Marketing Final Review

Steps to setting the price

-A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enters bids on new contract work. The firm must decide where to position its product on quality and price. Most markets have three to five price points or tiers. Firms devise their branding strategies to help convey the price-quality tiers of their products or services to consumers. -Selecting the Pricing objective -Determining the demand -Estimating costs -Analyzing competitors' costs, prices, and offers -Selecting a pricing method -Selecting the final price

Marketing Communications Mix

-Advertising -Sales Promotion -Events and Experiences -Public relations and publicity -Online and social media marketing -Mobile marketing -Direct and database marketing -Personal selling

New Product Options

-Buy other companies -Buy patents from other companies -Buy a license or franchise from another company -New-to-the-world items -Improvine existing products A company can add new products through acquisition or development. Firms can successfully make only so many acquisitions. At some point, they need organic growth—the development of new products from within. New products range from new-to-the-world items that create an entirely new market to minor improvements or revisions of existing products. Most new-product activity is devoted to improving existing products. It is increasingly difficult to identify blockbuster products that will transform a market, but continuous innovation can broaden the brand meaning and also force competitors to play catch-up.

Digital Channels Revolution

-Customer support in store/online/phone -Check online for product availability at local stores -Order product online to pick up at store -Return a product purchased online to a nearby store

New-product failure

-Fragmented markets -Social, economic, and government constraints -Development costs -Capital shortages -Shorter development time -Poor launch timing -Shorter PLCs -Lack of organizational support New products continue to fail at rates estimated as high as 50 percent or even 95 percent in the United States and 90 percent in Europe. The reasons are many: ignored or misinterpreted market research; overestimates of market size; high development costs; poor design or ineffectual performance; incorrect positioning, advertising, or price; insufficient distribution support; competitors who fight back hard; and inadequate ROI or payback. Some additional drawbacks new-product launches face are on this slide.

Pricing in a digital world

-Get instant vendor price comparisons -Check prices at the point of purchase -Name your price and have it met -Get products free -Monitor customer behavior & tailor offers -Give customers access to special prices -Negotiate prices online or even in person

New-Product Development Process

-Idea generation: Is the idea worth considering? -Idea screening: Is the product compatible with company objectives, strategies, and resources? -Concept development and testing: Can we find a good concept consumers say they would try? -Marketing strategy development: Can we find a cost-effective, affordable marketing strategy? -Business analysis: Will this product meet our profit goal? -Product development: Have we got a technically and commercially sound product? -Marketing testing: Have product sales met expectations? -Commercialization: Are product sales meeting expectations? The stages in the new-product development process are shown in Figure 15.1. Many firms have parallel sets of projects working through the process, each at a different stage. Think of the process as a funnel: A large number of initial new-product ideas and concepts are winnowed down to a few high-potential products that are ultimately launched.

What are the different advertising objectives?

-Informative -Persuasive -Reminder -Reinforcement

What are the 5 ms of advertising?

-Mission -Money -Message -Media -Measurement

Major Trade Promotion Tools include:

-Price-Off (off-invoice or off-list) -Allowance -Free goods Manufacturers use a number of trade promotion tools (see Table 20.4). They award money to the trade (1) to persuade the retailer or wholesaler to carry the brand; (2) to persuade the retailer or wholesaler to carry more units than the normal amount; (3) to induce retailers to promote the brand by featuring, display, and price reductions; and (4) to stimulate retailers and their sales clerks to push the product. Manufacturers often find it difficult to police retailers to make sure they are doing what they agreed to do and increasingly insist on proof of performance before paying any allowances. Manufacturers face several challenges in managing trade promotions. Some retailers are doing forward buying—that is, buying a greater quantity during the deal period than they can immediately sell. The manufacturer must then schedule more production than planned and bear the costs of extra work shifts and overtime. Some retailers are diverting, buying more than needed in a region where the manufacturer offers a deal and shipping the surplus to their stores in non-deal regions. Manufacturers handle forward buying and diverting by limiting the amount they will sell at a discount or by producing and delivering less than the full order in an effort to smooth production.

Major tools of Marketing public relations (MPR)

-Publications -Events -Sponsorships -News -Speeches -Public Service Activities -Identity Media

Major Consumer Promotion Tools include:

-Samples -Coupons -Cash refund offers (rebates) -Price Packs (cents-off deals) -Premiums (gifts) The promotion planner should take into account the type of market, sales promotion objectives, competitive conditions, and each tool's cost-effectiveness. The main consumer promotion tools are summarized in Table 20.3. Manufacturer promotions in the auto industry, for instance, are rebates, gifts to motivate test-drives and purchases, and high-value trade-in credit. Retailer promotions include price cuts, feature advertising, retailer coupons, and retailer contests or premiums.

Marketing Channels

-Sets of interdependent organizations participating in the process of making a product or service available for use or consumption -Intermediaries: merchants, agents, and facilitators

Reasons to hold events and experiences

-To identify with a target market or lifestyle -To increase salience of company/product name -To create/reinforce key brand image associations -To enhance corporate image -To create experiences and evoke feelings -To express commitment to the community or on social issues -To entertain key clients or reward employees -To permit merchandising/promotional opportunities

Major Business and Sales Force Promotion tools include:

-Trade shows and conventions -Sales contest -Specialty advertising Companies spend billions of dollars on business and sales force promotion tools (see Table 20.5) to gather leads, impress and reward customers, and motivate the sales force. They typically develop budgets for tools that remain fairly constant from year to year. For many new businesses that want to make a splash to a targeted audience, especially in the B-to-B world, trade shows are an important tool, but the cost per contact is the highest of all communication options.

