Segmentation and targeting=> design a customer-driven marketing strategy

Steps to developing a marketing strategy:

1. Marketing segmentation: identify bases for segmenting the market and develop segment profiles.
a. Definition: divide the market into smaller segments with district needs, characteristics or
behavior that might require separate marketing strategies or mixes. Market segments should:
i. Have common needs
ii. Respond similarly to a marketing action
b. Costs:
i. Larger research and planning costs
ii. Higher production costs
iii. Higher communication cost per contact
c. Benefits/advantages:
i. Increases sales and supports higher process=> specific needs are better satisfied and
more effective marketing communications created
ii. Increases cost efficiency=> waste coverage is avoided
d. Requirements for effective segmentation:
i. Measurable: size, purchase power and profile of segment
ii. Accessible: can be reached and served
iii. Substantial: large and profitable enough
iv. Differentiable: respond differently
v. Actionable: effective programs can be developed
e. Bases of segmentation
i. Geographic: divides the market into different geographical units such as nations,
regions , states, countries or cities
a. Advantages: easy to measure
b. Disadvantages: may not predict sales due to too much variability,
may be limiting
ii. Demographic segmentation: divides the market into groups based on variables
such as age, gender, family size, family life cycle, income, occupation, education,
region, race and generation

a. Advantages: easy to measure

b. Disadvantages: may not predict sales due to too much variability,
may be limiting
iii. Psychographic segmentation: divides buyers into different groups based on
lifestyle or personality traits
a. Advantages: may predict sales, dynamic can provide competitive
advantage
b. Disadvantages: difficult to measure
 iv. Behavioral segmentation: divides buyers into groups based on knowledge,
attitudes, uses or responses to a product such as=> need bases, loyalty status,
occasions, user status, user rate
a. Advantages: may predict sales, dynamic can provide competitive
advantage
b. Disadvantages: difficult to measure
v. Selecting segments:
1. Attractiveness of segments: growth, profitability, size (growth doesn’t
always equal profitability, smaller segments could be profitable)

2. Competitive reaction: are there strong competitors

3. Fit the companies strength: do customer needs fit the company
4. Compatible with companies objectives and resources
5. should only focus on segments where your added value is the greatest!!
2. Target marketing: develop measure of segment attractiveness and select target segment
a. Definition: target market consists of a set of buyers who share common needs or characteristic
that the company decides to serve. Company evaluates segments and decides with one to
target and how
b. Target marketing strategies:
i. Undifferentiated marketing (mass marketing): a single marketing mix for the entire
market. Targets the whole market with one offer by focusing on common needs
rather than differential factors
ii. Differentiated/segment marketing: targets several different market segments and
designs separate offers for each

a. Benefits: higher sales, strong position within each segment

b. Costs: increase in costs research marketing, forecasting, sales
analysis, planning promotions
2. Multi-segment marketing: separate marketing mixes for two or more
segments of the market
3. Concentrated (niche) marketing: a single marketing mix for one segment of
the market (focuses on one segment). Targets a large sphere of a small
market
a. Advantages=> high profitability, more effective/efficient
operations, knowledge of market
b. Disadvantage: higher-than-normal risk
4. Individual (Micro ) Marketing: Marketing mix customized for an individual
or organization. Targets taste of specific individuals and locations
a. Local marketing: tailors products to need/want of local customer
group
b. Individual marketing: tailors product to need/want of individual
(Nike ID)
 c. Socially responsible targeting: segmentation and targeting that serves the interests of company
and the interests of those targeted
i. Issues in target marketing: unfair targeting of vulnerable and disadvantaged
segments. Attempt to profit at their expense
3. Market positioning: develop positioning for target segment and develop a market mix for each segment
a. Product positioning: way the product is defined by customers on important attributes-the place
the product occupies in customers’ minds relative to competing products
b. Marketers influence product positions to give their product greatest advantage and give it a
unique benefit and difference in customers minds, use marketing program to affect perception
c. How to choose positioning strategy:
i. Identify a set of possible competitive advantages on which differentiate (sources:
product, service, people, image)
ii. Select the right competitive advantage to promote: choose unique selling position,
which differences to promote
iii. Communicate the chosen positioning effectively
d. Competitive advantage: advantage over competitors gained by offering customers greater
value, either through lower prices or by providing more benefits that justify higher prices
e. Creating competitive advantage through differentiation:
i. Product differentiation: based on features, performance, style
ii. Service differentiation: service that accompany product
iii. Channel differentiation: channel coverage, expertise, performance
iv. People differentiation: hiring and training better people than competitors
v. Brand image differentiation: overall brand
f. Value proposition: how a brand will create differentiated value for
target segments and what positions it wants to occupy in those
segments => answer to why I should buy your brand. The red are
loss of value proposition
The green cells are winning cells
Winning cell is more for less=> hard to deliver over long-run

