CHAPTER 8: TAPPING INTO GLOBAL MARKETS

Deciding Whether to Go Abroad several factors can draw companies into the international arena:
• Some international markets present better profit opportunities than the domestic market.
• The company needs a larger customer base to achieve economies of scale.
• The company wants to reduce its dependence on any one market.
• The company decides to counterattack global competitors in their home markets.
• Customers are going abroad and require international service.

The company must also weigh several risks:

• The company might not understand foreign preferences and could fail to offer a competitively
attractive product.
• The company might not understand the foreign country’s business culture.
• The company might underestimate foreign regulations and incur unexpected costs.
• The company might lack managers with international experience.
• The foreign country might change its commercial laws, devalue its currency, or undergo a political
revolution and expropriate foreign property

The internationalization process typically has four stages:

• No regular export activities
• Export via independent representatives (agents)
• Establishment of one or more sales subsidiaries
• Establishment of production facilities abroad

Deciding Which Markets to Enter

How Many Markets to Enter
The company must decide how many countries to enter and how fast to expand. Typical entry strategies
are the waterfall approach, gradually entering countries in sequence, and the sprinkler approach, entering
many countries simultaneously. Increasingly, developed versus Developing Markets One of the sharpest
distinctions in global marketing is between developed and developing or emerging markets

The company must also choose the countries to enter based on the product and on factors such as
geography, income population and political climate. Competitive considerations come into play too.

Getting the marketing equation right in developing markets can pay big dividends:
• Smaller packaging and lower sales prices are often critical when incomes and housing spaces are
limited.
• Eighty percent of consumers in emerging markets buy their products from tiny bodegas, stalls,
kiosks, and mom-and-pop stores not much bigger.
• A Western image can be helpful.

Evaluating Potential Markets

However, much nations and regions integrate their trading policies and standards, each market still has
unique features. Readiness for different products and services and attractiveness as a market depend on
the market’s demographic, economic, sociocultural, natural, technological, and political-legal
environments.

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Succeeding in Developing Markets

The unmet needs of the developing world represent huge potential markets for food, clothing, shelter,
consumer electronics, appliances, and many other goods. Many market leaders are relying on developing
markets to fuel their growth.
One of the sharpest distinctions in global marketing is between developed and developing or emerging
markets such as Brazil, Russia, India, China, and South Africa. These five countries have formed an
association dubbed “BRICS”.

MARKETING STRATEGIES FOR DEVELOPING MARKETS

Successfully entering developing markets requires a special set of skills and plans and an ability to do a
number of things differently and well. consider how these companies pioneered ways to serve ‘invisible’
consumers in these markets.

DEVELOPING AND DEVELOPED MARKETS

Competition is also growing from companies based in developing markets. Wipro of India, Cemex of Mexico,
HTC from Taiwan, and Petronas of Malaysia have emerged from developing markets to become strong
multinationals selling in many countries. Often the key is to both develop a global business model and build a
global brand that will effectively work in all the targeted markets.

Deciding How to Enter the Market

Indirect and Direct Export Companies typically start with export, specifically indirect exporting— that
is, they work through independent intermediaries. Domestic-based export merchants buy the
manufacturer’s products and Indirect export has two advantages: there is less investment and there’s less
risk Direct exporting happens in several ways:
• Domestic-based export department or division.
• Overseas sales branch or subsidiary.
• Travelling export sales representatives.
• Foreign-based distributors or agents.

Licensing - Licensing is a simple way to engage in international marketing. The licensor issues a license
to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of
value
Joint Ventures - Historically, foreign investors have often joined local investors in a joint venture
company in which they share ownership and control. A joint venture may be necessary or desirable for
economic or political reasons. The foreign firm might lack the financial, physical, or managerial
resources to undertake the venture alone, or the foreign government might require joint ownership as a
condition for entry. Joint ownership has drawbacks. The partners might disagree over investment,
marketing, or other policies.
Direct Investment - The ultimate form of foreign involvement is direct ownership: the foreign company
can buy part orful interest in a local company or build its own manufacturing or service facilities. Cisco
had no presence in India before 2005, but it has already opened a second headquarters in Bangalore to
take advantage of opportunities in India and other locations such as Dubai.
Acquisition - When one company purchases most or all of another company's shares to gain control of
that company. Purchasing more than 50% of a target firm's stock and other assets allows the acquirer to
make decisions about the newly acquired assets without the approval of the company's other
shareholders.

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Deciding on the Marketing Program
International companies must decide how much to adapt their marketing strategy to local conditions

Global Similarities and Differences -The development of the Web, the spread of cable and satellite
TV, and the global linking of telecommunications networks have led to a convergence of lifestyles.
Consumer behavior differences as well as historical market factors have led marketers to position brands
differ- entirely in different markets.

Marketing Adaptation - The company should review the following elements and determine which add
more revenue than cost if adapted:
Product features, Advertising themes, Prices, Advertising execution, Packaging, Brand name, advertising
media, Sales promotion, Materials, Color, Labelling
The best global brands are consistent in theme but reflect significant differences in consumer behavior,
brand development, competitive forces, and the legal or political environment.

Global Product Strategies - Developing global product strategies requires knowing what types of
products or services are easily standardized and what are appropriate adaptation strategies.

Product Standardization - Some products cross borders without adaptation better than others.
consumer knowledge about new products is generally the same everywhere because perceptions have
yet to be formed. Many leading Internet brands—such as Google, eBay, Twitter, and Facebook—made
quick progress in overseas markets.

Product Adaption Strategies - Straight extension introduces the product in the foreign market without
any change

Product adaptation - alter the product to meet local conditions or preferences. A company can produce a
regional version of its product, a country version, a city version, different retailer versions.
Product invention creates something new. It can take two forms: Backward invention reintroduces earlier
product forms well adapted to a foreign country’s needs. Forward invention creates a new product to
meet a need in another country.

Brand Element Adaption When they launch products and services globally, marketers may need to
change certain brand elements.

Global Communication Strategies - Changing marketing communications for each local market is a
process called communication adaptation. If it adapts both the product and the communications, the
company engages in dual adaptation.

Global Adaptations Companies that adapt their communications wrestle with a number of challenges.
They first must ensure their communications are legally and culturally acceptable.
Global Pricing Strategies Multinationals selling abroad must contend with price escalation and transfer
prices

Price Escalation Companies have three choices for setting prices in different countries:
• Set a uniform price everywhere.
• Set a market-based price in each country
• Set a cost-based price in each country

Transfer Prices - A different problem arises when one unit charges another unit in the same company a
transfer price for goods it ships to its foreign subsidiaries. or win a market. Various governments are
watching for abuses and often force companies to charge the arm’s-length price—the price charged by
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other competitors for the same or a similar product.

Gray Markets- Many multinationals are plagued by the gray market, which diverts branded products
from authorized distribution channels either in-country or across international borders.

Counterfeit Products- Name a popular brand, and chances are a counterfeit version of it exists
somewhere in the world.

Global Distribution Strategies -Too many U.S. manufacturers think their job is done once the product
leaves the factory. They should instead note how the product moves within the foreign country and take a
whole-channel view of distributing products to final users.

