Week 2

Chapter 10: Production & Operations Management

PRODUCTION:

Use of raw materials, workers and machinery to convert materials into finished goods

Production & Operations management: The process of overseeing the production process by
managing the people and machinery that convert materials and resources into finished goods and
services

Note: Production is used to produce both tangible goods and intangible service

Typical Production System examples:

Computer Factory: produces tangible products such as desktop and laptops

Country Sheriff’s Department: produces intangible service by making sure the city is safe, lower
crime rates and peaceful communities

Automobile Body shop: could be tangible and intangible as you’re getting your cars body fixed
which could also be a service provided by the automobile or a tangible output which is your cars
body is fixed.

Trucking Firm: which deliver goods. Could be intangible as you’re getting a service from point A to
point B

Retail Store: Merchandise sold which is a tangible goods as you’re buying goods. It could be
intangible as they provide a platform for the consumers to buy which could also be considered as a
service.

In all of these, there is one thing common which involves a process to benefit consumer.

The Strategic Importance of Production:

1. Production is a vital function necessary for generating money to pay employees, lenders and
stockholders
2. Effective production and operations management can:
 Lower a firm’s costs of production
 Boost the quality of its goods and services
  Allow it to respond dependably to customer demands
 Enable it to renew itself by providing new products

All are potential strategies which must align with company mission and vision goals. Also, you cant
be everything to all people. You have to choose a target market. With technology now a days, you
can be all to all people somewhere by lowering cost and providing adequate amount of quality.
Consumers are all about low cost and good quality products.

Mass, Flexible, and Customer-Driven Production:

Mass Production: A system for manufacturing products in large quantities by using effective
combination of employees with specialized skills, mechanization and standardization. Example:

 Batteries
 Cars (2 decades ago)

Flexible Production: Is more cost-effective for producing smaller runs

 Uses information technology, programmable equipment, and skilled people. Example:

 Cars (now). Multiple cars are designed on the same plant to meet different needs of people
such as modification, special features in cars etc

Customer-Driven Production: Assesses customer demands in order to make the connection

between products manufactured and products bought.

 Pull Strategy (products are not produced until the order is received)
 Push Strategy is mass production and waiting for customers to purchase

Production Processes:

1. Analytic Production System

 Recycle meaning they take your e-waste(computers, desktop etc) and part it to use it to the
maximum they can
2. Synthetic Production System
 The reverse of an analytic system; combines a number of raw materials or parts or transform
raw materials to produce finished products.
3. Continuous Production Process
 Generates finished products over a long period of time (example: Oil refinement)
4. Intermittent Production Process:
 Generate products in short production runs, shutting down machinery frequently or
changing their configurations to produce different products.

Technology and the Production Process: (Automation) It boosts efficiency and creates flexibility.
Such as machines tighten the screws with the exact same force everytime while the human could
use more force one time and less the other time.

1. A Robot is a reprogrammable machine capable of performing a variety of tasks that require

the repeated manipulation of material and tools.
 2. Computer-Aided Design (CAD): Process used by engineers to design parts and entire
products on the computer
 Engineers who use CAD can work faster with fewer mistakes than those who use traditional
drafting system. (Example of 1000 employees to view traffic going in and out and after
automation only one worker to monitor the gauges and machinery with a dog on the side to
bite him if the worker does anything other than phoning the supervisor.)
3. Computer-Aided Manufacturing (CAM): A computer tool that a manufacturer uses to
analyze CAD output and the steps that the machine must take to produce a needed product
or part.
4. Flexible Manufacturing System (FMS): A production facility that workers can quickly change
to manufacture different products. Example:
 TOYOTA
5. Computer-integrated Manufacturing (CIM): Uses centralized computer system to control
the production process. The advantage of CIM includes: Increased productivity, decreased
design cost, increased equipment utilization and improved quality.

The Job of Production Managers: Supervise the work of people and machinery to convert inputs
(materials and resources) into finished goods and services.

A good layout can reduce material handling (decrease cost without losing any flexibility or benefit),
decrease cost and improve product flow.