g. Positioning statement: to (target segment or need) our (brand) is (concept) that (point of
difference)
h. Perceptual positioning map: display two dimensions=> the location of brands in customers
minds vs competing products
i. Maps dimensions- places its self in location and places competitors on location.
Perceived brand similarity would mean close to competitor location
ii. Show: customer perception of their brand on important buying dimensions (price,
quality ect.)
i. Repositioning: changing the place an offering occupies in consumer’s mind relative to
competitive products (McDonalds=> trying to be healthy so people view them as not fast
food)
 4. Communication the value position: evolve gradual and adapt to changing marking environment
Customer market business market
General characteristics: General characteristics:
Geographic: region, city, rural/metro Geographic: location
Demographic: age, income Demographic: size, industry, plant industry and corporate
Market related behaviors Market related behaviors
Needs/benefits: needs benefits Needs/benefits: technical requirements
Behavior: usage level, loyalty Behavior: usage, loyalty

Chapter 8: Product, service and branding

Product: anything offered to a market for attention, acquisition, use or consumption that might satisfy a need or
want
Service: a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially
intangible and do not result in the ownership of anything
Experience: experiences represent what buying the product or service will do for the customer
Levels of products and services:
1. Core customer value: addresses question at of what the customer is actual buying
2. Actual product: core benefit turned to product, product and services features are developed (brand
name, quality, packaging, design)
3. Augmented product: built around core value and actual product- customer services and benefits. Adds
customer value (product support, delivery and credit, warranty)

Product and service classification:

o Consumer products: bought by final consumers for personal consumption. Type of products:

o Convenient: products and services that the customer usually buys frequently, immediately
and with a minimum comparison and buying effort
o specialty goods: products/services with unique characteristic or brand identification from
which a significant group of buyers is willing to make a special purchase effort (brand loyalty,
and no comparisons)
o unsought goods: customer does not know about or knows about but does not normally think
of buying. (little awareness and knowledge, aggressive ads)
o shopping goods: products/services that the customer compares carefully on suitability,
quality , price and style
o Industrial products: bought for further processes and use for businesses (equipment, raw material,
supplies, manufactured material)
o Organization, person, places and ideas: market themselves (elections, entertainment, doctors), place
attraction (cities, countries, tourism), ideas (market an idea)

Products/services decisions:
1. Product attributes/features: Increased Attributes to differentiate and create different models
i. Help to differentiate the product from competitors
ii. Product quality: ability of a product to perform its functions and satisfy stated or
 implied customer needs. 2 dimensions:
a. Quality level=> performance quality
b. Quality consistency=> conformance and freedom from defects
iii. Product quality, style and design: contribute to a products usefulness as well as
looks. Observe customers to create design
2. Branding: a name, term, sign, or design, or a combination, that identifies the maker or seller of a
product or service and differentiates then from other competitor
i. Brands help to create identity and trust, and give firms strong market opportunity
ii. Legal protection provided
iii. Helps market segmentation
iv. Building and managing brands is the marketer’s most important task
3. Packaging: packaging involves designing and producing the container or wrapper of a product
i. Marketing tool: attracts buyers and communicated brand positions
4. Labeling: labels identify the product or brand and describe attributes
i. Connect to customers, support positioning, promote brand
5. Product support services: take care of customers and keep them happy, before, during and after the sale
and helps build lasting relationships

Product Mix decisions:

o Product portfolio (Mix): consists of all the products and items that a seller offers for sales

▪ Width: the number of product lines a company markets

▪ Length: the number of brands within each product line
▪ Depth: the number of versions offered from each product in a line
o Product line: is a group of products that are closely related (example: beauty, hair and personal
care) Product Line extensions:
▪ Benefits: attracts buyers with different preferences, increases sales/profits by
further market segmentation, capitalizes on economies of scale, evens out
seasonal sales patterns
▪ Risks: brand losing meaning, customer confusion/frustration, cannibalize other
items in the line
• Benefits Multiple product lines (width)
▪ Protects company from competition
▪ diversifying its risk
▪ Helps company capitalize on established reputation
▪ Increase growth and profit
▪ Economical resource usage
Service Marketing:
Types of service industries: government, private (not-for-profit) organizations, business services
Nature and characteristics of a service:
• Intangibility
• Inseparability: service cannot be separated from their providers
• Variability: quality depends on who, where and how provides It
• Perishability: service cannot be stored for later sale or use
Marketing mix for service marketing:
• Price: difficult to determine/compare
• Distribution: franchising, agents/brokers, electronic channels
• Promotions/adverting: setting customer expectations

Managing service quality: provides competitive advantage by delivering consistently higher quality than its
competitors
• Tangibles: facilities, equipment’s, personnel and communication materials
• Reliability: perform promised services dependably and accurately
• Responsiveness: help customers and provide prompt service
• Assurance: knowledge and courtesy of employees and their ability to convey trust and confidence
• Empathy: caring, individualized attention to customers
Service quality:
• Provides competitive advantage by delivering consistently higher quality than competitors
• Depending on interactions between employees and customers
Service differentiation: competitive advantage from the offer, delivery and image of the service

