventory management is to minimize inventory costs while maintaining an adequate supply of goods to satisfy customers. To achieve this objective, marketers focus on two major issues: when to order and how much to order.

Customization versus Globalization of International Marketing Mixes

Like domestic marketers, international marketers develop marketing strategies to serve specific target markets. Traditionally, international marketing strategies have customized marketing mixes according to cultural, regional, and national differences. Table 9.7 provides a sample of international issues related to product, distribution, promotion, and price. For example, many developing countries lack the infrastructure needed for expansive distribution networks, which can make it harder to get the product to consumers. Realizing that both similarities and differences exist across countries is a critical first step to developing the appropriate marketing strategy effort targeted to particular international markets. Today, many firms strive to build their marketing strategies around similarities that exist instead of customizing around differences.

Limited-service wholesalers

Limited-service wholesalers provide fewer marketing services than do full-service wholesalers and specialize in just a few functions. Producers perform the remaining functions or pass them on to customers or other intermediaries. Limited-service wholesalers take title to merchandise but often do not deliver merchandise, grant credit, provide marketing information, store inventory, or plan ahead for customers' future needs. Because they offer restricted services, limited-service wholesalers charge lower rates and have smaller profit margins than full-service wholesalers. The decision about whether to use a limited-service or a full-service wholesaler depends on the structure of the marketing channel and the need to manage the supply chain to create a competitive advantage. Although limited-service wholesalers are less common than other types, they are important in the distribution of products like specialty foods, perishable items, construction materials, and coal.

Choosing Transportation Modes

Logistics managers select a transportation mode based on the combination of cost, speed, dependability, load flexibility, accessibility, and frequency that is most appropriate for their products and generates the desired level of customer service. Table 14.3 shows relative ratings of each transportation mode by these selection criteria. Marketers compare alternative transportation modes to determine whether the benefits from a more expensive mode are worth the higher costs. A firm wishing to establish international distribution may consider a large logistics firm for its vast network of global partners. Expeditors International, for instance, has 13,000 associates in 250 locations throughout the world. The company provides tailored solutions and integrated information systems to perform supply-chain management functions at locations around the globe.Footnote Look at the MercuryGate advertisement—it is an international logistics company that helps firms identify the optimal modes of transportation for distributing their products around the world. You can see from the advertisement that MercuryGate offers a transportation management system for developing seamless global distribution using all available options, including air, rail, and trucks.

Market share pricing objective

Many firms establish pricing objectives to maintain or increase market share, which is a product's sales in relation to total industry sales. Maintaining or increasing market share need not depend on growth in industry sales. An organization can increase its market share even if sales for the total industry are flat or decreasing. On the other hand, a firm's sales volume can increase while its market share decreases if the overall market grows.

Trade Allowances

Many manufacturers offer trade allowances to encourage resellers to carry a product or stock more of it.

Channel Leadership

Many marketing channel decisions are determined through channel member compromise with a better marketing channel as an end goal. Some marketing channels, however, are organized and controlled by a single leader, or channel captain (also called channel leader). The channel captain may be a producer, wholesaler, or retailer. Channel captains may establish channel policies and coordinate development of the marketing mix. To attain desired objectives, the captain must possess channel power, the ability to influence another channel member's goal achievement. The member that becomes the channel captain will accept the responsibilities and exercise the power associated with this role. When a manufacturer is a channel captain and it determines that it must increase sales volume to achieve production efficiency, it may encourage growth through offering channel members financing, business advice, ordering assistance, advertising services, sales and service training, and support materials. These benefits usually come with requirements related to sales volume, service quality, training, and customer satisfaction. Retailers may also be channel captains. Walmart, for example, dominates the supply chain for its retail stores by virtue of the magnitude of its resources (especially information management) and a strong, nationwide customer base. To be part of Walmart's supply chain, other channel members must agree to Walmart's rules. Small retailers too may assume leadership roles when they gain strong customer loyalty in local or regional markets. Retailers that are channel captains control many brands and sometimes replace uncooperative producers. Increasingly, leading retailers are concentrating their buying power among fewer suppliers, which makes it easier to coordinate and maintain a high level of quality and transparency along the entire supply chain. These more selective relationships often involve long-term commitments, which enable retailers to place smaller and more frequent orders as needed, rather than waiting for large-volume discounts, or placing large orders and assuming the risks associated with carrying more inventory than needed. Wholesalers can assume channel leadership roles as well. Wholesaler leaders may form voluntary chains with several retailers, which they supply with bulk buying or management services, and which may also market their own brands. In return, the retailers shift most of their purchasing to the wholesaler leader. The Independent Grocers' Alliance (IGA) is one of the best-known wholesaler leaders in the United States with nearly 5,000 outlets in more than 30 countries.Footnote IGA's power is based on its expertise in advertising, pricing, and purchasing knowledge that it makes available to independent business owners. Wholesaler channel leaders may help retailers with store layouts, accounting, and inventory control.

multichannel retailing

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. 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.

North American Industry Classification System (NAICS)

Marketers have access to a considerable amount of information about potential business customers through government and industry publications and websites. Marketers use this information to identify potential business customers and to estimate their purchase potential. The North American Industry Classification System (NAICS) is a single industry classification system used by the United States, Canada, and Mexico to generate comparable statistics among the three North American Free Trade Agreement partners. The NAICS classification is based on production activities. NAICS is also similar to the International Standard Industrial Classification (ISIC) system used in Europe and many other parts of the world. NAICS divides industrial activity into 20 sectors with 1,170 industry classifications. NAICS is comprehensive and up-to-date, and it provides considerable information about service industries and high-tech products.Footnote Table 8.2 shows some NAICS codes for Apple Inc. and AT&T Inc. Industry classification systems provide a consistent means of categorizing organizations into groups based on such factors as the types of goods and services provided. Although an industry classification system is a vehicle for segmentation, it is best used in conjunction with other types of data to determine exactly how many and which customers a marketer can reach. A business marketer can identify and locate potential customers in specific groups by using state directories or commercial industrial directories, such as Standard & Poor's Register and Dun & Bradstreet's Million Dollar Database. These sources contain information about a firm, including its name, NAICS classification, address, phone number, and annual sales. By referring to one or more of these sources, marketers locate potential business customers by industry classification numbers, determine their locations, and develop lists of prospective customers by desired geographic area. A more expedient, although more expensive, approach is to use a commercial data service. Dun & Bradstreet, for example, can provide a list of organizations that fall into a particular industry classification group. For each company on the list, Dun & Bradstreet provides the name, location, sales volume, number of employees, type of products handled, names of chief executives, and other pertinent information. Either method can identify and locate effectively a group of potential customers by industry and location. Because some companies on the list will have greater potential than others, marketers must conduct further research to determine which customer or customer group to pursue. To estimate the purchase potential of business customers or groups of customers, a marketer must find a relationship between the size of potential customers' purchases and a variable available in industrial classification data, such as the number of employees. Thus, a paint manufacturer might attempt to determine the average number of gallons purchased by a type of potential customer relative to the number of employees. Once this relationship is established, it can be applied to customer groups to estimate the size and frequency of potential purchases. After deriving these estimates, the marketer is in a position to select the customer groups with the most sales and profit potential.

Trading Companies

Marketers sometimes employ a trading company, which links buyers and sellers in different countries but is not involved in manufacturing and does not own assets related to manufacturing. Trading companies buy products in one country at the lowest price consistent with quality and sell them to buyers in another country. For instance, WTSC offers a 24-hour-per-day online world trade system that connects 20 million companies in 245 countries, offering more than 60 million products.Footnote A trading company acts like a wholesaler, taking on much of the responsibility of finding markets while facilitating all marketing aspects of a transaction. An important function of trading companies is taking title to products and performing all the activities necessary to move the products to the targeted foreign country. Trading companies reduce risk for firms that want to get involved in international marketing. A trading company provides producers with information about products that meet quality and price expectations in domestic and international markets. Additional services a trading company may provide include consulting, marketing research, advertising, insurance, product research and design, legal assistance, warehousing, and foreign exchange.

free samples

Marketers use free samples to stimulate trial of a product, increase sales volume in the early stages of a product's life cycle, and obtain desirable distribution. Trader Joe's gives out free samples of its coffee, hoping to entice buyers to make a purchase. Sampling is the most expensive sales promotion method because production and distribution—at local events, by mail or door-to-door delivery, online, in stores, and on packages—entail high costs. However, it can also be one of the most effective sales promotion methods. In one survey, 92 percent of respondents said they would purchase a product if they liked it after getting a free sample. Samples eliminate the risk of trying a new product and allow consumers to feel as if they are getting something for free. Many consumers prefer to get their samples by mail. Other consumers like to sample new food products at supermarkets or try samples of new recipes featuring foods they already like. In designing a free sample, marketers should consider factors like seasonal demand for the product, market characteristics, and prior advertising. Free samples are usually inappropriate for slow-turnover products. Despite high costs, use of sampling is increasing. In a given year, almost three-fourths of consumer products companies may use sampling.

Customer Characteristics

Marketing managers must consider the characteristics of target market members in channel selection. As we have already seen, the channels that are appropriate for consumers are different from those for business customers. Because of variations in product use, product complexity, consumption levels, and need for services, firms develop different marketing strategies for each group. Business customers often prefer to deal directly with producers (or very knowledgeable channel intermediaries such as industrial distributors), especially for highly technical or expensive products, such as mainframe computers, jet airplanes, or heavy machinery that require strict specifications and technical assistance. Businesses also frequently buy in large quantities. Consumers, on the other hand, generally buy limited quantities of a product, purchase from retailers, and often do not mind limited customer service. When customers are concentrated in a small geographic area, a direct channel may be best, but when many customers are spread across an entire state or nation, distribution through multiple intermediaries is likely to be more efficient.

Materials Handling

Materials handling, the physical handling of tangible goods, supplies, and resources, is an important factor in warehouse operations, as well as in transportation from points of production to points of consumption. Efficient procedures and techniques for materials handling minimize inventory management costs, reduce the number of times a good is handled, improve customer service, and increase customer satisfaction. Systems for packaging, labeling, loading, and movement must be coordinated to maximize cost reduction and customer satisfaction. Increasingly, companies are using radio frequency identification (RFID)—which uses radio waves to identify and track materials tagged with special microchips—through every phase of handling. RFID has greatly improved shipment tracking and reduced cycle times. Hundreds of RFID tags can be read at a time, which represents an advantage over barcodes. Firms are discovering that RFID technology has very broad applications, from tracking inventory to paying for goods and services, asset management, and data collection. It is also useful for asset management and data collection. Zara places RFID chips inside the larger security tags of clothing stocked in its retail stores. Because the tags are removed before the customer leaves the store, the RFID tags can be reused and do not violate the consumer's right to privacy by continuing to track the item. Inventory-taking at Zara stores using the RFID technology has decreased from five hours with 40 employees to just two-and-a-half hours with nine employees. When an item is sold, the RFID tag records the time and orders an identical product from the company's stockroom, streamlining the inventory process and facilitating inventory management. Now Zara can do its inventories every six weeks rather than the six months it used to take with employees having to manually scan barcodes.Footnote This technology will undoubtedly lead to better inventory management and more satisfied customers. Product characteristics often determine handling. For example, the characteristics of bulk liquids and gases dictate how they can be moved and stored. Internal packaging is also an important consideration in materials handling. Goods must be packaged correctly to prevent damage or breakage during handling and transportation. Many companies employ packaging consultants during the product design process to help them decide which packaging materials and methods will result in the most efficient handling. Firms that produce food items or other goods that must remain cold may want to consider working with such an organization because they feature temperature-controlled warehouses and shipping. Such an operation can help a firm with inventory management by maximizing the shelf life of goods and minimizing loss. Unit loading and containerization are two common methods used in materials handling. With unit loading, one or more boxes are placed on a pallet or skid. These units can then be loaded efficiently by mechanical means, such as forklifts, trucks, or conveyer systems. Containerization is the consolidation of many items into a single, large container that is sealed at its point of origin and opened at its destination. Containers are usually 8 feet wide, 8 feet high, and 10 to 40 feet long. Their uniform size means they can be stacked and shipped via train, barge, or ship. Once containers reach their destinations, wheel assemblies can be added to make them suitable for ground transportation by truck. Because individual items are not handled in transit, containerization greatly increases efficiency and security in shipping.

