Introduction to Business Marketing Mix Module Learning Outcomes

Introduction to Business Marketing Mix

Module Learning Outcomes Explain how organizations use the marketing mix to market to their target customers 14. 1: Explain common product marketing strategies and how organizations use them 14. 2: Explain how organizations use integrated marketing communication (IMC) to support their marketing strategies 14. 3: Explain common product distribution strategies and how organizations use them 14. 4: Explain common pricing strategies and how organizations use them

Product

Learning Outcomes: Product 14. 1: Explain common product marketing strategies and how organizations use them 14. 1. 1: Describe common consumer product categories 14. 1. 2: Explain the elements and benefits of branding 14. 1. 3: Describe common branding strategies 14. 1. 4: Describe the product life cycle 14. 1. 5: Explain marketing considerations through the product life cycle 14. 1. 6: Explain the stages of the new-product development process

Product Marketing • Product is the core of the marketing mix and defines what will be priced, promoted, and distributed. • If you are able to create and deliver a product that provides exceptional value to your target customer, the rest of the marketing mix is easier to manage.

What is a Product? A product is a bundle of attributes (features, functions, benefits, and uses) that a person receives in an exchange. The term “product” refers to anything offered by a firm to provide customer satisfaction, tangible or intangible.

Consumer Product Categories Consumer products are often classified into four groups related to different kinds of buying decisions: 1. 2. 3. 4. Convenience: inexpensive and requires minimum amount of effort on the part of the consumer. Examples: bread, pain reliever, power cords Shopping: usually more expensive and are purchased occasionally. Examples: shoes, microwaves Specialty: from the consumer’s perspective, these products are so unique that it is worth it to go to great lengths to procure them. Examples: highly differentiated, custom goods Unsought products: products that the consumer never plans or hopes to buy. Exmaples: funeral plots, pest-control

What is a brand? • • • An identifier: a name, sign, symbol, design, or term that identifies an offering A promise: a promise of what a company or offering will provide An asset: a reputation in the marketplace that can drive premium prices and customer preference A set of perceptions: the sum total of everything individuals believe and experience about a product, service, or organization A “mind share”: the unique position a company or offering holds in the customer’s mind

Tangible and Intangible Elements Brands are a combination of tangible and intangible elements • • • Visual design elements: logo, color, typography, images, taglines, packaging, etc. Distinctive product features: quality, design sensibility, personality, etc. Intangible aspects of a customer’s experience with a product or company: reputation, customer experience, etc.

Brands Creates Market Perceptions • • • Attributes: specific product features Benefits: attributes translate into functional and emotional benefits Values: company values and operational principles Culture: cultural elements of the company and brand Personality: strong brands often project a distinctive personality User: brands may suggest the types of consumers who buy and use the product

Brands Create Value For the customer: brands help simplify consumer choices. For product and service providers: branding helps create loyalty. For the retailer: branding helps retailers differentiate themselves from one another and build customer loyalty around the unique experiences they provide.

Common Branding Strategies • Branded house: Apple, BMW • House of brands: Tang, Kool Aid • Private label or store branding: Safeway Organics • “No brand” branding: Yellow Cap • Personal and organizational • Place branding: Las Vegas

Other Branding Strategies Co-branding is an arrangement in which two established brands collaborate to offer a single product or service that carries both brand names. Example: Fiat and toy maker Mattel making the Fiat “Barbie” Brand licensing is the process of leasing or renting the right to use a brand in association with a product or set of products within a defined market, geography, or territory. Line Extension and Brand Extension: line extensions introduce a new variety of offering within the same product category. Brand extensions move an existing brand name into a new product category.

Five Stages of a Product Life Cycle Stage 0: Product development Stage 1: Market introduction Stage 2: Growth Stage 3: Maturity Stage 4: Decline

Product Life Cycle

Common Characteristics Stages 0, 1, and 2 Stage Number Stage Characteristics Stage 0: Product Development 1. Investment is made 2. Sales have not begun 3. New product ideas are generated, operationalized, and tested Stage 1: Market Introduction 1. 2. 3. 4. 5. 6. Stage 2: Growth 1. 2. 3. 4. 5. Costs are very high Slow sales volume to start Little or no competition Demand has to be created Customers have to be prompted to try to product Makes little money at this stage Costs reduced due to economic scale Sales volume increases significantly Profitability begins to rise Public awareness increases Competition begins to increase with a few new players in establishing market 6. Increased competition leads to price decreases