Branding:
• For buyers:
o Identification, help in comparison
o memory aid
o quality and values assurance
o self-expression through ‘brand personality’
• For sellers:
o Communication, image
o Legal protection
o Basis for differentiation
o Help in segmentation
o Help in new product introduction
Brand equity: (positive) differential effect brand name on customer response to marketing actions. Measure to
capture brand loyalty, Sources include:
• Brand knowledge/awareness
 • Recall/recognition
• Brand association: the meaning of the brand
• Brand personality and image
Benefits of Brand equity
Marketing perspective
• Differentiated image • More predictable revenues
• Added value • Premium pricing
• Greater loyalty • More inelastic demand for price increases
• Less vulnerability to competitors • More elastic consumer response to price
• Barrier to entry decreases
• Channel leverage • A potentially sellable asset
• Marketing communication effectiveness
• Brand extension opportunities

Building brands:
1. Brand positioning: can position brands at any of the 3 levels:
a. Product attributes: least desirable level because competitors could easily copy the attributes.
Customer not really interested in what attributes are but what attributes will do with them
b. Product benefits: associate their name with a desirable benefit
c. Product belief and values: engage customers on a deep emotional level (grow together)create
emotional connection to a brand
i. Key to successful brand positioning is strong product beliefs and values
ii. Brand=> is a company’s promise to buyers
2. Brand name selection: brand name should:
a. suggest benefits and qualities
b. easy to pronounce, recognize and remember
c. distinctive
d. extendable
e. translatable for the global economy
f. capable of registration and legal protection
3. Brand sponsorship: manufacturer has choices to launch product as
a. National/Private brand: some retailers/wholesalers produce their own brand product (Migos
yogurt)
b. Licensed brand: license names previously created, or celeb names=> brand name in return for
fee
c. Co-brand: 2 brands create a product=> broader consumer appeal and brand equity
4. Brand development:
line extension: KFC offer boneless chicken now
• Advantages:
o Leverages existing brand awareness
o Reduces adv expenditure
o Lower risk for consumers
o Enhancement of core brands
• risks:
o brand name losing its meaning
o consumer confusion/frustration
o cannibalize other items in the line
brand extension: Starbucks add packaged coffee to buy
• Advantages:
o Leverages existing brand awareness
o Reduces adv expenditure
o Lower risk for consumers
o Enhancement of core brands
• Risks:
o Dilute value of the brand
o Confuse image and positioning of the main brand
o Failed extension harms attitude towards other products of the same brand
o Threaten association with the original brand
multiband: pepsi co has 8 brands of fizzy drinks
• Advantages:
o Establish different features that appeal to different customer segments
 o Lock up more reseller shelf space

o Capture a large market share

• Risks:
o Too many similar brands with no meaningful differences between them

o Each brand may obtain only a small market share, and none may be very profitable

o The company may end up spreading its resources over many brands instead of
building few brands to a highly profitable level
new brands: Toyota creates lexis for younger people
• Benefits:
o may be appropriate if existing brand name is waning/not appropriate when entering
a new product category
• risks
o too expensive and timely

Chapter 9: New product development

Two ways for firms to obtain a new product:
▪ acquisition: buying of a whole company, patent, license to produce someone else’s product
new product development/introduction: through 3 forms
o original products

o product improvements/modifications

o new brands developed from firm’s own R&D

why do new products fail:
▪ insignificant point of difference
▪ overestimated demand, bad timing
▪ too little market attractiveness
▪ poor execution of marketing mix
stages to new product development:
1. idea generation: how to generate ideas, create large amount of ideas
a. internal: formal research and development (not very effective in innovation)
b. external: customers, competitors, suppliers, design companies
2. idea screening and evaluation: reduce amount of ideas, pursue only ideas that can profitable
a. identify good ideas and drop poor ones
b. describe and estimate
i. product, value proposition, target market, competition, market size
 ii. price, costs, return on investment
c. evaluate idea against a set of company criteria
i. product useful
ii. fits with company strategies and objectives
3. concept development and testing: product idea developed into a product concept
a. product idea: possible product idea for company
b. product concept: detailed, meaningful version of the idea
i. product concept is tested with target customers before they are turned into actual
real products and see consumer reactions to see what has the greatest appeal
c. product image: consumer perception of actual or potential product
4. new-product strategy:
a. marketing strategy development: is a designing an initial marketing strategy for a new product
based on the product concept
b. marketing strategy statement consists of:
i. target market/ product positioning
ii. marketing budget, price, distribution, communication
iii. short and long-term sales and profit goals
5. business analysis: evaluates the business attractiveness of the proposal
a. reviews of product sales, costs and profit projections to see if they meet company objectives
b. if business analysis satisfies company’s objectives then company could move on with product
development stage
6. product development test marketing:
a. product development: from product concept into a physical product, undergo many tests to
ensure they work safely and effectively or to ensure consumer value. Creation of prototype
and technical production feasibility. Final government approvals if needed.
b. Test Marketing: the limited introduction of a product and a marketing program to determine
the reaction of potential customers in a market situation
i. Advantages: reduces risk of bigger (national) failure, can suggest areas of
improvement
ii. Disadvantage: standard and controlled are expensive and time consuming,
informative to competitors, stimulates are less reliable and realistic
Types of test marketing:
iii. Standard: full marketing campaign in a small number of cities (high costs)
iv. Controlled: tested amongst controlled no of panel of shoppers and stores
v. Stimulated: stimulated shopping environment to a sample
7. commercialization: stage of the new-product process that involves positioning and launching a new
product in full-scale production and sales.
 a. Decisions: timing, where, how to implement the roll-out
Stages of product introduction, their purpose and tools and methods used for each stage:

Product-life cycle: the course of a product’s sales and profits over its
lifetime. Explained in terms of sales and profits, good to use as a
plan for product development
Involves 5 stages:
1. Product development: zero sales, high investment costs
2. Introduction: slow sales growth, no profit
a. Starts when product is first launched
b. No profit due to high distribution and promotion expenses
3. Growth: rapid market acceptance, increasing profit
a. If new product satisfies market it will be in growth phase
b. New competitors enter the market and introduce new features=> increases distribution outlets
c. Profit increases as promotion costs spread over large units
d. Company may add new features, decrease prices, invest in promotion
e. Trade-off between high market share or high profit
4. Maturity: slowdown in sales growth, profits decline
a. Most products are here
b. Slowdown in sales because many suppliers with products to sell=> overcapacity=> leads to
competition
c. Increased in promotion and R&D to support sales and profit
d. Consider:
i. modifying market
ii. modifying product: change characteristics: style, quality, features to attract more
customers)
iii. modify marketing mix: improve services, cut prices, invest in promotion or ad
campaigns, move to new marketing channels for new customers, attract new market
segments
 5. Decline: sales fall off and profits drop:
a. Reasons: technological advances, shift in consumer taste, increased competition
b. Decision: keep product or drop product
i. Maintain/revitalize the produce: reposition it
ii. Harvest the product: reduce various costs (R&D, maintenance)
iii. Drop the product: liquidate it or sell it to another firm
Alternative product cycles (high learning product, low-learning product, fashion product and fad product)
product cycle compared to diffusion of innovation

Chapter 10: Pricing; understanding and capturing

customer value
What is price?
• The amount of money charged for a product,
• produces revenue (other 3p’s represent costs)
• most flexible marketing mix elements, could be changed quickly
• to selects: revenue and profit source
• to consumers: cost of something
factors effecting price decisions:
• price celling: set by customer perception of value (highest price possible, no demand above this price)
• price floor: product cost (no profit could be make below this price)
• price will be between price celling and price floor
internal considerations:
o marketing goals:

▪ market share leadership: low prices to increase market share and create barriers to entry
▪ current profit maximization: profit, cash flow, or ROI maximizing price
▪ product quality leadership: high prices and high quality
▪ survival: lowest prices to cover costs
o marketing-mix strategy:

▪ prices must be coordinated with other 3p’s=> defines other ps

▪ segmentation and price discrimination
 o organizational considerations: who has authority to set price, depends on the size of the company

▪ small companies: top management

▪ large companies: marketing or sales dep.
▪ Industrial markets: management/sales people
▪ When pricing s key or complex: pricing department
external considerations:
• nature of market:
o pure competition: uniform goods, company has little effect on price
o monopolistic competition: many buyers and sellers over range of prices because
differentiated offers are made
o oligopolistic competition: few sellers each sensitive to each other’s pricing and marketing
strategy, market dominated by few large first
o pure monopoly: single seller, has full control over price
• consumer demand: consumers perceived value
o price and demand are inversely related
o price elasticity: measure the responsiveness of demand to price changes (%change in
quantity/%change in price)
▪ elastic demand changes when price changes. E>1 (when P increases total revenue
decreases)
• product is a commodity (bread, water )
• product is low in quality or is non exclusive
▪ inelastic: demand hardly changes when price changes. E<1 (when price increases,
total revenue increases)
• product is unique (hard to find substitute)
• high in quality, prestige, or exclusiveness
• product costs low relative to consumers income
• cost is shared with another party
▪ unitary elasticity: E=1 price increase is offset by increase in Q, no change in total
Revenue. % change in price = the same % change in quantity
• competitions’ prices and costs:
o competitors reach to price change when: product is similar, buyers are informed, large
number of small firms
o study competitors costs through reverse engineering and public data to learn how low they
could cut their prices
• environmental factors (channel partners, government, economic trends)
Pricing strategies:
1. cost-based pricing: setting prices based on the costs for producing, distributing and selling products
plus a fair rate of return for effort and risk (price= cost + mark-up) Types of costs:
 a. fixed costs: do not vary with production/sales level (overhead (rent) and direct fixed costs(ads,
salary of salesperson))
b. variable costs: costs that vary with level of production (raw materials)
c. total cost= fixed cost + variable costs
d. breakeven=> price in which total costs=total revenue (there is no profit)
e. profit=> total revenue-total cost
f. desired markup=> unit cost/ (1-desired sales markup)
steps include:
g. design a good product
h. determine product cost
i. set prices based on cost
j. convince buyers of product’s value
advantages:
a. simple
b. sellers more certain about costs than demand=> more reliable for sellers
c. minimize price competition if everyone uses the same system likely to have similar prices
d. perceived fairness to both buyers and sellers
disadvantages
a. ignores demand (price sensitive)
b. does not account for competition
c. many result in under or over pricing
2. value based pricing: determines price based on buyers’ perception of value. Margins and costs are
irrelevant to customers. Customer needs and value perception is analyzed based on personal
gains/losses
steps include:
a. asses customers’ needs and value perception
b. set target price to match customers perceived value
c. determine costs that can be incurred
d. design a product to deliver desired value at target price
• good value pricing strategy: offers the right combination of quality and good services at a fair price
o less expensive versions of establish brand product
o everyday low prices (EDLP)
• not always low prices but also offer value-added features and services=> to differentiate offers,
support higher prices and build pricing power
o can have higher prices backed up by value