Merchant wholesalers

Merchant wholesalers are independently owned businesses that take title to goods, assume risks associated with ownership, and generally buy and resell products to other wholesalers, business customers, or retailers. A producer is likely to rely on merchant wholesalers when selling directly to customers would be economically unfeasible. Merchant wholesalers are also useful for providing market coverage, making sales contacts, storing inventory, handling orders, collecting market information, and furnishing customer support. Some merchant wholesalers are even involved in packaging and developing private brands. Merchant wholesalers go by various names, including wholesaler, jobber, distributor, assembler, exporter, and importer. They fall into two broad categories: full service and limited service (see Figure 15.1).

product specifications,

Most business customers try to maintain a specific level of quality in the products they buy. To achieve this goal, most firms establish standards (usually stated as a percentage of defects allowed) for these products and buy them on the basis of a set of expressed characteristics. These standards, commonly called product specifications, are written statements describing a product's necessary characteristics, standards of quality, and other information essential to identifying the best supplier for the needed product. The auto industry, for instance, is turning toward aluminum to build vehicles because it is a lighter metal, which can help boost fuel efficiency. Metal companies wanting to sell aluminum to automakers must meet certain specifications in strength and lightness. Alcoa developed a way of creating a stronger type of aluminum sheet that it plans to market to automakers. A customer evaluates the quality of the products being considered to determine whether they meet specifications. In Alcoa's case, its success will depend on how automakers view the price and quality of its metal sheets. If a product fails to meet specifications or malfunctions for the ultimate consumer, the customer may drop that product's supplier and switch to a different one. On the other hand, customers are ordinarily cautious about buying products that exceed specifications because such products often cost more, which increases the organization's overall costs. As a result, business customers must strike a balance between quality and price when making purchasing decisions. Specifications are designed to meet a customer's wants, and anything that does not contribute to meeting those wants may be considered wasteful.

Marketing intermediaries

Most channels, however, are indirect and have one or more marketing intermediaries that link producers to other intermediaries or to ultimate consumers through contractual arrangements or through the purchase and reselling of products. Marketing intermediaries perform the activities described in Table 14.2. They also play key roles in customer relationship management, not only through their distribution activities but also by maintaining databases and information systems to help all members of the marketing channel maintain effective customer relationships. For example, MercuryGate provides transportation management software to firms to streamline logistics. The company also works directly with shippers and third-party logistics companies and brokers to ensure that its customers have effective and efficient supply chains, using analytics and a robust information database pulled from its many clients. Its methods work—as its clients, such as Walmart and Siemens, are known for their exemplary supply-chain management. Wholesalers and retailers are examples of intermediaries. Wholesalers buy and resell products to other wholesalers, retailers, and industrial customers. Retailers purchase products and resell them to end consumers. Consider your local supermarket, which probably purchased the Advil on its shelves from a wholesaler. The wholesaler purchased that pain medicine, along with other over-the-counter and prescription drugs, from manufacturers like McNeil Consumer Healthcare. Chapter 15 discusses the functions of wholesalers and retailers in marketing channels in detail.

objective-and-task approach.

Of the many techniques used to determine the advertising appropriation, one of the most logical is the objective-and-task approach. Using this approach, marketers determine the objectives a campaign is to achieve and then attempt to list the tasks required to accomplish them. The costs of the tasks are calculated and added to arrive at the total appropriation. This approach has one main problem: Marketers sometimes have trouble accurately estimating the level of effort needed to attain certain objectives. A coffee marketer, for example, may find it extremely difficult to determine how much of an increase in national television advertising is needed to raise a brand's market share from 8 to 10 percent.

off-price retailers

Off-price retailers are stores that buy manufacturers' seconds, overruns, returns, and off-season production runs at below-wholesale prices for resale to consumers at deep discounts. Unlike true discount stores, which pay regular wholesale prices for goods and usually carry second-line brand names, off-price retailers offer limited lines of national-brand and designer merchandise, usually clothing, shoes, or housewares. Consumers appreciate the ability to purchase name-brand goods at discounted prices, and sales at off-price retailers, such as T.J. Maxx, Marshalls, Stein Mart, and Burlington Coat Factory, have grown. Off-price retailers typically perform well in recessionary times, as consumers who want to own name-brand items search for good value. Off-price stores charge 20 to 50 percent less than department stores for comparable merchandise but offer few customer services. They often feature community dressing rooms and central checkout counters. Some of these stores do not take returns or allow exchanges. Off-price stores may or may not sell goods with the original labels intact. They turn over their inventory up to a dozen times per year, three times as often as traditional specialty stores. They compete with department stores for many of the same price-conscious customers who are knowledgeable about brand names. To ensure a regular flow of merchandise into their stores, off-price retailers establish long-term relationships with suppliers that can provide large quantities of goods at reduced prices. Manufacturers may approach retailers with samples, discontinued products, or items that have not sold well. Also, off-price retailers may seek out manufacturers, offering to pay cash for goods produced during the manufacturers' off-season. Although manufacturers benefit from such arrangements, they also risk alienating their specialty and department store customers. Department stores tolerate off-price stores as long as they do not advertise brand names, limit merchandise to last season's or lower-quality items, and are located away from the department stores. When off-price retailers obtain large stocks of in-season, top-quality merchandise, tension builds between department stores and manufacturers.

Offshore outsourcing

Offshore outsourcing is the practice of contracting with an organization to perform some or all business functions in a country other than the country in which the product will be sold. Today, some manufacturers that previously engaged in offshore outsourcing are moving production back to the United States to maintain quality and tighter inventory control, a process known as reshoring. However, offshoring still outpaces reshoring for U.S. manufacturers.

direct ownership

Once a company makes a long-term commitment to marketing in a foreign country that has a promising market as well as a suitable political and economic environment, direct ownership of a foreign subsidiary or division is a possibility. Most foreign investment covers only manufacturing equipment or personnel because the expenses of developing a separate foreign distribution system can be tremendous. The opening of retail stores in Europe, Canada, or Mexico can require a staggering financial investment in facilities, research, and management.

Online Retailing

Online retailing makes products available to buyers through Internet connections. Online retailing is a rapidly-growing segment that most retailers now view as vital to their businesses. Forrester Research projects that online retail sales in the United States will climb to nearly $480 billion by 2019, and it reports that 69 percent of the U.S. population regularly buys clothing, consumer electronics, computers, and other goods online. In the United States, Amazon.com—shown in the screen shot—is arguably the best-known online retailer, with net sales in excess of $70 billion. The company has branched out from selling books and electronics to its own line of tablets and smartphones as well as streaming movies. As shown in the screen shot, Amazon has also introduced Dash buttons that let customers reorder frequently purchased household items like laundry detergent with the touch of a button. Online retailing satisfies an increasing expectation among consumers to have multiple channels available to obtain the goods and services they desire at their convenience. Consumers can perform a wide variety of shopping-related tasks online, including purchasing virtually anything they wish. They can track down rare collectibles, refill their eyeglass prescriptions, and even purchase high-end jewelry or gourmet food. Retailers frequently offer exclusive online sales, or may reward customers who visit their websites with special in-store coupons and other promotions and discounts. Banks and brokerages offer consumers access to their accounts, where they can perform a wide variety of activities, such as money transfers and stock trading. With ongoing advances in computer technology and consumers ever more pressed for time, online retailing will continue to escalate. Some firms that were primarily catalog retailers are now primarily online retailers, such as Paul Frederick, which sells men's apparel and accessories online and does not sell in stores.

Order processing

Order processing is the receipt and transmission of sales order information. Although management sometimes overlooks the importance of these activities, efficient order processing facilitates product flow. Computerized order processing provides a platform for information management, allowing all supply-chain members to increase their productivity. When carried out quickly and accurately, order processing contributes to customer satisfaction, decreased costs and cycle time, and increased profits. Order processing entails three main tasks: order entry, order handling, and order delivery. Order entry begins when customers or salespeople place purchase orders via customer-service counter, telephone, regular mail, e-mail, or website. Electronic ordering has become the most common. It is less time-consuming than a paper-based ordering system and reduces costs. In some companies, sales representatives receive and enter orders personally and also handle complaints, prepare progress reports, and forward sales order information. Order handling involves several tasks. Once an order is entered, it is transmitted to a warehouse to verify product availability and, if necessary, to the credit department to set terms and prices and to check the customer's credit rating. If the credit department approves the purchase, warehouse personnel assemble the order. In many warehouses, automated machines carry out this step. If the requested product is not in stock, a production order is sent to the factory, or the customer is offered a substitute. When the order has been assembled and packed for shipment, the warehouse schedules delivery with an appropriate carrier. If the customer pays for rush service, overnight delivery by an overnight carrier is used. The customer is sent an invoice, inventory records are adjusted, and the order is delivered.

Institutional Markets

Organizations with charitable, educational, community, or other nonbusiness goals comprise institutional markets. Members of institutional markets include churches, some hospitals, fraternities and sororities, charitable organizations, and private colleges. Institutions purchase millions of dollars' worth of products annually to support their activities and provide goods, services, and ideas to various audiences. Because institutions often have different goals and fewer resources than other types of organizations, firms may use special marketing efforts to serve them. For example, Aramark provides a variety of products to institutional markets, including schools, hospitals, and senior living centers. It frequently ranks as one of the most admired companies in its industry. For areas like university food service, Aramark aims its marketing efforts directly at students. Another example is the pictured pipe organ manufacturer. Because most businesses or individuals have no need for pipe organs, the producer mainly targets its marketing efforts at churches.

Personal Selling

Personal selling is a paid personal communication that seeks to inform customers and persuade them to purchase products in an exchange situation. The phrase purchase products is interpreted broadly to encompass acceptance of ideas and issues. Personal selling is most extensively used in the business-to-business market and also in the business-to-consumer market for high-end products such as homes, cars, electronics, and furniture. Personal selling has both advantages and limitations when compared with advertising. Advertising is general communication aimed at a relatively large target audience, whereas personal selling involves more specific communication directed at one or several individuals. Reaching one person through personal selling costs considerably more than through advertising, but personal selling efforts often have greater impact on customers. Personal selling also provides immediate feedback, allowing marketers to adjust their messages to improve communication. Such interaction helps them determine and respond to customers' information needs. When a salesperson and a customer meet face-to-face, they use several types of interpersonal communication. The predominant communication form is language, both spoken and written.

Physical distribution

Physical distribution, also known as logistics, refers to the activities used to move products from producers to consumers and other end users. These activities include order processing, inventory management, materials handling, warehousing, and transportation. Physical distribution systems must meet the needs of both the supply chain and customers. Distribution activities are thus an important part of supply-chain planning and can require a high level of cooperation among partners. Within the marketing channel, physical distribution activities may be performed by a producer, wholesaler, or retailer, or they may be outsourced. In the context of distribution, outsourcing is the contracting of physical distribution tasks to third parties. Third-party logistics (3PL) firms have special expertise in core physical distribution activities such as warehousing, transportation, inventory management, and information technology and can often perform these activities more efficiently. Outsourcing logistics to third-party organizations, such as trucking companies, warehouses, and data-service providers, can reduce marketing channel costs and boost service and customer satisfaction for all supply-chain partners. Indeed, some 86 percent of U.S. Fortune 500 companies outsource logistics and supply-chain functions to 3PLs. The Internet and technological advancements have revolutionized logistics, allowing many manufacturers to carry out actions and services entirely online, bypassing shipping and warehousing considerations, and transforming physical distribution by facilitating just-in-time delivery, precise inventory visibility, and instant shipment-tracking capabilities. For example, video game and computer software manufacturers such as Microsoft and Sony have increasingly made their products available for download. Emerging technologies such as 3D printing, drones, and driverless vehicles may further advance physical distribution.Footnote Technological advances create new challenges for manufacturers, such as how to maintain a high level of customer service when customers never enter a store or meet with a salesperson and how to deal with returns of a product that does not exist in a physical form. However, technology enables companies to avoid expensive mistakes, reduce costs, and generate increased revenues. Moreover, information technology enhances the transparency of the supply chain, allowing all marketing channel members to track the movement of goods throughout the supply chain and improve their customer service. Planning an efficient physical distribution system is crucial to developing an effective marketing strategy because it can decrease costs and increase customer satisfaction. When making distribution decisions, speed of delivery, flexibility, and quality of service are often as important to customers as costs. Companies that offer the right goods, in the right place, at the right time, in the right quantity, and with the right support services are able to sell more than competitors that do not. Even when the demand for products is unpredictable, suppliers must be able to respond quickly to inventory needs. In such cases, physical distribution costs may be a minor consideration when compared with service, dependability, and timeliness. Although physical distribution managers try to minimize the costs associated with order processing, inventory management, materials handling, warehousing, and transportation, decreasing the costs in one area often raises them in another. Figure 14.6 shows the percentage of total costs that physical distribution functions represent. A total-cost approach to physical distribution that takes into account all these different functions enables managers to view physical distribution as a system and shifts the emphasis from lowering the costs of individual activities to minimizing overall costs. Physical distribution managers must therefore be sensitive to the issue of cost trade-offs. Trade-offs are strategic decisions to combine (and recombine) resources for greatest cost-effectiveness. The goal is not always to find the lowest cost, but rather to find the right balance of costs. Higher costs in one functional area of a distribution system may be necessary to achieve lower costs in another. When distribution managers regard the system as a network of integrated functions, trade-offs become useful tools in implementing a unified, cost-effective distribution strategy.