Common Characteristics Stages 3 and 4 Stage Number Stage Characteristics Stage 3: Maturity 1. Costs are lowered as a result of increasing production volume and experience curve effects 2. Sales volume peaks and market saturation is reached 3. new competitors enter the market 4. Prices tend to drop due to the proliferation of competing products 5. Brand differentiation and feature diversification is emphasized to maintain or increase market share 6. Profits decline Stage 4: Decline 1. Costs increase due to some loss in economies of scale 2. Sales volume decline 3. Prices and profitability diminish 4. Profits become more a challenge of production/distribution efficiency than increased sales

Marketing Through the Product Cycle Marketing Introduction Stage: think of this stage as the product launch. This stage requires a significant marketing budget. The market is not yet aware of the product or its benefits. Marketing Growth Stage: marketers must now differentiate their product from the incoming competition, emphasizing key features that appeal to target customers. Marketing Maturity Stage: growth has plateaued. Marketers usually focus on niche markets, using promotional strategies to to capture new share in these markets. Marketing Decline Stage: marketing spend is reduced for products in this life cycle stage. Often the marketer’s focus at this stage is to transition customers to newer products that have more favorable economics.

The New-Product Development Process Phase I • Stage 1: Generating New Product Ideas • Stage 2: Screen Product Ideas • Stage 3: Concept Development and Testing Phase II • Stage 4: Business Case Analysis • Stage 5: Technical and Marketing Development Phase III • Stage 6: Test Marketing • Stage 7: Launch

Business Case Analysis Before companies make a significant investment in a product’s development, they need to be sure that it will bring a sufficient return, by asking: • • • What is the market opportunity for this product? What are the costs to bring the product to market? What are the costs through the product life cycle? Where does the product fit in the product portfolio and how will it impact existing product sales? How does this product impact the brand? How does this product impact other corporate objectives such as social responsibility?

Promotion

Learning Outcomes: Promotion 14. 2: Explain how organizations use integrated marketing communication (IMC) to support their marketing strategies 14. 2. 1: Explain integrated marketing communication (IMC) 14. 2. 2: Explain the promotion mix 14. 2. 3: Describe common marketing communication methods, including their advantages and disadvantages 14. 2. 4: Explain how organizations use IMC to support their marketing strategies

Integrated Marketing Communication Marketing communication includes all the messages, media, and activities used by an organization to communicate with the market and help persuade target audiences to accept its messages and take action accordingly. Integrated marketing communication (IMC) is brings together a variety of different communication tools to deliver a common message and make a desired impact on a customer’s perceptions and behavior. IMC coordinates marketing communication across different communication methods and makes marketing communication more efficient and effective because it relies on multiple communication methods and consumer touch points to deliver consistent messages.

The Promotion Mix

Marketing Communication Methods Seven common marketing communication methods are • • Advertising Public relations Personal selling Sales promotion Direct marketing Digital marketing Social media marketing

Advertising is any paid form of communication from an identified sponsor or source that draws attention to ideas, goods, services or the sponsor itself.

Public Relations The purpose of public relations is to create goodwill between an organization (or the things is promotes) and the “public” or target segments it is trying to reach. Unlike advertising, public relations does not pay for attention and publicity. Although organizations earn rather than pay for the PR attention they receive, they may spend significant resources on the activities, events, and people who generate this attention.

Personal Selling Personal selling uses in-person interaction to sell products and services. Personal selling puts and emphasis on face-to-face interaction, understanding the customer’s needs, and demonstrating how the product or service provides value.

Sales Promotion Sales promotions are marketing activities that aim to temporarily boost sales of a product or service by adding to the basic value offered. Examples of this include but are not limited to: • Coupons • Sweepstakes or contests • Premiums • Rebates • Samples • Loyalty programs • Point of purchase displays

Direct Marketing • Direct marketing aims to sell products or services directly to consumers rather than going through retailers. • Catalogues, telemarketing, mailed brochures, or promotional materials and television home shopping channels are all common traditional direct marketing tools. • Email and mobile marketing are two nextgeneration direct marketing channels.

Digital Marketing Digital marketing is an umbrella term for using digital tools to promote and market products, services, organizations and brands. Email and mobile marketing overlaps with direct marketing. Other essential tools in the digital marketing tool kit: Web sites, content marketing, search-engine optimization (SEO), and social media marketing.

Social Media Marketing Social media are distinctive for their networking capabilities: they allow people to reach and interact with one another through interconnected networks. This “social” phenomena changes the power dynamic in marketing: no longer is the marketer the central gatekeeper for all communication about a product, service, brand, or organization. Social media allows for organic dialogue and activity to happen directly between individuals, unmediated by a company.