Carrying out the Production Plan:

1. Make, Buy or Lease decision: Choosing whether to manufacture part in-house, buy if from
an outside supplier, or lease it
 Factors in the decision include cost, availability of reliable outside supplier, duration of the
firm’s supply needs, quality of the need for confidentiality (strategic/proprietary
information) [If you have a pattern for a process you should not lease it to anyone as they
can use engineers or better machinery to improve the pattern and steal what you used to do
in a better and effective way because you have pass over strategic/proprietary information
that someone can duplicate that]
2. How to select Suppliers:
 Based on comparison of quality, prices, dependability of delivery, and services offered by
competing companies.
Everything should be in alignment with your overall mission/vision statement, marketing plan, HR
plan etc.

Inventory Control: A function that balances the cost of carrying inventory with the need to have
stock on hand to meet demand (a balancing act)

 Perpetual Inventory
 Vendor-managed inventory (Bad idea)

Just-in-time (JIT) system: A broad management philosophy that reached beyond the narrow activity
of inventory control to influence the entire system of production and operations management.
Example (you’re not carrying any inventory, in and out, sold) (less inventory, less cost, less sales ofc)

Materials requirement Planning (MRP): A computer-based production planning system that ensures
a firm has all the parts and materials it needs to produce its output at the right time and place and in
the right amounts.

Importance of Quality:

1. Quality: the state of being free of deficiencies or imperfections

 Poor quality can account for a 20% loss in revenue
2. Benchmarking: The process of looking at how well other companies perform business
functions or tasks and using their performance as a standard for measuring another
company’s performance
3. Quality Control: Measuring output against quality standards
 Many companies evaluate using the Six Sigma concept

CHAPTER 11

CUSTOMER DRIVEN MARKETING

Marketing: An organizational function and set of processes for creating, communicating, and
delivering value to customers for managing customer relationships in ways that benefit the
organization and its stakeholders.

 Discover unmet customer needs, research potential market, produce a good/service

capable of satisfying targeted customers; promote, price, and distribute
good/services (4P’s)
 Best marketers give consumers what they want and anticipate consumers’ needs
before they surface

Exchange Process: An activity in which two or more parties trade something of value (such as goods,
services or cash) that satisfies each other needs

How marketing creates utility:

1. Utility: The power of good or service to satisfy a want or need

 2. Create time utility by making a good or service available when customers want to purchase
it.
 “30 minutes or free” for food delivery
 “Lunch served in 15 minutes of ordering or its free”
3. Create place utility by making a product available in a location convenient for customers
 Checkouts (chocolate bars, batteries, gums, snacks at checkout)
 Battery “clip strips” where appropriate

Marketing Concept: A companywide consumer focus on promoting long-term success

 Firm starts with analysis of customers’ needs and works backward to offer products
that fulfill them.
 Explained by shift from sellers’ market, in which goods and services are scarce, to
buyers’ market in which they are plentiful.

Non-profit and non-traditional marketing

 They are as much important as for profit marketing. For instance to attract donors.
 Apply marketing tools to reach audiences, secure funding, and accomplish their overall
missions.
 Non-for-profit operate in both public and private sectors
 Sometimes partner with a profit-seeking company to promote message.

Person Marketing: refers to the effort to attract attention, interest and preference target market
towards a person

Event Marketing: refers to marketing, sponsoring for short term events such as cultural, athletic
competitions and performances

Place Marketing: pretends to attract people of a particular area, city region or country
Cause Marketing: refers to awareness of social or raises money for social issues such as drug
prevention and childhood hunger (helping refugees, giving $150 to millennial to support them and
make them change the world etc)

Organizational Marketing: influences consumers to understand goals of organization, services of

organization or contribute in some way to an organization

Developing a Marketing Strategy:

1. Marketing Plan outlines a firms overall business plan, also includes information about the
target market, revenue goals, marketing budget and the timings of implementing marketing
mix
2. Study and analyze potential target markets and choose among them
3. Create a marketing mix to satisfy the chosen market.