Channel Entry - When multinationals first enter a country; they prefer to work with local distributors
with good local knowledge.
Channel Differences- Distribution channels across countries vary considerably.

Country-of-Origin Effects
Building Country Images Governments now recognize that the images of their cities and countries affect
more than tourism and have important value in commerce. Attracting foreign business can boost the
local economy, provide jobs, and improve infrastructure. Image can also help sell products.
Consumer Perceptions of Country of Origin Global marketers know that buyers hold distinct attitudes
and beliefs about brands or products from different countries

Deciding on the Marketing

Export Department - A firm normally gets into international marketing by simply shipping out its
goods. As sales increase, the export department expands to include various marketing services so the
company can go after business more aggressively.
International Division Sooner or later, companies that engage in several international markets and
ventures create an international division to handle all this activity.

Global Organization -Their top corporate management and staff plan worldwide manufacturing
facilities, marketing policies, financial flows, and logistical systems.

CHAPTER 13: SETTING PRODUCT STRATEGY

A product: Anything that can be offered to market to satisfy a want or need, including physical goods,
services, experiences, events etc.

Product Levels: The customer-value hierarchy

In its market offering, a marketer needs to address five product levels. Each level adds more customer
value and together the five constitute a customer value hierarchy. They are as follows-

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Core benefit: It is the service or benefit that the customer is availing really buying.
Basic product: The additional benefits that come with core benefits.
Expected product: The quality of the basic product which the customer expects.
Augmented product: The product that exceeds the customer’s expectations.
Potential product: The products that encompasses all the possible product stages Product classifications.
Durability and Tangibility: The products are classified as durable, non-durable and services.
Consumer Goods Classification: They are categorized as shopping goods, specialty goods and
unsought goods.
Differentiation
Product Differentiation: Products can be differentiated by the following-
• Form
• Features
• Performance Quality
• Conformance Quality
• Durability
• Reliability
• Reparability
• Style
• Customization

Services Differentiation: Services can be differentiated by the following-

• Ordering Ease
• Delivery
• Installation
• Customer Training
• Customer Consulting
• Maintenance and Repair
• Returns

Design: offers a potent way to differentiate a position a company’s products and services. Design is the
totality of the features that affect the way the product looks, feels and functions. Design can shift
consumer perceptions to make a brand experience more rewarding.

Luxury Products: upgraded versions of simple products in terms of quality, reliability, durability and
uniqueness. They are sold at a significantly higher price.

Marketing Luxury brands-

• Controlling and Maintaining Image
• Making an aspirational image
• Brand architecture management
• Attractive logos, symbols, packaging

ENVIRONMENTAL ISSUES
• Environmental issues are also playing an increasingly important role in product design and manufacturing.
• “Marketing Memo: a sip or a Gulp: Environmental Concerns in the Water Industry” considers some of the
environmental issues raised by the sale of bottled water.

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Product and Brand Relationship

The Product Hierarchy:

• Need family(security)
• Product family (savings and income)
• Product line (life insurance)
• Product class (financial institution)
• Product type (term life insurance)
• Item (also called stock-keeping unit or product variant)

Product System: A group of diverse but related items that function in a compatible manner.
Product Mix: It is a set of all products and items a seller offers to sale.
Product Line Analysis: Company objectives influence product line length. One objective is to create a
product line to induce up-selling.
Line Stretching: Every company’s product line covers a certain part of the total possible range.

PRODUCT MIX PRICING

We can distinguish six situations calling for product-mix pricing.

• Product line pricing

• optimal feature pricing
• captive-product pricing
• two-part pricing
• by-product pricing
• product-bundling pricing
Co-Branding and Ingredient Branding
Co-Branding Marketers often combine their products with products from other companies in various
ways. In co-branding—also called dual branding or brand bundling—two or more well-known
brands are combined into a joint product or marketed together in some fashion.

Packaging, Labeling, Warranties, and Guarantees

Packaging: All activities of designing and producing the container for a product.
Labelling: It is the process of designing and adding a tag or elaborately designed graphic that is a part of
the package.
Warranty: Formal statements of expected product performance by the manufacturer.
Guarantee: They are statements that reduce the buyer’s perceived risk. A formal assurance that certain
conditions will be fulfilled, especially that a product will be repaired or replaced if not of a
specified quality
.
CHAPTER 14: DESIGNING AND MANAGING SERVICES

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:

• A pure tangible good such as soap, toothpaste, or salt with no accompanying services.
• A tangible good with accompanying services, like a car, computer, or cell phone, with a warranty or
specialized customer service contract. Typically, the more technologically advanced the product, the
greater the need for high-quality supporting services.
• A hybrid offering, like a restaurant meal, of equal parts goods and services. People patronize
restaurants for both the food and its preparation.
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• A major service with accompanying minor goods and services, like air travel with supporting goods
such as snacks and drinks. This offering requires a capital-intensive good—an airplane—for its
realization, but the primary item is a service.
• A pure service, primarily an intangible service, such as babysitting, psychotherapy, or massage.

Distinctive Characteristics of Services

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

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. Therefore, the service provider’s task is to “manage the evidence,” to
“tangibilize the intangible.

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. The provider is part of the service. Because the client is also often present,
provider–client interaction is a special feature of services marketing. Buyers of entertainment and
professional services are very interested in the specific provider. It’s not the same concert if Taylor Swift is
indisposed and replaced by Beyoncé or if a corporate legal defense is supplied by an intern because
antitrust expert David Boies is unavailable. When clients have strong provider preferences, the provider can
raise its price to ration its limited time
Perishability - Services cannot be stored, so their perishability can be a problem when demand fluctuates.
To accommodate rush-hour demand, public transportation companies must own more equipment than if
demand was even throughout the day. Some doctors charge patients for missed appointments because the
service value (the doctor’s availability) exists only at the time of the appointment.

Variability - Because the quality of services depends on who provides them, when and where, and to
whom, services are highly variable. 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.

CUSTOMER EMPOWERMENT
• The digital era has clearly altered customer relationships.
• Customers are becoming more sophisticated about buying product-support services and are pressing for
“unbundled services” and the right to select the elements they want.

CUSTOMER COPRODUCTION
• The reality is that customers do not merely purchase and use a service; they plan an active role in its
delivery.
• Their words and actions affect the quality of their service experiences and those of others as well as the
productivity of frontline employees.

SATISFYING EMPLOYEES AS WELL AS CUSTOMERS

• Employees thrive in customer-contact positions when they have an internal drive to
• pamper customers
• accurately read their needs
• develop a personal relationship with them
• deliver high-quality service to solve customers’ problems.

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MARKETING EXCELLENCE
• Marketing excellence in services requires excellence in three broad areas:
➢ External marketing
➢ Internal marketing
➢ Interactive marketing

Best Practices of Top Service 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-Management Commitment
• High Standards
• Profit Tiers
• Monitoring Systems
• Satisfying Customer Complaints

MANAGING CUSTOMER EXPECTATIONS

• Customers form service expectations from many sources, such as past experiences, word of mouth, and
advertising.
• Successful companies add benefits to their offering that not only satisfy customers but surprise and delight
them by exceeding expectations.