Pure Click - Ecommerce

-Uses a Web site to transact or facilitate the sale of products and services online

Multichannel marketing

-Using two or more marketing channels to reach customer segments in one market area -Omnichannel marketing -Integrated marketing channel system

Characteristics of services

Four distinctive service characteristics greatly affect the design of marketing programs: -intangibility -inseparability -variability -perishability.

Channel Conflict

Generated when one channel member's actions prevent another channel member from achieving its goal

How many intermediaries are there and what are they?

3: Exclusive, selective, and intensive

Sales promotion

A collection of incentive tools, mostly short term, designed to stimulate quicker or greater purchase of particular products or services by consumers or the trade Whereas advertising offers a reason to buy, sales promotion offers an incentive. Some sales promotion tools are consumer franchise building. They impart a selling message along with the deal, such as free samples, frequency awards, coupons with a selling message, and premiums related to the product. Sales promotion tools that are typically not brand building include price-off packs, consumer premiums not related to a product, contests and sweepstakes, consumer refund offers, and trade allowances.

The role of marketing channels

A marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place, and possession gaps that separate goods and services from those who need or want them. Members of the marketing channel perform a number of key functions (see Table 17.1).

One-level channel

A one-level channel contains one selling intermediary, such as a retailer

Marketing public relations

A public is any group that has an actual or potential interest in or impact on a company's ability to achieve its objectives. Public relations (PR) includes a variety of programs to promote or protect a company's image or individual products. The best PR departments counsel top management to adopt positive programs and eliminate questionable practices so negative publicity doesn't arise in the first place. They perform the following five functions: 1. Press relations—Presenting news and information about the organization in the most positive light 2. Product publicity—Sponsoring efforts to publicize specific products 3. Corporate communications—Promoting understanding of the organization through internal and external communications 4. Lobbying—Dealing with legislators and government officials to promote or defeat legislation and regulation 5. Counseling—Advising management about public issues as well as company positions and image during good times and bad

PR department functions

A public is any group that has an actual or potential interest in or impact on a company's ability to achieve its objectives. Public relations (PR) includes a variety of programs to promote or protect a company's image or individual products. The best PR departments counsel top management to adopt positive programs and eliminate questionable practices so negative publicity doesn't arise in the first place. They perform the following five functions: 1. Press relations—Presenting news and information about the organization in the most positive light 2. Product publicity—Sponsoring efforts to publicize specific products 3. Corporate communications—Promoting understanding of the organization through internal and external communications 4. Lobbying—Dealing with legislators and government officials to promote or defeat legislation and regulation 5. Counseling—Advising management about public issues as well as company positions and image during good times and bad

Mobile Marketing

A special form of online marketing that places communications on consumer's cell phones, smart phones, or tablets.

Two-level channel

A two-level channel contains two intermediaries, typically a wholesaler and a retailer.

Public Relations

A variety of programs directed internally to employees of the company or externally to consumers, other firms, the government, and media to promote or protect a company's image or its individual product communications.

Sales promotion

A variety of short-term incentives to encourage trial or purchase of a product or service including consumer promotions (such as samples, coupons, and premiums), trade promotions (such as advertising and display allowances), and business and sales force promotions (contests for sales reps).

Zero-level channel

A zero-level channel, also called a direct marketing channel, consists of a manufacturer selling directly to the final customer. The major examples are mail order, online selling, TV selling, telemarketing, door-to-door sales, home parties, and manufacturer-owned stores.

Advertising Characteristics

Advertising Advertising reaches geographically dispersed buyers. It can build up a long-term image for a product (Coca-Cola ads) or trigger quick sales (a Macy's ad for a weekend sale). 1. Pervasiveness—Advertising permits the seller to repeat a message many times. It also allows the buyer to receive and compare the messages of various competitors. Large-scale advertising says something positive about the seller's size, power, and success. 2. Amplified expressiveness—Advertising provides opportunities for dramatizing the company and its brands and products through the artful use of print, sound, and color. 3. Control—The advertiser can choose the aspects of the brand and product on which to focus communications.

Reference prices

All types of reference prices are possible (see Table 16.1), and sellers often attempt to manipulate them. For example, a seller can situate its product among expensive competitors to imply that it belongs in the same class. Department stores will display women's apparel in separate departments differentiated by price; dresses in the more expensive department are assumed to be of better quality. Marketers also encourage reference-price thinking by stating a high manufacturer's suggested price, indicating that the price was much higher originally, or by pointing to a competitor's high price. -"fair price" (what consumers feel the product should cost) -Typical price -Last price paid -Upper-bound price -Lower-bound price -Historical competitor prices -Expected future price -Usual discounted price

Consumer adoption process

An individual's decision to become a regular user of a product

Advertising

Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor via print media (newspapers and magazines), broadcast media (radio and television), network media (telephone, cable, satellite, wireless), electronic media (audiotape, videotape, videodisk, CD-ROM, Web page), and display media (billboards, signs, posters).