Target Market: A group of people than an organization markets its goods, services, or ideas towards,
using a strategy designed to satisfy this groups’ specific needs and preferences

Types of markets:

 Consumer (B2C) product: A good or service that is purchased by end users

 Business (B2B) product: A good or service purchased to be used, either directly or indirectly,
in the production of other goods for resale

Selecting a Target Market

Marketing Mix: A blending of four elements of marketing strategy to fit satisfy chosen number
segments

 Product Strategy: involves the nature of the product and its package design, brand
names, trademarks, and product image
 Placement/Distribution Strategy: ensures that customers receive their purchases in the
proper quantities at the right times and location
 Promotional Strategy: blends advertising, personal selling, sales promotion, and public
relations to achieve its goals of informing, persuading, and influencing purchases
decisions.
 Pricing Strategy: sets profitable and justifiable prices for the firm’s product offerings,
sometimes subject to government scrutiny.

Developing Marketing mix for International Markets

Standardization: means offering the same marketing mix in every market. (example of niagra falls
hydroelectric company)

Note: Standardization does not refers to the products, it refers to the approach of marketing mix.
Standardized products goes for products.
Adaptation: means developing a unique marketing mix to fit each market’s local competitive
conditions. Consumer preferences, and government regulations (Example: a chips company
introducing spicy flavours in canada)

Mass Customization: allows firm’s to mass-produce goods and services while adding unique features
to individual or small group of orders. (Example: dell computers customized. You get a quote after
specifying your needs)

Marketing Research:

Marketing research must be obtained and applied making good marketing decisions, create an
effective strategy and building a strong marketing mix.

Note: More marketing information and customer information, better marketing decisions.

 Internal Data: is generated within the organization; includes financial records, inventory
levels, sales, profitability
 External Data: comes from outside sources; includes trades association. Advertising
agencies, national marketing research firms
 Secondary Data: is previously published data
Low cost and easy to obtain
Government publications provide data sources (eg, census statistics)
 Primary Data: is collected through observation, surveys, and other forms of observational
study
 Focus Groups: Gathers 8-12 people in a room or over the internet to discuss a specific topic
Can lead to new ideas, address customer needs, and point out flaws in existing products.
 Business Intelligence: A field of research that uses activities and technologies for gathering,
storing, and analyzing data to make better competitive decisions. (Example: visa example the
guy collected so much information about the applicant just only didn’t know what
underwear he was wearing. All search engines, purchasing history he knew)
 Data Mining: The use of computer searches of customer data to detect patterns and
relationships.

Market Segmentation: The process of dividing a total market into several relatively similar groups
Business Products are segmented into customer based. The effectiveness of a segmentation strategy
depends on how well the market meets these criteria.

Segmenting Consumer Markets:

Geographic Segmentation: Dividing an overall market into smaller groups on the basis of their
location

Demographic Segmentation: Dividing markets on the basis of various demographic or

socioeconomic characteristics, such as gender, age, income, occupation, household size, stage in
family life cycle, education, or ethnic group

Psychographic Segmentation: Dividing consumer markets into groups with similar attitudes, values,
and lifestyles (AIO Statements are people’s verbal description of various attitudes, interests and
opinions)

Product Related Segmentation: Dividing consumer markets into groups that are based on benefits
sought by buyers, usage rates, loyalty levels
Relationship Marketing: Developing and maintaining long-term, cost-effective exchange
relationships with partners. ( include partners such as individual customers, suppliers, employees.)

 Consumer enter into relationships only if there is some benefit to them (Barber who gives a
good haircut also bank relationship with customers)
 Relationship marketing seeks to achieve customer satisfaction as its ultimate goal/

Benefits of Relationship Marketing:

 Lower costs, higher profits, and protection against competitors for the business
 Lifetime value of a customer: The revenues and intangible benefits (such as referrals and
customer feedback) from a customer over the life of the relationship, minus the amount the
company must spend to acquire and serve the customer
 Strong relationships with business partners and opportunities to combine capabilities and
resources to better accomplish goals.

Tools for Nurturing Customer Relationships:

 Frequency Marketing: A marketing initiative that reward frequent purchases with cash,
rebates, merchandise, or other premiums (TGI Friday’s reward program or Tim Rewards)
 Affinity Programs: A marketing effort sponsored by an organization that targets people who
share common interests and activities. (credit card companies)
 Co-marketing: A cooperative arrangement where two or more businesses jointly market
each others’ products. (mountain dew with halo 3 on their can, redbull with gopro)
 Co-Branding: : A cooperative arrangement where two or more businesses team up closely
link their names on a single product. (dairy milk chocolate with oreo flavour)

One-to-One Marketing: One to one marketing allows companies to employ mass customization
to meet customer needs.
  Customizing products and marketing and rapidly delivering goods
 Customer relationship management (CRM) software helps companies gather, sort, and
interpret data about specific customers.

