MARKETING 101 FINAL
important retail trend:
consolidation of fragmented retail outlets into powerful retail chains and superstores • walmart, home depot, best buy, barnes & noble
Channel structures
direct, indirect, hybrid
more conflict potential for _______ density of coverage
intensive ex. carrying coca-cola & pepsi
a retail store and a website are....
intermediaries
administered VMS
leadership is assumed through the size and power of one or a few dominant channel members
luxottica
lenses, frames, insurance, selling ray-band, armani, lenscrafters
li & fung
'flat world' philosophy: *OWNING NOTHING* • Coordinate retail ready products • Just in time coordination Spinoff Global Brands Group: Private label, licensed brands (e.g., Hello Kitty, Calvin Klein) they don't own factories but still create value
density of coverage
*INTENSIVE*: Distribution through every reasonable outlet in a market ----ex. soda (Coca-Cola). in grocery stores, convenience stores, restaurants *SELECTIVE*: Distribution through multiple, but not all, reasonable outlets in a market ----ex. starbucks, sony *EXCLUSIVE*: Distribution through a single wholesaling middleman and/or retailer in a market ---ex. yacht, usually luxury makers
collaborator power is a function of a few factors:
*OFFERING DIFFERENTIATION* • companies with differentiated offerings in high demand are likely to have more power over collaborators • ex. Strong brands like Coca-cola have more power dealing with distribution partners *COLLABORATOR SIZE* • *consolidated entities* (both manufacturers and distributors) are likely to have more power over fragmented ones • ex. Large consumer packaged goods manufacturers (Proctor & Gamble, Unilever, Nestlé) often receive preferential treatment • better shelf space, lower volume discounts *STRATEGIC IMPORTANCE* • entity has more power when it accounts for a significant portion of its collaborators' profits • ex. For many small manufacturers, Walmart accounts for a substantial part of their profits *SWITCHING COSTS* • entity is likely to have more power when switching costs of its collaborators are high and its own switching costs are low
Channel coordination
*Ownership-based* • Different channel members are part of the same company *Contractual* • Binding contractual agreements among channel members *Implicit* • Achieved without explicit contractual agreements
Channel type
*Specialized vs broad*: based on breadth of assortments • *Specialized*: carry a narrow assortment focusing on relatively few product categories. Ex: Foot Locker, Office Depot, Toys R Us • *Broad*: Walmart, Costco, Carrefour *Limited vs extensive*: based on depth of assortments • *Limited*: carry a relatively small number of items within each category. Ex: 7-Eleven • *Extensive*: Carrefour, Walmart.
ADVTANTAGES OF COLLABORATION
*effectiveness* o collaboration enables each party to take advantage of the others' *expertise* *cost efficiency* o by specializing in a given function, each collaborator can achieve greater economies of scale and experience *flexibility* o collaboration requires a lesser commitment of resources and hence offers much greater flexibility in terms of switching technologies, entering new markets, and exiting existing ones *speed*
LEVELS OF COLLABORATION
*explicit* o involves contractual relationships o fosters formal relationships among collaborating entities ====which leads to greater effectiveness and cost-efficiency o however, lower flexibility, greater switching costs, and risk of creating potential competitor *implicit* o does not involve contractual relationships o flexible o however, inability to predict the behavior of various channel members o lower level of commitment =======can result in unwillingness to invest resources o lower cost-efficiency o lower degree of coordination
DISADVANTAGES OF COLLABORATION
*loss of control* o ex. Outsourcing manufacturing operations frequently hinders the company's ability to monitor production processes and product quality o ex. Diminishes ability to monitor financial aspects *loss of competencies* o ex. Outsourcing R&D over time tends to diminish a company's ability to drive innovation *empowering the competition* o might enable collaborating entities to develop a set of strategic competencies, thus becoming a company's potential competitor
Incentives offer ........