Pull strategy

A______strategy the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it.

Push Strategy

A_____strategy uses the manufacturer's sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users.

Brick and Click companies

Brick-and-Click companies, existing companies that have added an online site for information or e-commerce.

Adapting the price

Companies can use several pricing techniques to stimulate early purchase: Loss-leader pricing. Supermarkets and department stores often drop the price on well-known brands to stimulate additional store traffic. This pays if the revenue on the additional sales compensates for the lower margins on the loss-leader items. Special event pricing. Sellers will establish special prices in certain seasons to draw in more customers. Every August, there are back-to-school sales. Special customer pricing. Sellers will offer special prices exclusively to certain customers. Cash rebates. Auto companies and other consumer-goods companies offer cash rebates to encourage purchase of the manufacturers' products within a specified time period. Low-interest financing. Instead of cutting its price, the company can offer low-interest financing. Longer payment terms. Sellers, especially mortgage banks and auto companies, stretch loans over longer periods and thus lower the monthly payments. Warranties and service contracts. Companies can promote sales by adding a free or low-cost warranty or service contract. Psychological discounting. This strategy sets an artificially high price and then offers the product at substantial savings; for example, "Was $359, now $299."

Reverse flow channels

Channels normally describe a forward movement of products from source to user, but reverse-flow channels are also important (1) to reuse products or containers (such as refillable chemical-carrying drums), (2) to refurbish products for resale (such as circuit boards or computers), (3) to recycle products, and (4) to dispose of products and packaging. Reverse-flow intermediaries include manufacturers' redemption centers, community groups, trash-collection specialists, recycling centers, trash-recycling brokers, and central processing warehousing.

Building interest in a product category (MPR)

Companies and trade associations have used MPR to rebuild interest in declining commodities such as eggs, milk, beef, and potatoes and to expand consumption of such products as tea, pork, and orange juice.

Events and experiences

Company-sponsored activities and programs designed to create daily or special brand-related interactions with consumers, including sports, arts, entertainment, and cause events as well as less formal activities.

Ways to draw new ideas from customers

Customer needs and wants are the logical place to start the search. Griffin and Hauser suggest that conducting 10 to 20 in-depth experiential interviews per market segment often uncovers the vast majority of customer needs. But other approaches can be profitable. See "Marketing Memo: Seven Ways to Draw New Ideas from Your Customers." -Observe customers using product -Ask customers about product problems -Use customer advisory board -Use web sites -Form brand community of enthusiasts -Challenge customers to improve product

Direct and Database Marketing Characteristics

Direct and Database Marketing The advent of "Big Data" has given marketers the opportunity to learn even more about consumers and develop more personal and relevant marketing communications. Three noteworthy characteristics of direct and database marketing are: 1. Personal—Personal facts, opinions, and experiences can be stored in massive databases and incorporated into personal messages. 2. Proactive—A direct marketing piece can create attention, inform consumers, and include a call to action. 3. Complementary—Product information can be provided that helps other marketing communications, especially in terms of e-commerce. A good catalog might spur online shopping.

Inelastic and elastic demand

Each price will lead to a different level of demand and have a different impact on a company's marketing objectives. The normally inverse relationship between price and demand is captured in a demand curve (see Figure 16.1): The higher the price, the lower the demand. For prestige goods, the demand curve sometimes slopes upward. Some consumers take the higher price to signify a better product. However, if the price is too high, demand may fall. Consider the two demand curves in Figure 16.1. In demand curve (a), a price increase from $10 to $15 leads to a relatively small decline in demand from 105 to 100. In demand curve (b), the same price increase leads to a substantial drop in demand from 150 to 50. If demand hardly changes with a small change in price, we say it is inelastic. If demand changes considerably, it is elastic.

Events and Experiences Characteristics

Events and Experiences Events and experiences offer many advantages as long as they have the following characteristics: 1. Relevant—A well-chosen event or experience can be seen as highly relevant because the consumer is often personally invested in the outcome. 2. Engaging—Given their live, real-time quality, events and experiences are more actively engaging for consumers. 3. Implicit—Events are typically an indirect soft sell.

Exclusive distribution

Exclusive distribution severely limits the number of intermediaries.

Personal selling

Face-to-face interaction with one or more prospective purchasers for the purpose of making presentations, answering questions, and procuring orders.

Step 5: Selecting a pricing method

Given the customers' demand schedule, the cost function, and competitors' prices, the company is now ready to select a price. Companies select a pricing method that includes one or more of these three considerations. We will examine seven price-setting methods: markup pricing, target-return pricing, perceived-value pricing, value pricing, EDLP, going-rate pricing, and auction-type pricing. The most elementary pricing method is to add a standard markup to the product's cost. Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. Lawyers and accountants typically price by adding a standard markup on their time and costs. Assume the manufacturer wants to earn a 20 percent markup on sales. The manufacturer will charge dealers $20 per toaster and make a profit of $4 per unit. If dealers want to earn 50 percent on their selling price, they will mark up the toaster 100 percent to $40.

