Marketing exam 3

market segmentation

Divide large
market into smaller groups, or
market segments, that share
characteristics and product needs

Targeting

Evaluate each
segment and decide
which represent the most
attractive opportunities,
becoming target markets,
or the group of customers
toward which an
organization will direct
marketing

Positioning

activities to create a
certain perception of
its product in the
eyes of the target
market

Why is segmentation important?

• Defines needs and wants of most interested customers
• Design marketing strategies
• Focuses resources to maximize profits
eg. cane's and scooters vs their competitors

segmentation criteria

substantial
measurable
differentiable
accessible
actionable

Substantial:

enough to make a profit

Measurable:

size and purchasing power must be measurable and identified

Differentiable:

segments must respond differently to marketing strategies

Accessible:

reach and serve the market

Actionable:

ability to develop strategies to attract the segment to company’s products

Market segment characteristics?

demographic (age, gender, race), geographic, psychographic, behavioral

demographics

• Age
• Gender
• Income
• Marital status and family size

geographic

• Market size
• Customer convenience
• Population shifts
(customer convenience)

psychographic

• VALS network identifies three motivations:
• Ideals
• Achievement
• Self-expression
• Availability of resources affects each group’s ability to act on primary motivation.

lifestyle

people based on opinions

Behavioral Segmentation

• Variables include occasions,
loyalty, and usage rate.
• 80/20 rule

Business-to-Business Segmentation Business-to-Business Segmentation Bases

– Demographic
– Geographic
– Behavioral

The Role of Social Media in Market Segmentation

– Access to a larger and more diverse consumer base.
– Questions on how to engage and whom to engage.

factors for choosing a target market

growth potential, level of competition, strategic fit

3 strategies for target markets

niche, differentiated, undifferentiated

Undifferentiated targeting:

marketplace is one big segment
– Limited use for uniform products like salt, bananas

Differentiated targeting

– Pursues several different target markets at once with different strategies for each
– Example: Target going after college students, families

Niche marketing

– Unique products that target large share of small market
– Example: Eat Fit Go

positioning

Activities to create a certain perception of
product in the eyes of the target market

market position steps

• Step 1: Analyze competitors’ positions.
• Step 2: Clearly define your competitive advantage.
• Step 3: Evaluate feedback.

80/20 rule

20 percent of heavy users account for 80 percent of
the total demand.

The importance of segmentation

define the needs, design marketing strategy, effectively
allocate company resources to maximize profit.

evaluate feedback

• Continuously listen to your customers
• Take feedback to improve, change your positioning

positioning statement includes:

target market, how we want consumers to view the product, and how it is better

repositioning

reestablishing a product’s position in response to changes in the marketplace

promotion

All the activities that communicate the value of a product and persuade customers to choose it over other options
• Promotion is an element of marketing mix

Promotion mix: four elements

– Advertising
– Sales promotion
– Personal selling
– Public relations

Integrated Marketing Communications

• Promotional strategy that coordinates
promotion-mix elements to provide
consumers with clear and consistent
message

advertising

• Communication paid for by company
identified in the message
• Tools: Internet, TV, radio, print, social media,
outdoor, etc.
• Objective: Informative, persuasive and
reminder ads

informative ad

Introduction
stage of the
product life
cycle; tries to
develop initial
demand

persuasive ad model

• Used in growth stage;
• Tries to increase demand of
existing products

reminder ad

• Targets consumers familiar
with the brand, does not aim
to change minds or provide
new information.
• Used in maturity;
• keeps product before public
and reinforces previous
promotions

television advertising

• Product placement: company promotes product through appearances on TV or in movies

internet advertising

Paid search: ad links to content based on search
• Paid display: banner ads on websites
• Direct marketing: communicates directly with consumers, like email

nontraditional advertising

• Video games, ticket stubs,
mobile advertising, podcasts

sales promotion

• Communication tools to stimulate quicker, more frequent purchases
• Includes coupons, rebates, samples, contests, sweepstakes, premiums, loyalty programs and trade sales promotions

B2B: Trade Sales Promotions

• Can include consumer sales promotions, as well as:
– Trade shows: event where companies promote products
– Allowances: reimburse local promotion costs by retailers or wholesalers
– Training: train sales force at resellers

personal selling

• Two-way flow of communication between buyer and seller
• Paid for by seller
• Influence buyer’s purchase decision
• Face-to-face (typically)

public relations

Communication to promote positive relations between a company and its stakeholders
PR also includes:
– Annual reports
– Speeches
– Blogs
– Brochures
– Media kits
– Sponsorships
– event marketing

