Chapter 4 Business Flashcards Marketing [Part 2]

Cost-plus pricing (or mark-up pricing)

involves adding a percentage or predetermined amount of profit to the cost per unit of output to determine the selling price.

Loss leader pricing

involves setting the price of a product below its costs of production. The purpose is to entice customers to buy other products with high profit margins in addition to purchasing the loss leader product.

Penetration pricing

involves setting low prices to gain entry into a new market. Once the product has established market share, prices can be raised.

Predatory pricing

involves temporarily setting prices so low that rivals, especially smaller firms, cannot compete at a profitable level.

Price

refers to the amount paid by a customer to purchase a good or service.

Price discrimination

involves charging different prices to different groups of customers for the same product, e.g. adult and child airline tickets.

Price leadership

is used for best-selling products or brands in a particular market. Customers perceive there to be few substitutes for such products so the dominant firm can set its own prices. Competitors set their prices based on the price of the market (or price) leader.

Price skimming

involves initially charging high prices for innovative or high-tech products. Price is reduced as the novelty wears off and as substitute products appear.

Price wars

involve businesses competing by a series of intensive price cuts to threaten the competitiveness of rival firms

Psychological pricing

involves rounding down numbers such as $9.90 or $14 995 to make prices seem lower (than $10.00 or $15 000).

Three conditions must be met for successful price discrimination:

The business must have some degree of market power to set prices.

Customers must have different degrees of willingness to pay, otherwise the business cannot set different prices to different segments of the market.

Markets must be kept separate to prevent resale, e.g. a child cannot sell his or her theatre or train ticket to an adult

Promotion

refers to methods of communicating messages to the market, usually with the intention of selling a firms products

three key objectives to any promotional strategy

to inform, to persuade and to remind the market about the firms product(s)

Informative Promotion

increase awareness, explain how product works, suggest new uses, build company image

Persuasive Promotion

encourage brand switching, change customers' perceptions of product attributes, influence immediate buying decision, persuade customers to call

Reminder Promotion

remind customers that product may be needed, remind customers where to buy product, maintain customer awareness

Television Advertising

-invented in 1927 (but actually made it to living rooms after WWII)

-strikes at human emotions

-The Blacklist; kept whoever they wanted in/out of television

-quiz show scandals; controlled what contestants won

- Advertising on TV exploits the power of combining sound and moving images to convey very powerful messages to viewers

- However, the major drawback is the huge costs of producing and broadcasting television advertisements.

Radio Advertising

-invented in 1920

-a result of the Harding Cox campaign

-election results were instantaneous

-sales did not provide sufficient income; broadcasters were starved for programs and another source of income (creating a space for advertisements)

-overtook print as #1 advertising method in 1938

- Radio advertising is able to reach a very large audience yet it is significantly cheaper than TV advertising.

- The main drawback of radio advertising is that it can only communicate audio messages, i.e. there is no visual impact.

Advertising Clutter

An obstacle to advertising resulting from the large volume of similar ads for most products and services.

In order to judge the effectiveness of a slogan, marketers may look at the following 'MAID' criteria

• Simplicity so that the slogan is memorable, perhaps through the use of mnemonics, music and catchy tunes.

• Outlines or hints at the advantages of the product or the brand.

• Creates an upbeat image for the business or its products.

• Creates a sense of desire or need for the product.

Types of Sales promotions

coupons, deals, premiums, contests, sweepstakes, samples, loyalty programs, point-of-purchase displays, rebates, product placement, BOGOF (buy one, get one free) deals

Point of Sales promotion

advertising campaigns in which a product is promoted at a store's checkout counter

Promotional Mix

the combination of promotional tools—including advertising, public relations, personal selling, sales promotion, and social media—used to reach the target market and fulfill the organization's overall goals

In deciding on a promotional mix, marketers often consider the marketing acronym AIDA

• Attention - The promotional mix should raise the awareness of the product by getting the attention of existing and potential customers.

• Interest - The promotional mix should stimulate and keep customers interested, perhaps by using sales promotion or a memorable and interesting slogan.

• Desire - The mix should generate a desire or feeling of need' for the product, perhaps through the use of free samples to lure customers.

• Action - It is vital that the promotional mix encourages customers to take action, i.e. to buy the product, perhaps through the use of discount vouchers or other promotional methods.

alternative approach to AIDA

FAB (Features, Advantages and Benefits)

marketers consider a combination of factors of the product when devising a promotional mix

Cost

Product

Product Life Cycle

Legislation

Promotional Mix of a movie

• Television - to show trailers of the movie.