3. competition based pricing: setting prices based on competitors’ strategies, costs, prices and market
offering
 a. consumers judgment of product value based on competitors prices for similar products
b. charges price based on how its value is compared to its competitor (value better then it should
charge a higher price)

Chapter 11: pricing strategies: additional considerations

Pricing strategies for new products:
1. market skimming: set a high initial price and gradually lower it to skim revenues layer by layer from
the market. Conditions:
o product quality and image must justify high price

o there should be sufficient amount of buyers who want the product at that price

o cost of producing small volumes should be less than the advantage of higher initial prices

o competitors should not be able to enter the market easily and undercut higher price

2. market penetrating: low initial prices to penetrate the market quickly and deeply. Conditions:
o market for new product is price sensitive
o when high sales volume results is falling costs (scale economies)
o low prices act as barriers to entry (prevent competitors from entering market)
Product Mix pricing strategies:
• product line pricing: setting prices across an entire product line. (iPod, iPhone, iPad)
o Condition: Must establish perceived value differences to support price differences
• Optional product pricing: the pricing of optional or accessory products sold alongside the main product
(fridge with ice maker)
• Captive product pricing: pricing of products that must be used with the main product. To use the main
product you have to buy those sub products.
o Video games, razor prices

o High margins are often set for suppliers

o Often main product is cheap, sub product is expensive

o Services: two part pricing strategy=> fixed fee plus a variable usage rate ( Disney land ticket,
additional fees for foods stores)
• By-product pricing: pricing products with little or no value but produced as a result of the main product.
Producers will seek little or no profit other than the cost to cover storage and delivery.
o Wheat protein by product of cheese=> became profitable

• Product bundle pricing: combine/bundle of products that can be sold separately at a reduced price
o Burger, fries and drink=> menu, cheaper than buying them separately
Price adjustment strategies:
1. Discount and allowance pricing: are not price promotions
a. Discount pricing reduces prices to reward customer responses such as paying early or buying
large
 b. Allowances another type of reduction from list price. Trade-in allowances: price reductions
for turning in an old item when buying a new one (example: Zen diamond)
2. Segmented pricing: selling a product at two or more prices even through the difference is not based on
cost. Does this to accommodate different locations (location of seats), customers (students charged
different), product (women pay more for hair cut then men), time (different seasons different price) etc.
3. Psychological pricing: sellers consider psychology of prices and not simply the economy
a. Price used to judge quality by customers
b. Numerical digits=> odd-even pricing=> setting prices a few cents below even number implies
a bargain (40=>3.99)
c. Reference prices: customers compare prices and form benchmark prices, sellers use reference
price to sell their products
4. Promotional prices: when prices are temporarily priced below list price or cost to increase demand and
make buyers feel lucky to have gotten in on a scarce deal.
a. Loss leaders- low pricing a few popular items to lure customers to the store
b. Benefits:
i. Brand switching
ii. More extensive/frequent usage of promoted brand
c. Problems:
i. Easily copied
ii. Deal-prone consumers: wait till promotions only to buy
iii. Brand value erosion
iv. Not a substitute for strategic planning
v. May lead to industry price wars
5. Dynamic pricing: prices are adjusted continually to meet the characteristics and needs of the individual
customer and situation
a. Monitoring demand and price continuously
b. Can create customer dissatisfaction and protests
6. Geographical pricing: used for customers in different parts of the country or world
a. Shipping, border and tax fees
7. International pricing: prices are set in a specific country based on country-specific factors
a. Uniform world-wide prices
b. Or setting prices different in different countries based on specific factors
Price changes:
• Price cuts: should be handled with care customers could associate it with a fall in quality or with a
promotion, why would firms cut their prices
o Excess capacity

o Falling market share

 o Aspiring for market share leadership
• Price increase: why would firms increase prices
o Rising costs
o Increased profit
o Greater demand than supply
Response companies respond to competitors price changes
launching fighting brand: adding a lower priced item of
your product line or creating a separate lower-priced brand.
- Usually lower quality than original brand
- Used to protect market share of main brand without
having to cut prices

