MKT 3300 Exam 2

Nondurable goods

–few uses, can be perishable.



•E.g. food products and fuel



•short lives, inexpensive and purchased frequently



•Rely on consumer advertising and wide distribution

Durable Goods

–last over many uses.



•E.g. appliances, cars and smartphones



•cost more and last longer



•Costly durables rely on personal selling

Type of Users

•**Consumer products**



–Purchased by end consumer



•**Business products:**



–B2B products or industrial products

Classifications of consumer goods:

Convenience, shopping, specialty, and unsought goods.

Consumer Products - Convenience

Frequent;

**minimum effort**

\
* toothpaste
* cake mix

Consumer products - Shopping

**Compare several alternatives**

* cameras
* TV
* Briefcases

Consumer products - Specialty

**special effort to find and buy**

* Rolls-Royce Cars
* Rolex Watches
* Heart Surgery

Consumer Products - Unsought

**does not know or initially want**

* Burial Insurance
* Thesaurus

Continuous Innovation

Requires no new learning from consumers

* New, improved shaver
* Detergent and toothpaste

\
\

Dynamically Continuous Innovation

Disrupts consumers normal routine but does not require totally new learning

* Electric toothbrush
* Smartphones

Discontinuous Innovation

Requires new learning and consumption patterns by consumers

* Wireless router
* Digital video recorder
* electric car

Continuous Innovation marketing strategy

Gain consumer awareness and wide distribution

Dynamically Continuous Innovation marketing strategy

advertise points of difference and benefits to consumers

Discontinuous Innovation

Educate consumers through product trial and personal selling

**Marketing Reasons for** \n **New Product Failures**

    **1.  Insignificant “point of difference”: Fingos, Pepsi One**



   **2.  Incomplete or incorrect  market and product definition before   product development starts: Target market? Wants and   needs? What the product will do?  Google glass**



   **3.  Too little market attractiveness (size and growth of mkt):**  



   **4.  Poor execution of the marketing mix:**



  **Minute Maid squeeze-fresh OJ concentrate**



   **5.  Poor product quality on critical factors: Windows Vista**



   **6.  Bad timing.**



   **7.  No economic access to buyers: access shelf-space**



   **8.   Not fit with the firm’s other products, specialty or image.**

Stages in the new product process

1. New-Product strategy development
2. Idea Generation
3. Screening and evaluation
4. Business Analysis
5. Development
6. Market Testing
7. Commercialization

New-product strategy development

identify new-product niches to reach in light of company objectives

Idea Generation

**consists of developing concepts as candidates for products/services.  New product ideas can be generated by:**



  **a.  customer suggestions**



  **b.  employee and co-worker suggestions**



  **c.  R&D breakthroughs**



  **d.  competitor’s products**



• **Open innovation**



     **and customer involvement**

Screening and Evaluation

**Screening and evaluation involve internal and external evaluations of the new product ideas, so as to eliminate those that warrant no further effort.** 

 **The process can be formal, consisting of criteria developed from internal and external sources.  Ideas with the highest scores are considered in the next step of development.**

Business Analysis

* **involves specifying the features of the product and the marketing strategy needed to commercialize it**
* **making necessary financial (forecasts of costs and revenues) projections**



 **This is the last checkpoint before significant capital is invested in creating a prototype of the product.**

Development

•**Turning the idea into a prototype.** 



•**Results in Demonstrable Product**



•**Lab and Consumer Tests**

Market Testing

The market testing stage involves exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy. 

Standard Market Testing

* The ultimate way to test a new consumer product is to put it into full-blown test markets


* The company chooses a few representative cities and puts on a full marketing communications campaign, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure
* Test marketing also measures the impact of alternative marketing plans by implementing them in different cities

Controlled Test Marketing

* It is similar to a field experiment where you can manipulate the marketing mix variables and see which ones are the most effective methods to stimulate sales among consumers

Simulated Test Marketing

It does not involve actual testing in the marketplace. It often use lab results and computer simulation to forecast the sales of a new product