Premiums

Premiums are items offered free or at a minimal cost as a bonus for purchasing a product. Like the prize in the Cracker Jack box, premiums are used to attract competitors' customers, introduce different sizes of established products, add variety to other promotional efforts, and stimulate consumer loyalty. Consumers appear to prefer premiums to discounts on products due to the perception that they are receiving something "free." Creativity is essential when using premiums; to stand out and achieve a significant number of redemptions, the premium must match both the target audience and the brand's image. Premiums must also be easily recognizable and desirable. Consumers are more favorable toward a premium when the brand has high equity and there is a good fit between the product and the premium. Premiums are placed on or inside packages and can also be distributed by retailers or through the mail. Examples include a service station giving a free car wash with a fill-up, a free shaving cream with the purchase of a razor, and a free plastic storage box with the purchase of Kraft Cheese Singles.

demand curve for prestige products

Prestige products, such as selected perfumes and jewelry, tend to sell better at higher prices than at lower ones

Return on investment pricing objective

Pricing to attain a specified rate of return on the company's investment is a profit-related pricing objective.

Promotion

Promotion is communication that builds and maintains favorable relationships by informing and persuading one or more audiences to view an organization positively and accept its products. Toward this end, many organizations spend considerable resources on promotion to build and enhance relationships with current and potential customers as well as other stakeholders. Case in point, the top ten advertisers in the United States spent more than $15 billion on advertising. Procter & Gamble spends about $2.6 billion on advertising yearly, with more expenditures being spent toward digital marketing channels. Marketers also indirectly facilitate favorable relationships by focusing information about company activities and products on interest groups (such as environmental and consumer groups), current and potential investors, regulatory agencies, and society in general. For instance, some organizations promote responsible use of products criticized by society, such as tobacco, alcohol, and violent movies or video games. Companies sometimes promote programs that help selected groups. For example, Coca-Cola was a founding member of the Special Olympics, a sports organization for people with intellectual disabilities. It provides in-kind donations, volunteer hours, financial contributions, and publicity for the organization. Such cause-related marketing links the purchase of products to philanthropic efforts for one or more causes. By contributing to causes that its target markets support, cause-related marketing can help marketers boost sales, increase loyalty, and generate goodwill. For maximum benefit from promotional efforts, marketers strive for proper planning, implementation, coordination, and control of communications. Effective management of integrated marketing communications is based on information about and feedback from customers and the marketing environment, often obtained from an organization's marketing information system (see Figure 16.3). How successfully marketers use promotion to maintain positive relationships depends to some extent on the quantity and quality of information the organization receives. Because customers derive information and opinions from many different sources, integrated marketing communications planning also takes into account informal methods of communication, such as word of mouth and independent information sources on the Internet. Because promotion is communication that can be managed, we now analyze what this communication is and how it works. Promotional objectives vary considerably from one organization to another and within organizations over time. Large firms with multiple promotional programs operating simultaneously may have quite varied promotional objectives. For the purpose of analysis, we focus on the eight promotional objectives shown in Table 16.1. Although the list is not exhaustive, one or more of these objectives underlie many promotional programs.

Public Relations

Public relations is a broad set of communication efforts used to create and maintain favorable relationships between an organization and its stakeholders. An organization communicates with various stakeholders, both internal and external, and public relations efforts can be directed toward any and all of them. A firm's stakeholders can include customers, suppliers, employees, shareholders, the media, educators, potential investors, government officials, and society in general. Public relations is also used to respond to negative events. How an organization uses public relations in a crisis often determines how quickly it will recover. Managers spend more resources understanding and responding to negative word of mouth than they do to the promotion of positive word of mouth. Company scandals can often lead to the resignation of top officials such as the CEO or board members. Volkswagen's CEO stepped down after an emissions scandal revealed the company had duped regulators by placing defeat devices into its vehicles. On the other hand, being honest with consumers and responsive to their needs develops a foundation for open communication and trust in the long run. Public relations can be used to promote people, places, ideas, activities, and even countries. It is often used by nonprofit organizations to achieve their goals. Public relations focuses on enhancing the image of the total organization. Assessing public attitudes and creating a favorable image are no less important than direct promotion of the organization's products. Because the public's attitudes toward a firm are likely to affect the sales of its products, it is very important for firms to maintain positive public perceptions. In addition, employee morale is strengthened if the public perceives the firm positively.Footnote Although public relations can make people aware of a company's products, brands, or activities, it can also create specific company images, such as innovativeness or dependability. Companies like Keurig Green Mountain, Patagonia, Sustainable Harvest, and Honest Tea have reputations for being socially responsible not only because they engage in socially responsible behavior but also because their actions are reported through news stories and other public relations efforts. By getting the media to report on a firm's accomplishments, public relations helps the company maintain positive public visibility. Some firms use public relations for a single purpose; others use it for several purposes. Table 17.2 describes the top 10 public relations firms.

public warehouses

Public warehouses lease storage space and related physical distribution facilities to other companies. They sometimes provide distribution services, such as receiving, unloading, inspecting, filling orders, financing, displaying products, and coordinating shipments. Distribution Unlimited Inc., for example, offers a wide range of such services through its facilities in New York, which contain more than 8 million square feet of warehouse space. Public warehouses are especially useful to firms that have seasonal production or demand, low-volume storage needs, and inventories that must be maintained in many locations. They are also useful for firms that are testing or entering new markets or require additional storage space. Additionally, public warehouses serve as collection points during product-recall programs. Whereas private warehouses have fixed costs, public warehouses offer variable (and possibly lower) costs because users rent space and purchase warehousing services only as needed. Many public warehouses furnish security for products that are used as collateral for loans, a service provided at either the warehouse or the site of the owner's inventory. Field public warehouses are established by public warehouses at the owner's inventory location. The warehouser becomes custodian of the products and issues a receipt that can be used as collateral for a loan. Public warehouses also provide bonded storage, a warehousing arrangement in which imported or taxable products are not released until the products' owners pay U.S. customs duties, taxes, or other fees. Bonded warehouses enable firms to defer tax payments on such items until they are delivered to customers.

multichannel distribution

Quite often, companies today use multiple channels to reach the same target market. For example, consumers can purchase a Dell computer directly from the company by calling a toll-free number or going through its website as well as indirectly through select retailers such as Best Buy. Likewise, L.L. Bean markets products through its longstanding catalog, its website, and through its own retail stores. In such cases, the firm is using multichannel distribution—the use of a variety of marketing channels to ensure maximum distribution. The primary reason for using a multichannel strategy is to reach target customers wherever and whenever they may choose to interact with a company or its products. Some consumers may prefer to shop in a brick-and-mortar store where they can personally compare and sample products, while others prefer the instant gratification of shopping for an item on their smartphone as soon as they recognize a need for the product. Even marketers for cosmetics, such as the Clinique moisturizer featured in the advertisement, employ multichannel distribution. This product—which the ad informs was developed by dermatologists for people with particularly dry skin—is available in department stores, but customers can also purchase it on the producer's website, which is displayed on the advertisement.

Relationship Selling

Relationship selling, also known as consultative selling, involves building mutually beneficial long-term associations with a customer through regular communications over prolonged periods of time. Like team selling, it is especially used in business-to-business marketing. Relationship selling involves finding solutions to customers' needs by listening to them, gaining a detailed understanding of their organizations, understanding and caring about their needs and challenges, and providing support after the sale. Sales representatives from organizations have begun to change their sales tactics to focus upon building relationships. Pirch, a retailer that specializes in bathroom and kitchen appliances and fixtures, trains employees on the floor on how to encourage customers to enjoy themselves. Customers can take a cooking class on the store's stoves or don a bathing suit and try out its bath tubs. The philosophy behind this emphasis on experience is for Pirch to develop strong relationships and place customer needs first. Pirch claims this emphasis has led to average sales per square foot of $3,000, higher than Apple stores.Footnote Relationships are also built on being able to recover when customers are concerned about services. Being proactive in identifying the need for recovery behaviors is a major part of relationship selling.Footnote Thus, contacting the customer if delivery time is longer than expected as well as explaining what happened and when the product will be delivered are important. Relationship selling differs from traditional personal selling due to its adoption of a long-term perspective. Instead of simply focusing on short-term repeat sales, relationship selling involves forming long-term connections that will result in sales throughout the relationship.Footnote Relationship selling is well poised to help sellers understand their customers' individual needs. It is particularly important in business-to-business transactions as businesses often require more "individualized solutions" to meet their unique needs than the individual consumer. Relationship selling has significant implications for the seller. Studies show that firms spend six times longer on finding new customers than in keeping current customers.Footnote Thus, relationship selling that generates loyal long-term customers is likely to be extremely profitable for the firm both in repeat sales as well as the money saved in trying to find new customers. Finally, as the personal selling industry becomes increasingly competitive, relationship selling is one way that companies can differentiate themselves from rivals to create competitive advantages. Relationship selling efforts can be improved through sales automation technology tools that enhance interactive communication.Footnote New applications for customer relationship management are also being provided through companies like Salesforce.com, whose cloud-computing model helps companies keep track of the customer life cycle without having to install any software (applications are downloaded). Social networks are being utilized in sales, adding new layers to the selling process. Salesforce CRM, for instance, now allows users to connect with their customers in real time through such networks as Twitter and Facebook. Sales force automation, which involves utilizing information technology to automatically track all stages of the sales process (a part of customer relationship management), has been found to increase salesperson professionalism and responsiveness, customer interaction frequency, and customer relationship quality.

Reseller markets

Reseller markets consist of intermediaries, such as wholesalers and retailers, which buy finished goods and resell them for a profit. Aside from making minor alterations, resellers do not change the physical characteristics of the products they handle. Resellers also exist for services and intangible products. For instance, there are reseller markets for financial products such as stocks and bonds. Priceline, Orbitz, and Kayak act as resellers for hotel services. Except for items producers sell directly to consumers, all products sold to consumer markets are first sold to reseller markets. Wholesalers purchase products for resale to retailers, other wholesalers, producers, governments, and institutions. Like manufacturers, wholesalers can also be geographically concentrated. Of the 419,648 wholesale establishments in the United States, a large number are located in New York, California, Illinois, Texas, Ohio, Pennsylvania, New Jersey, and Florida.Footnote Although some products are sold directly to end users, many manufacturers sell their products to wholesalers, which then sell the products to other firms in the distribution system. Seafood, for example, goes through a number of intermediaries, including producer, processor, and wholesaler or distributor all the way down to the retailer and final customer. Thus, wholesalers play a very important role in helping producers get their products to customers. Retailers purchase products and resell them to final consumers. There are more than 1 million retailers in the United States, employing 15 million people and generating approximately $5 trillion in annual sales.Footnote The United States continues to be a powerful force in retailing. Half of the top 10 largest retail companies in the world are based in the United States: Walmart, Costco, The Kroger Co., The Home Depot Inc., and Walgreens.Footnote Some retailers—Home Depot, PetSmart, and Staples, for example—carry a large number of items. Supermarkets may handle as many as 50,000 different products. In small, individually-owned retail stores, owners or managers make purchasing decisions. In chain stores, a central office buyer or buying committee frequently decides whether store managers will stock a product on their shelves. For many products, however, local managers make the actual buying decisions for a particular store.

Facilitate Reseller Support

Reseller support is a two-way street: producers generally want to provide support to resellers to assist in selling their products, and in turn they expect resellers to support their products. When a manufacturer advertises a product to consumers, resellers should view this promotion as a form of strong manufacturer support. In some instances, a producer agrees to pay a certain proportion of retailers' advertising expenses for promoting its products. When a manufacturer is introducing a new consumer brand in a highly competitive product category, it may be difficult to persuade supermarket managers to carry this brand. However, if the manufacturer promotes the new brand with free samples and coupon distribution in the retailer's area, a supermarket manager views these actions as strong support and is much more likely to carry the product. To encourage wholesalers and retailers to increase their inventories of its products, a manufacturer may provide them with special offers and buying allowances. In certain industries, a producer's salesperson may provide support to a wholesaler by working with the wholesaler's customers (retailers) in the presentation and promotion of the products. Strong relationships with resellers are important to a firm's ability to maintain a sustainable competitive advantage. The use of various promotional methods can help an organization achieve this goal.

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. 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.

Sales branches

Sales branches are manufacturer-owned intermediaries that sell products and provide support services to the manufacturer's sales force. Situated away from the manufacturing plant, they are usually located where large customers are concentrated and demand is high. They offer credit, deliver goods, give promotional assistance, and furnish other services. Customers include retailers, business buyers, and other wholesalers. Manufacturers of electrical supplies, plumbing supplies, lumber, and automotive parts often have branch operations.

Determining Sales Force Size

Sales force size is important, because it influences the company's ability to generate sales and profits. Moreover, size of the sales force affects the compensation methods used, salespeople's morale, and overall sales force management. Sales force size must be adjusted periodically, because a firm's marketing plans change along with markets and forces in the marketing environment. One danger in cutting back the size of the sales force to increase profits is that the sales organization may lose strength and resiliency, preventing it from rebounding when growth occurs or better market conditions prevail. Several analytical methods can help determine optimal sales force size. One method involves determining how many sales calls per year are necessary for the organization to serve customers effectively and then dividing this total by the average number of sales calls a salesperson makes annually. A second method is based on marginal analysis, in which additional salespeople are added to the sales force until the cost of an additional salesperson equals the additional sales generated by that person. Although marketing managers may use one or several analytical methods, they normally temper decisions with subjective judgments.

