Marketing Chapter 9, 10, 11

Other ways of assessing customer expectations

-Gather them at the time of the sale → ask customers how they liked the service - Make effective use of customer complaint behaviour. - Have managers at the front line

Brand Dilution

When the brand extension adversely affects consumer perceptions about the attributes the core brand is believed to hold

3 Basic Brand Ownership Strategies

• *Manufacturer brands* - owned and managed by the manufacturer and include Nike, Mountain Dew etc. - By owning their brands, manufacturers retain more control over their marketing strategy, choose the appropriate segments and positioning for the brand, and can build the brand and create their own brand equity. •* Private-label brands* - brands that are owned and managed by retailers. ex: President's Choice • *Generic* - products that are sold without brand names, typically in commodities markets - Consumers question the quality of these brands

Laws

• The Food and Drugs Act regulates the info on food, drugs, and cosmetics package labels. • The Consumer Packaging and Labelling Act covers food products and ensures that the claims made by the manufacturer are true and that labels accurately reflect ingredients and quantities.

4 Differences unique to services

*1) Intangible* *2) Inseparable Production and Consumption* *3) Inconsistent* (quality won't always be the same) - Inconsistency can be reduced through training and standardization, or by replacing humans with machines - Can leverage this by using a micro-marketing segmentation strategy→ personalize each encounter *4) Inventory* • Services are perishable b/c they cannot be held in inventory or stored for future use • Perishability of services provides both challenges and opportunities to marketers in terms of critical task of matching demand and supply • For service companies, excess demand results in having to turn customers away in peak period

3 Service Recovery Strategies

*1) Listening to customers 2) Providing a Fair Solution* - Distributive Fairness: customer's perception of the benefits he received compared with the costs (inconvenience or loss) from the service failure. Want tangible solutions not just an apology - Procedural Fairness: perceived fairness of the process used to resolve complaints *3) Resolving the problem quickly* Avoids negative word of mouth

KG: 5 dimensions to determine service quality

*1) Reliability*: ability to perform the service dependably an accurately *2) Responsiveness:* willingness to help customers and provide prompt services *3) Assurance*: knowledge of and courtesy by workers and their ability to convey trust/confidence *4) Empathy*: caring, individualized attention provided to customers *5) Tangibles*: appearance of physical facilities, equipment, personnel, communication materials

Factors influencing price elasticity of demand

*1. Income effect* - more income= more spending *2. Substitution effect* - Greater availability of substitutes= higher price elasticity to demand *3. Cross-price elasticity * - % change in the quantity of Product A demanded compared with the % change in price in Product B - Complementary Products: products whose demands are positively related - Substitute Products: demands are negatively correlated

4. Competition (4 levels)

*1. Monopoly *- only one firm provides the product or service *2. Oligopolistic Competition*- only a few firms dominate -Firms typically change their prices in reaction to competition to avoid upsetting an otherwise stable competitive environment. - Can lead to price war *3. Monopolistic Competition*- many firms selling differentiated products at different prices *4. Pure Competition*- many firms selling commodities for the same price - price regulated by supply and demand laws - secret to pricing here is to decommoditize/differentiate products

Types of Consumer products

*1. Specialty products/services* Customers show such a strong preference for these & expend considerable effort to search for the best suppliers *2. Shopping products/services* Furniture, apparel, fragrances, appliances, and travel alternatives, for which consumers will spend a fair amount of time comparing alternatives. *3. Convenience products/services* They are frequently purchased commodity items, usually with very little thought. ex: soap, bread *4. Unsought products/services* Consumers either do not think of buying or do not know about. So these products require lots of marketing effort and various forms of promotion.

Pricing Strategies/Methods

*Cost-Based Methods* - Determines final price by starting with cost - Cost based pricing requires that all costs can be identified and calculated on a per-unit basis - Does not consider role of consumers of competitors in market *Competitor-Based Methods* - set prices to reflect the way they want consumers to interpret their own prices relative to the competitors' offerings *Value-Based Methods* - approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer 2 key approaches; 1. Improvement value method - Represents an estimate of how much more consumers are willing to pay for a product relative to other comparable products 2. Cost of ownership method - Consumers may be willing to pay more for a particular product because it will eventually cost less to own than a cheaper alternative

Methods to reduce delivery gap

*Empowering service provider* to act in customer/firm's best interest - With employee empowerment (allowing them to make decisions)→ quality generally improves - more important when services are more individualized *Providing support & incentives* so employees do their job effectively - Managers/coworkers should provide emotional support to service providers - Service providers require instrumental support - Support from managers should be consistent and coherent throughout the organization - Provide rewards to employees for excellent service *Use technology* - Important method for facilitating the delivery of services - Kiosks and self-checkout machines can also help close the delivery gap