4 Stages of Product Life Cycle

1. Introduction
2. Growth
3. Maturity
4. Decline

Introduction stage

Marketing Objective - Gain awareness

Competition - None

Product - one

Price - skimming or penetration

Promotion - Inform, Educate

Place - Limited

Growth stage

Marketing Objective - Stress Differentiation

Competition - Growing

Product - More versions

Price - Gain Share, deal

Promotion - Stress Competitive differences

Place - More outlets

Maturity stage

Marketing Objective - Maintain Brand Loyalty

Competition - Many

Product - Full product line

Price - Defend share, profit

Promotion - Reminder oriented

Place - Maximum outlets

Decline stage

Marketing Objective - Harvesting

Competition - Reduced

Product - Best Sellers

Price - Stay profitable

promotion - minimal promotion

Place - Fewer outlets

Dimensions of PLC - Shape

  **1.  High learning product**

**significant education of consumer– extended introductory period**



  **2.  Low learning product**

**Benefits easily understood– sales begin immediately**



  **3.  Fashion product**

**Sales grow, decline, and then return: clothing, movies**



  **4.  Fad product**

**Typically novelties: rapid growth; rapid decline: car tatoos, vinyl   dresses, fleece bikinis.**

Diffusion of innovation

Diffusion of innovation is viewing product life cycle from the consumer adoption perspective.

5 groups of consumer adopters

1. Innovators - venturesome; higher educated
2. Early adopters - leaders in social setting; slightly above average education
3. Early Majority - deliberate; many informed social contacts
4. Late Majority - Skeptical; below average social status
5. Laggards - Fear of debt; neighbors and friends are info source

Three ways to manage the PLC

* Product modification
* Market modification
* Repositioning

Product modification

**involves altering a product’s characteristic, such as its quality, performance, or appearance, to try to increase and extend the product’s sales, including** ***product bundling.***

Market modification

1\.**Increase a product’s use among existing customers**



2\.**Create new use situations**



3\.**Find new customers.**

Repositioning Strategy

•Reacting to a competitor product

–P&G ivory soap against Lever 2000



•Reaching a new market

–J & J baby oil as make-up remover for women



•Catching a rising trend

–Olive garden’s Gluten Free menu



•Changing the value offered

–Pond’s, Oil of Olay in Asia market

What is a brand

• Branding involves an organization using a name,  phrase, design, symbols, or combination of these to identify its products and distinguish them from those of competitors.

\
• Branding is about the consumer’s **perceptions** of the offering – how it performs, how It looks, how it makes one feel, and what message it sends.



•Brand Perceptions are nurtured by:

1\. Market communications

 2. Experiences

What is brand equity

**The added value a given brand provides a product beyond the functional benefits provided.**

Multiproduct branding strategy

sunbeam irons, campbell soup

Multibranding strategy

P&G Tide, Cheer, Ivory, Bold

Private (reseller) branding strategy

Sears Kenmore, Craftsmen

Mixed Branding

Michelin tires, Sears Tires

Shifts of demand curve

Change in income, preferences, prices of other goods --> chg. in demand --> shift of the demand curve

Shift along demand curve

Change in price --> change in quantity demanded --> movement along the demand curve

Total Revenue (TR)

Total money received from sales of product

\
Unit Price x quantity sold

Average revenue (AR)

The average amount of money received for selling one unit of the product

\
Total Revenue/quantity = unit price

\
Demand curve = average revenue curve

Marginal Revenue (MR)

Change in total revenue obtained by selling one additional unit

\
Slope of the total revenue curve

Price Elasticity of Demand

the percentage change in quantity demanded (QD) relative to a percentage change in price (P)

\


                 E = % change in QD / % change in P

Elastic Demand

% change in QD  >  % change in P

Inelastic Demand

% change in QD

Unitary Demand

% change in QD  =  % change in P

Elasticity

•Elastic = flexible = responsive

Factors that lead to more elastic demand

–**More or better quality substitutes**

–**More time to adjust (SR vs. LR)**

–**Larger share of the HH budget**

Price elasticity of demand

* Necessities have lower elasticity
* Close Substitutes have higher elasticity
* Luxuries have higher elasticity

Elasticity Equation

Fixed cost

–Does not change with production



–Examples: Rent, Overhead, Long-term contracts , opportunity cost

Variable Cost

Changes with production



  Examples: Cost of materials that go directly into the product, wages

Total Cost (TC)

TC = Fixed Cost (FC) + Unit Variable Cost (UVC)

Marginal Cost (MC)

the change in total cost that results from producing and marketing one additional unit (Q).