Class Discussion: Marketing to You Which method of marketing do you most see or respond to? • • Advertising Public relations Personal selling Sales promotion Direct marketing Digital marketing Social media marketing

Using IMC to Support Marketing Strategies To aid in the planning process, marketing managers often use a campaign approach. A campaign is a planned, coordinated series of marketing communication efforts built around a single theme or idea and designed to reach a particular goal. Organizations may conduct many types of IMC campaigns, and several may be run concurrently. The IMC approach takes a central theme and pushes that message through appropriate communication channels.

Practice Question 1 Integrated marketing communication (IMC) involves bringing together multiple communication tools to deliver a common message and make a desired impact on: A. increasing sales revenue B. the marketing mix C. competitor’s claims and assertions D. customer’s perceptions and behavior

Practice Question 2 The objective of marketing communication is to communicate, compete, and: A. clarify B. convince C. convey D. correlate

Practice Question 3 Which of these common marketing communication methods has the biggest advantage regarding customizing the marketing message to a specific target audience? A. direct marketing B. personal selling C. advertising D. public relations

Place

Learning Outcomes: Place 14. 3: Explain common product distribution strategies and how organizations use them 14. 3. 1: List the characteristics and flows of a distribution channel 14. 3. 2: Describe the channel partners that support distribution channels 14. 3. 3: Explain the role of wholesale intermediaries 14. 3. 4: Describe the different types of retailers businesses use to distribute products 14. 3. 5: Differentiate between supply chains and distribution channels

Channels of Distribution The Channel of Distribution (also called the marketing channel) is sets of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider. The channel consists of organizations, some under the control of the producer and some outside the producers control. The channel management process is continuous and requires monitoring and reappraisal. Channels should have certain distribution objectives guiding their activities

Channel Flows Channel flows reflect the many linkages that tie channel members and other agencies together in distribution of goods and services. Five important flows are: • • • product flow negotiation flow ownership flow information flow promotion flow

Channel Flows Continued 1. Product flow: the movement of the physical product from the manufacturer through all the parties who take physical possession of the product until it reaches the ultimate consumer 2. Negotiation flow: the institutions that are associated with the actual exchange processes 3. Ownership flow: the movement of title through the channel 4. Information flow: the individuals who participate in the flow of information either up or down the channel 5. Promotion flow: the flow of persuasive communication in the form of advertising, personal selling, sales promotion, and public relations

Five Flows

Channel Partners While channels can be very complex, there is a common set of channel structures that can be identified in most transactions. Each channel structure includes different organizations. Generally, the organizations that collectively support the distribution channel are referred to as channel partners.

Marketing Channels for Consumer Products

Types of Channels Direct channel: simplest channel, the producer sells straight to the consumer Retail channel: companies that focus on selling directly to consumers. The difference between the direct channel and the retail channel is that the retailer does not produce the product. Wholesale channel: to a consumer, the wholesaler channel looks a lot like the retail channel. The wholesaler is primarily engaged in buying and usually storing and physically handling goods in large quantities and then reselling them. Agent channel: includes on additional intermediary. Agents and brokers are different from wholesalers in that they do not take title to the merchandise. They do not own the merchandise because they neither buy nor sell. The brokers bring the buyer and seller together to negotiate the terms of the transaction.

Role of Wholesale Intermediaries act as a link in the distribution process but the role they fill is broader than simply connecting the different channel partners. Wholesalers, often called “merchant wholesalers” help move goods between producers and retailers. Functions that a merchant retailer fulfills: • • • Purchasing Warehousing and Transportation Grading and Packaging Risk Bearing Marketing Distribution

Retailers that Distribute Products Retailing involves all activities required to market consumer goods and services to ultimate consumers who are purchasing for individual or family need. Beyond the distinction in the products they provide, there are structural differences among retailers that influence their strategies and results. One of the reasons the retail industry is so large and powerful is its diversity. Types of retailers • • • Department stores Chain stores Supermarkets Discount retailers Warehouse retailers Franchises Malls and shopping centers Online retailing Catalogue retailing Nonstore retailing

Supply Chains and Distribution Channels A supply chain is the system through which an organization acquires raw materials, produces products, and delivers the products and services. On their way from producers to end users and consumers, products pass through a series of marketing entities known as the distribution channel. Distribution channels • reduce the number of transactions • ease the flow of goods

The Functions of Distribution Channels

Supply Chain vs. Marketing Channels The supply chain and marketing channels can be differentiated in the following ways 1. 2. 3. The supply chain is broader than marketing channels Marketing channels are purely customer facing Marketing channels are part of the marketing mix

Class Discussion: Peanut Butter Supply Chain Here is a supply chain for peanut butter. How would a diagram of a marketing channel be similar? Different?