Other influences on pricing

*Internet*- Increased online availability of products and information as made consumers more price sensitive. Show rooming --> consumer visit store to see, touch product and then buy it online for less *Economic Factors* - Disposable Income - Status-Consciousness - Cross shopping: buying a combination of cheap and expensive products

Product Line Depth and Changing it

*Product line depth* # of products within a product line

Product Mix Breadth and Changing it

*Product mix breadth (variety)*: # of product lines offered by the firm - Increasing it: When capturing new and evolving markets, increase sales, compete in new venues - Decreasing in: to address changing market conditions or meet internal strategic priorities. * Too much variety in the product mix is often too costly to maintain, and too many brands may weaken the firm's brand reputation*

Two distinct pricing strategies for new products: 1) Skimming

*Skimming*: esp. for new and innovative products, innovators and early adopters are willing to pay a higher price to obtain the new product/service first. - After this high-price segment becomes saturated and sales slow down, lower the price to capture (or skim) the next most price-sensitive segment, which is willing to pay a somewhat lower price. - Continue until the demand for the product has been satisfied, even at the lowest price points. - For a skimming strategy to be successful, competitors cannot be able to enter the market easily

KG: Voice-of-customer (VOC) program, Zone of tolerance

*VOC*: Ongoing marketing research system that collects customer insights and intelligence to influence and drive business decisions *Zone of Tolerance*: area between customers' expectations regarding their desired service and the minimum level of acceptable service → difference between what the customer really wants and what he will accept before going elsewhere. - Questions to ask about ZOT: 1) Desired and expected level of service for each dimension, from low to high. 2) Customers' perceptions of how well the focal service performs and how well a competitive service performs, from low to high. 3) The importance of each service quality dimension.

Brand Name Strategies

- *Corporate Brands* - ex: The Gap stores (gap kids, gap maternity..etc.) - *Family Brands* -ex: Kellog's Froot Loops, Kellog's Special K etc. - *Individual Brands* - ex: Tide, Gain, Febreeze etc. (all under P&G)

Product Mix, Product Lines, Product Categories, SKUs

- *Product Mix*: Complete set of products offered by firm - Consists of various *product lines*: groups of associated items, such as items that consumers use together or think of as part of a group of similar products (ex: oral care, household care, laundry) - Within each product line, there are often multiple *product categories*: assortment of items that the customer sees as reasonable substitutes for one another. → For example, in the oral care product line, Colgate offers several categories with a variety of offerings to choose from in each: toothpaste, whitening products - Within each product category are a number of individual items called *stock keeping units (SKUs)*: smallest unit available for inventory control

2. Customers (& price elasticity of demand)

- About understanding consumer reactions to different prices. Use demand curve. - Use* price elasticity of demand:* measures how changes in a prices affect the quannity of the product demanded. We can calculate it with the following formula • Price Elasticity of Demand = (% change in quantity demanded) / (C% change in price) • Market for a product is price sensitive (elastic) when the price elasticity is less than -1 •Market for a product is price insensitive (inelastic) when price elasticity is greater than -1

KG: Understanding expectations

- Based on knowledge/experiences - Expectations vary according to type of service - Also vary depending on situation (business travel vs. vacation)

Value of Branding (6)

- Brands Facilitate Purchasing - Brands Establish Loyalty - Brands Protect from Competition and Price Competition - Brands Reduce Marketing Costs→brand sells itself - Brands are Assets → can be legally protected - Brands Impact Market Value →affects earning potential and bottom line

The service gap

- Companies need to set high service standards, enforce these standards and train employees on how to perform their tasks to these standards - Managers must lead by example - Managers must set specific, measurable goals based on customer expectations to help ensure that quality

Brand Licensing

- Contractual arrangement between firms; one firm allows another to use its brand name, logo, symbols, and/or characters in exchange for a negotiated fee. - Effective for attracting visibility to the brand and thereby building brand equity generating more $$] - Risk of diluting the brand from overexposure

The delivery gap

- Delivery gap is where "the rubber meets the road" where customer directly interacts with the service provider - Even if there are no other gaps, a delivery gap always results in a service failure - Delivery gaps can be reduced when employees are empowered to act in the customers and the firms best interests are supported in their efforts

The Communication Gap

- Difference between the service promised and the service actually delivered. - Communication gap can be reduced by managing customer expectations, don't set expectations too high - Manage customer expectations → consider both the time the expectation is created and the time the service is provided

3. Costs

- Firms must understand their cost structures so they can determine the degree to which their products or services will be profitable at different prices - Price should NOT be based on costs because consumers make purchase decisions based on their perceived value; they care little about the firms costs to produce an and sell a product/service

Gaps Model

- Highlight areas where customers believe they are getting less or poorer services than they expect (the gaps) and how these gaps can be closed. - The Gaps Model encourages the systematic examination of all aspects of the service delivery process and prescribes the steps needed to develop an optimal service strategy