CHAPTER 12:

Product and Distribution Strategy

Product Strategy:
Product: A bundle of physical, service, and symbolic characteristics designed to satisfy consumer
wants

Consumer product categories

 Convenience products: items the consumer seeks to purchase frequently, immediately, and
with little effort (e.g. Convenience store like 7 eleven and product like sugar etc. also not
destination products)
 Shopping products: typically purchased only after the buyer has compared competing
products in competing stores (fridges, washers, dryers etc. also called destination products,
also offer post purchase support like warranty without paying)
 Specialty products: items a purchaser is willing to make a special effort to obtain (e.g. cars
also called destination products, also offers post purchase support like warranty without
paying)
Classifying Business Goods
Capital versus expense items

NOTE: Business goods and services may be capital items because they are long lived and expensive.
Business goods are characterized by how and how long they’re used.

 Installations are major capital items such as new factories, heavy equipment and machinery,
and custom-made equipment.
 Accessory equipment includes less expensive and shorter-lived capital items than
installations and involves fewer decision makers.
 Component parts and materials become part of a final product.
 Raw materials are farm and natural products used in producing other final products.
 Supplies are expense items used in a firm’s daily operations that do not become part of the
final product

Marketing Strategy Implications

 In B2B (business-to-business selling), there is a greater emphasis on personal selling for
installations and many component parts, and a concentration on quality and customer
service. (Kind of specialty products)
 Producers of installations and component parts may involve customers in new-product
development. (Engine and assembly plants would be setup on different places)
 Advertising is more commonly used to sell supplies and accessory equipment. (Convenience
products)
 Producers of supplies and accessory equipment place a greater emphasis on competitive
pricing strategies. (Convenience products)

Classifying Services
 Different from goods
o Intangible (can’t hang on to fine dining experience or trips just the memories which
are intangible)
o Perishable (we can’t look for pilot. Service is provided and is perishable)
o Difficult to standardize (customize to customer needs. Very difficult to standardize
service but H&R Block tax, McDonalds could be standardized)
o Service provider is the service (Tour with a tour guide)

NOTE: Tax preparations services is a convenience good for vast majority because they sign up every
year to collect money but not frequent. Fine dining would be shopping service as people look for
friends and search for restaurants to dine in etc. Trips are specialty service, we research and highly
involved for the trip to be good.
Product Lines and Product Mix
 Product Line: A group of related products that share by physical similarities
or are targeted toward a similar market. Eg Pepsi Also VIP, DVX movies, high
quality sound, wine etc the product line for snacks is different for VIPs
 Product mix: The assortment of product lines and individual goods and
services that a firm offers to consumers and business users

Product Life Cycle

Product life cycle: The four basic stages in the development of a successful product—
introduction, growth, maturity, and decline

 Introduction stage, the firm promotes demand for its new offering; informs the
market about it; gives free samples to entice consumers to make a trial purchase;
and explains its features, uses, and benefits. (Loss, due to low sales and more
marketing expenses.)
 growth stage, sales climb quickly as new customers join early users who are
repurchasing the item. The company begins to earn profits on the new product.
(prices go up which attracts competitors)
 maturity stage, industry sales eventually reach a saturation level at which further
expansion is difficult. (try to capture competitive customers by lowering prices or
competitive advantage in a specific niche)
 decline stage, sales fall and profits decline (mostly by new innovation or consumer
preferences)

NOTE: before the decline stage spin the product for another use such as use baking soda as
an odour absorber instead of baking.

Marketing Strategy Implications of the Product Life Cycle:

 Marketer’s objective is to extend the life cycle as long as product is profitable.
 Marketers’ goals:
 Increasing customers’ frequency of use
 Adding new users
 Finding new uses for product
 Changing package sizes, labels, and product designs

Stages in New-Product Development

 Expensive, time-consuming, and risky.

  Only one-third of new products become success stories.
 Each step requires a “go/no-go” decision.