Sales offices

Sales offices are manufacturer-owned operations that provide services normally associated with agents. Like sales branches, they are located away from manufacturing plants, but unlike sales branches, they carry no inventory. A manufacturer's sales office (or branch) may sell products that enhance the manufacturer's own product line. Manufacturers may set up these branches or offices to reach their customers more effectively by performing wholesaling functions themselves. A manufacturer also might set up such a facility when specialized wholesaling services are not available through existing intermediaries. Performing wholesaling and physical distribution activities through a manufacturer's sales branch or office can strengthen supply-chain efficiency. In some situations, though, a manufacturer may bypass its sales office or branches entirely—for example, if the producer decides to serve large retailer customers directly.

Sales Promotion

Sales promotion is an activity or material that acts as a direct inducement, offering added value or incentive for the product to resellers, salespeople, or consumers. Examples include free samples, games, rebates, sweepstakes, contests, premiums, and coupons. Sales promotion should not be confused with promotion; sales promotion is just one part of the comprehensive area of promotion. Marketers spend more on sales promotion than on advertising, and sales promotion appears to be a faster-growing area than advertising. Omaha Steaks, Inc. encourages consumers to purchase its products by releasing advertisements featuring photos of its steaks, the types of food included in its Family Gourmet Feast, and discount information. Omaha Steaks uses a cents-off offer in which the price is drastically reduced, and consumers get the chance to receive four free sausages if they order within a certain time period. Generally, when companies employ advertising or personal selling, they depend on these activities continuously or cyclically. However, a marketer's use of sales promotion tends to be irregular. Many products are seasonal. Toys may be discounted in January after the holiday selling season to move excess inventory. Marketers frequently rely on sales promotion to improve the effectiveness of other promotion mix elements, especially advertising and personal selling. Coupons appear to be more effective for food marketers. It is estimated that two-thirds of all coupons redeemed are for food offers.Footnote The redemption of digital coupons is growing. Mobile devices are a personal technology, so mobile coupons pose an unusual opportunity to reach consumers wherever they go. An effective promotion mix requires the right combination of components. To see how such a mix is created, we now examine the factors and conditions affecting the selection of promotional methods that an organization uses for a particular product.

Sales promotion

Sales promotion is an activity or material, or both, that acts as a direct inducement, offering added value or incentive for the product, to resellers, salespeople, or consumers. It encompasses all promotional activities and materials other than personal selling, advertising, and public relations. The retailer Payless, for example, often offers buy-one-get-one-free sales on its shoes, a sales promotion tactic known as a bonus or premium. In competitive markets, where products are very similar, sales promotion provides additional inducements that encourage product trial and purchase.Marketers often use sales promotion to facilitate personal selling, advertising, or both. Companies also employ advertising and personal selling to support sales promotion activities. Marketers frequently use advertising to promote contests, free samples, and premiums. The most effective sales promotion efforts are highly interrelated with other promotional activities. Decisions regarding sales promotion often affect advertising and personal selling decisions, and vice versa.Sales promotion can increase sales by providing extra purchasing incentives. Many opportunities exist to motivate consumers, resellers, and salespeople to take desired actions. Some kinds of sales promotion are designed specifically to stimulate resellers' demand and effectiveness, some are directed at increasing consumer demand, and some focus on both consumers and resellers. Regardless of the purpose, marketers must ensure that sales promotion objectives are consistent with the organization's overall objectives, as well as with its marketing and promotion objectives. When deciding which sales promotion methods to use, marketers must consider several factors, particularly product characteristics (price, size, weight, costs, durability, uses, features, and hazards) and target market characteristics (age, gender, income, location, density, usage rate, and shopping patterns). How products are distributed and the number and types of resellers may determine the type of method used. The competitive and legal environment may also influence the choice. The use of sales promotion has increased dramatically over the past 30 years, primarily at the expense of advertising. This shift in how promotional dollars are used has occurred for several reasons. Heightened concerns about value have made customers more responsive to promotional offers, especially price discounts and point-of-purchase displays. Thanks to their size and access to checkout scanner data, retailers have gained considerable power in the supply chain and are demanding greater promotional efforts from manufacturers to boost retail profits. Declines in brand loyalty have produced an environment in which sales promotions aimed at persuading customers to switch brands are more effective. Finally, the stronger emphasis placed on improving short-term performance results calls for greater use of sales promotion methods that yield quick (although perhaps short-lived) sales increases.

power shopping center

Some shopping center developers are bypassing the traditional department store anchor and combining off-price stores and small stores with category killers in power shopping center formats. These centers may be anchored by popular stores, such as the Gap, Toys 'R' Us, PetSmart, and Home Depot. Power shopping centers can take a variety of formats, all vying for the same retail dollar.

Price leaders

Sometimes a firm prices a few products below the usual markup, near cost, or below cost, which results in what are known as price leaders. This type of pricing is used most often in supermarkets and restaurants to attract customers by offering them especially low prices on a few items, with the expectation that they will purchase other items as well.

Selective distribution

Selective distribution uses only some available outlets in an area to distribute a product. Selective distribution is appropriate for shopping products, which include durable goods like televisions or computers. Shopping products are more expensive than convenience goods, and consumers are willing to spend more time and possibly visit several retail outlets and websites to compare prices, designs, styles, and other features. Selective distribution is desirable when a special effort, such as customer service from a channel member, is important to customers. Shopping products require differentiation at the point of purchase. Selective distribution is often used to motivate retailers to provide adequate service. Dealers can offer higher-quality customer service when products are distributed selectively. Consider the advertisement for Nespresso espresso machines and coffees. Nespresso is a moderately high-end brand of coffeemaker that is distributed selectively. Nespresso products are available at specialty stores such as Williams-Sonoma and Sur la Table and at department stores such as Macy's. This advertisement seeks to cultivate a high-end image through the focus on the clean lines of the machine and the fancy coffee shop drinks that customers can create. When shopping for Nespresso products, salespeople will be able to assist customers and will be knowledgeable about the products. Most perfumes and colognes and some cosmetics are marketed using selective distribution in order to maintain a particular image.

Creating Sales Territories

Several factors enter into the design of a sales territory's size and geographic shape. First, sales managers must construct territories that allow sales potential to be measured. Sales territories often consist of several geographic units, such as census tracts, cities, counties, or states, for which market data are obtainable. Sales managers usually try to create territories with similar sales potential, or requiring about the same amount of work. If territories have equal sales potential, they will almost always be unequal in geographic size. Salespeople with larger territories have to work longer and harder to generate a certain sales volume. Conversely, if sales territories requiring equal amounts of work are created, sales potential for those territories will often vary. Think about the effort required to sell in New York and Connecticut versus the sales effort required in a larger, less populated area like Montana or Wyoming. If sales personnel are partially or fully compensated through commissions, they will have unequal income potential. Many sales managers try to balance territorial workloads and earning potential by using differential commission rates. At times, sales managers use commercial programs to help them balance sales territories. Although a sales manager seeks equity when developing and maintaining sales territories, some inequities always prevail. A territory's size and geographical shape should also help the sales force provide the best possible customer coverage and minimize selling costs. Customer density and distribution are important factors. It is important for territories to be designed so that salespeople contact customers with the frequency and consistency that feels ideal

Characteristics of the Target Market

Size, geographic distribution, and demographic characteristics of an organization's target market help dictate the methods to include in a product's promotion mix. To some degree, market size and diversity determine composition of the mix. If the size is limited, the promotion mix will probably emphasize personal selling, which can be very effective for reaching small numbers of people. Organizations selling to industrial markets and firms marketing products through only a few wholesalers frequently make personal selling the major component of their promotion mixes. When a product's market consists of millions of customers, organizations rely on advertising and sales promotion, because these methods reach masses of people at a low cost per person. When the population density is uneven around the country, marketers may utilize regional advertising and target larger markets. Geographic distribution of a firm's customers also affects the choice of promotional methods. Personal selling is more feasible if a company's customers are concentrated in a small area than if they are dispersed across a vast region. When the company's customers are numerous and dispersed, regional or national advertising may be more practical. Distribution of a target market's demographic characteristics, such as age, income, or education, may affect the types of promotional techniques a marketer selects, as well as the messages and images employed. According to the U.S. Census Bureau, so-called traditional families—those composed of married couples with children—account for fewer than one-quarter of all U.S. households.Footnote To reach the more than three-quarters of households consisting of single parents, unmarried couples, singles, and "empty nesters" (whose children have left home), more companies are modifying the images used in their promotions.

Does Promotion Create Needs?

Some critics of promotion claim that it manipulates consumers by persuading them to buy products they do not need, hence creating "artificial" needs. In his theory of motivation, Abraham Maslow (discussed in Chapter 7) indicates that an individual tries to satisfy five levels of needs: physiological needs, such as hunger, thirst, and sex; safety needs; needs for love and affection; needs for self-esteem and respect from others; and self-actualization needs, or the need to realize one's potential. When needs are viewed in this context, it is difficult to demonstrate that promotion creates them. If there were no promotional activities, people would still have needs for food, water, sex, safety, love, affection, self-esteem, respect from others, and self-actualization. Although promotion may not create needs, it does capitalize on them (which may be why some critics believe promotion creates needs). Many marketers base their appeals on these needs. For instance, several mouthwash, toothpaste, and perfume advertisements associate these products with needs for love, affection, and respect. These advertisers rely on human needs in their messages, but they do not create the needs.

Digital distribution

Some products can forgo physical distribution altogether. Digital distribution involves delivering content through the Internet to a computer or other device. For example, when you watch a TV show on Netflix or Hulu or listen to music on Pandora or Spotify, those networks stream the content to your device so that you can consume them at the same time. In today's high-tech world, it is also possible to rent digital content, such as a textbook, or subscribe to software, such as Office 365, for a specific period of time after downloading them to a computer, tablet, or smartphone. Some services can also be distributed through digital channels such as booking travel services through Expedia.com or Hotels.com. It is important to recognize that the line between different marketing channels is becoming increasingly blurred. Consider that today's consumer expects to be able to order a product online from, say, Home Depot or Target, and pick up the order at their nearest retail store to avoid paying shipping. Many companies have distribution channels that include physical retail stores as well as Amazon.com or eBay. Younger consumers today have learned to shop online wherever they may be through their smartphones, though they may visit a retail store to assess a product for themselves, and then order it directly from the manufacturer's website or Amazon. Marketers are having to adjust their strategies to respond to the blurred lines between multiple marketing channels by ensuring they are using every channel their target market prefers to use and sending a consistent message across all distribution channels.

Superstores

Superstores, which originated in Europe, are giant retail outlets that carry not only the food and non-food products ordinarily found in supermarkets, but routinely-purchased consumer products such as housewares, hardware, small appliances, clothing, and personal-care products as well. Superstores combine features of discount stores and supermarkets and generally carry about four times as many items as supermarkets. Superstores also offer additional services, including dry cleaning, automotive repair, check cashing, and bill paying. Examples include Walmart Supercenters, some Kroger stores, SuperTarget stores, and Super Kmart Centers. To cut handling and inventory costs, superstores use sophisticated operating techniques and often have tall shelving that displays entire assortments of products. Superstores can have an area of as much as 200,000 square feet (compared with 20,000 square feet in traditional supermarkets). Sales volume is typically two to three times that of supermarkets, partly because locations near good transportation networks help generate the in-store traffic needed for profitability.

Technical Salespeople

Technical salespeople give technical assistance to the organization's current customers, advising them on product characteristics and applications, system designs, and installation procedures. Because this job is often highly technical, the salesperson usually has formal training in one of the physical sciences or in engineering. Technical sales personnel often sell technical industrial products, such as computers, heavy equipment, and steel. When hiring sales personnel, marketers seldom restrict themselves to a single category, because most firms require different types of salespeople. Several factors dictate how many of each type a particular company should have. Product use, characteristics, complexity, and price influence the kind of sales personnel used, as do the number and characteristics of customers. The types of marketing channels and the intensity and type of advertising also affect the composition of a sales force.

Television Home Shopping

Television home shopping presents products to television viewers, encouraging them to order through toll-free numbers and pay with credit cards. The Home Shopping Network originated and popularized this format. The most popular products sold through television home shopping are jewelry, clothing, housewares, and electronics. Most homes in the United States have access to at least one home shopping channel, with the Home Shopping Network and QVC being the largest. The television home shopping format offers several benefits. Products can be demonstrated easily, and an adequate amount of time can be spent showing the product so viewers are well-informed. The length of time a product is shown depends not only on the time required for performing demonstrations but also on whether the product is selling. Once the calls peak and begin to decline, hosts switch to a new product. Other benefits are that customers can shop at their convenience and from the comfort of their homes. This method is particularly popular among older consumers, who tend to be less comfortable with online shopping and are less mobile to physically go to a store.