Managing Product-Support Services

No less important than service industries are product-based industries that must provide a service bundle.
Manufacturers of equipment—small appliances, office machines, tractors, mainframes, airplanes—all must
provide product-support services, now a battleground for competitive advantage. Many product companies
also have a stronger online presence than before and must ensure they offer adequate—if not superior—
service online as well.

Identifying and Satisfying Customer Needs

Traditionally, customers have had three specific worries about product service:
• They worry about reliability and failure frequency. A farmer may tolerate a combine that will break
down once a year, but not one that goes down two or three times a year.
• They worry about downtime. The longer the downtime, the higher the cost. The customer counts on the
seller’s service dependability—the ability to fix the machine quickly or at least provide a loaner.
• They worry about out-of-pocket costs. How much does the customer have to spend on regular
maintenance and repair costs?

CHAPTER 15: INTRODUCING NEW MARKET OFFERINGS

Make or Buy – A company can add new products through acquisition or development.
Types of New Products – 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.

Challenges in New Product Development

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• The Innovation Imperative – continuous innovation is necessity
• New-Product Success and New-Product Failure
• Fragmented Markets, and Social, economic, and governmental constraints
• Cost of development, Capital Shortages, and Shorter required development time
• Poor launch timing Shorter product life cycle, and Lack of organizational support
• Organizing New-Product Development
• Cross-functional teams – Develops a specific product or business.
• Crowdsourcing – Unpaid outsiders can offer needed expertise or a different perspective on a
task or project that might otherwise be overlooked.
• Stage-gate systems – Divides the innovation process into stages, with a gate or checkpoint at
the end of each.

Managing the Development Process: Ideas

• Generating ideas
• Interacting with Employees
• Interacting with Outsiders
• Studying Competitors
• Adopting Creativity Techniques
• Using Idea Screening

The stages in the new-product development process is shown in the figure below

Managing the Development Process: Concept to Strategy

• Concept Development – Involves a category concept that defines the product’s competition.
• Concept Testing – Presenting the product concept to target consumers, physically or symbolically,
and getting their reactions. The reaction of consumers will be known by asking questions like:
➢ Communicability and believability
➢ Need level
➢ Gap level
➢ Perceived value
➢ Purchase intention
➢ User targets, purchase occasions, purchasing frequency
• Conjoint Analysis – A method for deriving the utility values that consumers attach to varying levels
of a product’s attributes.

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Marketing Strategy Development
• First part describes the target market size, structure and behavior; the planned brand positioning; and
the sales, market share, and profit goals sought in the first few years.
• The second part outlines the planned price, distribution strategy and marketing budget for the first
year.
• The third part of the marketing strategy plan describes the long – run sales and profit goals and
marketing-mix strategy over time.

Business Analysis
• Estimating Total Sales
• Estimating Costs and profits

Managing the Development Process: Development to Commercialization

• Product development
• Physical prototypes
• Customer tests
• Market testing
• Consumer-goods market testing
• Business-goods market testing
• Commercialization:
➢ When (timing) – First entry, Parallel entry and Late Entry
➢ Where - geographic strategy
➢ To whom – Target market prospects
➢ How – Introductory market strategy

The Consumer- Adoption Process:

Adoption is an individual’s decision to become a regular use of a product and is followed by the
consumer- loyalty process. Innovation is any good, service, or idea that someone perceives, as new, no
matter how longs its history.

Stages in the adoption process

• Awareness – The consumer become aware of the innovation but lacks information about it.
• Interest – The consumer is stimulated to seek information about the innovation.
• Evaluation – The consumer considers whether to try the innovation.
• Trial – The consumer tries the innovation to improve his or her estimate of its value.
• Adoption – The consumer decides to make full and regular use of the innovation.

Factors Influencing the Adoption Process

• Readiness to try new products and personal influence
• Characteristics of the innovation
• Organizations readiness to adopt the innovation

Five characteristics influence an innovation’s rate of adoption:

• Relative advantage
• Compatibility
• Complexity
• Divisibility
• Communicability

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 CHAPTER 16: DEVELOPING PRICING STRATEGIES AND
PROGRAMS
Price: Price is the one element of the marketing mix that produces revenue; the other elements produce
costs. Prices are perhaps the easiest element of the marketing program to adjust; product features,
channels, and even promotion take more time. Price also communicates to the market the company's
intended value positioning of its product or brand.

Understanding Price: Price is all around us. You pay rent for your apartment, tuition for your education,
and a fee to your physician or dentist. The airline, railway, taxi, and bus companies charge you a fare;
the local utilities call their price a rate etc.

Pricing in a digital world

• Buyers can:
➢ Get instant price comparisons from thousands of vendors
➢ Check prices at the point of purchase
➢ Name their price and have it met
➢ Get products free
• Sellers can:
➢ Monitor customer behavior and tailor offers to individuals
➢ Give certain customers access to special prices
• Both buyer and seller can:
➢ Negotiate prices in online auctions and exchanges or even in person

A changing Price environment

• Bartering
• Renting

How Companies Price: Companies do their pricing in a variety of ways. In small companies, prices are
often set by the boss. In large companies, pricing is handled by division and product- line managers.
Even here, top management sets general pricing objectives and policies and often approves the prices
proposed by lower levels of management.

Executives complain that pricing is a big headache—and one that is getting worse by the day. Many
companies do not handle pricing well, and throw up their hands at "strategies" like this: "We determine
our costs and take our industry's traditional margins." Other common mistakes are: Price is not revised
often enough to capitalize on market changes; price is set independently of the rest of the marketing mix
rather than as an intrinsic element of market-positioning strategy; and price is not varied enough for
different product items, market segments, distribution channels, and purchase occasions.

Others have a different attitude: They use price as a key strategic tool. These "power prices" have
discovered the highly leveraged effect of price on the bottom line. 5 They customize prices and offerings
based on segment value and costs.
Consumer Psychology and Pricing
Understanding how consumers arrive at their perceptions of prices is an important marketing priority.

Here we consider three key topics;

1. Reference prices Possible consumer reference prices are;

• Fair Price
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• Typical Price
• Last Price Paid
• Competitor Price...etc.

2. Price-quality inference
Many consumers use price as an indicator of quality. Image pricing is especially effective with ego-
sensitive products such as perfumes and expensive cars. A $100 bottle of perfume might contain $10
worth of scent, but gift givers pay $100 to communicate their high regard for the receiver.

3. Price endings
Consumer perceptions of prices are also affected by alternative pricing strategies. Many sellers believe
that prices should end in an odd number. Many customers see a stereo amplifier priced at $299 instead
of $300 as a price in the $200 range rather than $300 range. Research has shown that consumers tend to
process prices in a "left-to-right" manner rather than by rounding.

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. The firm has to consider
many factors in setting its pricing policy. We will describe a six-step procedure

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. A company can pursue any of five major objectives through pricing: survival,
maximum current profit, maximum market share, maximum market skimming, or product-quality
leadership.

• Survival: Companies pursue survival their major objective if they are plagued with overcapacity,
intense competition, or changing consumer wants.
• 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 that
a higher sales volume will lead to lower unit costs and higher long-run profit. They set the lowest
price, assuming the market is price sensitive.
• Maximum market skimming: Companies unveiling a new technology favor setting high prices to
maximize market skimming.
• 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.