*solutions*, typically *short-term*, aimed at *enhancing the value of the offering* by providing *additional benefits* or reducing costs. --typically lead to an *increase in sales volumes*
collaboration can occur in 3 domains
*value-design collaboration* • including product and service development, brand building price setting, and incentive design *value-communication collaboration* • advertising, public relations, social media *value-delivery collaboration* • actual delivery of a company's products and services • distribution can play an important role in customizing the products, augmenting the service, setting the price, and managing incentives, as well as communicating the offering's benefits by means of in-store advertisements, displays, direct mail.
Affiliate Marketing:
A communication strategy that involves revenue sharing between advertisers and online content providers. An affiliate is rewarded based on specific performance measures, such as sales, click-throughs, and online traffic.
customer incentives Can typically be divided into 2 categories:
1) *Monetary* incentives that typically aim to reduce an offering's costs ➢ Coupons, rebates, price reductions, volume discounts 2) *Nonmonetary* which aim to enhance the offering's benefits ➢ Contests and bonus merchandise
CUSTOMER incentives serve one of 2 goals:
1) Temporarily *increasing sales volume* by giving target customers an additional reason to buy the offering 2) Serving as a *segmentation tool* by selectively enhancing the value of the company's offering for target customers
Most incentives fall into one of 3 categories:
1. Customer incentives o Coupons o Loyalty programs o Sweepstakes o Contests o Premiums 2. Collaborator incentives o Price cuts o Volume discounts o Allowances o Co-op advertising 3. Company incentives o Bonuses o Rewards o Contests
Managing communication involves 6 key steps:
1. Setting the *goal* 2. Developing the *message* 3. Selecting the *media* 4. Developing the *creative solution* 5. *Implement*ing the communication campaign 6. And *control*ling/ evaluating the campaign results
outsourcing
A decision by a corporation to turn over much of the responsibility for production to independent suppliers.
Advertising Allowance:
A form of trade promotion in which retailers are given a discount in exchange for advertising manufacturers' products.
Gray Market:
A market in which products are sold through unauthorized channels.
Same-Store Sales:
A metric used in the retail industry for measuring sales of stores that have been open for a year or more and have historical data by comparing the current year's sales to last year's sales. Same-store sales are a popular metric because it takes store closings and chain expansions out of the mix, indicating the portion of new sales that resulted from sales growth and the portion that resulted from the opening or clos-ing of stores.
Shrinkage:
A term used by retailers to describe theft of goods by customers and employees. inventory shrinkage (sometimes shortened to shrinkage or shrink) is when a retailer has fewer items in stock than in the inventory list due to clerical error or goods being damaged, lost, or stolen between the point of manufacture (or purchase from a supplier) and the point of sale.
Comparative Advertising:
Advertising strategy whereby a given offering is directly compared with another offering.
Competitive Parity Budgeting:
Budget allocation strategy based on (1) matching competitors' absolute level of spending or (2) the proportion per point of market share. *Cooperative Advertising*: Advertising strategy in which a manufacturer and a retailer jointly advertise their offering to consumers. In this case, the manufacturer pays a portion of a retailer's advertising costs in return for featuring its products, services, and brands.
Corporate Vertical Marketing System:
Channel structure in which channel members have common ownership rather than a contractual relationship.
Contractual Vertical Marketing System:
Channel structure in which the relationships among channel members are set on a contractual basis (rather than common ownership).
intensive density of coverage
Distribution through every reasonable outlet in a market •High coverage • Convenient for end customers • High *conflict potential*
Selective density of coverage
Distribution through multiple, but not all, reasonable outlets in the market • Resellers *compete to carry* our product • Less reseller loyalty
disintermediation
Elimination of intermediaries usually in *electronic* commerce.
warby parker
Eyeglass company which was created to combat high prices. sold online would send trials for free
collaborator incentive Goals and categories :
GOALS 1) To *gain coverage* 2) To encourage channel members to *stock the offering* at certain inventory levels 3) To encourage channel members to *promote the company's offerings* CATEGORIES monetary & nonmonetary
Carryover Effect in Advertising:
Impact of an advertising campaign that extends beyond the time frame of the campaign. To illustrate, an advertising effort made in a given period might generate sales in subsequent periods.