Association of Southeast Asian Nations (ASEAN)

The Association of Southeast Asian Nations (ASEAN), established in 1967, promotes trade and economic integration among member nations in Southeast Asia. The trade pact includes Malaysia, the Philippines, Indonesia, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia.Footnote The region is home to over 600 million people with a combined GDP of $2.4 trillion.Footnote With its motto "One Vision, One Identity, One Community," member nations have expressed the goal of encouraging free trade, peace, and collaboration between member countries.Footnote ASEAN's three pillars are sociocultural, political, and economic. The ASEAN Economic Community (AEC) attempts to unite the regional economy. Despite the positive growth potential, ASEAN faces many obstacles in becoming a unified trade bloc. There have been conflicts among members themselves and concerns over issues such as human rights and disputed territories.Footnote Therefore, there are great opportunities but also substantial risk. The state-owned oil and gas company in Thailand, PTT Chemical Company, is one organization that looks to prosper from growth in the ASEAN trade bloc. With the population of Southeast Asia estimated to hit 690 million by 2020, the growing need for energy bodes well for PPT Chemical.Footnote As the advertisement shows, the organization is trying to affiliate itself with the ASEAN trade bloc by referring to itself as the Nouvelle Energy Company of the ASEAN. While many choose to compare ASEAN with the European Union, ASEAN members are careful to point out their differences. Although members hope to increase economic integration, they expressed that there will be no common currency or fully free labor flows between members. In this way, ASEAN plans to avoid some of the pitfalls that occurred among nations in the EU during the latest worldwide recession.

The World Trade Organization (WTO)

The World Trade Organization (WTO) is a global trade association that promotes free trade among 162 member nations. The WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which was originally signed by 23 nations in 1947 to provide a forum for tariff negotiations and a place where international trade problems could be discussed and resolved. Rounds of GATT negotiations reduced trade barriers for most products and established rules to guide international commerce, such as rules to prevent dumping, the selling of products at unfairly low prices. The WTO came into being in 1995 as a result of the Uruguay Round (1988-1994) of GATT negotiations. Broadly, WTO is the main worldwide organization that deals with the rules of trade between nations; its main function is to ensure that trade flows as smoothly, predictably, and freely as possible between nations. Fulfilling the purpose of the WTO requires eliminating trade barriers; educating individuals, companies, and governments about trade rules around the world; and assuring global markets that no sudden changes of policy will occur. At the heart of the WTO are agreements that provide legal ground rules for international commerce and trade policy. Based in Geneva, Switzerland, the WTO also serves as a forum for dispute resolution.Footnote For example, the WTO ruled against the United States regarding country-of-origin labels for meat products that required information on where the animals were born, raised, and slaughtered. Canada and Mexico argued that these laws discriminated against their livestock. The WTO agreed, which authorized Mexico and Canada to seek retaliatory measures against the United States if the law continues.

Defining the Advertising Objectives

The advertiser's next step is to determine what the firm hopes to accomplish with the campaign. Because advertising objectives guide campaign development, advertisers should define objectives carefully. Advertising objectives should be stated clearly, precisely, and in measurable terms. Precision and measurability allow advertisers to evaluate advertising success at the end of the campaign in terms of whether objectives have been met. To provide precision and measurability, advertising objectives should contain benchmarks and indicate how far the advertiser wishes to move from these standards. If the goal is to increase sales, the advertiser should state the current sales level (the benchmark) and the amount of sales increase sought through advertising. An advertising objective should also specify a time frame so that advertisers know exactly how long they have to accomplish the objective. An advertiser with average monthly sales of $450,000 (the benchmark) might set the following objective: "Our primary advertising objective is to increase average monthly sales from $450,000 to $540,000 within 12 months." If an advertiser defines objectives on the basis of sales, the objectives focus on increasing absolute dollar sales or unit sales, increasing sales by a certain percentage, or increasing the firm's market share. Even though an advertiser's long-run goal is to increase sales, not all campaigns are designed to produce immediate sales. Some campaigns aim to increase product or brand awareness, make consumers' attitudes more favorable, heighten consumers' knowledge of product features, or create awareness of positive, healthy consumer behavior, such as nonsmoking. If the goal is to increase product awareness, the objectives are stated in terms of communication. A specific communication objective might be to increase new product feature awareness, such as increased travel point rewards on a credit card from 0 to 40 percent in the target audience by the end of 6 months.

advertising appropriation

The advertising appropriation is the total amount of money a marketer allocates for advertising for a specific time period. Panera Bread Co., for instance, spends about $90 million on advertising per year. Many factors affect a firm's decision about how much to appropriate for advertising. Geographic size of the market and the distribution of buyers within the market have a great bearing on this decision. Both the type of product advertised and the firm's sales volume relative to competitors' sales volumes also play roles in determining what proportion of revenue to spend on advertising. Advertising appropriations for business products are usually quite small relative to product sales, whereas consumer convenience items, such as the cosmetics sold by L'Oréal, generally have large advertising expenditures relative to sales. For instance, Procter & Gamble spends a relatively high percentage of sales to market its product mix of cosmetics, personal care products, appliances, detergents, and pet food. Retailers like Walmart usually have a much lower percent of sales spent on advertising.

Product Attributes

The attributes of the product can have a strong influence on the choice of marketing channels. Marketers of complex and expensive products (like automobiles) will likely employ short channels, as will marketers of perishable products (such as dairy and produce). Less-expensive standardized products with long shelf lives, such as soft drinks and canned goods, can go through longer channels with many intermediaries. Fragile products that require special handling are likely to be distributed through short channels to minimize the amount of handling and risk of damage. Firms that desire to convey an exclusive image for their products may wish to limit the number of outlets available.

Managing Sales Territories

The effectiveness of a sales force that must travel to customers is somewhat influenced by management's decisions regarding sales territories. When deciding on territories, sales managers must consider size, geographic shape, routing, and scheduling.

Retail Positioning

The large variety of shopping centers and the expansion of product offerings by traditional stores, along with the increased use of retail technology, have all contributed to intense retailing competition. Retail positioning is therefore an important consideration. Retail positioning involves identifying an unserved or underserved market segment and reaching it through a strategy that distinguishes the retailer from others in the minds of customers in the market segment. For instance, H&M is positioned as a low-priced fashion-forward retailer. However, in an effort to be associated with fair business practices, the chain announced that prices would increase to allow the retailer to pay its employees a living wage, repositioning itself as a socially responsible retailer—not just a very low-priced one. This is in contrast to a number of discount and specialty store chains that have positioned themselves to appeal to time- and cash-strapped consumers with convenient locations and layouts as well as low prices. This strategy has helped many retailers gain market share at the expense of large department stores.

layout

The layout of an advertisement is the physical arrangement of the illustration and the copy (headline, subheadline, body copy, and signature). These elements can be arranged in many ways. The final layout is the result of several stages of layout preparation. As it moves through these stages, the layout promotes an exchange of ideas among people developing the advertising campaign and provides instructions for production personnel.

recognition and recall methods

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.

Break Even Point

The point at which the costs of producing a product equal the revenue made from selling the product. To calculate the break even point in terms of dollar sales volume, the seller multiplies the break even point in units by the price per unit. To use break-even analysis effectively, a marketer should determine the break even point for each of several alternative prices. It does assume, however, that the quantity demanded is basically fixed (inelastic) and that the major task in setting prices is to recover costs. It focuses more on how to break even than on how to achieve a pricing objective, such as percentage of market share or return on investment.

feedback

The receiver's response to a decoded message is feedback to the source. The source usually expects and normally receives feedback, although perhaps not immediately. During feedback, the receiver or audience provides the original source with a response to the message. Feedback is coded, sent through a communications channel, and decoded by the receiver, the source of the original communication. Thus, communication is a circular process, as indicated in Figure 16.1. During face-to-face communication, such as personal selling sales promotions, verbal and nonverbal feedback can be immediate. Instant feedback lets communicators adjust messages quickly to improve the effectiveness of their communications. For example, when a salesperson realizes through feedback that a customer does not understand a sales presentation, the salesperson adapts the presentation to make it more meaningful to the customer. This is why face-to-face communication is the most adaptive and flexible, especially compared to digital, web-based, or telephone communications. In interpersonal communication, feedback occurs through talking, touching, smiling, nodding, eye movements, and other body movements and postures. When mass communication like advertising is used, feedback is often slow and difficult to recognize. Also, it may be several months or even years before the effects of this promotion will be known. Some relevant and timely feedback can occur in the form of sales increases, inquiries about products, or changes in attitude or brand awareness levels.

Sales Force Management

The sales force is directly responsible for generating one of an organization's primary inputs: sales revenue. Without adequate sales revenue, businesses cannot survive. In addition, a firm's reputation is often determined by the ethical conduct of its sales force. Indeed, a positive ethical climate, one component of corporate culture, has been linked with decreased role stress and turnover intention and improved job attitudes and job performance in sales.Footnote Research has demonstrated that a negative ethical climate will trigger higher-performing salespeople to leave a company at a higher rate than those in a company perceived to be ethical.Footnote The morale and ultimately the success of a firm's sales force depend in large part on adequate compensation, room for advancement, sufficient training, and management support—all key areas of sales management. Salespeople who are not satisfied with these elements may leave. Evaluating the input of salespeople is an important part of sales force management because of its strong bearing on a firm's success. Empowering leadership that makes salespeople feel like important contributors positively impacts how a sales team spreads knowledge among its customers.Footnote Additionally, sales environments that stress creativity appear to place greater significance on the selection and placement of salespeople, sales force training, performance appraisals, and compensation systems.Footnote Table 18.1 provides directions on how to attract and retain a top-quality sales force. We explore eight general areas of sales management: establishing sales force objectives, determining sales force size, recruiting and selecting salespeople, training sales personnel, compensating salespeople, motivating salespeople, managing sales territories, and controlling and evaluating sales force performance.

Promotional Resources, Objectives, and Policies

The size of an organization's promotional budget affects the number and relative intensity of promotional methods included in a promotion mix. If a company's promotional budget is extremely limited, the firm is likely to rely on personal selling because it is easier to measure a salesperson's contribution to sales than to measure the sales effectiveness of advertising. Businesses must have sizable promotional budgets to use regional or national advertising. Companies such as Procter & Gamble, Unilever, General Motors, and Coca-Cola are among the leaders in worldwide media spending. Organizations with extensive promotional resources generally include more elements in their promotion mixes, but having more promotional dollars to spend does not necessarily mean using more promotional methods. Researchers have found that resources spent on promotion activities have a positive influence on shareholder value. An organization's promotional objectives and policies also influence the types of promotion selected. If a company's objective is to create mass awareness of a new convenience good, such as a breakfast cereal, its promotion mix probably leans heavily toward advertising, sales promotion, and possibly public relations. If a company hopes to educate consumers about the features of a durable good, such as a home appliance, its promotion mix may combine a moderate amount of advertising, possibly some sales promotion designed to attract customers to retail stores, and a great deal of personal selling, because this method is an efficient way to inform customers about such products. If a firm's objective is to produce immediate sales of nondurable services, the promotion mix will probably stress advertising and sales promotion. For instance, dry cleaners and carpet-cleaning firms are more likely to use advertising with a coupon or discount rather than personal selling.

multinational enterprise

The term multinational enterprise, sometimes called multinational corporation (MNC), refers to a firm that has operations or subsidiaries in many countries. Often, the parent company is based in one country and carries on production, management, and marketing activities in other countries. The firm's subsidiaries may be autonomous so they can respond to the needs of individual international markets, or they may be part of a global network led by the headquarters' operations. At the same time, a wholly owned foreign subsidiary may be allowed to operate independently of the parent company to give its management more freedom to adjust to the local environment. Cooperative arrangements are developed to assist in marketing efforts, production, and management. A wholly owned foreign subsidiary may export products to the home country, its market may serve as a test market for the firm's global products, or it may be a component of the firm's globalization efforts. Some U.S. automobile manufacturers, for example, import cars built by their foreign subsidiaries. A foreign subsidiary offers important tax, tariff, and other operating advantages. Table 9.6 lists some major multinational companies across the world. One of the greatest advantages of a multinational enterprise is the ability to adopt a cross-cultural approach. A subsidiary usually operates under foreign management so it can develop a local identity. In particular, the firm (i.e., seller) is often expected to adapt, if needed, to the buyer's culture. This may become less of an advantage over time as the cultural values of younger consumers (under 30 years of age) are becoming increasingly similar around the world. Today, a 20-year-old in Russia is increasingly similar in mindset to a 20-year-old in China and a 20-year-old in the United States, especially with regard to their tastes in music, clothes, cosmetics, and technology. This makes marketing goods and services to the younger population easier today than it was only a generation ago. Nevertheless, there is still great danger involved in having a wholly owned subsidiary in some parts of the world due to political uncertainty, terrorism threats, and economic instability. After the terrorist attacks in Paris, France, for instance, many large firms, including Coca-Cola Enterprises and Priceline Group, became more concerned about geopolitical risk since they receive 30 percent or more of their revenue from Europe. Whereas the most well-known multinational corporations come from developed countries, the world is seeing a rise in MNCs from emerging economies as well. Brazil's Embraer (an aircraft company) and South Africa's MTN (a mobile phone company) are two examples. India's Tata Group is even beginning to rival more established MNCs. Tata owns several firms that qualify as MNCs, specializing in such diverse products as cars, hotels, steel, and chemicals.