Measuring Ad Effectiveness

Metric 1:
– Pretest and postest
– Recognition test
– Furthermore, with unaided recall or aided recall
• Metric 2:
– Reach: percentage of target market exposed to promotional message at least once during time period
– Frequency: measure of how often target market exposed to promotional message during time period
• Metric 3:
– Revenue per ad dollar: compares total revenue to amount of money spent on advertising

Supply chain

linked set of companies that perform or support
the delivery of a company’s good or services to customers.
• Flows through marketing channels.
• Delivers value to the end customer.

distribution channels

(what products pass through)
• Wholesaler: United Natural Foods
• Distributor: Grainger
• Retailers: Target, Dollar General

Without efficient supply chain, products may:

– Cost more
– Be less innovative
– Be of lower quality
– Not be delivered where and when customer wants them

supply chain management

• Actions to coordinate information flow
• Integrated supply chains, with relationship-based strategies
– Reduced costs
– Better customer service
– Efficient use of resources
– Ability to respond to changes faster

Inventory carrying costs:

costs to make or buy a product
– Not enough may = unsatisfied customers
– Too much may = high costs to keep inventory

push

• Company does a sales forecast, produces products, then stores them and waits for orders
• Advantages:
– Economies of scale when produce more at one time
– Satisfied customers when goods are in stock
• Disadvantages:
– Inaccurate sales forecasts = too much or too little
– Slow response to demand changes
– Inventory carrying costs

pull

• Customer orders first, then product manufactured and distributed
• Advantages:
– Eliminates risks from inaccurate forecasts
– Can customize products
– Inventory costs lowered
– Can respond to changes quickly
• Disadvantages:
– Hard to reach economies of scale
– Need very flexible manufacturing and distribution facilities

hybrid of push and pull

Initial stages of forecasting & inventory are like push strategy, but finishing (“final touches”) is on hold until orders received
• Advantages:
– Economies of scale from push with flexibility of pull
– More accurate sales forecasts at higher aggregate level
• Disadvantages:
– Not as cost competitive as pure push
– Inventory costs to store components
– Have to finish products quickly to avoid complaints

4 factors of choosing a strategy

stability of demand, cost competitiveness, customization, demand

logistics

Plans, implements and controls flow of goods, services and information between point of origin and final customer
– Managing inventories
– Purchasing
– Materials management, warehousing and distribution/transportation

logistics functions

Managing Inventories
• Balance supply and demand in a cost-effective manner.
Inventory Costs
• Purchasing Costs
• Inventory-carrying costs
• Out-of-stock costs
• Stockout
Purchasing

purchasing

• Sourcing and procurement of raw materials, component parts, finished
goods, and services.
• Purchasing activities
• Select and qualify appropriate suppliers.
• Negotiate contracts and place purchase orders.
• Monitor supplier performance.
• Develop suppliers.
• Many companies rely on global sourcing.

impact of logistics on marketing

Place: correct location on
time
Price: efficient purchasing,
inventory and transportation
to keep costs down
Product: packaging needs
and purchasing of raw
materials
Promotion: ensure enough
materials and product to
handle increased volume

impact of logistics

Logistics enable supply chain to
run smoothly.
The Impact of Logistics
• Manufacturing operations
• Finance
• Customer service

sustainability

Commitment to a lifestyle that meets the needs of the present without compromising the ability of future generations to meet their own needs
• Decisions contributed to sustainability objectives:
– Where a company sources materials
– Transportation modes
– Location of manufacturing and distribution facilities
– Closed-loop supply chain

closed loop supply chain

• Recovering value from product or material returns
• Fewer components or products end up in land fill
– Repair and refurbish
• Cell phones and ink cartridges
– Break down returned goods and re-use components
• Electronics at Best Buy
– Find new buyers
• Overstock.com
– Use raw materials to generate power
• Burning flammable products to generate steam

price

reflects money, time, or effort.

revenue

Revenue is the result of price.
(equals Units sold times Price).

profits

are a firm’s bottom line.
(equals Revenue minus Costs.)