Price

Learning Outcomes: Price 14. 4: Explain common pricing strategies and how organizations use them 14. 4. 1: Explain pricing from the customer’s viewpoint 14. 4. 2: Describe the objectives businesses hope to achieve with product pricing 14. 4. 3: Explain the cost-plus pricing method 14. 4. 4: Explain the methods businesses use for discounts and allowances

Customer Value and Price Whether a customer is the ultimate user of the finished product or a business that purchases components of the finished product, the customer seeks to satisfy a need through the purchase of a particular product. The customer’s preference is to pay as little as possible and to receive the best value for their money. To increase the value, the business can increase the perceived benefits or reduce the perceived costs.

Pricing Strategies 1. 2. 3. Profit-oriented pricing Competitor-oriented pricing Customer-oriented pricing

Profit Oriented Pricing • • • Focus on finances of business and product profit = revenue - price Price per product is set higher than the total cost of producing and selling cost Ensures company makes a profit on each sale Risks • • • Customers don’t care about a company’s costs, if the product fails to deliver value, it will be difficult to generate sales Competitors can undercut pricing Limits pricing flexibility

Competitive Oriented Pricing • • • Price based on competitors costs Price either to indicate that the company believes its product provides greater value or lower to be a low-price solution Simple way to price products Risks • • Does not fully take into account the value of the product to the customer Might be priced too low for the value it provides, or too high

Customer Oriented Pricing Customer uses several criteria to decide how much they are willing to spend in order to satisfy that need. The company seeks to charge the highest price that supports the value received by the customer. Customer oriented pricing requires an analysis of the customer and the market. The company must understand the buyer persona, the value that the buyer is seeking, and the degree to which the product meets customer need. Today’s marketing tends to favor customer-oriented pricing because it prioritizes the customer and the customer’s perception of value.

Cost-Plus/Gross Margin Pricing • • • A particular gross margin is selected that will produce a desirable profit level Gross margin is the difference between how much the goods cost and the actual price for which it sells. Is designated by a percent of net sales Company does not have to forecast general business conditions or customer demand Consumers find fair, since the price they pay is related to the cost of producing the item Risks • • Inflexibility Does not take into account consumers’ perceptions of a product’s value

Markup A markup is the calculation of the difference between cost and selling price of merchandise in stock for a particular department or item. Example: A tie costs $14. 50 It is sold for $25. 23 The markup is $10. 73 ($25. 23 - $14. 50)

Discounting Strategies • • Quantity discounts are reductions in base price given for buying some predetermined quantity of merchandise. Seasonal discounts are price reductions given for out-of-season merchandise. Cash discounts are reductions on base price given to customers paying cash or within some short period of time. Trade discounts are given to middlemen to encourage them to stock and give preferred treatment to an organization’s product.

More Discounting Strategies • • • Personal allowances (rewards to salespeople) are given to encourage middlemen to aggressively promote the organization’s product. Trade-in allowances (cars) reduce the base price of a product or service and are often used to help the seller negotiate the best price with the buyer. Price bundling (cable package) groups similar or complementary products and charges a total price that is lower than if they were sold separately.

Practice Question 4 Why does the customer’s view of price include the value equation? A. Price is the most important factor in a consumer’s decision to buy. B. Price is relative—consumers look for the best value for their money. C. The value equation subtracts perceived discounts from the price. D. The value equation divides cost by benefit in order to derive a fair price.

Practice Question 5 Which of the three objectives businesses use pricing to achieve uses the Price-Value Equation? A. customer objective B. competitive objective C. profit objective D. revenue objective

Practice Question 6 If the prevailing gross margin goal for the shoe department at Nordstrom is 65%, what would be retail price be of a pair costing $75. 00? A. $150. 00 B. $220. 00 C. $500. 00 D. $115. 00

Practice Question 7 When Adobe Software combines 20+ applications into “Creative Cloud” for one price, which method are they using? A. quantity discount B. trade discount C. seasonal discount D. price bundling

Class Discussion: Marketing Mix You are a marketing consultant who helps companies get the word out about their products and services. What marketing communications method (advertising, direct marketing, personal selling, sales promotion, digital marketing, and public relations) would you advise your clients to utilizefor the following: • New Laundry Detergent • Local Tree Service • Home furnishings • Wine club • Business software

Quick Review • • How do organizations use common product marketing strategies? How do organizations use common pricing strategies? How do organizations use common product distribution strategies? How do organizations use integrated marketing communication (IMC) to support their marketing strategies?