Public policy and pricing: companies not always allowed to set prices as they wish there are local and federal
laws that govern price setting and fair play. And consider societal pricing concerns. Most concerning are:
• Price fixing: (illegal) sellers must set prices without talking to competitors
• Predatory pricing: selling below costs with the intention of punishing a competitor or gaining long-term
profits by putting competitors out of business

Chapter 12: marketing channels: delivering customer

value
Marketing channel: to create customer value and reap the value from customer, company has to work with an
entire network of partners (value-delivery network)
Definition: set of interdependent organizations involved in the process of making product or service
available for use or consumption by the consumer or business user
Supply chain:
1. Upstream partners: firms that supply raw materials, components, parts, information, finances and
expertise needed to create a product or service
2. Downstream partners: include the marketing channel or distribution channels that look toward the
customer, including retailers and wholesalers
Why use Marketing channels:
• Intermediaries reduce the contacts (contact efficiency)
• Producers makes narrow assortments in large quantities,
marketing channel members buy large quantity from producers
and match product assortment demand with supply (smaller
quantity with more variety)
• Bridge, time and possession gaps that separate products from
users
How do channel members add value: functions shifted to intermediaries which divides the costs and work of the
channel.
• Information: Gather and distribute marketing research and intelligence info
 • Promotion: Develop and spread persuasive offers
• Contact: find and communicate with prospect partners
• Matching: shape and fit offer to buyers needs
• Negotiation: reach agreement on price and offer items
• Physical distribution: help with distributing
• Financing: acquire and use fund to cover costs of channel work
• Risk taking: assume some of risk of carrying out of channel work

Marketing channel design and strategy:

1. Customer analysis: decides which segments to serve and channels to use. Company wants to minimize
total channel cost.
o Determine service level: speed of service, size of assortment, add-on services. Trade-off
between services and prices, higher services will mean you’ll have to endure higher prices

2. Channel objectives: influenced by nature of company, its products, competitors, environment

o Objective is the targeted level of customer service with the least cost
3. Identify major design alternatives: deciding on type of intermediaries to use (channel members who are
available to carry out channel functions)
Channel length (number of channel levels): direct (no intermediaries) vs
indirect (many intermediaries)

Advantages of direct channels: advantages of indirect channels:

▪ Greater control ▪ more rapid market penetration
▪ lower cost ▪ broader market participation
▪ direct contact with customer needs
▪ variable cost structure
▪ quicker responses for change in ▪ overcoming entry barriers
marketing mix (timely and less ▪ specialized application
costly) ▪ broader solution knowledge

Recommended if: Recommended if:

▪ product customization important
▪ high information needs
▪ large purchase orders
▪ perishable goods
▪ no suitable middlemen
▪ one-stop shopping
▪ availability/convenience is important
▪ geographically dispersed customers
Channel intensity (number of members at a level): exclusive vs, selective vs
intensive. Customer needs and positioning drive intensity of distribution
Intensity Characteristics # of
level intermediaries
intensive Achieve mass market selling Many
Convenience goods (candy, tooth paste
Selective Work with selected intermediaries. Several
Shopping goods (home applicants)
Exclusive Work with single intermediary. Specialty goods Few
and indusial equipment. (luxury clothes)

Types of marketing channels:

1. Conventional: independent channel members (try to maximize own profits)

2. Vertical: act as a unified system: provide channel leadership and
consist of producers, wholesalers, and retailers acting as a unified
system and consists of:
Corporate marketing Single ownership of the entire distribution system
system (Luxottica)
Contractual Independent firms at different levels of production
marketing system and distribution joined through contracts
(McDonalds: franchisees)
Administered Successive stages of production and distribution
marketing system coordinated through the size and power of one
party

3. horizontal: two or more firms at the same level join forces

4. hybrid: multi-channel system
Channel conflict: have to cooperate to achieve channel goals but may cause you to jeopardize company goals
Conflict over: goals, rewards, responsibilities

Horizontal conflict: firms at the same level of challenge

have disagreement (2 McDonalds franchises in the same
city)

Vertical: conflict between different levels of channel (Nike

and footlocker, Nike only wants to sell its expensive
products at footlocker)

Chapter 13: Retailing and wholesaling

Retailing: all activities in selling products or services directly to final customers for
their personal, non-business use. Types of retailers:

▪ store retailers (Bauhaus, Boyner) Types of store retailers classified by:

o amount of service (full, limited, self service)
o product line: number of different type of product carried and in what
assortment. Convenient stores, specialty stores, department stores,
superstores (larger than supermarket), category killers, supermarkets

▪ breadth: number of different product lines (shoes, CDS, clothes)