Unclear roles and rights

HP may sell laptops to large accounts through its own sales force, but its licensed dealers may also be trying to sell to large accounts. Territory boundaries and credit for sales often produce conflict.

Step 4: Analyzing competitors' prices

If the firm's offer contains features not offered by the nearest competitor, it should evaluate their worth to the customer and add that value to the competitor's price. If the competitor's offer contains some features not offered by the firm, the firm should subtract their value from its own price. Now the firm can decide whether it can charge more, the same, or less than the competitor. Value-priced competitors Companies offering the powerful combination of low price and high quality are capturing the hearts and wallets of consumers all over the world. Value players, such as Aldi, E*TRADE Financial, JetBlue Airways, Southwest Airlines, Target, and Walmart, are transforming the way consumers of nearly every age and income level purchase groceries, apparel, airline tickets, financial services, and other goods and services.

Repositioning mature products (MPR)

In a classic PR case study, New York City had extremely bad press in the 1970s until the "I Love New York" campaign.

How companies price vs. how companies should price

In small companies, the boss often sets prices. In large companies, division and product line managers do. Even here, top management sets general pricing objectives and policies and often approves lower management's proposals. Many companies do not handle pricing well and fall back on "strategies" such as: "We calculate our costs and add our industry's traditional margins." Other common mistakes are not revising price often enough to capitalize on market changes; setting price independently of the rest of the marketing program rather than as an intrinsic element of market-positioning strategy; and not varying price enough for different product items, market segments, distribution channels, and purchase occasions. For any organization, effectively designing and implementing pricing strategies requires a thorough understanding of consumer pricing psychology and a systematic approach to setting, adapting, and changing prices.

Intensive distribution

Intensive distribution places the goods or services in as many outlets as possible.

Major sponsorship decisions

Making sponsorships successful requires choosing the appropriate events, designing the optimal sponsorship program, and measuring the effects of sponsorship. -Choosing Events Because of the number of sponsorship opportunities and their huge cost, many marketers are becoming more selective. The event must meet the marketing objectives and communication strategy defined for the brand. -Designing Sponsorship Programs Many marketers believe the marketing program accompanying an event sponsorship ultimately determines its success. At least two to three times the amount of the sponsorship expenditure should be spent on related marketing activities. -Measuring Sponsorship Activities It's a challenge to measure the success of events. Supply-side methods for measuring an event's success assess the media coverage, for example, the number of seconds the brand is clearly visible on a television screen or the column inches of press clippings that mention it. The demand-side method identifies the sponsorship's effect on consumers' brand knowledge. Marketers can survey spectators to measure their recall of the event and their resulting attitudes and intentions toward the sponsor.

Marketing excellence

Marketing excellence in services requires excellence in three broad areas: external, internal, and interactive marketing (see Figure 14.3). External marketing describes the normal work of preparing, pricing, distributing, and promoting the service to customers. Internal marketing describes training and motivating employees to serve customers well. Interactive marketing describes the employees' skill in serving the client. Clients judge service not only by its technical quality (Was the surgery successful?), but also by its functional quality (Did the surgeon show concern and inspire confidence?).

Influencing specific target groups (MPR)

McDonald's sponsors special neighborhood events in Latino and African American communities to build goodwill.

Mobile Marketing Characteristics

Mobile Marketing Increasingly, online marketing and social media rely on mobile forms of communication and smart phones or tablets. Three distinguishing characteristics of mobile marketing are: 1. Timely—Mobile communications can be very time-sensitive and reflect when and where a consumer is. 2. Influential—Information received or obtained via a smart phone can reach and influence consumers as they are making a purchase decision. 3. Pervasive—Consumers typically carry their smart phones everywhere, so mobile communications are at their fingertips.

Ways to Find New-Product Ideas

New-product ideas can in fact come from interacting with various groups and using creativity-generating techniques. See "Marketing Memo: Ten Ways to Find Great New-Product Ideas." -Informal customer sessions -Time off for technical people to putter -Customer brainstorming -Survey you customers "Fly on the wall" research -Iterative rounds with customers -Keyword search to scan trade publications -Treat trade shows as intelligence missions -Have employees visit supplier labs -Set up an idea vault

Channel Coordination

Occurs when channel members are brought together to advance the goals of the channel instead of their own potentially incompatible goals

Online and social media marketing

Online activities and programs designed to engage customers or prospects and directly or indirectly raise awareness, improve image, or elicit sales of products and services.

Online and Social Media Marketing Characteristics

Online and Social Media Marketing Online marketing and messages can take many forms to interact with consumers when they are in active search mode or just browsing and surfing online for something to do. They share three characteristics: 1. Rich—Much information or entertainment can be provided—as much or as little as a consumer might want. 2. Interactive—Information can be changed or updated depending on the person's response. 3. Up to date—A message can be prepared very quickly and diffused through social media channels.

Defending products that have encountered public problems.

PR professionals must be adept at managing crises, such as those weathered by such well-established brands as Tylenol, Toyota, and BP in recent years. Building the corporate image in a way that reflects favorably on its products. The late Steve Jobs's heavily anticipated Macworld keynote speeches helped to create an innovative, iconoclastic image for Apple Corporation.