Step 2- Determining Demand;

Each price will lead to a different level of demand and therefore have a different impact on a company's
marketing objectives. In the normal case, demand and price are inversely related: The higher the price,
the lower the demand. In the case of prestige goods, the demand curve sometimes slopes upward.

• Price sensitivity: The demand curve shows the market's probable purchase quantity at alternative
prices. It sums the reactions of many individuals who have different price sensitivities. The first
step in estimating demand is to understand what affects price sensitivity. Generally speaking,
customers are most price sensitive to products that cost a lot or are bought frequently. They are less
price sensitive to low-cost items or items they buy infrequently.
• Estimated demand curves: Most companies make some attempt to measure their demand curves
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 using several different methods like statistical analyses, price experiments, surveys.
• Price elasticity of demand: Marketers need to know how responsive, or elastic, demand would
be to a change in price.

Step 3- Estimating Costs;

Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The
company wants to charge a price that covers its cost of producing, distributing, and selling the product,
including a fair return for its effort and risk. Yet, when companies price products to cover full costs, the
net result is not always profitability.

• Types of costs and levels of production: A company's costs take two forms, fixed and variable.
Fixed costs (also known as overhead) are costs that do not vary with production or sales revenue.
Variable costs vary directly with the level of production. Total costs consist of the sum of the fixed
and variable costs for any given level of production. Average cost is the cost per unit at that level of
production; it is equal to total costs divided by production. Management wants to charge a price that
will at least cover the total production costs at a given level of production.
• Activity Based Cost Accounting: To estimate the real profitability of dealing with different
retailers, the manufacturer needs to use activity-based cost (ABC) accounting instead of standard
cost accounting.
• Target Costing: Costs change with production scale and experience. They can also change as a
result of a concentrated effort by designers, engineers, and purchasing agents to reduce them
through target costing.

Step 4- Analyzing Competitors' Costs, Prices, and Offers;

Within the range of possible prices determined by market demand and company costs, the firm must
take competitors' costs, prices, and possible price reactions into account. The firm should first consider
the nearest competitor's price. If the firm's offer contains features not offered by the nearest competitor,
their worth to the customer should be evaluated and added to the competitors’ price.

Step 5- Selecting a Pricing Method;

Given the three Cs—the customers' demand schedule, the cost function, and competitors' prices— the
company is now ready to select a price. Costs set a floor to the price. Competitors' prices and the price
of substitutes provide an orienting point. Customers' assessment of unique features establishes the price
ceiling. Companies select a pricing method that includes one or more of these three considerations. We
will examine six price-setting methods: mark-up pricing, target- return pricing, perceived-value pricing,
value pricing, going-rate pricing, and auction-type pricing

• Mark-up pricing: The most elementary pricing method is to add a standard mark-up to the
product's cost. Construction companies submit job bids by estimating the total project cost and
adding a standard mark-up for profit.
• Target return pricing: In target-return pricing, the firm determines the price that would yield its
target rate of return on investment.
• Perceived value pricing: An increasing number of companies now base their price on the
customer's perceived value. Perceived value is made up of several elements, such as the buyer's image of the
product performance, the channel deliverables, the warranty quality, customer support, and softer attributes
such as the supplier's reputation, trustworthiness, and esteem.
• Value pricing: In recent years, several companies have adopted value pricing: They win loyal
customers by charging a fairly low price for a high-quality offering.
• Going rate pricing: In going-rate pricing, the firm bases its price largely on competitors' prices.
The firm might charge the same, more, or less than major competitor(s).
• Auction type pricing: Auction-type pricing is growing more popular, especially with the growth of
the Internet. There are over 2,000 electronic marketplaces selling everything from pigs to used
vehicles to cargo to chemicals. One major purpose of auctions is to dispose of excess inventories or
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 used goods. Companies need to be aware of the three major types of auctions and their separate
pricing procedures. These are English auctions, Dutch auctions, Sealed Bid auctions.
• EDLP: A retailer using everyday low pricing (EDLP) charges a constant low price with little or no price
promotion or special sales.

Step 6- Selecting the Final Price

Pricing methods narrow the range from which the company must select its final price. In selecting that
price, the company must consider additional factors, including the impact of other marketing activities,
company pricing policies, gain-and-risk-sharing pricing, and the impact of price on other parties

Impact of other marketing activities

• The final price must consider the brand's quality and advertising relative to the competition. In one
study it is examined that the relationship among relative price, relative quality, and relative
advertising for 227 consumer businesses, and found the following:
• Brands with average relative quality but high relative advertising budgets were able to charge
premium prices. Consumers apparently were willing to pay higher prices for known products than
for unknown products.
• Brands with high relative quality and high relative advertising obtained the highest prices.
Conversely, brands with low quality and low advertising charged the lowest prices.
• The positive relationship between high prices and high advertising held most strongly in the later
stages of the product life cycle for market leaders

Company pricing policies

The price must be consistent with company pricing policies. At the same time, companies are not averse
to establishing pricing penalties under certain circumstances. Many companies set up a pricing
department to develop policies and establish or approve decisions. The aim is to ensure that salespeople
quote prices that are reasonable to customers and profitable to the company.

Gain and risk sharing pricing

Buyers may resist accepting a seller's proposal because of a high perceived level of risk. The seller has
the option of offering to absorb part or all of the risk if it does not deliver the full promised value.

Impact of prices of other parties

• Management must also consider the reactions of other parties to the contemplated price.
• How will distributors and dealers feel about it? If they do not make enough profit, they may not
choose to bring the product to market. Will the sales force be willing to sell at that price? How will
competitors react? Will suppliers raise their prices when they see the company's price? Will the
government intervene and prevent this price from being charged?

Adapting the Price

Companies usually do not set a single price, but rather a pricing structure that reflects variations in
geographical demand and costs, market-segment requirements, purchase timing, order levels,
deliveryfrequency, guarantees, service contracts, and other factors. As a result of discounts, allowances,
and promotional support, a company rarely realizes the same profit from each unit of a product that it
sells. Here we will examine several price adaptation strategies: geographical pricing, price discounts and
allowances, promotional pricing, and differentiated pricing

Geographical Pricing

• Barter: The direct exchange of goods, with no money and no third party involved
• Compensation Deal: The seller receives some percentage of the payment in cash and the rest in
products. Buyback Arrangement The seller sells a plant, equipment, or technology to another
country and agrees to accept as partial payment products manufactured with the supplied
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 equipment.
• Offset: The seller receives full payment in cash but agrees to spend a substantial amount of the
money in that country within a stated time period. Price Discounts and Allowances Most companies
will adjust their list price and give discounts and allowances for early payment, volume purchases,
and off-season buying. Companies must do this carefully or find that their profits are much less than
planned.

Price Discounts and Allowances

• Cash Discounts: A price reduction to buyers who pay bills promptly.

• Quantity Discount: A price reduction to those who buy large volumes.
• Functional Discount (also called trade discount) offered by a manufacturer to trade-channel
members if they will perform certain functions, such as selling, storing, and recordkeeping.
• Seasonal Discount: A price reduction to those who buy merchandise or services out of season.
Hotels, motels, and airlines offer seasonal discounts in slow selling periods.
• Allowance: An extra payment designed to gain reseller participation in special programs.

