Marketing Mix Introduction to Business Product Marketing Product

Marketing Mix Introduction to Business

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.

Types of Consumer Products Consumer products are often classified into four groups related to different kinds of buying decisions: 1. Convenience - bread, pain reliever, power cords 2. Shopping - shoes, microwaves 3. Specialty - highly differentiated, custom goods 4. Unsought products - funeral plots, pest-control

Practice Question 1 What type of product is shown here?

What is a brand? • An identifier • A promise • An asset • A set of perceptions • A “mind share”

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

Brands Convey Meaning • 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 Consumers Brands help simplify consumer choices. Brands help create trust, so that a person knows what to expect from a branded company, product, or service. This builds customer loyalty, which is valuable to businesses.

Branding Strategies • Branded house - Apple, BMW • House of brands - Tang, Kool Aid • Private label or store branding - Safeway Organics • “No brand” branding • Personal and organizational • Place branding - Las Vegas • Co-branding - Liz Lange at Target • Licensing – see image to right • Brand extension and line extension - Diet Coke, Jell-O pudding pops

Product Life Cycle

Stages of Product Lifecycle 0. Product development s tage 1. new product ideas are generated and tested; investment is made 2. sales have not begun 1. Market introduction stage 1. costs are very high with slow sales volumes to start 2. little or no competition 3. demand has to be created and customers have to be prompted to try the product 4. makes little money at this stage 2. Growth stage 1. costs reduced due to economies of scale as sales volume increases 2. profitability begins to rise 3. public awareness increases 4. competition begins to increase with a few new players in establishing market, increased competition leads to price decreases 3. Maturity stage 1. costs are lowered as a result of increasing production volumes and experience curve effects 2. sales volume peaks and market saturation is reached 3. new competitors enter the market, prices tend to drop 4. brand feature diversification needed to maintain market share 5. profits decline 4. Decline stage 1. costs increase due to loss of economies of scale; as sales volume declines, prices and profitability diminish 2. profit becomes more a challenge of production/distribution efficiency than increased sales

Product Development Process Phase I: Generating and Screening Ideas Phase II: Developing New Products Phase III: Commercializing New Products Stage 1: Generating New Product Ideas Stage 4: Business Case Analysis Stage 6: Test Marketing Stage 2: Screening Product Ideas Stage 5: Technical and Marketing Development Stage 7: Launch Stage 3: Concept Development and Testing Stage 8: Evaluation

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?

Pricing Strategies 1. Profit-oriented pricing 2. Competitor-oriented pricing 3. 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 • 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. In order to increase value, the business can either increase the perceived benefits or reduce the perceived costs. Today’s marketing tends to favor customer-oriented pricing because it prioritizes the customer and the customer’s perception of value.

Van Westerndorp Price-sensitivity Meter 1. At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive) 2. At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap) 3. At what price would you consider the product starting to get expensive, such that it’s not out of the question, but you would have to give some thought to buying it? (Expensive/High Side) 4. At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

Cost-Plus/Gross Margin Pricing • A particular gross margin is selected that will produce a desirable profit level • 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 The difference between the average cost and price of all merchandise in stock, for a particular department, or for an individual 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 • Seasonal discounts • Cash discounts • Trade discounts (given to middlemen) • Personal allowances (rewards to salespeople) • Trade-in allowances (cars) • Price bundling (cable package)

Distribution Channels Distribution channels cover all the activities needed to transfer the ownership of goods and move them from the point of production to the point of consumption. These activities include: • product flow • negotiation flow • ownership flow • information flow • promotion flow

Five Flows

Channel Structures While channels can be very complex, there is a set of channel structures that can be identified in most transactions: • Direct channel • Retail channel • Wholesale channel • Agent channel

Marketing Channels for Consumer Products

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

Practice Question 2 Here is a supply chain for peanut butter. How would a diagram of a marketing channel be similar? Different?

The Promotion Mix There are many different marketing communication methods that can be used in the promotion mix.

The Promotion Mix cont.

Integrated Marketing Communication The process of coordinating all the promotional activity across these different methods Seven common marketing communication methods are • Advertising • Public relations • Personal selling • Sales promotion • Digital marketing • Direct marketing • Guerrilla 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. Advertising has three primary objectives: to inform, to persuade, and to remind.