Product Development Stages

1. Stage 1: Generating ideas for new offerings (It can come from many sources such as
what the competitors are doing, consumer suggestions, employees, suppliers etc)
2. Stage 2: Screening (eliminate the ideas that do not meet the company main
objectives that can be developed given the company resources. If not in alignment
with marketing and company objective, then you don’t do it)
3. Stage 3: Concept development and business analysis (hold a competitive advantage
relative to your competitors)
4. Stage 4: Product development (costing, packaging, logistics, employees, need the
expertise working with marketers which is commercially reliable etc)
5. Stage 5: Test marketing (to see if it will grab hold, offer limited time product to see if
it increases demand example of jalapeno flavor in canada)
6. Stage 6: Commercialization (distribution, production, pricing etc)

NOTE: The product failure can have a huge impact on brand and brand equity which takes a
lot of time to recover. Example of Samsung Galaxy S7.

Product Identification
 Brand: A name, term, sign, symbol, design, or some combination that identifies the
products of one firm and shows how they differ from competitors’ offerings
 Brand name: The part of the brand that is made up of words or letters that form a
name
 Used to identify a firm’s products and show how they differ from the products of
competitors.
 Trademark: A brand that has been given legal protection

Brand Categories
 A manufacturer’s (or national) brand is offered and promoted by a manufacturer.
 Tide, Cheerios, Windex, Fossil, Nike
 A private (or store) brand is not linked to the manufacturer but instead carries a
wholesaler’s or retailer’s label. (For people that don’t want to pay for brands)
 Loblaw ’s President ’s Choice foods, Sears’ Craftsman tools
 A family branding strategy uses a single brand name for several related products.
 KitchenAid, Johnson & Johnson, Hewlett-Packard, Arm & Hammer
 An individual branding strategy gives each product within a line a different name.
 Procter & Gamble products Tide, Cheer, and Dash
Brand Loyalty
 In brand recognition, the consumer is aware of the brand but does not prefer it over
other brands.
 In brand preference, the consumer chooses one firm’s brand over a competitor.
(Energizer is preferred but if Duracell is bit cheaper, you’d go for that)
 In brand insistence, the consumer will seek out a preferred brand and accept no
substitute for it (the ultimate degree of brand loyalty like only Energizer).

Brand Equity:
 Brand equity: The added value that a respected and successful name gives to a
product
 Brand awareness, the product is the first one that comes to mind when a product
category is mentioned

NOTE: Coca-Cola example, if all their production and packaging facilities disintegrate, the
banks would line up to offer loan to coca cola just because the banks are aware of the brand
name and know that Coca-Cola would do good.

Packages and Labels

 Packaging affects the durability, image, and convenience of an item and is
responsible for one of the biggest costs in many consumer products.
 Packaging is important in product identification and plays an important role in a
firm’s overall product strategy.
 Choosing the right package is especially important in international marketing.
 Packing must meet legal requirements of all countries in which product is sold.
 Universal Product Code: bar code read by optical scanner; link UPC to product
 Environmental impact of packaging: Sun Chips

NOTE: Be mindful while packaging as in some countries people are illiterate and they guess
the products by looking at its packaging and demographics. Language barriers as well

Distribution Strategy:
Distribution strategy deals with marketing activities and institutions involved in getting the
right goods or service to the customers. Marketing channels are made up of retailers,
wholesalers, that provide the product to the customer.

 Distribution channel: The path that products—and their legal ownership—follow

from producer to consumers or business users
 Physical distribution: The actual movement of products from producer to consumers
or business users
Distribution Channels
 Direct distribution
 Direct contact between producer and customer.
 Most common in B2B markets.
 Often found in the marketing of relatively expensive, complex products that may
require demonstrations.
 Internet is helping companies distribute directly to consumer market. (Lego
providing sets exclusively through their websites to consumers)
 Distribution channels using marketing intermediaries
 Producers distribute products through wholesalers and retailers.
 Inexpensive products sold to thousands of consumers in widely scattered locations.
 Lowers costs of goods to consumers by creating market utility.