• Radio - to raise awareness and excitement and to inform people about release dates.

• Outdoor advertising - using large outdoor posters (billboards) to promote the movie.

• Newspapers - to support the above methods and to show screening times at local cinemas.

• Website - to provide detailed information about the movie, the cast, director and producer.

• Cinema - trailers of the new movie are shown at the cinema (point of sale).

four key elements to a promotional mix

advertising, personal selling, public relations and sales promotion.

Viral Marketing

the digital version of word-of-mouth marketing: videos, ads, and other marketing content that is so infectious that customers will seek it out or pass it along to friends

Web banners

graphical ads used on websites as a form of advertising; designed to get people to click on the ad and to jump to a specific website

Guerrilla marketing

marketing activity in which a firm "ambushes" consumers with promotional content in places they are not expecting to encounter this kind of activity

Stealth marketing

guerrilla marketing tactic in which consumers do not realize that they are being targeted for a marketing message

The most effective guerrilla marketing strategies

simple, flexible, inexpensive and target specific market segments. Successful promotion relies on the creativity of marketers. Guerrilla marketing is based on human psychology rather than guesswork or inferences

Place

refers to the distribution of products, i.e. how products get from the producer to the consumer

Distribution

getting the right products to the right customers at the right price in the right place and at the right time

Channel of Distribution

the route a product follows and the businesses involved in moving a product from the producer to the final consumer

Intermediation

The process whereby financial middlemen consolidate many small savings accounts belonging to individual depositors and invest those funds in large, diversified projects.

Intermediaries

Businesses involved in selling the goods and services of producers to consumers and other businesses.

Zero-level channel

A direct connection between producer and consumer. Also referred to as direct distribution, i.e. the producer sells directly to the consumer

One-level channel

Places only one intermediary between the producer and the buyer (usually a retailer although sometimes a wholesaler)

Two-level channel

the manufacturer sells to a wholesaler who sells to a retailer who sells to the end user

Wholesalers

businesses that purchase large quantities of products from a manufacturer and then separate or 'break' the bulk-purchases into smaller units for resale, mainly to retailers. They act as the intermediary between producers and retailers. Examples of wholesalers include Costco, Sam's Club(owned by Walmart) and Makro

benefits of using wholesalers

• Wholesalers bear the costs of storage, thereby freeing up space for retailers and manufacturers.

• By breaking bulk, wholesalers sell smaller batches of products to retailers thus eliminating their need to purchase huge quantities directly from a manufacturer.

• There are lower transactions costs (such as invoicing and transportation) for the producer as wholesalers are the customers, not the countless smaller individual retailers.

• Time is freed up time for manufacturers to focus on production as wholesalers deal with distribution issues and problems.

limitation of using wholesalers

the producer takes a risk in passing on the responsibility of marketing its products. Wholesalers might not promote the manufacturer's products in a way that it might want, thereby ruining the producer's efforts

Distributors

independent and specialist businesses that trade in the products of only a fewmanufacturers

agents and brokers

wholesaling intermediaries who do not take title to a product but facilitate its sale from producer to end user by representing retailers, wholesalers, or manufacturers

Retailers (shops)

Buy goods from wholesalers or directly from the manufacturers and resell to the consumer

several types of retailers:

• Independent retailers are small local vendors often owned by a sole proprietor. They usually sell a small range of products or are specialist outlets such as hair salons.

• Multiple retailers (or chain stores) are retailers that have numerous outlets, such as H&M, Toys R Us and Mothercare. They can benefit from brand recognition and brand loyalty.

• Supermarkets are retailers that mainly sell food stuffs ,e.g. Tesco, Lidl, Aldi, Target and Walmart. Due to their scale of operation, they tend to buy their produce and other products directly from manufacturers, thereby cutting out wholesalers.

• Hypermarkets (or superstores) are huge outlets that stock a broad range of products such as foodstuffs and consumer durables. Due to their enormous size, they tend to be located in out of town areas where the space is available and the cost of land is relatively low. Examples include Carrefour and Walmart. Some supermarkets such as Tesco also operate superstores.