Personal Selling Characteristics

Personal Selling Personal selling is the most effective tool at later stages of the buying process, particularly in building up buyer preference, conviction, and action. It has three notable qualities: 1. Customized—The message can be designed to appeal to any individual. 2. Relationship-oriented—Personal selling relationships can range from a matter-of-fact selling relationship to a deep personal friendship. 3. Response-oriented—The buyer is often given personal choices and encouraged to directly respond.

Place advertising options

Place advertising, or out-of-home advertising, is a broad category including many creative and unexpected forms to grab consumers' attention where they work, play, and, of course, shop. Popular options include billboards, public spaces, product placement, and point of purchase. Billboards use colorful, digitally produced graphics, backlighting, sounds, movement, and unusual— even 3D—images. Public spaces: ads are appearing in such unconventional places as movie screens, airplane bodies, and fitness equipment, as well as in classrooms, sports arenas, office and hotel elevators, and other public places. Product placement: marketers pay $100,000 to $500,000 so their products will make cameo appearances in movies and on television. There are many ways to communicate at the point of purchase (P-O-P), including ads on shopping carts, cart straps, aisles, and shelves and in-store demonstrations, live sampling, and instant coupon machines.

Step 2: Determining demand

Price Sensitivity The demand curve shows the market's probable purchase quantity at alternative prices, summing the reactions of many individuals with different price sensitivities. The first step in estimating demand is to understand what affects price sensitivity. Generally speaking, customers are less price sensitive to low-cost items or items they buy infrequently. They are also less price sensitive when (1) there are few or no substitutes or competitors; (2) they do not readily notice the higher price; (3) they are slow to change their buying habits; (4) they think the higher prices are justified; and (5) price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime. Estimating Demand Curves Most companies attempt to measure their demand curves using several different methods. Surveys can explore how many units consumers would buy at different proposed prices. Price experiments can vary the prices of different products in a store or of the same product in similar territories to see how the change affects sales. Statistical analysis of past prices, quantities sold, and other factors can reveal their relationships. Price Elasticity of Demand Marketers need to know how responsive, or elastic, demand is to a change in price.

Understanding Pricing

Pricing practices have changed significantly, thanks in part to a severe recession in 2008-2009, a slow recovery, and rapid technological advances. But the new millennial generation also brings new attitudes and values to consumption. Renting, borrowing, and sharing are valid options to many. Some say these new behaviors are creating a sharing economy in which consumers share bikes, cars, clothes, couches, apartments, tools, and skills and extracting more value from what they already own. Bartering, one of the oldest ways of acquiring goods, is making a comeback through transactions estimated to total $12 billion annually in the United States. Trade exchange companies like Florida Barter and Web sites like www.swap.com connect people and businesses seeking win-win solutions. The sector of the new sharing economy that is really exploding is rentals.

Public Relations Characteristics

Public Relations and Publicity Marketers tend to underuse public relations, yet a well-thought-out program coordinated with the other communications-mix elements can be extremely effective, especially if a company needs to challenge consumers' misconceptions. The appeal of public relations and publicity is based on three distinctive qualities: 1. High credibility—News stories and features are more authentic and credible to readers than ads. 2. Ability to reach hard-to-find buyers—Public relations can reach prospects who prefer to avoid mass media and targeted promotions. 3. Dramatization—Public relations can tell the story behind a company, brand, or product.

Consumer psychology and pricing

Purchase decisions are based on how consumers perceive prices and what they consider the current actual price to be—not on the marketer's stated price. Customers may have a lower price threshold, below which prices signal inferior or unacceptable quality, and an upper price threshold, above which prices are prohibitive and the product appears not worth the money. Different people interpret prices in different ways. Reference Prices Although consumers may have fairly good knowledge of price ranges, surprisingly few can accurately recall specific prices. When examining products, however, they often employ reference prices, comparing an observed price to an internal reference price they remember or an external frame of reference such as a posted "regular retail price." When consumers evoke one or more of these frames of reference, their perceived price can vary from the stated price. Price-Quality Inferences Many consumers use price as an indicator of quality. Image pricing is especially effective with ego-sensitive products such as perfumes, expensive cars, and designer clothing. Price Endings Many sellers believe prices should end in an odd number. Customers perceive an item priced at $299 to be in the $200 rather than the $300 range; they tend to process prices "left to right" rather than by rounding.24 Price encoding in this fashion is important if there is a mental price break at the higher, rounded price. Another explanation for the popularity of "9" endings is that they suggest a discount or bargain, so if a company wants a high-price image, it should probably avoid the odd-ending tactic.

Research on Print advertisements

Researchers studying print advertisements report that the picture, headline, and copy matter in that order. The picture must be strong enough to draw attention. The headline must reinforce the picture and lead the person to read the copy. The copy must be engaging and the brand's name sufficiently prominent.

Sales Promotion Characteristics

Sales Promotion Companies use sales promotion tools—coupons, contests, premiums, and the like—to draw a stronger and quicker buyer response, including short-run effects such as highlighting product offers and boosting sagging sales. Sales promotion tools offer three distinctive benefits: 1. Ability to be attention-getting—They draw attention and may lead the consumer to the product. 2. Incentive—They incorporate some concession, inducement, or contribution that gives value to the consumer. 3. Invitation—They include a distinct invitation to engage in the transaction now.