How Retailers Compete:

 Identifying a target market (evaluating the size and profit potential of the chosen
market segment)
 Selecting a product strategy (determining the right product mix and product lines)
 Selecting a customer service strategy (to maximize sales and profits)
  Selecting a pricing strategy (cost of purchasing products from other channel
members and offering services to customers)
 Choosing a location (depends upon the retailer’s size)
 Building a promotional strategy (advertising and provide information about products
to boost sales)
 Creating a store atmosphere (physical characteristics of store and image of store)

Cost Leadership Strategy: sell high volumes with low margins like Walmart.

Distribution Channel Decisions and Logistics

 Selecting distribution channels
 Complex, expensive, custom-made, or perishable products move through shorter
distribution channels involving few—or no—intermediaries.
 Standardized products or items with low unit values usually pass through relatively
long distribution channels.
 Start-up companies often use direct channels because they can’t persuade
intermediaries to carry their products, or because they want to extend their sales
reach. (Phantom vacuum cleaners, they were in late night TV advertisement)

Selecting Distribution Intensity

 Intensive distribution involves a firm’s products in nearly every available outlet and
requires the cooperation of many intermediaries. (Includes low priced goods such as
trident gums, soft drinks.)
 In selective distribution, the manufacturer selects a limited number of retailers to
distribute its product lines. (Lego isn’t everywhere, like not in pharmacies, but in toy
stores, hobby stores etc.)
 Exclusive distribution limits market coverage in a specific geographical region that
will enhance a product’s image. (Prestige products, expensive)

Logistics and Physical Distribution

 Supply chain: The complete sequence of suppliers that help to create a good or
service and deliver it to business users and final consumers. (Begins with raw
materials and ends with consumers and retailers)
 Logistics: The process of coordinating the flow of goods, services, and information
among members of the supply chain
 In physical distribution, activities are aimed at efficiently moving finished goods
from the production line to the consumer or business buyer.
Customer Service
 Customer service standards measure the quality of service a firm provides for its
customers.
 Warranties are a firm’s promises to repair a defective product, refund money paid,
or replace a product if it proves unsatisfactory.
 Internet retailers have worked to humanize their customer interactions and deal
with complaints more effectively.

WEEK 5

Promotion and Pricing Strategies

 Promotion: The function of informing, persuading, and influencing a purchase
decision.
 Integrated marketing communications (IMC): The coordination of all promotional
activities—media advertising, direct mail, personal selling, sales promotion, and
public relations—to produce a unified, customer-focused promotional strategy

Integrated Marketing Communications

 Must take a broad view and plan for all form of customer contact.
 Create unified personality and message for the good, brand, or service.
  Elements include personal selling, advertising, sales promotion, publicity, and public
relations

The Promotional Mix

 Promotional mix: The combination of personal and nonpersonal selling that
marketer use to meet the needs of a firm’s target customers and to effectively and
efficiently communicate its message to them
 Personal selling: The most basic form of promotion: a direct person-to-person
promotional presentation to a potential buyer (Manufacturers of many B2B products
spend more on personal selling than on advertising)
 Nonpersonal selling: Forms of selling such as advertising, sales promotion, direct
marketing, and public relations

Promotional Planning
 Product placement: A form of promotion where marketers pay placement fees to
have their products featured in various media, from newspapers and magazines to
television and movies
  Guerilla marketing: Innovative, low-cost marketing efforts designed to get
consumers’ attention in unusual ways.

Advertising:
Paid nonpersonal communication usually targeted at large numbers of potential buyers

 Advertising expenditures are great; automotive, retail, and telecommunications

firms spend the most on advertising in North America
 Carmakers spend $20 billion on advertising yearly.
 Consumers are bombarded with many messages.
 Firms need to be more and more creative and efficient at attracting customers’
attention.

Types of Advertising
 Product advertising: Messages designed to sell a particular good or service
 Institutional advertising: Messages that promote concepts, ideas, or philosophies. It
can also promote goodwill toward industries, companies, organizations, or
government entities
 Cause advertising: A form of institutional advertising that promotes a specific
viewpoint on a public issue as a way to influence public opinion and the political
process
 Example: Avon Foundation and handing $150 to young people to do some good.