▪ depth: number of items within each product line (shoes: running, heels, sandals)
o pricing strategy

▪ discount store: merchandise for lower prices, lower margins for higher volume
▪ off-price retailers: quality goods for lower prices
▪ factory outlets: sell outlets
▪ warehouse clubs: buy in bulk attract businesses and consumers (metro)
o ownership

▪ independent
▪ corporate chain stores: two or more outlets commonly owned/controlled
▪ contractual associations:
• voluntary chains: independent chains buying together
• retail cooperatives: independent retailers set up join merch. And promotion efforts
• franchise organizations
▪ non-store retailers:
o direct marketing: online shopping, mail order catalogs, telephone marketing, TV shopping
o direct selling: door to door
o automatic: vending machines
Retailing decisions:

1. analysis: segmentation
2. retailer strategy: target market and positioning
a. variety, depth of assortment, convenience/low prices, image, services, exclusivity
3. retailer marketing mix
a. product: assortment width and depth, quality, atmosphere, services, differentiation
b. Prices: low/high mark up
c. Promotions: in store demonstrations, special events, activities
d. Place: isolated store, business district, shopping center
Trends in retailing:
▪ New retailing forms
▪ Growth in non-store retailing
▪ Increasing inter-type competition
▪ Rise in mega-retailers
▪ Global expansion of major retailers
▪ Growing importance of retailing technology
▪ Retail stores as recreational places, communities, hangouts
Wholesaling: all activities involved in selling goods and services to those buying for resale or business use.
Functions:

▪ Transporting, warehousing and local distribution: hold inventories, reduce customers inventory cost
▪ Assortment building: buy items and build up assortments
▪ Bulk breaking: save customers money, by buying in bulk and breaking it down to smaller quantities to
sell to customers

▪ Selling and promoting

▪ Finance: give credit and finance suppliers by early orders
▪ Buying and risk bearing: absorb risk of theft, damage, spoilage
▪ Management services and advice: provide customers with info about competitors, new products, price
developments
Types of wholesalers:

▪ Merchant wholesaler: buys in large quantities and selling in smaller quantities

▪ Broker/agent: negotiates the sales transaction
▪ Manufacturers, wholesalers, or retailer’s buying department: by sellers and buyers themselves instead of
independent wholesalers
Wholesalers decisions: customer drive marketing strategy capture value and retain value

▪ Wholesalers strategy:
o Segment
o Target markets: Type of retailers, size of retailers, need for service
o positioning
▪ Wholesalers marketing mix
o Product: add value through assortment, service
o Prices: important for wholesaler
o Promotions: not very promotion minded (scattering, PR, personal selling)
o Place: location and facilities
Trends in wholesaling:
▪ Strong competition:
 o Have to increase cost efficient and effectiveness for entire channel

o Wider and more diverse operations

▪ Number of wholesalers are decreasing but survivors are growing (exists, acquisitions, merges)
▪ Vertical integration
▪ Global expansion

Chapter 14-15: communicating customer value: integrated

marketing communication strategy
Integrated marketing communication: The integration by the company, of its communication channels to deliver
a clear, consistent and compelling message about the organization and its brands
Developing an effective marketing communication program:

1. Identify target audience:

a. Audience could be: current users, potential users, decision makers or influencers
b. Target audience will affect the decisions of what will be said, how It will be said, when it will
be said, where it will be said and who will say it

2. Determining the communication objective:

a. Stages of buyer readiness:
awareness=>knowledge=>linking=>preference=>conviction=>purchase

b. Sellers must aid consumers through process by providing awareness of their product and
appeal
c. Define desired audience response
3. Designing a message:
a. Develop an effective message using the AIDA framework corresponding to stages of buyer
readiness:

i. Ads to get attention=> what is this

ii. Hold Interest-=> this is interesting
iii. Arouse desire=> I would like to have
iv. Obtain action=> I’ll get it
b. Plan a message strategy
i. General message to be communicated to customers
ii. Message should better focus on customer benefits
iii. Develop the creative concept (or big idea)=> message brought to life
c. Develop a message (turn the big idea to an actual ad)
i. Message content (what to say)
a. Rational- product will provide the desired benefits. Focus on
showing products quality, value, performance
 b. Emotional- stir up (+/-) emotions to motivate purchase, love,
humor, guilt, fear

c. Moral- urge people to support social class (green environment,

disadvantage)

ii. Message structure: (how to say it)

a. Should they draw conclusion or leave it to audience=> should let
buyers come to own conclusion

b. Use one sided or two sided argument

c. How to organize argument orders (string point first or last)
iii. Message format:
a. Headline/copy/color/words/sound/body language
b. Interesting eye catching, distinctive formats
iv. Execution:
a. Use factual scientific evidence
b. Spokesperson or celebrity
4. Choosing a media:
a. Nonpersonal channels: messages without personal contact or feedback
i. Major media (print, broadcast, outdoor, online)
ii. Events (press conference, opening, tours)
b. Personal channels:
i. Two or more people in direct communication (face to face, phone, mail, e-mail,
chat)

ii. Word-of-mouth: bloggers, family, friends etc.