Factors influencing the adoption process

See the adopter categories in Figure 15.7. After a slow start, an increasing number of people adopt the innovation, the number reaches a peak, and then it diminishes as fewer nonadopters remain. The five adopter groups differ in their value orientations and their motives for adopting or resisting the new product. • Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new products and mastering their intricacies. In return for low prices, they are happy to conduct alpha and beta testing and report on early weaknesses. • Early adopters are opinion leaders who carefully search for new technologies that might give them a dramatic competitive advantage. They are less price sensitive and are willing to adopt the product if given personalized solutions and good service support. • Early majority are deliberate pragmatists who adopt the new technology when its benefits have been proven and a lot of adoption has already taken place. They make up the mainstream market. • Late majority are skeptical conservatives who are risk averse, technology shy, and price sensitive. • Laggards are tradition-bound and resist the innovation until the status quo is no longer defensible. Personal influence, the effect one person has on another's attitude or purchase probability, has greater significance in some situations and for some individuals than others, and it is more important in evaluation than in the other stages. It has more power over late than early adopters and in risky situations.

Selective Distribution

Selective distribution relies on only some of the intermediaries willing to carry a particular product. Whether established or new, the company does not need to worry about having too many outlets; it can gain adequate market coverage with more control and less cost than intensive distribution.

Perishability

Services cannot be stored, so their perishability can be a problem when demand fluctuates. Demand or yield management is critical—the right services must be available to the right customers at the right places at the right times and right prices to maximize profitability. Several strategies can produce a better match between service demand and supply.20 On the demand (customer) side: • Differential pricing will shift some demand from peak to off-peak periods. Examples include low matinee movie prices and weekend discounts for car rentals. • Nonpeak demand can be cultivated. McDonald's pushes breakfast service, and hotels promote minivacation weekends. • Complementary services can provide alternatives to waiting customers, such as cocktail lounges in restaurants and automated teller machines in banks. • Reservation systems are a way to manage the demand level. Airlines, hotels, and physicians employ them extensively. On the supply side: • Part-time employees can serve peak demand. Colleges add part-time teachers when enrollment goes up; stores hire extra clerks during holiday periods. • Peak-time efficiency routines can allow employees to perform only essential tasks during peak periods. Paramedics assist physicians during busy periods. • Increased consumer participation frees service providers' time. Consumers fill out their own medical records or bag their own groceries. • Shared services can improve offerings. Several hospitals can share medical-equipment purchases. • Facilities for future expansion can be a good investment. An amusement park might buy surrounding land for later development.

Initiating and responding to price changes

Several circumstances might lead a firm to cut prices. One is excess plant capacity: The firm needs additional business and cannot generate it through increased sales effort, product improvement, or other measures. Companies sometimes initiate price cuts in a drive to dominate the market through lower costs. Either the company starts with lower costs than its competitors, or it initiates price cuts in the hope of gaining market share and lower costs. Cutting prices to keep customers or beat competitors often encourages customers to demand price concessions, however, and trains salespeople to offer them. A price-cutting strategy can lead to other possible traps: • Low-quality trap. Consumers assume quality is low. • Fragile-market-share trap. A low price buys market share but not market loyalty. The same customers will shift to any lower-priced firm that comes along. • Shallow-pockets trap. Higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves. • Price-war trap. Competitors respond by lowering their prices even more, triggering a price war.

Variability

Some doctors have an excellent bedside manner; others are less empathetic. Service firms know that variability in their performance puts them at risk. Hilton initiated a major program to create more uniformity in guest experiences. Here are three steps service firms can take to increase quality control. Invest in good hiring and training procedures. Standardize the service-performance process throughout the organization. Monitor customer satisfaction.

Step 3: Estimating costs

Suppose Samsung runs a plant that produces 3,000 tablet computers per day. As the company gains experience producing tablets, its methods improve. Workers learn shortcuts, materials flow more smoothly, and procurement costs fall. The result, as Figure 16.3 shows, is that average cost falls with accumulated production experience. Thus the average cost of producing the first 100,000 tablets is $100 per tablet. When the company has produced the first 200,000 tablets, the average cost has fallen to $90. After its accumulated production experience doubles again to 400,000, the average cost is $80. This decline in the average cost with accumulated production experience is called the experience curve or learning curve. Now suppose three firms compete in this particular tablet market, Samsung, A, and B. Samsung is the lowest-cost producer at $80, having produced 400,000 units in the past. If all three firms sell the tablet for $100, Samsung makes $20 profit per unit, A makes $10 per unit, and B breaks even. The smart move for Samsung would be to lower its price to $90. This will drive B out of the market, and even A may consider leaving. Samsung will pick up the business that would have gone to B (and possibly A). Furthermore, price-sensitive customers will enter the market at the lower price. As production increases beyond 400,000 units, Samsung's costs will drop still further and faster, more than restoring its profits, even at a price of $90.

Launching new products (MPR)

The amazing one-time commercial success of toys such as LeapFrog, Beanie Babies, and Silly Bandz owes a great deal to strong publicity.