Advertising and the Product Life Cycle

 Informative advertising is used to build initial demand for a product in its
introductory phase.
 Persuasive advertising attempts to improve the competitive status of a product,
institution, or concept, usually in its growth and maturity stages. (New
companies entering and very competitive)
 Comparative advertising compares products directly with their competitors,
either by name or by inference.
 Reminder-oriented advertising maintains awareness of the importance and
usefulness of a product in its late maturity or decline stages.

Types of Advertising

 Online and interactive advertising

 Widgets (or gadgets) are small television screen images carrying marketing
messages; contain embedded links to home sites.
  Viral advertising creates a message that is novel or entertaining enough for
consumers to forward it to others
 Sponsorship: Providing funds for a sporting or cultural event in exchange for a direct
association with the event
 Exposure to target audience
 Association with image of the event
 Other media options
 Marketers look for novel ways to reach customers
 Infomercials: A form of broadcast direct marketing; 30-minute programs resemble
regular TV programs, but sell goods or services
 ATM commercials/receipts
 Directory advertising

Sales promotion: Forms of promotion such as coupons, product samples, and rebates
that support advertising and personal selling. (Can meet short term advantages of increased
sales. Also help marketers to build brand equity and customer relationships) (Examples,
games contests, spend $25 and get a free soft toy etc.)

Consumer-Oriented Promotions

 Premiums, coupons, rebates, samples

 Marketers generally choose free/reduced price premiums likely to get consumers
thinking and caring about a brand and product.
 Coupons attract new customers but focus on price rather than brand loyalty.
 Rebates increase purchase rates, promote multiple purchases, and reward product
users.
 Three of every four consumers who receive a sample will try it.
 Games, contests, sweepstakes
 Introduction of new products.
 Offer cash, merchandise, or travel as prizes to participating winners.
 Subject to legal restrictions.
 Specialty advertising
 Promotional items that prominently display a firm’s name, logo, or business slogan.

Trade-Oriented Promotions
 Sales promotion geared to marketing intermediaries, note to final consumers
 Encourage retailers
 To stock new products
 To continue carrying existing ones
 To promote both new and existing products effectively to consumers
 Point-of-purchase (POP) advertising
  Trade shows

Personal Selling
 A person-to-person promotional presentation to a potential buyer
 Many companies consider personal selling the key to marketing effectiveness.
 A seller matches a firm’s goods or services to the needs of a particular client or
customer.
 Businesses often spend five to 10 times as much on personal selling as on
advertising.
 Firms focus on personal selling under four conditions:
1. Few, geographically concentrated customers
2. Product is technically complex, involves trade-ins, or requires special handling
3. Product carries a relatively high price
4. Product moves through direct distribution channel

Follow-Up
 An important part of building a long-lasting relationship.
 May determine whether the customer will make another purchase.

Public Relations
 Public relations: An organization’s communications and relationships with its various
public audiences
 This is an efficient, indirect communications channel for promoting products. It can
publicize products and help create and maintain a positive image of the company.
 Publicity: The nonpersonal stimulation of demand for a good, service, place, idea,
event, person, or organization by unpaid placement of information in print or
broadcast media.
 Good publicity can promote a firm’s positive image.
 Negative publicity can cause problems.

Pushing and Pulling Strategies

 Pushing strategy: Personal selling to market an item to wholesalers and retailers in a
company’s distribution channels (B2B favors pushing strategy)
 Companies promote the product to members of the marketing channel, not to end
users.
 Pulling strategy: Promote of a product by generating consumer demand for it,
mainly through advertising and sales promotion appeals. (Consumer products
depend heavily on it)
  Potential buyers will request that their suppliers—retailers or local distributors—
carry the product, thereby pulling it through the distribution channel.
 Most marketing situations require combinations of push and pull strategies
 Cooperative advertising: Allowances that marketers provide to share with channel
partners the cost of local advertising of their firm’s product or product line

Pricing Objectives in the Marketing Mix

 Price: The exchange value of a good or service

 Profitability objectives: Ccommon goals that are included in the strategic plans of
most firms
 Maximize profits by reducing costs.
 Maintain price while reducing package size. (Lays chips)
 Volume objectives: Pricing decisions that are based on market share, the percentage
of a market controlled by a certain company or product
 Pricing to meet competition
 Meet competitors’ price.
 Competitors cannot legally work together to set prices.
 Competition can result in a price war.