Press conferene

There are several other kinds of publicity-based public relations tools. For example, a press conference is a meeting called to announce major news events. Media personnel are invited to a press conference and are usually supplied with various written materials and photographs. Letters to the editor and editorials are sometimes prepared and sent to newspapers and magazines. Videos may be made available to broadcasters in the hope that they will be aired.

selective demand

To build selective demand, demand for a specific brand, a marketer employs promotional efforts that point out the strengths and benefits of a specific brand. Consider the advertisement for Mars Drinks. The advertisement depicts a businessman going through a tire run to demonstrate the challenges of the typical workday. The ad promotes its Mars Drinks product as the solution to staying productive and energized during the busy work day. Because the advertisement portrays a specific brand, it builds selective demand for the product. Building selective demand also requires singling out attributes important to potential buyers. Selective demand can be stimulated by differentiating the product from competing brands in the minds of potential buyers. Selective demand can also be stimulated by increasing the number of product uses and promoting them through advertising campaigns, as well as through price discounts, free samples, coupons, consumer contests and games, and sweepstakes. For example, Payless often offers buy-one-get-one free sales promotions to build selective demand for the company. Promotions for large package sizes or multiple-product packages are directed at increasing consumption, which in turn can stimulate demand. In addition, selective demand can be stimulated by encouraging existing customers to use more of the product.

Controlling and Evaluating Sales Force Performance

To control and evaluate sales force performance properly, sales management needs information. A sales manager cannot observe the field sales force daily and, thus, relies on salespeople's call reports, customer feedback, contracts, and invoices. Call reports identify the customers called on and present detailed information about interactions with those clients. Sales personnel must often file work schedules indicating where they plan to be during specific time periods. Data about a salesperson's interactions with customers and prospects can be included in the company's customer relationship management system. This information provides insights about the salesperson's performance. Dimensions used to measure a salesperson's performance are determined largely by sales objectives, normally set by the sales manager. If an individual's sales objective is stated in terms of sales volume, that person should be evaluated on the basis of sales volume generated. Even if a salesperson is assigned a major objective, he or she is ordinarily expected to achieve several related objectives as well. Thus, salespeople are often judged along several dimensions. Sales managers evaluate many performance indicators, including average number of calls per day, average sales per customer, actual sales relative to sales potential, number of new-customer orders, average cost per call, and average gross profit per customer. One survey found that 67 percent of sales managers use sales quotas as a form of measurement and 41 percent use winning new accounts. To evaluate a salesperson, a sales manager may compare one or more of these dimensions with predetermined performance standards. However, sales managers commonly compare a salesperson's performance with that of other employees operating under similar selling conditions or the salesperson's current performance with past performance. Sometimes, management judges factors that have less direct bearing on sales performance, such as personal appearance, product knowledge, and ethical standards. One concern is the tendency to reprimand top sellers less severely than poor performers for engaging in unethical selling practices. After evaluating salespeople, sales managers take any needed corrective action to improve sales force performance. They may adjust performance standards, provide additional training, or try other motivational methods. Corrective action may demand comprehensive changes in the sales force.

reorder point

To determine when to order, a marketer calculates the reorder point: the inventory level that signals the need to place a new order

Compensating Salespeople

To develop and maintain a highly productive sales force, an organization must formulate and administer a compensation plan that attracts, motivates, and retains the most effective individuals. The plan should give sales management the desired level of control and provide sales personnel with acceptable levels of income, freedom, and incentive. It should be flexible, equitable, easy to administer, and easy to understand. Good compensation programs facilitate and encourage proper treatment of customers. Obviously, it is quite difficult to incorporate all of these requirements into a single program. Figure 18.2 shows the average salaries for sales representatives. Developers of compensation programs must determine the general level of compensation required and the most desirable method of calculating it. In analyzing the required compensation plan, sales management must ascertain a salesperson's value to the company on the basis of the tasks and responsibilities associated with the sales position. Sales managers may consider a number of factors, including salaries of other types of personnel in the firm, competitors' compensation plans, costs of sales force turnover, and non-salary selling expenses. The average low-level salesperson earns $50,000 to $75,000 annually (including commissions and bonuses), whereas a high-level, high-performing salesperson can make hundreds of thousands a year. Sales compensation programs usually reimburse salespeople for selling expenses, provide some fringe benefits, and deliver the required compensation level. To achieve this, a firm may use one or more of three basic compensation methods: straight salary, straight commission, or a combination of the two. Table 18.2 lists the major characteristics, advantages, and disadvantages of each method.

Trade Sales Promotion Methods

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.

Establishing Sales Force Objectives

To manage a sales force effectively, sales managers must develop sales objectives. Sales objectives tell salespeople what they are expected to accomplish during a specified time period. They give the sales force direction and purpose and serve as standards for evaluating and controlling the performance of sales personnel. Sales objectives should be stated in precise, measurable terms; specify the time period and geographic areas involved; and be achievable. Sales objectives are usually developed for both the total sales force and individual salespeople. Objectives for the entire force are normally stated in terms of sales volume, market share, or profit. Volume objectives refer to dollar or unit sales. The objective for an electric drill producer's sales force, for instance, might be to sell $18 million worth of drills, or 600,000 drills annually. When sales goals are stated in terms of market share, they usually call for an increase in the proportion of the firm's sales relative to the total number of products sold by all businesses in that industry. When sales objectives are based on profit, they are generally stated in terms of dollar amounts or return on investment. Sales objectives, or quotas, for individual salespeople are commonly stated in terms of dollar or unit sales volume. Other bases used for individual sales objectives include average order size, average number of calls per time period, and ratio of orders to calls. Note the advertisement from LivePerson.com on messaging. LivePerson claims that using messaging rather than phone calls is less costly and more effective at making sales. In this case, a company might measure average number of messages per time period as a way of measuring sales objectives.

Multiple Marketing Channels

To reach diverse target markets, manufacturers may use more than one marketing channel simultaneously, with each channel involving a different group of intermediaries. A manufacturer often uses multiple channels when the same product is directed to both consumers and business customers. For example, when Heinz markets ketchup for household use, the product is sold to supermarkets through grocery wholesalers or, in some cases, directly to retailers, whereas ketchup being sold to restaurants or institutions follows a different distribution channel.

Everyday low prices

To reduce or eliminate the use of frequent short-term price reductions. 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.

communications channel

To share a coded meaning with the receiver or audience, a source selects and uses a communications channel, the medium of transmission that carries the coded message from the source to the receiver or audience. Transmission media include printed words (newspapers and magazines), broadcast media (television and radio), and digital communication. Figure 16.2 shows how consumers are increasingly getting their news from social media sites. When a source chooses an inappropriate communication channel, several problems may arise. The coded message may reach some receivers, but possibly the wrong receivers. Dieters who adopt the Weight Watchers diet may hear endorser Oprah Winfrey say that she ate bread every day and lost 26 pounds.Footnote This may attract some consumers who are not serious about dieting and who think that it is easy. An advertiser that wants to reach a specific target market would need to take this information into account when choosing an appropriate communications message and channel. While the Weight Watchers diet may be effective in helping people to lose weight, the purpose is not to attract people that want an excuse to eat whatever they want. Thus, finding the right messages that target the right receivers can be a challenging process.

Restricted Sales Territories

To tighten control over product distribution, a manufacturer may try to prohibit intermediaries from selling outside of designated sales territories. Intermediaries themselves often favor this practice, because it provides them with exclusive territories where they can minimize competition. Over the years, the courts have adopted conflicting positions in regard to restricted sales territories. Although the courts have deemed restricted sales territories a restraint of trade among intermediaries handling the same brands (except for small or newly established companies), they have also held that exclusive territories can actually promote competition among dealers handling different brands. At present, the producer's intent in establishing restricted territories and the overall effect of doing so on the market must be evaluated for each individual case.

coding process (encoding)

To transmit meaning, a source must convert the meaning into a series of signs or symbols representing ideas or concepts. This is called the coding process, or encoding. When coding meaning into a message, the source must consider certain characteristics of the receiver or audience. This is especially true for advertising. It is important to encode messages to prevent consumers from avoiding a conscious reception. Costs to the consumer in attention, time, and emotional response can diminish the impact of the message. Therefore, signs or symbols must resonate with the receiver. To share meaning, the source should use signs or symbols familiar to the receiver or audience. Research has shown that persuasive messages from a source are more effective when the appeal matches an individual's personality.Footnote Marketers that understand this realize the importance of knowing their target market and ensuring that an advertisement or promotion uses language the target market understands and that depicts behaviors acceptable within the culture. With the Hispanic market growing rapidly, marketers are increasingly using Spanish language media in their advertisements. When coding a meaning, a source needs to use signs or symbols that the receiver or audience uses to refer to the concepts the source intends to convey. Instead of technical jargon, explanatory language that helps consumers understand the message is more likely to result in positive attitudes and purchase intentions. Marketers try to avoid signs or symbols that may have several meanings for an audience. For instance, soda as a general term for soft drinks may not work well in national advertisements. Although in some parts of the United States the word means "soft drink," in other regions it may connote bicarbonate of soda, an ice cream drink, or something one mixes with alcoholic beverages.

Traditional specialty retailers

Traditional specialty retailers are stores that carry a narrow product mix with deep product lines. Sometimes called limited-line retailers, they may be referred to as single-line retailers if they carry unusual depth in one product category. Specialty retailers commonly sell such shopping products as apparel, jewelry, sporting goods, fabrics, computers, and pet supplies. The Limited, Gap, Sunglass Hut, and Foot Locker are examples of retailers offering limited product lines but great depth within those lines. Because they are usually small, specialty stores may have high costs in proportion to sales, and satisfying customers may require carrying some products with low turnover rates. Successful specialty stores understand their customers and know what products to carry, which reduces the risk of unsold merchandise. Specialty stores usually offer better selections and more sales expertise than department stores, their main competitors. By capitalizing on fashion trends, service, personnel, atmosphere, and location, specialty retailers position themselves strategically to attract customers in specific market segments.

Characteristics of Transactions with Business Customers

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.

Transportation

Transportation, the movement of products from where they are made to intermediaries and end users, is the most expensive physical distribution function. Transportation costs in the United States reached $907 billion, 62.6 percent of total logistics activities' costs. Because product availability and timely deliveries depend on transportation functions, transportation decisions directly affect customer service. In some cases, a firm may choose to build its distribution and marketing strategy around a unique transportation system if that system can ensure on-time deliveries and give the firm a competitive edge. Companies may build their own transportation fleets (private carriers) or outsource the transportation function to a common or contract carrier.

Outside sales force

Usually sales calls outside the firm are more consultative and are built on developing long-term relationships.

Vertical channel integration

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. 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.

Viral marketing

Viral marketing is a strategy to get consumers to share a marketer's message, often through e-mail or online video, in a way that spreads dramatically and quickly. The jewelry brand Pandora released an advertisement called "The Unique Connection" in which children were blindfolded and asked to identify their mothers based on their jewelry, facial structure, clothing, and hair. Each child was able to identify his or her mother successfully. The advertisement went viral, with more than 17 million viewings on YouTube. Interestingly, viral marketing appears to be more effective for products that are less utilitarian (practical and functional) in nature. Promoting utilitarian products through social sharing mechanisms such as Facebook may actually be disadvantageous for practical no-frills products. Word of mouth, no matter how it is transmitted, is not effective in all product categories. It seems to be most effective for new-to-market and more expensive products. Despite the obvious benefits of positive word of mouth, marketers must also recognize the potential dangers of negative word of mouth. This is particularly important in dealing with online platforms that can reach more people and encourage consumers to "gang up" on a company or product.

Warehouse club

Warehouse clubs, a rapidly growing form of mass merchandising, are large-scale, members-only operations that combine cash-and-carry wholesaling with discount retailing. Sometimes called buying clubs, warehouse clubs offer the same types of products as discount stores but in a limited range of sizes and styles. Whereas most discount stores carry around 40,000 items, a warehouse club handles only 3,500 to 5,000 products, usually brand leaders. Sam's Club stores, for example, stock about 4,000 items. Costco currently leads the warehouse club industry with sales of more than $113 billion. Sam's Club is second with around $58 billion in store sales. These establishments offer a broad product mix, including food, beverages, books, appliances, housewares, automotive parts, hardware, and furniture. To keep prices lower than those of supermarkets and discount stores, warehouse clubs offer few services. They also keep advertising to a minimum. Their facilities, frequently located in industrial areas, have concrete floors and aisles wide enough for forklifts. Merchandise is stacked on pallets or displayed on pipe racks. Customers must perform some marketing functions, like transportation of purchases, themselves. Warehouse clubs appeal to price-conscious consumers and small retailers unable to obtain wholesaling services from large distributors.

Warehouse showroom

Warehouse showrooms are retail facilities with five basic characteristics: large, low-cost buildings, warehouse materials-handling technology, vertical merchandise displays, large on-premises inventories, and minimal services. IKEA, a Swedish company that is the world's largest furniture retailer, sells furniture, household goods, and kitchen accessories in warehouse showrooms and through catalogs around the world. These high-volume, low-overhead operations offer few services and retain few personnel. Lower costs are possible at warehouse showrooms because some marketing functions have been shifted to consumers, who must transport, finance, and perhaps store products. Most consumers carry away purchases in the manufacturer's carton, although stores will deliver for a fee.