Public Relations Public relations (PR) is the process of maintaining a favorable image and building beneficial relationships between an organization and the public communities, groups, and people it serves. Unlike advertising, public relations does not pay for attention and publicity.

Public Relations Techniques Public Relations Technique Role and Description Media Relations Generate positive news coverage about the organization, its products, services, people, and activities Influencer/Analyst Relations Maintain strong, beneficial relationships with individuals who are thought leaders for a market or segment Publications and Thought Leadership Provide information about the organization, showcase its expertise and competitive advantages Events Engage with a community to present information and an interactive “live” experience with a product, service, organization or brand Sponsorships Raise the profile of an organization by affiliating it with specific causes or activities Award Programs Generate recognition for excellence within the organization and/or among customers Crisis Management Manage perceptions and contain concerns in the face of an emergency situation

Personal Selling Personal selling uses in-person interaction to sell products and services. This type of communication is carried out by sales representatives, who are the personal connection between a buyer and a company or a company’s products or services.

Sales Promotion Consumer Sales Promotions B 2 B Sales Promotions Coupons Trade shows and conventions Sweepstakes or contests Sales contests Premiums Trade and advertising allowances Rebates Product demonstrations Samples Training Loyalty programs Free merchandise Point-of-purchase displays Push money

Direct Marketing Direct marketing activities bypass intermediaries and communicate directly with the individual consumer. Direct marketing can be a powerful tool for anticipating and predicting customer needs and behaviors. Over time, as companies use consumer data to understand their target audiences and market dynamics, they can develop more effective campaigns and offers. The disadvantage of direct marketing is concerns about privacy and information security.

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 marketing is the use of online applications, networks, blogs, wikis, and other collaborative media for communicating brand messaging, conducting marketing, public relations, and lead generation. The three main objectives are: • Creating buzz • Fostering community • Facilitating two-way communication

Social Media Tools Tool Description Blogs Long- or short-form medium for communicating with audiences. You. Tube Video-hosting social media site. Twitter Short-form (140 character) “microblogging” medium that is intended for text and image sharing. Facebook Long-form (up to 2, 000 characters per post) medium for sharing text, images, videos, and other multimedia content. Instagram Image-based social network that is intended as a visual medium. Does not have capabilities to drive click-through rate (CTR) because posts offer no link option. Google+ Long-form medium for sharing text, images, videos, and other multimedia content. Pinterest Medium for sharing photos and visual content categorized by theme. Linked. In Long- or short-form medium for sharing text, images, videos, and other multimedia content targeted to the business community.

Guerrilla Marketing Guerrilla marketing is a relatively new marketing strategy that relies on unconventional, often low-cost tactics to create awareness of and goodwill toward a brand, product, service, or even a company.

Guerilla Marketing Tactics Guerrilla Tactic Description Graffiti marketing, a subset of guerrilla marketing, turns walls, alleys, and streets into larger-than-life canvases for marketing activity. Stencil graffiti Use of stencils to create repeated works of graffiti, with the stencils enabling the project team to rapidly recreate the same work in multiple locations. Stencils tend to be smaller-scale and simpler than classic graffiti art. Undercover, or stealth marketing Use of marketers or paid actors to go “undercover” among peers to engage unsuspecting people in a marketing activity of some sort. For example, attractive actors are paid to strike up conversations, rave about a new mobile device, and then ask people to take a photo using the device, so that they get hands-on experience with the product in question. Stickers Inventive use of stickers as a temporary medium for creating an image, posing an illusion, or conveying a message. Flash mobs A group of people organized to perform an action at a predetermined place and time; usually they blend in with bystanders initially and then join the “mob” activity at the designated moment. Publicity stunts Extraordinary feats to attract the attention of the general public, as well as media. Treasure hunts Placing a series of online and offline “treasure hunt” clues in an urban environment and inviting target audiences to participate in the hunt to win prizes and glory. Sham events Staging an activity or event that appears real, but in fact is a fake, for the purposes of drawing attention and making a statement.

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?