Prestige Objectives
 Prestige pricing: Establishing a relatively high price to develop and maintain an
image of quality and exclusiveness
 Recognition of the role of price in communicating an overall image for the firm and
its products.
 Products that are limited in distribution or so popular that they become scarce
generate their own prestige.

Alternative Pricing Strategies

 Skimming pricing: A strategy that sets an intentionally high price relative to the
prices of competing products
 Helps marketers set a price that distinguishes a firm’s high-end product from those
of competitors
 Penetration pricing: A strategy that sets a low price as a major marketing tactic
 Often used with new products
 Everyday low pricing (EDLP): A strategy of maintaining continuous low prices instead
of using short-term price-cutting tactics such as cents-off coupons, rebates, and
special sales (Wal-mart)
 Discount pricing is used to attract customers by dropping prices for a set period of
time.
  Competitive pricing: A strategy that tries to reduce the emphasis on price
competition by matching other firms’ prices and by focusing their own marketing
efforts on the product, distribution, and promotional elements of the marketing mix
(Duracell and Energizer)

WEEK 6

Cost-base Analysis and Pricing

The Composition of an Organization’s Cost Base

 In simple terms, an organization’s cost base is made up of the total costs associated
with delivering the organization’s products/services to the marketplace
 This includes ALL the costs, across all the value chain components, that an
organization incurs as it manufactures, distributes, markets, and sells its
products/services
 In analyzing the cost base composition, managers hope to identify two fundamental
conclusions:
1. The percentage of costs that are considered to be variable costs versus the
percentage that are fixed
2. The cost areas that make up a significant percentage of the overall cost base

Variable versus Fixed Costs

 VARIABLE COSTS = Those costs that are (predictably) tied to the manufacturing of a
“single” product or delivery of a “single” service; if the product/service stopped
being produced, these costs would disappear. Examples include direct materials and
direct labor. (E.g., Computers and keyboards, if we stopped producing computers
than the cost of keyboards would go away)
 FIXED COSTS = Those costs that are tied to the manufacturing of a product or
delivery of a service; if the product/service stopped being produced, these costs
would NOT disappear. These costs are also uncontrollable in the near (to medium)
term. Examples include property taxes and depreciation. Fixed costs can also appear
in “support” areas (i.e. accounting) and in this case may include the corporate office
lease and corporate office depreciation.
 INDIRECT COSTS = Those costs that, although not directly tied to the manufacturing
of a specific product or delivery of a specified service, exist as a result of conducting
business and operating the company. Examples include factory insurance, corporate
office insurance, interest on debt, production supervisor, utilities, and shop supplies
  Understanding the cost base is accomplished by working through the various zones
within an organization’s value chain and determining the cost composition of each;
this is essential to determining the required pricing strategy that will be utilized in
marketing the product and its corresponding impact on profit

o E.g. Energizer and rechargeable

The Concept of Breakeven Point (BEP) Analysis

 BREAKEVEN POINT (BEP) = The level of sales revenue or volume that is required for
the organization to cover all of its costs; it is the point where total revenue equals
total costs resulting in a profit of $0
 BEP is the minimum acceptable position for the business in the short term. Sales
below BEP result in a loss while sales above BEP mean a profit
 The failure to achieve BEP will result in the organization requiring additional cash
from other sources
 Ongoing operating levels below BEP will eventually result in insolvency and the
organization will cease to exist
 Understanding the sales volume needed to reach BEP is an important part of setting
profitability objectives because businesses need to earn current-period profit and
sustain ongoing profitability in order to ensure long term success
Degree of Managerial Control
 Managers must understand how the composition of the organization’s cost base will
influence their ability to manage

 In general, the more the cost base is composed of variable costs, the more control
over costs that managers have daily. Conversely, the more the cost base is
composed of fixed costs, the more difficult it is for managers to use cost reduction
strategies to protect the organization’s profitability

 In the not too distant past, direct material and labor used to be a bigger component
of product costs which meant more control over costs in the near term

 With technological advances, machinery not only replaces labor but can also make
the use of direct materials more efficient by eliminating waste, etc.

 We have traded increased efficiency and effectiveness for less short-term cost
control