• Department stores are retail outlets that sell a large range of products, such as furniture, jewelry, kitchen equipment, clothing, toys and cosmetics to the general public. It is quite common that franchisors run different parts of the store (hence the name 'department' stores). Unlike hypermarkets that are built on one floor (story), department stores are built over several floors and are located in busy retail districts. Examples include Harrods (London), Macy's (New York City), Le Bon Marche (Paris) and Sogo (Japan)

multi-channel distribution strategy

use a range of channels to distribute their products

Specialty channels of distribution

any indirect way to distribute products that does not involve retailers, i.e. distribution without the use of intermediaries.

advantages of specialty distribution channels

• As there are no intermediaries, the business does not have to share out so much of its profits.

• Businesses can have direct control over their distribution, rather than relying on retailers or wholesalers.

• The growing popularity of e-commerce means that customers are more willing to use the internet as a distribution channel, especially with improved online payment security.

• Specialty distribution channels can reach potential customers who do not have easy access to retail outlets.

Telemarketing

the performance of marketing-related activities by telephone

A disadvantage of using telemarketing is that mass telephone calls can be very costly, especially if employees are paid to make these calls. In addition, most customers do not like 'cold calls' where they are bombarded with text and voice messages from marketers trying to make a sale

E-Commerce

electronic business or exchange conducted over the internet

It is also an effective way to reduce the costs and risks of international marketing

However, not all products are suitable for online distribution. Customers buying cars or jewelry will probably want to have direct contact

Vending machines

non-store shopping where customers can shop for items by putting money into machines.

A key advantage of vending machines is that running and maintenance costs are minimal.

vending machines can be prone to vandalism and mechanical failures will halt sales, size can only fit a number of products

Online presence

A business has a dedicated website for e-commerce. This could be limited to providing information about the business and its products, and may extend to selling products online.

Mail order and direct mail

a business sending promotional material, such as a catalogue, via the postal system to entice customers to buy a firms products

the costs of producing comprehensive and up-to-date catalogues in color are high, yet the shelf-life is relatively short due to changing prices and new products being added to the market

Examples of e-markets

• Financial services - banking, foreign exchange and share trading can all be done online.

• Gaming - the internet has intensified competition in the sale of online gaming.

• Retailing - groceries, clothing, books, DVDs and toys can all be traded on the internet.

Common features of e-commerce

• Global reach - Unlike traditional retailers, e-commerce breaks geographical barriers, allowing businesses to sell their products to customers

• 24/7 accessibility - Whilst most retailers have 'opening hours', e-commerce is accessible at all times, allowing customers to buy products from the comfort of their home, whilst mobile or at the office. Thus, e-commerce provides added convenience for customers.

• Access to information - Businesses use the internet to provide detailed and accurate product information, which ultimately helps customers to make more informed buying decisions. E-commerce businesses also provide information about billing and payment.

• Consumer reviews - Customers have been empowered by e-commerce, which allows them to post online consumer reviews, which can have a direct impact on the buying decisions of other customers (not all products get positive reviews).

• Impersonal interaction - Unlike retailers, the nature of the interaction with consumers under a system of e-commerce is impersonal.

• Barrier to entry - Technology has helped e-commerce businesses break traditional entry barriers as set-up costs for an e-tailor are usually far less than the costs for a physical retailer. However, cultural differences still exist.

price transparency

refers to the ease with which consumers can find out the variety of prices in a market. The internet also allows businesses to cut out intermediaries such as wholesalers and retailers. Instead, they can sell directly to the consumer. Thus, prices maybe reduced as there are lower costs; with each intermediary there is a percentage mark-up in order to make a profit

E-tailers (e-commerce firms)

retailers that sell over the internet, will usually add postage and shipping costs to the price of their products, which may then make their prices less competitive

Benefits of E-Commerce

- National and International markets are more Accessible

- Lowers costs of processing, distributing, and retrieving information

- Provides access to a vast number of products and services 24/7

- Deliver information, services, and products to people in cities, rural areas, and developing countries

- Reduced Packaging

Types of e-commerce

Business-to-consumer (B2C)

Business-to-business (B2B)

Consumer-to-consumer (C2C)

Business-to-consumer (B2C)

applies to any business that sells its products or services to consumers over the internet

Business-to-business (B2B)

applies to businesses buying from and selling to each other over the internet

Consumer-to-consumer (C2C)

e-commerce involves business transactions between users, such as consumers selling to other consumers via the internet

The costs of e-commerce

- Internet security

- Vulnerable to competition

- Starting website may be expensive

- Credit card companies impose finance charges for using their services (for online payments)

- Spam and unethical marketing opportunities