Warehousing

Warehousing, the design and operation of facilities for storing and moving goods, is another important physical distribution function. Warehousing provides time utility by enabling firms to compensate for dissimilar production and consumption rates. When mass production creates a greater stock of goods than can be sold immediately, companies warehouse the surplus until customers are ready to buy it. Warehousing also helps to stabilize prices and the availability of seasonal items. The advertisement for Magaya, a logistics software company that provides software for managing inventory in warehouses, highlights the importance of effective inventory management. The image of a worker carrying boxes clearly marked fragile illustrates the importance of effective inventory management systems that minimize product handling and maximize efficient warehouse operations. Choosing appropriate warehouse facilities is an important strategic consideration because they allow a company to reduce transportation and inventory costs and improve service to customers. The wrong type of warehouse can lead to inefficient physical distribution and added costs. Warehouses fall into two general categories: private and public. In many cases, a combination of private and public facilities provides the most flexible warehousing approach.

Exclusive Dealing

When a manufacturer forbids an intermediary to carry products of competing manufacturers, the arrangement is called exclusive dealing. Manufacturers receive considerable market protection in an exclusive-dealing arrangement and may cut off shipments to intermediaries that violate the agreement. The legality of an exclusive-dealing contract is determined by applying three tests. If the exclusive dealing blocks competitors from as much as 15 percent of the market, the sales volume is large, and the producer is considerably larger than the retailer, then the arrangement is considered anticompetitive. If dealers and customers in a given market have access to similar products or if the exclusive-dealing contract strengthens an otherwise weak competitor, the arrangement is allowed.

tying agreement

When a supplier (usually a manufacturer or franchiser) furnishes a product to a channel member with the stipulation that the channel member must purchase other products as well, it has negotiated a tying agreement. Suppliers may institute tying agreements as a means of getting rid of slow-moving inventory, or a franchiser may tie the purchase of equipment and supplies to the sale of franchises, justifying the policy as necessary for quality control and protection of the franchiser's reputation. A related practice is full-line forcing, in which a supplier requires that channel members purchase the supplier's entire line to obtain any of the supplier's products. Manufacturers sometimes use full-line forcing to ensure that intermediaries accept new products and that a suitable range of products is available to customers. The courts accept tying agreements when the supplier is the only firm able to provide products of a certain quality, when the intermediary is free to carry competing products as well, and when a company has just entered the market. Most other tying agreements are considered illegal.

Stimulate demand

When an organization is the first to introduce an innovative product, it tries to stimulate primary demand—demand for a product category rather than for a specific brand of product—through pioneer promotion. Pioneer promotion informs potential customers about the product: what it is, what it does, how it can be used, and where it can be purchased. Because pioneer promotion is used in the introductory stage of the product life cycle, meaning there are no competing brands, it neither emphasizes brand names nor compares brands. This tactic was taken when introducing chia seeds to the food market. Less than a decade ago, the nutritional benefits of chia seeds were relatively unknown. Advertisers therefore had to engage in pioneer advertising to spread awareness of the product category before focusing on specific brands. Today 37 percent of the U.S. population has heard of chia seeds as a food item.

The Impact of Word-of-Mouth Communications on Promotion

When making decisions about the composition of promotion mixes, marketers should recognize that commercial messages, whether from advertising, personal selling, sales promotion, or public relations, are limited in the extent to which they can inform and persuade customers and move them closer to making purchases. Depending on the type of customers and the products involved, buyers to some extent rely on word-of-mouth communication from personal sources, such as family members and friends. Word-of-mouth communication is personal, informal exchanges of communication that customers share with one another about products, brands, and companies. Most customers are likely to be influenced by friends and family members when they make purchases. Word-of-mouth communication is very important when people are selecting restaurants and entertainment along with automotive, medical, legal, banking, and personal services like hair care. Research has identified a link between word-of-mouth communication and new-customer acquisition when there is customer involvement and satisfaction. For this reason, organizations should proactively manage their word-of-mouth communications. Effective marketers who understand the importance of word-of-mouth communication attempt to identify opinion leaders and encourage them to try their products in the hope that they will spread favorable publicity about them. Apple, for example, has long relied on its nearly cult consumer following to spread by word of mouth their satisfaction with Apple products such as MacBooks, iPods, iPhones, and iPads. The impact of consumer-generated communication—communication not made by companies—is powerful and stands strong compared to commercial messages.Footnote Firms need to develop proactive management of word-of-mouth communication that considers both the sender and the receiver.Footnote Interestingly, women—unlike men—are more likely to share negative word of mouth with those they have strong social ties with rather than those with which they have weak social ties. Overall, consumers are more likely to share negative word-of-mouth information than positive word-of-mouth communication. In addition, customers are increasingly going online for information and opinions about goods and services as well as about the companies. Electronic word of mouth is communicating about products through websites, blogs, e-mail, social networks, or online forums. Users can go to a number of consumer-oriented websites, such as epinions.com and consumerreview.com. At these sites, they can learn about other consumers' feelings toward and experiences with specific products; some sites even encourage consumers to rate products they have tried. Users can also search within product categories and compare consumers' viewpoints on various brands and models. Not surprisingly, research has identified credibility as the most important attribute of a ratings website and found reducing risk and saving search effort to be the primary motives for using such sites.Footnote Buyers can peruse Internet-based newsgroups, forums, and blogs to find word-of-mouth information. A consumer looking for a new cell phone service, for example, might inquire in forums about other participants' experiences and level of satisfaction to gain more information before making a purchase decision. A Nielsen Global Survey of Trust in Advertising found that 83 percent of consumer respondents take action based on recommendations from friends and family, while 70 percent trust the advertising on branded websites.Footnote Celebrities who tweet about brands have source credibility if they have a large number of followers. If followers have a social identification with the celebrity, they are more likely to engage in product involvement. Electronic word of mouth, or word-of-mouth marketing that occurs through the use of Internet technology, is particularly important to consumers staying abreast of trends. Hundreds of blogs (such as TechCrunch, Perez Hilton, and Engadget) play an essential role in propagating electronic word-of-mouth communications about everything from gossip to politics to consumer goods. They provide consumers with information on trends, reviews of products, and other information on what is new, exciting, and fashionable for consumers. These sites have become so influential in introducing consumers to new products and shaping their views about them that marketers are increasingly monitoring them to identify new trends; some firms have even attempted to influence users' votes on their favorite items. Marketers must increasingly court bloggers, who wield growing influence over consumer perception of companies, goods, and services. Even print advertisements encourage electronic word of mouth. In the advertisement promoting the island of Maui as a vacation destination, the ad not only shows vibrant pictures of the area but also includes a Twitter hashtag and a Web address. By providing these elements, marketers are hoping that visitors to the sites will spread the word to other consumers.

Licensing and Franchising

When potential markets are identified across national boundaries, and when production, technical assistance, or marketing know-how is required, licensing is an alternative to direct investment. The licensee (the owner of the foreign operation) pays commissions or royalties on sales or supplies used in manufacturing. The licensee may also pay an initial down payment or fee when the licensing agreement is signed. Exchanges of management techniques or technical assistance are primary reasons for licensing agreements. Yoplait, for example, is a French yogurt that is licensed for production in the United States; the Yoplait brand tries to maintain a French image. Similarly, sports organizations like the International Olympic Committee (IOC), which is responsible for the Olympic Games, typically concentrate on organizing their sporting events while licensing the merchandise and other products that are sold. Licensing is an attractive alternative when resources are unavailable for direct investment or when the core competencies of the firm or organization are not related to the product being sold (such as in the case of Olympics merchandise). Licensing can also be a viable alternative when the political stability of a foreign country is in doubt. In addition, licensing is especially advantageous for small manufacturers wanting to launch a well-known brand internationally. Franchising is a form of licensing in which a company (the franchiser) grants a franchisee the right to market its product, using its name, logo, methods of operation, advertising, products, and other elements associated with the franchiser's business, in return for a financial commitment and an agreement to conduct business in accordance with the franchiser's standard of operations. This arrangement allows franchisers to minimize the risks of international marketing in four ways: the franchiser does not have to put up a large capital investment;, e franchiser's revenue stream is fairly consistent because franchisees pay a fixed fee and royalties; the franchiser retains control of its name and increases global penetration of its product; and nchise agreements ensure a certain standard of behavior from franchisees, which protects the franchise name.

selecting compensation method

When selecting a compensation method, sales management weighs the advantages and disadvantages listed in the table. Researchers have found that higher commissions are the most preferred reward, followed by pay increases. Yet preferences on pay tend to vary, depending upon the industry. The Container Store prefers to pay its sales staff salaries that are 100 percent higher than those offered by rivals instead of basing pay on commission plans.

Strategic Issues in Retailing

Whereas most business purchases are based on economic planning and necessity, consumer purchases are likely to be influenced by social and psychological factors. Because consumers shop for various reasons—to search for specific items, alleviate boredom, or learn about something new—retailers must do more than simply fill space with merchandise. They must make desired products available, create stimulating shopping environments, and develop marketing strategies that increase store patronage. In this section, we discuss how store location, technology, retail positioning, store image, and category management are used strategically by retailers.

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. 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 decisions.

push policy

With a push policy, the producer promotes the product only to the next institution down the marketing channel. In a marketing channel with wholesalers and retailers, the producer promotes to the wholesaler because, in this case, the wholesaler is the channel member just below the producer (see Figure 16.5). Each channel member in turn promotes to the next channel member. A push policy normally stresses personal selling. Sometimes sales promotion and advertising are used in conjunction with personal selling to push the products down through the channel.

Cents-Off Offers

With cents-off offers, buyers pay a certain amount less than the regular price shown on the label or package. A similar concept includes price discounts on services, which are usually embedded in promotions. Like coupons, this method can serve as a strong incentive for trying new or unfamiliar products and is commonly used in product introductions. It can stimulate product sales or multiple purchases, yield short-lived sales increases, and promote products during off-seasons. It is an easy method to control and is often used for specific purposes. If used on an ongoing basis, however, cents-off offers reduce the price for customers who would buy at the regular price and may also cheapen a product's image. In addition, the method often requires special handling by retailers who are responsible for giving the discount at the point of sale. The advertisement for Waterfall Resort Alaska offers a discount of 30 percent off a two-night package if customers call in soon. The advertisement appears to target those interested in fishing with its photo of a giant king salmon. By encouraging consumers to book their reservations now, Waterfall Resort Alaska is attempting to stimulate immediate sales.

Money Refunds

With money refunds, consumers submit proof of purchase and are mailed a specific amount of money. Usually, manufacturers demand multiple product purchases before consumers qualify for money refunds. Marketers employ money refunds as an alternative to coupons to stimulate sales. Money refunds, used primarily to promote trial use of a product, are relatively low in cost. However, they sometimes generate a low response rate and, thus, have limited impact on sales.

Rebates

With rebates, the consumer is sent a specified amount of money for making a single product purchase. Rebates are generally given on more expensive products than money refunds and are used to encourage customers. Marketers also use rebates to reinforce brand loyalty and encourage product purchase. On larger items, such as cars, rebates are often given at the point of sale. Most rebates, however, especially on smaller items, are given after the sale, usually through a mail-in process. For instance, Discount Tire might provide rebates during specific time periods for customers who purchase new tires, but the customer might have to mail in a form to be eligible for the rebate. Researchers find that these mail-in rebates are most effective in situations where consumers require a reason to purchase an item. On the other hand, rebates for products that provide instant gratification are more effective if provided at the point of purchase. One problem with money refunds and rebates is that many people perceive the redemption process as being too complicated. To eliminate these complications, many marketers allow customers to apply for a rebate online, which eliminates the need for forms that may confuse customers and frustrate retailers. Consumers might also have negative perceptions of manufacturers' reasons for offering rebates. They may believe the products are untested or have not sold well. If these perceptions are not changed, rebate offers may actually degrade product image and desirability.

Cost based pricing

a flat dollar amount or percentage is added to the cost of the product, which means marketers calculate and apply a desired level of profit to the cost of the product and apply it uniformly. Cost-based pricing does not necessarily take into account the economic aspects of supply and demand, nor must it relate to just one pricing strategy or pricing objective. Two common forms of cost-based pricing are cost-plus and markup pricing.

Base point pricing

a geographic pricing policy that includes the price at the factory, plus freight charges from the base point nearest the buyer. This approach to pricing has virtually been abandoned because of its questionable legal status. The policy resulted in all buyers paying freight charges from one location, such as Detroit or Pittsburgh, regardless of where the product was manufactured.

Proxemic communication

a less obvious form of communication used in personal selling situations, occurs when either person varies the physical distance separating them. When a customer backs away from a salesperson, for example, he or she may be displaying a lack of interest in the product or expressing dislike for the salesperson.

quota

a limit on the amount of goods an importing country will accept for certain product categories in a specific period of time. The United States maintains tariff-rate quotas on imported raw cane sugar, refined and specialty sugar, and sugar-containing products.

merchandise allowance

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.

scan-back allowance

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.

Price Competition

a marketer emphasizes price as an issue and matches or beats competitors' prices. To compete effectively on a price basis, a firm should be the low-cost seller of the product. Gives marketers flexibility. They can alter prices in response to changes in their costs or demand for the product.