Promotional Pricing

Companies can use several pricing techniques to stimulate early purchase:

• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service contracts
• Psychological discounting

Differentiated Pricing: Companies often adjust their basic price to accommodate differences in
customers, products, locations, and so on.

Differentiated Pricing
• Price Discrimination: When company sells a product or service at two or more prices that do not
reflect a proportional difference in costs.
• Customer-segment pricing: Different customer groups are charged different prices for the same
product or service.
• Product-form pricing: Different versions of the product are priced differently but not
proportionately to their respective costs.
• Image pricing: Some companies price the same product at two different levels based on image
differences.
• Channel pricing: Coca-Cola carries a different price depending on whether it is purchased in a fine
restaurant, a fast-food restaurant, or a vending machine.
• Location pricing: The same product is priced differently at different locations even though the
cost of offering at each location is the same.
• Time pricing: Prices are varied by season, day, or hour.

Initiating and Responding to Price Changes

Companies often face situations where they may need to cut or raise prices. Initiating Price Cuts, A
price-cutting strategy involves possible traps:
• Low-quality trap: Consumers will assume that the 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.
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• Shallow-pockets trap: The higher-priced competitors may cut their prices and may have longer
staying power because of deeper cash reserves.

Initiating Price Increases

• Delayed quotation pricing: The company does not set a final price until the product is finished or
delivered. This pricing is prevalent in industries with long production lead times, such as industrial
construction and heavy equipment.
• Escalator clauses: The company requires the customer to pay today's price and all or part of any
inflation increase that takes place before delivery.
• Unbundling: The company maintains its price but removes or prices separately one or more
elements that were part of the former offer, such as free delivery or installation.
• Reduction of discounts: The company instructs its sales force not to offer its normal cash and
quantity discounts.

CHAPTER 17: DESIGNING AND MANAGING INTEGRATED

MARKETING COMMUNICATIONS
The Role of Marketing Communications

Marketing communications are the means by which firms attempt to inform, persuade, and remind
consumers-directly or indirectly-about the products and brands they sell. In a sense, they represent the
voice of company and its brands; they are the means by which firms can establish a dialogue and build
relationships with consumers.

Marketing Communication Mix

• Advertising
• Sales promotion
• Events and experiences
• Public relations and publicity
• Direct marketing
• Interactive marketing
• Word-of-mouth marketing
• Personal selling

How do marketing communications work?

Marketing communication activities in every medium contribute to brand equity and drive sales in many ways:
by creating brand awareness, forging brand image in consumers’ memories, eliciting positive brand
judgements or feelings, and strengthening consumer loyalty.

The Communications Process Models

Marketers should understand the fundamental elements of effective communications.
Two models are useful
• Macro model: Figure shows a macro-model with nine key factors in a communication.
Two represent the major parties- sender and receiver. Two represent major tools- message
and media. Four represent major communication functions- encoding, decoding, response
and feedback.

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• Micro model: Micromodels of marketing communications concentrate on consumers
specific responses to the communication. Figure summarizes four classic response

hierarchy models.
To increase the odds for a successful marketing communications campaign, marketers must attempt to
increase the likelihood that each step occurs. For example, the ideal ad campaign would ensure that:

• The right consumer is exposed to the right message at the right place and at the right time.
• The ad causes the consumer to pay attention but does not distract from the intended message.
• The ad properly reflects the consumer’s level of understanding of and behavior with the product and
the brand.
• The ad correctly positions the brand in terms of desirable and deliverable points-of-difference and
points-of-parity.
• The ad motivates consumers to consider purchase of the brand.
• The ad creates strong brand associations with all these stored communications effects so they can have
an impact when consumers are considering making a purchase

Developing Effective Communications

STEP-1 Identify the Target Audience

The process must start with a clear target audience in mind: potential buyers of the company’s products,
current users, deciders, or influencers, and individuals, groups, particular publics, or the general public.

STEP-2 Set the Communications Objectives

As we showed with Pottsville College, marketers can set communications objectives at any level of the
hierarchy-of-effects model. John R. Rossiter and Larry Percy identify four possible objectives, as
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follows:
• Category Need
• Brand Awareness
• Brand Attitude
• Brand Purchase Intention

STEP- 3 Design the Communications

Formulating the communications to achieve the desired response requires solving three problems:
what to say (message strategy), how to say it (creative strategy), and who should say it (message source).
Creative strategy can be further classified as informational or transformational appeals.

STEP-4 Select the Communications Channels

• Personal communications channels
• Nonpersonal (mass) communications channels
• Integration of communications channels

STEP-5 Establish the Total Marketing Communications Budget Types of methods:

• Affordable method
• Percentage-of-sales method
• Competitive-parity method
• Objective-and-task method
• Communications budget Trade-offs

STEP-6 Deciding on the Marketing Communications Mix

ADVERTISING reaches geographically dispersed buyers. It can build up a long-term image for a
product or trigger quick sales.
• Pervasiveness
• Amplified expressiveness
• Control
SALES PROMOTION Companies use sales promotion tools—coupons, contests, premiums, and the like—to
draw a stronger and quicker buyer response
• Ability to be attention-getting
• Incentive
• Invitation

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
• High credibility
• Ability to reach hard-to-find buyers.
• Dramatization

EVENTS AND EXPERIENCES There are many advantages to events and experiences as long as they
have the following characteristics:
• Relevant
• Engaging
• Implicit

PUBLIC RELATION AND PUBLICITY Marketers tend to underuse public relation, 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.

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• High Credibility
• Ability to reach hard-to-find buyers
• Dramatization

ONLINE AND SOCIAL MEDIA MARKETING They share three characterstics:

• Rich
• Interactive
• Up-to-date

DIRECT AND DATABASE MARKETING They share three characteristics:

• Personal
• Proactive
• Pervasive

MOBILE MARKETING Word of mouth also takes many forms both online or offline. Three
noteworthy characteristics are:
• Influential
• Personal
• Timely

PERSONAL SELLING Personal selling is the most effective tool at later stages of the buying process,
• Customized
• Relationship-oriented
• Response-oriented

STEP-7 Factors in Setting the Marketing Communications Mix Type of product market
Buyer-readiness stage Product life-cycle stage
Measuring Communication Results: Senior manager want to know the outcomes and revenues resulting from
their communications investments. Too often, their communications directors apply only inputs and
expenses: press clipping counts, numbers of ads placed and media costs.

STEP-8 Managing the Integrated Marketing Communications Process

The American Marketing Association defines integrated marketing communications (IMC) as “a
planning process designed to assure that all brand contacts received by a customer or prospect for a
product, service, or organization are relevant to that person and consistent over time.”
Coordinating Media
Media coordination can occur across and within media types, but marketers should combine personal
and nonpersonal communications channels through multiple-vehicle, multiple-stage campaigns to
achieve maximum impact and increase message reach and impact.

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 CHAPTER 18: MANAGING MASS COMMUNICATION
Advertising can be can be a cost-effective way to disseminate messages, whether to build brand
preference or to educate people.