Forward Buying:
Increasing the channel inventory, usually to take advantage of a manufacturer's promotion or in anticipation of price increases.
Detailers:
Indirect sales force promoting pharmaceuticals to doctors and pharmacists so that they, in turn, recommend the brand to the consumer.
Merchandisers:
Indirect sales force that offers support to retailers for such as shelf location, pricing, and compliance with special programs.
Channel coverage
Limited vs extensive • *Extensive*: offering is readily accessible to a fairly large proportion of customers in a given market. Downside: comes at *high cost*, leads to channel conflicts. • *Limited*: offering is likely to be available only in select markets. Downside: risk of offering *unavailable* to some target customers.
Cost Per Thousand (CPM):
Measure used to represent the cost of a communication campaign. CPM is the cost of reaching 1,000 individuals or households with an advertising message in a given medium (M is the Roman numeral for 1,000). --For example, a television commercial that costs $200,000 to air and reaches IOM viewers has a CPI of $20. The popularity of CPM derives in part from its being a good comparative measure of advertising efficiency across different media (e.g., television, print, and Internet). CPM = (Advertising cost / Total impressions) x 100
Cost per Point (CPP):
Measure used to represent the cost of a communication campaign. CPP is the media cost of reaching one percent (one rating point) of a particular demographic. see also gross rating point. CPP = Advertising cost / GRP
Share of Shelf Space:
Shelf space allocated to a given offering relative to the total shelf space in a given geographic area.
Category Killers:
Specialty retailers that focus on one product category in which they offer a large assortment of options at competitive prices. Category killers include retailers such as Best Buy (electronics), Office Depot (office supplies), Home Depot (home improvement), and PetSmart (pet supplies).
Horizontal Channel Conflict:
Tension among entities in multiple distribution channels (e.g., a manufacturer and two retailers).
Vertical Channel Conflict:
Tension between entities in a single distribution channel (e.g., a manufacturer and a retailer).
Awareness Rate:
The number of potential customers aware of the offering relative to the total number of potential customers. Depending on the manner in which it is measured, two types of awareness are commonly distinguished: *aided awareness*, in which respondents are provided with the name of the target offering (e.g., "Have you seen any advertisements for Coca-Cola in the past month?"), and *unaided awareness*, in which respondents are not provided with any offering-specific information (e.g., "Which soft drinks have you seen advertised during the past month?").
Advertising Awareness:
The number of potential customers who are aware of the offering. Awareness is a function of the total volume of advertising delivered to the target audience and the number of exposures necessary to create awareness. In cases where a single exposure is sufficient to create awareness, the awareness level equals the advertising reach. *Awareness = (Advertising reach • Frequency of exposure) / (Number of exposures necessary to create awareness)*
Inventory Turnover:
The number of times that inventory is replenished typically calculated as the ratio of annual revenues generated by a given offering to average inventory.
Advertising Frequency:
The number of times the target audience is exposed to an advertisement in a given period. Also used in reference to the number of times an advertisement is repeated through a specific medium during a specific period.
Parallel Importing:
The practice of importing products from a country in which the price is lower to a country in which the same product is priced higher. ---A hypothetical example of this practice is importing drugs from Canada to the United States. In most cases, parallel importing is illegal in the United States.
Reverse Logistics:
The process of reclaiming recyclable and reusable materials and returns for repair, remanufacturing, or disposal.
Advertising Reach:
The size of the audience that has been exposed to a particular advertisement at least once in a given period (multiple viewings by the same audience do not increase reach). Reach can be stated either as an absolute number or as a fraction of a population. ------For example, if 40,000 of 100„000 different households are exposed to a given commercial at least once, the reach is 40%.
today's globalized toy
Topper the Trick Terrier is a robotic dog where its parts come from different places in the world
wholesaler
an intermediary who sells to other intermediaries, usually to retailers; term usually applies to consumer markets
trade allowance:
broad range of trade incentives, including: o Slotting allowances o Stocking allowances o Advertising allowances All offered as a reward for conducting promotional activities on behalf of the manufacturer.
collaboration typically involves .....
business-to-business relationships
Vertical Integration -
combines successive stages of production and distribution under single ownership
Above-the-line communications:
company communications are often divided into 2 categories: Above-the-line communications, which encompass *mass media advertising such as television commercials, radio, and print advertisements;* and Below-the-Line advertisements, which include public relations, event sponsorship, personal selling, and direct mail.