pricing

Amount of something a buyer exchanges with a seller to obtain a product

Strategic pricing objective is

profitability

price setting process

define price objectives
evaluate demand
determine costs
analyze competition and price environment
choose a price
monitor and evaluate effectiveness of a price

1. Profit maximization

Profit maximization
Set high price for a period of time after launch (or longer)
Must use other marketing mix elements well, have competitive advantage
Examples: iPad, Mercedes, TVs, gaming consoles

2. Volume maximization

penetration pricing
Set prices low to encourage greater volume of purchases
Example: Walmart
Must have cost advantage over competitors to sustain

3. survival

Temporarily lower prices to where revenue just covers costs so firm can survive in a hard time
Covers fixed cost or variable cost?
Example: General Motors, airlines and travel industry during recessions

optimal price

the point at which marginal revenue equals marginal cost

marketers must be aware of

price sensitivity

marginal revenue

The change in total revenue that results from selling one additional unit of product

marginal costs

The change in total cost that results from producing one additional unit of product

price sensitivity

The degree to which the price of product affects consumers’ purchasing behaviors

price elasticity demand

Measures price sensitivity. (Shows % change in demand in response to % change in price)

inelastic demand

percentage change in price results in smaller percentage change in demand

price inelasticity

Inelastic products are usually necessities without acceptable substitutes.
Other examples: The most common goods with inelastic demand are prescription drugs, and tobacco products. 
Demand for utilities is inelastic or elastic?

fixed costs

do not vary based on number of units produced or sold
Insurance, rent, equipment

variable costs

vary depending on number of units produced or sold
raw materials, commissions, delivery, storage, sales promotion

break even analysis

Calculate break-even point, or point where costs of producing equal the revenue made from selling
AKA point where company does not lose or make money
Does not take into account price sensitivity

choosing a price considers

maximize long-term, sustainable profits
Factors to consider 1:
Reference prices: consumers consider reasonable and fair
Identify through marketing research,

when choosing a price 2nd factor to consider is:

underpricing: related to willingness for consumers to pay

pricing is not

a one time decision. It is always evolving through the product life cycle

unbundling

: separating out pieces of product and pricing individually
Netflix separated DVDs and streaming
Airlines charge separately for checked bags, sometimes carry-on (except SW)

escalator

Clauses: part of contract that provides for price increase if certain conditions occur
Fuel surcharges
Other raw material increases (like commodity costs)

shrinkflation

: Items shrink in size while prices stay the same or increase

pricing tactics

Short-term or long-term attempts to adjust the pricing of a product to achieve a particular pricing objective

Which tactic to use depends on:

– Perceived customer value
– Ability of customers to pay
– How customers will use the product
Pricing Tactics

6 pricing tactics

• Markup, aka, cost-plus pricing
• Odd/even pricing
• Prestige pricing
• Loss-leader pricing
• Seasonal discounts
• Price bundling

markup/ costy-plus

• Also called cost-plus pricing.
• Most commonly used because it is easy.
• Cost-Plus= Cost of product + Desired % return
times Unit cost
• Profit margin is the money earned from sale
minus cost.

odd & even pricing

• Odd: price a few cents below the next dollar amount – psychology of perceived value
– Example: U-Haul $19.95
• Even: price at whole dollar amounts – convey quality, easier to remember
– Example: Coach $275

prestoge pricing

• Price higher than competitors to
signal higher quality

loss-leader pricing

• Price causes financial loss but
company hopes to attract
customers stay and buy more
profitable products as well

seasonal discount

Price reductions for customers purchasing products out of season
– Examples: Easter candy the day after Easter
– Christmas decorations 12/26
– Outdoor chairs end of summer, snow shovels end of winter

price bundling

Two or more products packaged
together and sold at single price
• Can sometimes charge more
than you could individually

power shift to consumers

• Pricing information and comparison shopping
easy online
• Other factors
– Mobile apps
– Dynamic pricing
– Name-your-own-price

Mobile pricing applications

• Real-time searches while in-store
• Comparison shop
• Find low price online, purchase immediately
• Traditional retailers monitor other brick-and-mortar retailers, online pricing also

dynamic pricing

Constantly updating prices to reflect changes in supply, demand, market conditions
– Marketers see how consumers respond to pricing changes, update constantly
– Amazon uses this strategy
• Yield management: a strategy to maximize revenue when company has fixed amount of products or capacity (not during pandemic)

name your own price

• Consumer submits bid at
price willing to pay, site
searches to find matches