The five major decisions called the 5 M’s are-

Mission – what are our advertising objectives?
Money –how much can we spend and how do we allocate our spending across media types?
Message – what should the ad campaign say?
Media – what media should we use?
Measurement – how should we evaluate the results?

Advertising objective - It is a specific communication task and achievement level to be accomplished

with a specific audience in a specific period of time. Setting the advertisement objectives can be
classified as under:
Informative advertising – It aims to create brand awareness and knowledge of new products or new
features of existing products.
Persuasive advertising – It aims to create preference of a particular product or service.
Reminder advertising – It aims to stimulate repeat purchase of a product and services.
Reinforcement advertising – It aims to convince current purchasers that they made the right choice.

Deciding on the advertising budget – The following factors are to be considered:

Stage in the product life cycle – New products and services need more advertising budget to build
awareness and to gain consumer trial.
Market share and customer base – High market share brands usually require less advertising
expenditure than a low market share brand.
Competition and clutter – In a market with a large number of competitors and high advertisement
spending, a brand must advertise more heavily to be heard.
Advertising frequency – The number of repetitions needed to put the brands‟ message across to
consumers has an obvious impact on the advertising budget.
Product substitutability – Brands in less-differentiated or commodity-like product classes require
heavy advertising to establish a unique image.

Advertising elasticity- The predominant response function for advertising is often concave but can be
S-shaped.

Developing the advertising campaign– The three steps are as follows: –

• Message generation and evaluation – Advertisers are always seeking the “big idea” that
connects with consumers rationally and emotionally, distinguishes the brand from its competitors
and is flexible enough to translate to different media, markets and time periods. Fresh insights
are important for creating unique appeals and positions.
• Creative development and execution – The ad’s impact depend not only on what is says but also
on how it says.

Television ads –It can demonstrate product attributes and persuasively explain their consumer benefits.
Print ads – Magazines and newspapers can provide detailed product information and effectively
communicate user and usage imagery since readers consume them at their own pace.
Radio ads – The stations can be targeted; ads are relatively inexpensive to produce and place and short
closings for scheduling them allow for quick response.
Legal and social issues- The advertisers must be sure not to overstep social and legal norms or offend
the general public.

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Choosing media – The following factors are to be considered: –
Reach (R) – The number of persons or households exposed to a particular media schedule at least once
during a specified time period.
Frequency (F) – The number of times within the specified time period that an average person or
household is exposed to the message.
Impact (I) – The qualitative value of an exposure through a given medium.

The relationship between reach, frequency and impact are as follows-

Total number of exposures (E) is= R*F. This is also called gross rating points. Weighted number of
exposures (WE) is WE=R*F*I.

Choosing among major media types

• Place advertising options are billboards, public spaces, product placement and point
of purchase.
• Evaluating alternate media
• Selecting specific media vehicles
• Selecting media timing and allocation- The advertiser must choose among continuity,
concentration, fighting and pulsing.
• Evaluating advertising effectiveness
• Communication-effect research
• Sales-effect research

Sales promotion – It consists of a collection of incentive tools, mostly short term, designed to stimulate
quicker or greater purchase of particular products or services.

Advertising versus promotion – Advertising offers a reason to buy and sales promotion offers an
incentive to buy.

Major decisions –
• Establishing objectives – for consumers, retailers and sales force
• Selecting customer protection tools
• Selecting trade promotion tools
• Selecting business and sales force promotion tools
• Developing the program
• Implementing and evaluating the program – Evaluations are held through sales data, consumer

Events and experiences Events objectives

• To identify with a particular target market or lifestyle
• To increase salience of company or product name
• To create or reinforce perceptions of 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 key employees
• To permit merchandising or promotional opportunities

Major sponsorship decisions-

• Choosing events
• Designing sponsorship programs
• Measuring sponsorship activities

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Creating experiences- Experiential marketing not only communicates features and benefits but also
connects a product or service with unique and interesting experiences.

Public relations – It includes a variety of programs to promote or protect a company’s image or

individual products. Their functions are – press relations, product publicity, corporate communications,
lobbying and counseling.

Marketing public relations – It plays an important role in these tasks – launching new products,
repositioning mature products, building interest in a product category, influencing specific target
groups, defending products that have encountered public problems, building the corporate image in a
way that reflects favorably on its products

Major decisions in Marketing PR-

• Establishing objectives
• Choosing messages and vehicles
• Implementing the plan and evaluating results.

CHAPTER 20: INTERNATIONAL MARKETING

In the present decade, International Marketing provided platform to perform transactions across national
boundaries.
The “Controllable factors”( product development, pricing, distribution and promotion) and the
“Uncontrollable factors” (macro-environment) are different internationally.
International Marketing had gained importance due to number of interrelated factors:
• Lowering of barriers to trade and investments across economies.
• Improvements in transportation and logistics system.
• Technological advancements and innovations to bring products with international appeal.
• Emergence of e-commerce.
• World trade expanding rapidly due to better trade norms by international bodies.
Companies have to identify and study key differences in foreign environments as compared to domestic
environments in terms of:
• Consumer tastes and preferences
• Economic infrastructure and health
• Life style patterns
• Market structures
• Government regulations
• cultural, linguistic, demographic, psychographic
Dimensions in International Marketing
• Domestic marketing is the marketing activities within the domestic boundaries.
• Foreign marketing is the process of domestic operations and marketing in a foreign country.
• Comparative marketing is the organised study of marketing systems in many countries - similarities and
differences.
• International trade: analysis on commercial & monetary conditions.
V/S
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• International marketing: analysis of micro-level of market using company as a unit of analysis.

Domestic V/S International Marketing

Domestic Marketing International Marketing
• Less complex • More complex
• Involves one set of uncontrollable • Involves two or more sets of
factors uncontrollable factors

• The two or more environmental factors may overlap, indicates similarities across countries.
• The more the overlap in the uncontrollable factors across countries, less modification/ variations needed
for Marketing mix strategies of a firm.
Characteristics of Multinational Corporation (MNCs)
BEHAVIOUR
This requirement concern with the behavioural characteristics of top management, i.e. company becomes
MNC as its management thinks more internationally (Geocentricity).
Ethnocentricity Polycentricity Geocentricity
Strong Strong orientation to the Considering the whole
orientation/favour host country (Foriegn) world as target market
towards the home Ex. McDonald’s rather than just the country
country (country of of origin
origin) Ex. KFC has a “Vegetarian
Ex. Panasonic,Hitachi Thali” to cater vegetarians
in India

Process of Internationalization
May be thought as
• a process,
• an end result, and/or
• a way of thinking.
Small home country market and/or competition from outside (low market attractiveness), tends to encourage
companies for exporting or entering foreign markets - Domestic “PUSH”.
Large and open host country (foreign) markets provide opportunities to enter - International “PULL”.
Process
• Irregular Exporting
• Exporting via independent representatives (agents)
• Establishing an Overseas Sales Subsidiary
• Establishing Production/ Manufacturing
Benefits of International Marketing
Product may be in declining / saturation stage of life cycle in the domestic market and will face growth
market abroad.
In some product lines, competition in foreign markets may be less intense than domestically.
Geographical Diversification.
Market attractiveness:
• Size
• Growth
• Entry & Exit barriers