Direct channel structure
company → customer *Advantages:* • More effective distribution system • Better coordination • Greater cost-efficiency • Greater control *Disadvantages:* • More time-consuming • Requires many assets and competencies
communication CONTROL:
evaluating the success of the communication campaign with respect to achieving its goals • Exposure • Comprehension • Recall • Persuasion • Intent • Behavior The decision about which metric to use is a function of 3 considerations: • Goal of the campaign • Message being communicated • The selected media format
higher margins and less competition in the ______ density of coverage
exclusive
communication CREATIVE SOLUTION:
execution of the company's message in a given media *Appeal type*: the approach used to communicate the company's message o *Information*-based (factual) o *Emotion*-based *Execution style*: the method used to convey a particular appeal using the language of the selected media format o Text o Format (size, color scheme) o Layout (arrangement of different parts/pictures/texts)
tide
high price & high selling effort
communication MESSAGE:
identifies information communicated to target customers • Can focus on one or several of the marketing mix variables o Product, brand, price, incentives, distribution
communication IMPLEMENTATION:
identifies the timeline and logistics of executing the message, media, and creative decisions. • Setting up the organizational *infrastructure* and forming a team to manage the campaign • Setting up the *processes*—identifying specific actions to be taken during preproduction, product (filming, videotaping), postproduction (editing, legal), distribution
communication MEDIA:
means used by company to convey its message. Decision involves 3 aspects: *1. Setting the media budget* • *Goal-driven* approach • *Percentage-of-sales* approach • *Competitive-parity* approach • *Legacy* approach (Based on prior year expenditures) • *Affordability* approach *2. Deciding on the media type* (advertising, public relations and social media, personal selling, product samples, event sponsorship, product-based, product samples and free trials) *3. Outlining the media scheduling* (pattern, reach, frequency) • *Pattern*: continuous, concentrated (e.g., one Superbowl advertisement), intermitted • *Reach*: # of target customers who are exposed to a particular message at least once in a given period
COLLABORATOR CONFLICTS In vertical collaboration...
most common is between manufacturer and retailer *1. Vertical channel conflict* o tensions between entities in a single distribution channel o ex. Manufacturer and retailer =======ex. Tensions regarding size and composition of manufacturer's product line. Retailer might only want to carry the most profitable units of the product line. *2. Horizontal channel conflict* o tensions among entities in multiple distribution channels o ex. Manufacturer and two retailers ========manufacturer sells to these two retailers but with different cost structures and profit margins (high/low volume and high/low margin) → two retailers might sell the same product at different price points to same customers
brand porfolios/coverage for Marriott
not much difference between some of the brands, but leaving a corner open can give opportunities to Hilton, for instance
channel exclusivity
o Refers to the degree to which an offering is made available through different distribution channels o Commonly used to reduce potential for horizontal channel conflicts
horizontal integration
o acquiring a business entity at the same level of the value-delivery chain • ex. Retailer acquiring another retailer
vertical integration
o acquisition of an entity occupying at a different level of the value-delivery chain *1. Forward* • *downstream* - toward buyers • ex. Manufacturer acquiring retailer *2. Backward* • *upstream* - toward supplies • ex. Retailer acquiring a wholesaler or a manufacturer
intermediaries are nice because manufacturers...