Packaging

- Important brand element with more tangible or physical benefits than the other brand elements because packages come in different types and offer a variety of benefits - Important marketing tool for the manufacturer if it is used to convey the brand's positioning

5. Channel Members

- Manufacturers, wholesalers, and retailers can have different perspective when it comes to pricing strategies - Grey market - employs irregular but not necessarily illegal methods, It legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacture

2) Market Penetration Pricing

- Set the initial price low for the intro of the new product or service. - With penetration pricing, profits flow through volume (vs. through margin like price skimming - Discourages competitors from entering - Drawback - firms must have capacity to satisfy a rapid rise in demand - *Experience curve effect* many firms expect the unit cost to drop significantly as the accumulated volume sold increases → as sales grow, the costs drop, allowing even further reductions in the price.

Cobranding

-Marketing two or more brands together, on the same package or promotion. - Co-branding enhances consumers perceptions of product quality by signalling otherwise unobservable product quality through links between the firms brand and a well-known quality brand - Can fail if consumer profiles are too different. Ex: Burger King and Haagen-Dazs

4 Service Gaps

1) *Knowledge gap*: difference between customer expectations & firm's perception of customer expectations → close gap by matching customer expectations with actual service through research. 2) *Standards gap*: difference between the firm's perceptions of customers' expectations & service standards it sets → set appropriate service standards and measure service performance. 3) *Delivery gap*: difference between the firm's service standards & actual service it provides to customers. This gap can be closed by getting employees to meet or exceed service standards. 4) *Communication gap*: difference between actual service provided & service promised by promotion → be more realistic about services they can provide, manage customer expectations effectively.

To avoid negative consequences of brand extension consider:

1) The fit between the product class of the core brand and that of the extension 2) Consumer perceptions of the attributes of the core brand and seek similar attributes for the extension 3) Firms should refrain from extending the brand name to too many products and product categories to avoid diluting the brand and damaging brand equity. 4) Consider whether the brand extension will be distanced from the core brand,

The 5 Cs of Pricing

1. Company objective 2. Customers 3. Costs 4. Competition 5. Channel Members

4 Aspects of Brand Equity

1.*Brand Awareness* - measures how many consumers in a market are familiar with the brand and what it stands for - Are most important for products that are bought without much though (ex: soap) or for infrequently purchased items 2. *Perceived Value* - the relationship between a product or service benefits and its cost 3. *Brand Associations* - reflect the mental links that consumers make between a brand and its key product attributes such as a logo, slogan or famous personality - Ex: Walmart know for low costs, slogan= "Save money, Live better" 4. *Brand Loyalty*- when a consumer buys the same brand's product or service repeatedly over time - Loyal consumers are less sensitive to price, marketing costs to reach these consumers are lower, insulates the firm from competition, loyal consumers praise the brand by word of mouth

Core customer value

Defines the basic problem solving benefits that consumers are seeking. What are customers looking for?

1. Company objective (& 4 common)

Each firm embraces an objective that fits with where management thinks the firm needs to go to be successful *1. Profit Orientation* Focus on one of: - Target Profit Pricing -Maximizing profits strategy - Target return pricing (ROE) *2. Sales Orientation* - Believe that increasing sales will help the firm more than increasing profits - Firms can gain market share by simply offering high quality products at fair price *3. Competitor Orientation* - Measure themselves primarily against their competition - Some focus on competitive parity: they set prices that are similar to those of their major competitors. *4. Customer Orientation* -Explicitly invokes the concept of value - Can focus on customer satisfaction and setting prices to match expectations - Or no haggle approach to reduce overall process costs and therefore increase value

Labelling

Labels on products/packages provide info the consumer needs for purchase decision &consumption of the product. → Identify the product and brand, important element of branding and promotion.

Associated Services (augmented product)

Nonphysical aspects of the product → product warranties, financing, product support, after-sale service

Price

Overall sacrifice a consumer is willing to make to acquire a specific product or service. (including travel or time costs)

Branding

Provides a way for a firm to differentiate its product offerings from those of its competitors and can be used to represent the name of a firm and its entire product mix, product or single item

Brand Extension

Refers to the use of the same brand name for new products being introduced to the same or new markets - Ex: Roots extending its brand from athletic clothing to leather bags Some advantages: - Because the brand name is already well established, the firm can spend less in developing consumer brand awareness and brand associations for the new product. - If the brand is known for its high quality, that perception will carry over to the new product.

Brand Equity

The value of a brand translates into *brand equity* or the set of assets an liabilities linked to a brand that add to or subtract from the value provided by the product or service

Desirable qualities of a name

o Brand name should be descriptive and suggestive of benefits and qualities associated with the product o Brand name should be easy to pronounce, recognize and remember o Companies should be able to register the name as a trademark and legally protect it o For companies looking to global markets, the brand name should be easy to translate into other languages