Step 1: Selecting the Pricing Objective

The company first decides where it wants to position its market offering. The clearer a firm's objectives, the easier it is to set price. Five major objectives are: survival, maximum current profit, maximum market share, maximum market skimming, and product-quality leadership. Survival Companies pursue survival as their major objective if they are plagued with overcapacity, intense competition, or changing consumer wants. As long as prices cover variable costs and some fixed costs, the company stays in business. Maximum Current Profit Many companies try to set a price that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment. Maximum Market Share Some companies want to maximize their market share. They believe a higher sales volume will lead to lower unit costs and higher long-run profit, so they set the lowest price, assuming the market is price sensitive. Texas Instruments famously practiced this market-penetration pricing for years. The company would build a large plant, set its price as low as possible, win a large market share, experience falling costs, and cut its price further as costs fell. Maximum Market Skimming Companies unveiling a new technology favor setting high prices to maximize market skimming. Sony has been a frequent practitioner of market-skimming pricing, in which prices start high and slowly drop over time. Product-Quality Leadership A company might aim to be the product-quality leader in the market. Many brands strive to be "affordable luxuries"—products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers' reach. Other Objectives Nonprofit and public organizations may have other pricing objectives. A university aims for partial cost recovery, knowing that it must rely on private gifts and public grants to cover its remaining costs. A nonprofit hospital may aim for full cost recovery in its pricing. A nonprofit theater company may price its productions to fill the maximum number of seats. A social service agency may set a service price geared to client income.

Stages in the adoption process

The consumer-adoption process is the mental steps through which an individual passes from first hearing about an innovation to final adoption. They are: 1. Awareness—The consumer becomes aware of the innovation but lacks information about it. 2. Interest—The consumer is stimulated to seek information about the innovation. 3. Evaluation—The consumer considers whether to try the innovation. 4. Trial—The consumer tries the innovation to improve his or her estimate of its value. 5. Adoption—The consumer decides to make full and regular use of the innovation.

Privacy Issues

The fact that a company can pinpoint a customer's or employee's location with GPS technology raises privacy issues. Like so many new technologies, such location-based services have potential for good and harm and will ultimately warrant public scrutiny and regulation.

Intermediaries' dependence on the manufacturer

The fortunes of exclusive dealers, such as auto dealers, are profoundly affected by the manufacturer's product and pricing decisions. This situation creates a high potential for conflict.

Geofencing

The idea of geofencing is to target customers with a mobile promotion when they are within a defined geographical space, typically near or in a store. The local-based service requires just an app and GPS coordinates, but consumers have to opt in.

Differences in perception

The manufacturer may be optimistic about the short-term economic outlook and want dealers to carry higher inventory, while the dealers may be pessimistic. In the beverage category, it is not uncommon for disputes to arise between manufacturers and their distributors about the optimal advertising strategy.

Goal incompatibility

The manufacturer may want to achieve rapid market penetration through a low-price policy. Dealers, in contrast, may prefer to work with high margins and pursue short-run profitability

Marketing Communications

The means by which firms attempt to inform, persuade, and remind consumers about the products and brands they sell

Step 5: Selecting a price method (perceived-value pricing)

The most elementary pricing method is to add a standard markup to the product's cost. Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. Lawyers and accountants typically price by adding a standard markup on their time and costs. Assume the manufacturer wants to earn a 20 percent markup on sales. The manufacturer will charge dealers $20 per toaster and make a profit of $4 per unit. If dealers want to earn 50 percent on their selling price, they will mark up the toaster 100 percent to $40.

Generating ideas

The new-product development process starts with the search for ideas. Some marketing experts believe we find the greatest opportunities and highest leverage for new products by uncovering the best possible set of unmet customer needs or technological innovation. New-product ideas can in fact come from interacting with various groups and using creativity-generating techniques. Employees can be a source of ideas for improving production, products, and services. Top management can be another major source of ideas. Encouraged by the open innovation movement, many firms are going outside their bounds to tap external sources of new ideas, including customers, scientists, engineers, patent attorneys, university and commercial laboratories, industrial consultants and publications, channel members, marketing and advertising agencies, and even competitors. Companies can find good ideas by researching the products and services of competitors and other companies. They can find out what customers like and dislike about competitors' products. They can buy their competitors' products, take them apart, and build better ones. They can ask their own sales representatives and intermediaries for ideas. Internal brainstorming sessions also can be quite effective—if conducted correctly.

Categories of service mix

The service component can be a minor or a major part of the total offering. We distinguish five categories of offerings on this slide. Restaurants are good examples of hybrid offerings combining products and services. One of the more successful restaurant brands is Panera Bread. -A pure tangible good -A tangible good with accompanying services -A Hybrid -A major service with accompanying minor goods/services -A pure service

Test market decisions

The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities and puts on a full marketing communications campaign, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. Test marketing also measures the impact of alternative marketing plans by implementing them in different cities. A full-scale test can cost over $1 million, depending on the number of test cities, the test duration, and the amount of data the company wants to collect. Management faces several decisions listed in the slide. -Test marketing is a limited geographic introduction of a new product to gauge its potential -How many test cities? -Which cities? -Length of test? -What information to collect? -What action to take?