iii. Advantages: Allows personal addressing and feedback, Buzz marketing
iv. Disadvantages: not so much controllable
c. Choosing media decisions:
i. Decide on:
1. Reach: % of target market exposed to message in period of time
2. Frequency: average number of times target market is exposed to message
3. Impact: ability of message to deliver desired response from consumers
ii. Choose amongst major media types (TV, newspaper, direct mail, magazines, radio,
internet) based on:

1. Media habits of target audience

2. Nature of product
3. Type of message
 4. Costs
iii. Select specific media vehicles within a given type (e.g which magazine)
iv. Decide on media timing (scheduling)=>
1. Continuity: advertising runs steadily
over a campaign period

2. Flighting: intermittent and irregular

periods of advertising, alternating with
shorter periods of no advertising at all
3. Pulsing: combines flighting and
continuous scheduling (low advertisement all year round and heavy ads
during peak selling period)
5. Selecting message source: message impact depends on who delivers it and how the audience views the
communicators
a. Hire doctors, experts etc. for creditability
b. Celebrities and cartoon characters could be used
6. Collecting feedback: understand the effect of communication on target audience (measuring
effectiveness of ads)

a. Communication effect: use survey to measure effectiveness (recall/awareness/preference)

b. Behavioral effect: observe purchase behavior, change in sales
Promotional budget: how much to spend on promotions. Factors influencing budget:

▪ Product life-cycle
▪ Market share
▪ Competition
▪ Level of product differentiation
Methods used to make budget:
▪ Affordability method: budget set at a level that a company could afford
▪ %-of-sales Method: past or forecasted sales
▪ Competitive-parity method: budget matches competitors’ outlays
▪ Objective-and-task method:
o Define specific objectives
o Determine tasks required to achieve objective
o Estimate costs of performing tasks to create the promotional budget
The communications (promotion) Mix: specific blend of advertisement PR, personal selling and direct-
marketing tools to persuasively communicate customer value and build customer relationships

▪ Advertising: any paid form of non-person presentation and promotion of ideas, goods, or services by
identified sponsor (broadcast/print/internet/outdoor)
o Disadvantage: impersonal, one-way communication, high costs

o Advantages: legitimizes company, high frequency

 o Objectives:

▪ Informative ad: build primary demand, introduce new product

▪ Persuasive ad: build selective demand, increased competition
▪ Comparative ad: compare one brand to another
▪ Reminder ad: remind about the product, maintain relationship
▪ Sales promotions: short-term incentives to encourage the purchase or sales of a product or service (ad
offers reasons to buy, sales promotions offers reasons to buy now)
o Disadvantage: short-lived effect, not as effective as long term brand relationships

o Rapid growth due to

▪ Managers face pressure to increase sales

▪ More competition
▪ Declining in advertising efficiency
▪ Customers becoming more deal orientated
o Tools: coupons, contests, cash refunds, loyalty rewards

o Objectives:

▪ Entice customers to try a new produce

▪ Switch customers away from competitor product
▪ Get customers to load up on product
▪ Hold and reward loyal customers
▪ Public relations: build good relations with company’s various publics via favorable publicity, building up
a good corporate image and handling or heading off unfavorable rumors, stories and events
o Advantages : higher creditability, strong impact on public awareness, lower cost, legitimizes
company
o Disadvantages: hard to manage because it needs relationship investment

o Functions: media/press relations, product publicity, public affairs, lobbying, investor relations

o Tools: news and press releases, websites, special events, sponsorships, corporate identity
material, audiovisual materials

▪ Personal selling: personal presentation by the firm’s sales force for the purpose of making sales and
building customer relationships
o Advantage: most effective since it is face to face, best in complex selling situations

o Disadvantage: most expensive promotion tool

o Tools: two-way personal communication

▪ Direct Marketing: direct connections with targeted individual consumers (to obtain an immediate
response and cultivate lasting customer relationships
o interactive face-to-face selling, direct mail, telephone. Responses changed according to how
customer reacts=> effective
 ▪ online marketing: functions:
o setting up online social networks
o creating a web site
o placing ads or promotions online:
▪ banners
▪ pop-ups
▪ search-related ads
o using e-mail
Basic communication Mix strategies:
I. Push strategy: “pushing” product through distribution channels to final consumers. Directs
marketing activities to channel members

II. Pull strategy: directing marketing activities toward consumers to induce purchase of product.
Consumer demands from retailers and retailers demand from producers

Integrated marketing communications delivers clear, compelling, consistent message

in every brand-consumer contact about the organization and its brand. Steps to
integrate promotional mix:

▪ Analyze the trends that affect the business

▪ Plan budget for communication tools jointly
▪ Id all contact points for company and its brans
▪ Create compatible themes, tones and quality across communication tools
▪ Plan budget and performance measures for communication tools