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 CHAPTER 21: DESIGNING AND MANAGING INTEGRATED
• Marketing Channels: Set of pathways a product or service follows after production,
culminating in purchase and consumption by the final end user.
• Merchants: Intermediaries such as wholesalers and retailers who buy take title to and resell the
merchandise.
• Agents: Intermediaries such as brokers and sales agents who search for customers and
negotiate on producer’s behalf but do not take title to the goods.
• Facilitators: Intermediaries such as Transport companies, banks who do not take title to
goods nor negotiate purchases of goods.
• In Managing Intermediaries, the firm must decide how much effort to devote to push and to
pull marketing.
• Push Strategy: It uses the manufacturer’s sales force trade promotion money to induce
intermediaries to carry, promote and sell the product to end users.
• Pull 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 avoid it.
• Multichannel Marketing: It reaches two or more marketing channels to reach customer
segments in one market area.
• Integrated marketing channel system: A channel system in which the strategies and tactics
of selling through one channel reflects the strategies and tactics of selling through one or
more other channels.
• Value Network: A system of partnership and alliances that a firm creates to source,
augment and deliver its offerings.

Marketing Channels:

Channel Design Decisions:

• Analyzing customer needs and wants.
• Establishing objectives and constraints.
• Identifying major channel alternative.
Number of Intermediaries:

Exclusive Distribution: It severely limits the number of intermediaries.

Selective Distribution: It relies on only some of the intermediaries willing to carry a particular product
Intensive Distribution: It places the goods or services in as many outlets as possible.

Terms and Responsibilities of channel members:

• Price Policy calls for the producers to establish a price list and schedule of discounts and
allowances that intermediaries see as sufficient.
• Conditions of sale refers to the payment terms and producer guarantees.
• Distributor’s territorial rights define the distributor’s territories and the terms under which the
producer will enfranchise other distributors.
• Mutual services and responsibilities must be carefully spelled out, especially in franchised and
exclusive-agency channels.

Major channel alternatives evaluated on economic, control and adaptive criteria.

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Channel Management Decisions:
• Selecting channel members.
• Training and motivating channel members.
• Evaluating channel members.
• Modifying channel design and arrangements.

Channel Modification Decisions

• A conventional marketing channel consists of an independent producer, wholesaler(s), and
retailer(s).
• A vertical marketing system includes the producer, wholesaler(s), and retailer(s) acting as
unified way.
• A horizontal marketing system is a system in which two or more unrelated companies put
together resources and programs to exploit an emerging marketing opportunity.
• Ecommerce uses a Website to transact or facilitate the sale of products and services online.
Pure click companies are those companies that have launched a Website without any previous
existence as a firm. Brick and click companies are the existing companies that have added an
online site for information or e-commerce.

E-commerce Marketing practices

• E-commerce uses a web site to transact or facilitate the sale of products and services online.
Online retail sales have exploded, Online retailers can predictably provide convenient,
informative and personalized experiences for vastly different types of consumers and
businesses.
• We can distinguish between pure-click companies, those who have launched a website without
any previous existence as a firm and Brick Click companies, existing companies that have added
an online site for information or e-commerce.

M-Commerce marketing practices:

Advertising and Promotion
Geofencing: The idea of geofencing is to target customers with a mobile promotion when they are within
a defined geographical space.
A conflict is generated when one channel member’s action prevents another channel member from
achieving its goal.
Types of conflicts and competition:
• A horizontal channel conflict occurs between channel members at the same level.
• A vertical channel conflict occurs between different levels of the channels.
• A multichannel conflict exists when the manufacturer has established two or more channels that
sell to the same market.

Strategies to manage channel conflicts:

• Strategic Justification.
• Dual Compensation.
• Super ordinate Goals.
• Employee Exchange.
• Joint Memberships.
• Co-optation.
• Diplomacy.
• Legal Resources

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 CHAPTER 22: MANAGING HOLISTIC MARKETING
ORGANIZATION FOR THE LONG RUN
Retailing includes all the activities involved in selling goods or services directly to final customers for
their personal, non-business use. A retailer is any business enterprise whose sales volume comes
primarily from retailing.

Types of Retailing
• Store Retailing: 8 categories
• Specialty Stores: Carry a narrow product line with a deep assortment within the line. Ex:
Athlete’s Foot, Tall Men, The Limited.
• Department Stores: Carry several product lines. Ex: Sears, J.C. Penney, Bloomingdale’s.
• Supermarkets: Relatively large, low-cost, low-margin, high-volume, self-service operations
designed to serve the consumer’s total needs for food, laundry, & household maintenance
products. Ex: Kroger, Safeway, Food Lion.
• Convenience Stores: Relatively small stores located near residential areas, opened long hours
seven days a week. Ex: 7-eleven
• Discount Stores: Sell standard merchandise at lower prices by accepting lower margins &
selling higher volumes. Ex: Wal-Mart, H.E.B., Kmart.
• Off-Price Retailers: Buy at less than regular wholesale prices & charge consumers less than
retail.
• Factory outlets: Owned & operated by manufacturers & normally carry the manufacturer’s
surplus, discontinued or irregular goods. Ex: Ralph Lauren, Liz Claiborne.
• Independent off-price retailers: Owned & run either by entrepreneurs or by division of larger
retail corporations. Ex: TJX Cos.
• Warehouse clubs: Sell a limited number of brand-name grocery items, appliances, clothing, etc.
at deep discounts. Operate in huge, low-overhead, warehouse-like facilities. No credit cards.
No deliveries. Ex: Sam’s Club.
• Superstores: 35,000 square feet selling space. Meets consumer’s total needs. Ex: PetSmart,
Home Depot, Staples.
• Catalog Showrooms: Sell a broad selection of high-mark-up, fast-moving, brand-name goods
at discount. Ex: Service Merchandise.
• Retail life cycle: emerges, grows, matures, declines.Wheel-of-retailing hypothesis:
• New store types emerge to challenge old store types.
• New store types emerge to meet widely different consumer preferences for service levels &
specific services. Retailers can position themselves as offering one of four levels of service:
• Self-service.
• Self-selection. Customers can ask for assistance. Higher operating expenses than the
previous one.
• Limited-service. More sales assistance because customers need more info.
• Full-service. Provides salespeople who are ready to assist in every phase of the locate-
compare-select process.