Intangibility

Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought. A person getting cosmetic surgery cannot see the results before the purchase, and the patient in the psychiatrist's office cannot know the exact outcome of treatment. To reduce uncertainty, buyers will look for evidence of quality by drawing inferences from the place, people, equipment, communication material, symbols, and price. Service companies can try to demonstrate their service quality through physical evidence and presentation.

Direct and database marketing

Use of mail, telephone, fax, e-mail, or Internet to communicate directly with or solicit response or dialogue from specific customers and prospects.

Step 5: Selecting a pricing method (Value pricing)

Value Pricing Companies that adopt value pricing win loyal customers by charging a fairly low price for a high-quality offering. Value pricing is thus not a matter of simply setting lower prices; it is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality to attract a large number of value-conscious customers. EDLP A retailer using everyday low pricing (EDLP) charges a constant low price with little or no price promotion or special sales. Constant prices eliminate week-to-week price uncertainty and the high-low pricing of promotion-oriented competitors. In high-low pricing, the retailer charges higher prices on an everyday basis but runs frequent promotions with prices temporarily lower than the EDLP level. Going-Rate Pricing In going-rate pricing, the firm bases its price largely on competitors' prices. Going-rate pricing is quite popular. Where costs are difficult to measure or competitive response is uncertain, firms feel it is a good solution because they believe it reflects the industry's collective wisdom.

Best practices of top services companies

Well-managed service companies that achieve marketing excellence have in common a strategic concept, a history of top-management commitment to quality, high standards, profit tiers, and systems for monitoring service performance and customer complaints. Strategic Concept Top service companies are "customer obsessed." They have a clear sense of their target customers and their needs and have developed a distinctive strategy for satisfying them. Top-Management Commitment Companies such as Marriott, Disney, and Ace Hardware have a thorough commitment to service quality. Their managers look monthly not only at financial performance, but also at service performance. High Standards The best service providers set high quality standards. Profit Tiers Firms have decided to coddle big spenders to retain their patronage as long as possible. Customers in high-profit tiers get special discounts, promotional offers, and lots of special service; those in lowerprofit tiers who barely pay their way may get more fees, stripped-down service, and voice messages to process their inquiries. Monitoring Systems Top firms audit service performance, both their own and competitors', on a regular basis. They collect voice of the customer (VOC) measurements to probe customer satisfiers and dissatisfiers and use comparison shopping, mystery or ghost shopping, customer surveys, suggestion and complaint forms, serviceaudit teams, and customers' letters. Satisfying Customer Complaints On average, 40 percent of customers who suffer through a bad service experience stop doing business with the company.58 But if those customers are willing to complain first, they actually offer the company a gift if the complaint is handled well. Companies that encourage disappointed customers to complain—and also empower employees to remedy the situation on the spot—have been shown to achieve higher revenues and greater profits than companies without a systematic approach for addressing service failures.

Commercialization

Where (Geographic Strategy) Most companies will develop a planned market rollout over time. In choosing rollout markets, the major criteria are market potential, the company's local reputation, the cost of filling the pipeline, the cost of communication media, the influence of the area on other areas, and competitive penetration. Small companies select an attractive city and put on a blitz campaign, entering other cities one at a time. Large companies introduce their product into a whole region and then move to the next. Companies with national distribution networks, such as auto companies, launch new models nationally. To Whom (Target-Market Prospects) Within the rollout markets, the company must target initial distribution and promotion to the best prospect groups. Ideally these should be early adopters, heavy users, and opinion leaders it can reach at low cost. How (Introductory Market Strategy) Because new-product launches often take longer and cost more than expected, many potentially successful offerings suffer from underfunding. It's important to allocate sufficient time and resources—yet not overspend—as the new product gains traction in the marketplace. To coordinate the many tasks in launching a new product, management can use network-planning techniques such as critical path scheduling (CPS), which develops a master chart showing the simultaneous and sequential activities that must take place.

Inseparability

Whereas physical goods are manufactured, then inventoried, then distributed, and later consumed, services are typically produced and consumed simultaneously. A haircut can't be stored— or produced without the barber. Several strategies exist for getting around the limitations of inseparability. The service provider can work with larger groups. The service organization can train more service providers and build up client confidence, as H&R Block has done with its national network of trained tax consultants.

Reinforcement advertising

aims to convince current purchasers they made the right choice. Automobile ads often depict satisfied customers enjoying special features of their new car.

Informative advertising

aims to create brand awareness and knowledge of new products or new features of existing products. Consumer packaged goods companies like Colgate, General Mills, and Unilever will often focus on key product benefits.

Persuasive advertising

aims to create liking, preference, conviction, and purchase of a product or service. Some persuasive advertising is comparative advertising, which explicitly compares the attributes of two or more brands. Comparative advertising works best when it elicits cognitive and affective motivations simultaneously and when consumers are processing advertising in a detailed, analytical mode.

Reminder advertising

aims to stimulate repeat purchase of products and services. Expensive, four-color Coca-Cola ads in magazines remind people to purchase Coca-Cola.

Advertising objectives

is a specific communications task and achievement level to be accomplished with a specific audience in a specific period of time. We classify advertising objectives according to whether they aim to inform, persuade, remind, or reinforce. These goals correspond to stages in the hierarchy-of-effects model discussed in Chapter 19.