only sell to one place
intermediaries
organizations/partners
what is a channel
path that enables products/services to flow from producers to end users *Value delivery network* - company, suppliers, distributors, and customers partner to improve performance of entire system
Slippage:
percentage of customers who fail to redeem a promotional offer made within the purchase
Pull marketing/promotions:
practice of creating demand for a company's offering by *promoting the offering directly to end users*, who in turn *demand the offering from intermediaries*, and ultimately 'pull' it through the channel
Push marketing/promotions:
practice of creating demand for a company's offering by incentivizing channel members, who in turn *push the product downstream* to end users • Ex. Manufacturer can offer high margins on its products and services so that retailers have a vested interest in selling them
Below-the-Line (BTL) Communications:
public relations, event sponsorship, personal selling, and direct mail.
omnichannel distribution
seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a bricks and mortar store.
less reseller loyalty in the ______ density of coverage
selective ex. in best buy, once they're in the store, they dont care which one you buy (sony, samsung, etc)
communication GOAL:
set of criteria to be achieved • Awareness • Strengthen preferences • Incite action *Benchmarks*: *criteria* (e.g., creating awareness among 40% of a given market); *time frame* (e.g., two weeks prior to product launch)
detergent brand portfolio/coverage example
there may be many brands in one portfolio for detergents, and there might not be much difference between a few of them. --> *stopping other brands from taking up shelf space* *not a segmentation* strategy. ex. online, only a certain amount fit onto one page
A _____ consists of producers, wholesalers, and retailers acting as a *unified system.*
vertical marketing system
pizza chain in Chicago experiencing vertical and horizontal conflict
vertical: coke was selling too expensive for him, so he bought from grocery store next door horizontal: grocery store next door was selling cheaper
Communication is the most _______ component of the marketing mix.
visible
Exclusive density of coverage
• *High influence of reseller* marketing activities • *High margins* throughout the channel • Stable level of distribution • *Less competition* at the point of sale
Transactional functions of channels
• Buying, selling, risk-taking • Agents, brokers, wholesalers
Facilitating functions of channels
• Financing, payment processing, shipping, information/research, promoting, inspecting/testing • Facilitating and logistical agents
current trends
• Growth of *direct marketing* and *disintermediation* • Major *"downstream"* power shifts in the channel (from producers and wholesalers to retailers to customers) • Much greater degree of sophistication in order fulfillment and *customer tracking* • More companies using integrated and hybrid systems to reach different consumers through distinct marketing channels • *Omnichannel distrubution*
Hybrid channel structure
• Manufacturer and end customer interact with each other through multiple channels, both directly and through intermediaries • Potential for channel conflict in cases where both company and intermediary target the same customers
Logistical functions of channels
• Transporting, storing, sorting ("breaking bulk") and creating assortments • Distributors, wholesalers, retailers
ALTERNATIVES TO COLLABORATION
• creating new, company-controlled entity • acquiring (or merging with) existing entity
Channels facilitate the value exchange between the company and its customers by delivering the different aspects of the company's offering to its target customers—they:
• deliver the company's products and services • enhance the offering's brand • collect payments • distribute and process initiatives (ex. Coupons, rebates, and premiums)
COLLABORATOR CONFLICTS in horizontal collaboration...
• depict tensions between entities occupying the same level in the value-delivery chain o profit sharing, access to proprietary technologies, sharing of core competencies, etc. o ex. 2 retailers
indirect channel structure
• ex. Company → retailer → customer • ex. Company → wholesaler → retailer → customer • Involves intermediaries *Advantages:* • Rapid distribution • Broad coverage that enables company to reach all or majority of target customers • Greater effectiveness because manufacturers can benefit from assets and core-competencies of intermediaries • Potential economies of scale *Disadvantages* • More complex channel structure • Reliance on intermediaries could increase overall distribution costs • Loss of control over selling environment • Diminished ability to communicate with and collect information directly from customers • Potential for vertical channel conflicts
COLLABORATOR POWER
• refers to the ability of a given company to exert influence over another entity ===can lead to imbalance in value exchange
Retail distribution channels are represented by a variety of business models:
• traditional retailers (Target) • franchises (McDonald's) • personal selling (Amway) • price clubs (Costco) • online retailers (Amazon.com)