Non-store Retailing: 4 major categories

Direct Selling: Oldest one. 3 types:
One-to-one selling: A salesperson visits & tries to sell products to a single potential user. Ex: Avon,
Electrolux.
One-to-many: A salesperson goes to the house of a host who has some people in the house. Ex:
Tupperware.
Multilevel: A variant of direct selling in which companies recruit independent businesspeople who act
as distributors for their products. These distributors in turn recruit & sell to sub-distributors, who
eventually recruit others to sell their products, usually in customer homes. Ex: Amway, NuSkin.
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Direct Marketing: Includes telemarketing, TV direct response marketing & electronic shopping.
Ex: 1-800-FLOWERS, Home Shopping Network.
Automatic Vending: Vending machines offer 24 hours selling, self-service & unhandled merchandise.
Ex: COKE, Pepsi.
Buying Service: A store less retailer serving specific clienteles- usually the employees of large
organizations, such as schools, hospitals, unions, & government agencies. Ex: United Buying Service

Retail Organizations
• Achieve many economies of scale, such as greater purchasing power, wider brand recognition,
& better trained employees. The major types of retail organizations are:
• Corporate Chain Stores: Two or more outlets that are commonly owned & controlled, employ
central buying & merchandising, & sell similar lines of merchandise. Their size allows them to
buy in large quantities. Ex: Tower Records, Pottery Barn.
• Voluntary Chain: Wholesaler-sponsored group of independent retailers engaged in bulk buying
& common merchandising. Ex: Independent Grocers Alliance.
• Retailer Cooperative: Independent retailers who set up a central buying organization & conduct
joint promotion efforts. Ex: Associated Grocers, ACE.
• Consumer Cooperative: A retail firm owned by its customers. Started by community residents.
Ex: local consumer cooperatives.
• Franchise Organization: Contractual association between a franchiser & franchisees. Normally
based on some unique product, service or method of doing business. Prominent in fast foods,
video stores, health/fitness centers, auto rentals. Ex: McDonald’s, Pizza Hut, Taco Bell, Burger
King.
• Merchandising Conglomerate: A free-form corporation that combines several diversified
retailing lines & forms under central ownership, along with some integration of their
distribution-&-management function Ex: F.W. Woolworth, Kids Mart.
Retailer Marketing Decisions

Target-market decision: A retailer’s most important decision. Until the target is not defined, the retailer
cannot make consistent decisions. Retailers should conduct periodic marketing research to ensure that
they are reaching & satisfying their target customers.

Product Assortment-&-procurement decision: Must match the target market’s shopping expectations.
The retailer has to decide on product-assortment breadth & depth. Another product assortment dimension
is the quality of the goods. The real challenge is to develop a product differentiation strategy:
• Feature some exclusive brands not available at competing retailers.
• Feature mostly private branded merchandise.
• Feature blockbuster distinctive merchandise events.
• Feature surprise or ever-changing merchandise
• Feature the latest or newest merchandise first.
• Offer merchandise customizing services.
• Offer a highly targeted assortment

Once the retailer decides on the product-assortment strategy, the retailer must decide on procurement
sources, policies, & practices. Retailers are rapidly improving their procurement skills. Stores are
learning to measure direct product profitability, which enables them to measure a product’s handling
costs from the time it reaches their warehouse until a customer buys it & takes it out.

Services-&- store- atmosphere decision: The services mix is one of the key tools for differentiating
one store from another. The store’s atmosphere is another element. Ex: Banana Republic stores work on
the concept of retail theatre.

Price Decision: Key positioning factor & must be decided in relation to the target market, the product-
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&-service-assortment & competition. Retailers must pay attention to pricing tactics. They will plan
markdowns on slower-moving merchandise. A growing number of retailers have abandoned “sales
pricing” in favor of everyday low pricing (EDLP). This could lead to lower advertising costs, greater
pricing stability, a stronger store image of fairness & liability, & higher retail profits.

Promotion Decision: Use promotion tools that reinforce image position.

Place Decision: Retailers have a choice of locating their stores in:

• Central business districts (downtown).
• Rents are high.
• Regional shopping centers.
• Large suburban malls containing 40-200 stores.
• Malls are attractive because of generous parking, one-stop shopping, restaurants, &
recreational facilities.
• Community shopping centers. Smaller malls. Between 20-40 smaller stores.
• Strip malls. Contain a cluster of stores, usually housed in one long building.
• A location within a larger store. Certain well-known retailers-McDonald’s, Dunkin
Donuts- are locating units in airports, schools, Wal-Marts.
• Retailers can assess a particular store’s sales effectiveness by looking at four indicators:
• Number of people passing by on an average day.
• % who enters the store.
• % of those entering who buy.
• Average amount spent per sale.
Trends in Retailing
• Main developments that retailers need to consider as they plan their competitive advantage:
• New Retail Forms constantly emerge to threaten established retail forms.
• Shortening Retail Life Cycles. Retail forms are rapidly copied.
• Non-store Retailing due to electronic age.
• Increasing Intertype Competition. Competition between store & nonstore retailers is
common.
• Polarity of Retailing.
• Giant Retailers are emerging.
Changing Definition of One-Stop Shopping. Now specialty stores within malls are
becoming increasingly competitive with large department stores in offering one-stop
shopping.

Growth of Vertical Marketing Systems.

Portfolio Approach. Retail organizations are increasingly designing & launching new store formats
targeted to different lifestyle groups.

Growing Importance of Retail Technology.

Global Expansion of Major Retailers due to mature & saturated markets at home. Ex: The Gap, Burger
King, Tony Romas.
Retail Stores as Community Centers or Hangouts. Establishments that provide a place for people to
congregate (cafes, tea shops, book-shops, etc.).

Wholesaling
• All the activities involved in selling goods or services to those who buy for resale or
business use.
• Excludes manufacturers, farmers & retailers.
• They are also called distributors.
• Pay less attention to promotion, atmosphere & location.

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• Transactions are larger than in retailing.
• They are used whenever they perform one of the following more efficiently: selling &
promoting, buying & assortment building, bulk breaking, warehousing, transportation,
financing, risk bearing, market info & management services & counselling.

Types of Wholesalers
• Merchant wholesalers. Independently owned businesses that take title to the merchandise
they handle. Two categories:
• Full-service wholesalers provide a full line of services. Two types:
• wholesale sell primarily to retailers
• industrial distributors sell to manufacturers.
• Limited-service wholesalers offer fewer services than full-service wholesalers. Several
types:
• Cash & carry wholesalers. Limited line of fast-moving goods. Sell to small retailers. Do not
deliver.
• Truck wholesalers. Limited line of semi-perishable products. Sell & deliver.
• Drop shippers. Operate in bulk industries. Do not carry inventory.
• Rack jobbers. Serve grocery & drug retailers. Bill the retailers only for the goods sold to
consumers.
• Producers’ cooperatives. Owned by farmer members & assemble farm produce to sell in
local markets.
• Mail-order wholesalers. Send catalogues.
• Brokers & agents. Do not take title to goods & perform only a few functions.
• Brokers bring buyers & sellers together & assist in negotiation.
• Agents represent either buyers or sellers on a more permanent basis than brokers do.

Several types:
• Manufacturers’ agents
• Selling agents
• Purchasing agents
• Commission merchants

Manufacturers’ & retailers’ branches & offices. Branches & offices dedicated either to either sales
or purchasing.

Miscellaneous Wholesalers. A few specialized types of wholesalers are found in certain sectors of the
economy.

Market Logistics
Involves planning, implementing & controlling the physical flows of materials & final goods from points
of origin to points of use to meet customer requirements at a profit. Info systems plays a critical role in
managing market logistics.
Involves several activities: sales forecasting, distribution, production & inventory levels.

Integrated Logistics Systems

The market logistics task calls for integrated logistics systems (ILS), which include materials
management, material flow systems, and physical distribution, aided by information technology (IT).
Information system plays a critical role in managing market logistics, especially via computers, point-
of-sale terminals, uniform product bar codes, satellite tracking, electronic data interchange (EDI), and
electronic fund transfer (EFD).

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