Showrooming

a practice where consumers come into their stores, find what they want to purchase, and then go online to purchase it at a lower price.

Internal reference price

a price developed in the buyer's mind through experience with the product. It reflects a belief that a product should cost approximately a certain amount. To arrive at an internal reference price, consumers may consider one or more values, including what they think the product "ought" to cost, the price usually charged for it, the last price they paid, the highest and lowest amounts they would be willing to pay, the price of the brand they usually buy, the average price of similar products, the expected future price, and the typical discounted price.

buy-back allowance

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.

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.

Drop shippers

also known as desk jobbers, take title to products and negotiate sales but never take actual possession of products. They forward orders from retailers, business buyers, or other wholesalers to manufacturers and arrange for carload shipments of items to be delivered directly from producers to these customers. They assume responsibility for products during the entire transaction, including the costs of any unsold goods.

Price fixing

an agreement among competing firms to raise, lower, or maintain prices for mutual benefit.

Cooperative advertising

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.

new-task purchase,

an organization makes an initial purchase of an item to be used to perform a new job or solve a new problem. A new-task purchase may require development of product specifications, vendor specifications, and procedures for future product purchases. To make the initial purchase, the business buyer usually needs to acquire a lot of information. New-task purchases are important to suppliers because they can result in a long-term buying relationship if customers are satisfied.

Determining the appropriate pricing basis

analyzing the type of product, the market structure of the industry, the brand's market share position relative to competing brands, and customer characteristics

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.

Market based cost

calculated at the market price less a small discount to reflect the lack of sales effort and other expenses.

Limited-line wholesalers

carry only a few product lines, such as groceries, lighting fixtures, or oil-well drilling equipment, but offer an extensive assortment of products within those lines. AmerisourceBergen Corporation, for example, is a limited-line wholesaler of pharmaceuticals and health products.

Demand based pricing

customers pay a higher price at times when demand for the product is strong and a lower price when demand is weak. Many entertainment venues have implemented demand-based pricing for ticket sales. a marketer must be able to estimate the quantity of a product consumers will demand at different times and how demand will be affected by changes in the price. The marketer then chooses the price that generates the highest total revenue. Demand-based pricing is appropriate for industries in which companies have a fixed amount of available resources that are perishable, such as airline seats, hotel rooms, concert seats, and so on. The effectiveness of demand-based pricing depends on the marketer's ability to estimate demand accurately. Compared with cost-based pricing, demand-based pricing places a firm in a better position to reach high profit levels, as long as demand is strong at times and buyers value the product at levels sufficiently above the product's cost.

stages for establishing prices

development of pricing objectives, assessment of target market's evaluation of price, evaluation of competitors prices, selection of a basis for pricing, selection of a pricing strategy, determination of a specific price

Product line pricing

establishing and adjusting the prices of multiple products within a product line. When marketers use product-line pricing, their goal is to maximize profits for an entire product line rather than to focus on the profitability of an individual product item. Product-line pricing can provide marketers with pricing flexibility.

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. 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. 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

Rack jobbers

full-service, specialty-line wholesalers that own and maintain display racks in supermarkets, drugstores, and discount and variety stores. Retailers provide the space, and they set up displays, mark merchandise, stock shelves, and keep billing and inventory records. Rack jobbers specialize in non-food items with high profit margins, such as health and beauty aids, books, magazines, hosiery, and greeting cards.

Developing pricing objectives

goals that describe what a firm wants to achieve through pricing. Developing pricing objectives is an important task because they form the basis for decisions for other stages of the pricing process

Point-of-purchase (POP) materials

include outdoor signs, window displays, counter pieces, display racks, and self-service cartons. Innovations in POP displays include sniff-teasers, which give off a product's aroma in the store as consumers walk within a radius of 4 feet, and computerized interactive displays. These items, often supplied by producers, attract attention, inform customers, and encourage retailers to carry particular products. Retailers have also begun experimenting with new forms of POP technology, such as interactive kiosks allowing shoppers to browse through products. A retailer is likely to use point-of-purchase materials if they are attractive, informative, well-constructed, and in harmony with the store's image.

Price war

involves two or more companies engaging in intense price competition, often in an effort to boost market share. Chronic price wars often benefit consumers in the form of lower prices in the short run, but the constant price cutting is seldom sustainable, so they can substantially weaken organizations by slashing profit margins for everyone.

Marginal Revenue

is the change in total revenue that occurs when a firm sells an additional unit of a product

Average total cost

is the sum of the average fixed cost and the average variable cost. follows a U shape. Because average total cost continues to fall after average variable cost begins to rise, its lowest point is at a higher level of output than that of average variable cost.

F.O.B. destination price

means the producer absorbs the costs of shipping the merchandise to the customer. This policy may be used to attract distant customers

Follow up

n the follow-up stage, the salesperson determines whether the order was delivered on time and installed properly, if installation was required. He or she should contact the customer to learn if any problems or questions regarding the product have arisen. The follow-up stage is also used to determine customers' future product needs. the follow-up stage is vital to establishing a strong relationship and creating loyalty on the part of the buyer.

supply chain

ncludes all the organizations and activities involved with the flow and transformation of products from raw materials through to the end customer. A distribution system involves firms that are "upstream" in the supply chain (e.g., producers and suppliers) and "downstream" (e.g., wholesalers and retailers) working together to serve customers and generate competitive advantage. Historically, marketing focused solely on certain downstream supply-chain activities. Today, however, marketing professionals are recognizing that they can reduce costs, boost profits, and better serve customers by effectively integrating activities along the entire supply chain. Doing so requires marketing managers to work with other managers in operations, logistics, and supply.

Trade salespeople

not strictly support personnel, because they usually take orders as well. However, they direct much effort toward helping customers—especially retail stores—promote the product. They are likely to restock shelves, obtain more shelf space, set up displays, provide in-store demonstrations, and distribute samples to store customers. Food producers and processors commonly employ trade salespeople.

odd-even pricing

nvolves ending a price with certain numbers. Through this strategy, marketers try to influence buyers' perceptions of the product. It aligns with the belief among many retailers that consumers respond more positively to odd-number prices, such as $4.99, than to whole-dollar prices, such as $5, for items where customers are looking for value. Odd pricing is the strategy of setting prices using odd numbers that are slightly below whole-dollar amounts

Nonprice competition

occurs when a seller decides not to focus on price and instead emphasizes distinctive product features, service, product quality, promotion, packaging, or other factors to distinguish its product from competing brands. A major advantage of nonprice competition is that a firm can build customer loyalty toward its brand.

Noncumulative discounts

one-time reductions in prices based on the number of units purchased, the dollar value of the order, or the product mix purchased. Like cumulative discounts, these discounts should reflect some economies in selling or trade functions.

Factors influencing demand

other factors in the marketing mix, including product quality, promotion, and distribution. Changes in buyers' needs, variations in the effectiveness of other marketing-mix variables, the presence of substitutes, and dynamic environmental factors can influence demand.

Personal sellng

paid personal communication that attempts to inform customers and persuade them to purchase products in an exchange situation

Prestige pricing

prices are set at an artificially high level to convey a quality image. Prestige pricing is used especially when buyers associate a higher price with higher quality.

Random discounting

reduce their prices temporarily on a nonsystematic basis. When price reductions of a product occur randomly, current users of that brand are not able to predict when the reductions will occur. Random discounting can also be useful to draw attention to a relatively new product.

Customer response

refers to whether the price will move customers closer to purchase of the product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase.

reorder point formula

reorder point = (order lead time x usage rate) + safety stock

straight salary compensation plan

salespeople are paid a specified amount per time period, regardless of selling effort. This sum remains the same until they receive a pay increase or decrease. Although this method is easy to administer and affords salespeople financial security, it provides little incentive for them to boost selling efforts.

combination compensation plan

salespeople receive a fixed salary plus a commission based on sales volume. Some combination programs require that a salesperson exceed a certain sales level before earning a commission; others offer commissions for any level of sales.

straight commission compensation plan

salespeople's compensation is determined solely by sales for a given period. A commission may be based on a single percentage of sales or on a sliding scale involving several sales levels and percentage rates (e.g., sales under $500,000 a quarter would receive a smaller commission than sales over $500,000 each quarter). Although this method motivates sales personnel to escalate their selling efforts, it offers them little financial security, and it can be difficult for sales managers to maintain control over the sales force. Many new salespeople indicate a reluctance to accept the risks associated with straight commission. However, more experienced salespeople know this option can provide the greatest income potential.

Secondary-marketing pricing

setting one price for the primary target market and a different price for another market. Often the price charged in the secondary market is lower.

uniform geographical pricing

sometimes called postage-stamp pricing, may be used. The same price is charged to all customers regardless of geographic location, and the price is based on average shipping costs for all customers. Paper products and office equipment are often priced on a uniform basis.

Captive pricing

the basic product in a product line is priced low, but the price on the items required to operate or enhance it are higher. A common example of captive pricing is printer ink.

target audience

the group of people at whom advertisements are aimed. Advertisements for the Dyson vacuum cleaner target more affluent home owners, whereas the Dirt Devil targets lower- to middle-income households. Identifying and analyzing the target audience are critical processes; the information yielded helps determine other steps in developing the campaign. The target audience may include everyone in the firm's target market. Marketers may, however, direct a campaign at only a portion of the target market. Italian company Tod's develops luxury shoes, bags, and other leather goods for those who desire prestige products. Therefore, its advertising focuses on the luxury market. Advertisers research and analyze advertising targets to establish an information base for a campaign. Information commonly needed includes location and geographic distribution of the target group; the distribution of demographic factors, such as age, income, race, gender, and education; lifestyle information; and consumer attitudes regarding purchase and use of both the advertiser's products and competing products. The exact kinds of information an organization finds useful depend on the type of product being advertised, the characteristics of the target audience, and the type and amount of competition. Additionally, advertisers must be sure to create a campaign that will resonate with the target market. For instance, privacy concerns and irritating ads lead to avoidance, but when online and direct-mail advertising personalizes the information, acceptance of the ad tends to increase.Footnote Generally, the more an advertiser knows about the target audience, the more likely the firm is to develop an effective advertising campaign. The advertisement for Quaker oatmeal clearly demonstrates that its target audience is those who seek a healthy breakfast. Knowing the target market for a company helps in developing an effective marketing mix, including relevant promotions that specifically target this group. The advertisement substitutes half of a bicycle wheel with a photo of its oatmeal to reinforce its association with healthy living. When the advertising target is not precisely identified and properly analyzed, the campaign may fail.

Price discrimination

the practice of employing price differentials that tend to injure competition by giving one or more buyers a competitive advantage over other buyers, is prohibited by law.

cost-plus pricing

the seller's costs are determined (usually during a project or after a project is completed), and then a specified dollar amount or percentage of the cost is added to the seller's cost to establish the price. When production costs are difficult to predict, cost-plus pricing is appropriate. One pitfall for the buyer is that the seller may increase stated costs to gain a larger profit base. Furthermore, some costs, such as overhead, may be difficult to determine. In periods of rapid inflation, cost-plus pricing is popular, especially when the producer must use raw materials that frequently fluctuate in price

Price scimming

the strategy of charging the highest possible price for a product during the introduction stage of its life cycle. A skimming policy can generate much-needed initial cash flows to help offset development costs. Price skimming protects the marketer from problems that arise when the price is set too low to cover costs.

Penetration pricing

the strategy of setting a low price for a new product. The main purpose of setting a low price is to build market share quickly to encourage product trial by the target market and discourage competitors from entering the market. This approach is less flexible for a marketer than price skimming, because it is more difficult to raise the price of a product from a penetration price than to lower or discount a skimming price. It is not unusual for a firm to use a penetration price after having skimmed the market with a higher price.

Periodic discounting

the temporary reduction of prices on a patterned or systematic basis. As a result, many retailers have annual holiday sales, and some apparel stores have regular seasonal sales. From the marketer's point of view, a major problem with periodic discounting is customers can predict when the reductions will occur and may delay their purchases until they can take advantage of the lower prices. Periodic discounting is less effective in an environment where many consumers shop online because they can more easily comparison shop for a better deal even during non-sale times.

Operations management

the total set of managerial activities used by an organization to transform resource inputs into goods, services, or both.

barter

the trading of products, is the oldest form of exchange. Barter among businesses, because of the relatively large values of the exchanges, usually involves trade credit. Corporate barter amounts to an estimated $20 billion

deceptive pricing

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

Price

the value paid for a product in a marketing exchange. Price is often the only thing a marketer can change quickly to respond to changes in demand, the actions of competitors, or the marketing environment.

high pricing

they can emphasize the quality of a product and try to increase the prestige associated with its ownership

Factors influencing the assessment of value

time constraints, price levels, perceived quality, and motivations to use available information about prices

professional pricing

used by people who have great skill or experience in a particular field. Although costs are considered when setting prices, professionals often believe their fees should not relate directly to the time and/or effort spent in specific cases. Rather, professionals may charge a standard fee regardless of the problems involved in performing the job.

communication

we define communication as a sharing of meaning. Implicit in this definition is the notion of transmission of information because sharing necessitates transmission.