Marginal Cost (MC)

MC = Change in TC/1 unit in Q = slope of TC curve

Break-even Analysis

finding out the point at which total cost = total revenue

* TR = TC

Break Even Volume

BE volume = FC/(P-UVC)

Profit goal

Q = (FC + Profit goal)/(P-UVC)

4 approaches for selecting approximate price level

* Demand Based approach
* Cost based approach
* profit based approach
* competition based approach

Demand based pricings approaches

•Skimming Vs. Penetration Pricing (New Products)

•Bundle Pricing

•Price Lining

•Odd-Even Pricing

•Prestige Pricing

•Target Pricing

•Yield Management

Prestige pricing

pricing strategy that uses higher prices to suggest quality and exclusivity

Price lining

Set price steps between products in a line

Skimming Pricing vs. Penetration pricing

•(1) Price sensitivity

•(2) Competitive threats

•(3) Price elasticity of demand

•(4) Price signals of quality

•(5) Economies of scale or experience

Skimming Pricing

* Set highest initial price to catch low price sensitive segment
* then lower the price to attract more price-sensitive segments

\

Penetration Pricing:

Set a low initial price to appeal to the mass market immediately

Cost Based approaches

* Standard mark-up
* cost plus
* experience curve pricing

Standard markup pricing

Set price by adding a fixed % to the cost of the product

Cost-Plus Pricing

Set price by adding a fixed $ to the cost of the product

Experience Curve Pricing

Cut the price with the decrease of average cost of the product (learning effect)

Standard markup pricing equation

Markup on cost = (P – C) / C

markup based on price equation

Markup based on Price = (P - C)/ P

Target Profit Pricing

–Target Profit = TR – TC



         = (P x Q) – (TFC + (UVC x Q))



– P = (Target Profit + TFC + (UVC x Q))/Q

**Competition-Oriented Approaches**

**include:**

•**customary pricing**

•**above-, at-, or below-market pricing**

•**loss leader pricing**

Below-Market Pricing

steal customers vs. poor quality signaling, price war

At-Market Pricing

highlight other features (differentiate)

Above-Market Pricing

quality signal, added value??

Loss-leader pricing

* Sell below customary price (or below cost)


* Increase store traffic

Customary Pricing

the prices that consumers are used to paying for certain products or services over a long period of time

Power of marginal Analysis in the real world

Marketing channels

–Sets of interdependent organizations participating in the process of making a product or service available for use or consumption



–Intermediaries: merchants, agents, and facilitators

A marketing channel system

–The particular set of marketing channels a firm employ

–Push vs. pull strategy

•Multichannel marketing

–Using two or more marketing channels to reach customer segments in one market area

–Omnichannel marketing

–Integrated marketing channel system

Channel intermediaries

Functions performed by intermediaries

* transactional
* logistical
* facilitating

Transactional function

Logistical function

Facilitating function

Basic Channel Structures

direct Channel

•**when a producer and ultimate consumer deal directly with each other.**

Indirect Channel

when intermediaries are inserted between the producer and consumers and perform numerous channel functions.

Dual Distribution

•**an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.**

Strategic Channel Alliances

recent innovation in marketing channels, whereby one firm’s channel is used to sell another firm’s products

* –**Starbucks à PepsiCo (used to be Kraft )à Supermarket retailers**



–**McDonalds (McCafe)à Kraft and Coca colaà Supermarkets**



–**General Mills partners with Nestle to distribute its cereals world wide via its joint venture (Cereal Partners Worldwide).**

Why Forming Strategic Alliances in Channels?

•Motives for forming strategic alliances:

–Upstream motives

•Manufacturers can benefit from the distribution network offered by distributors

•Better coverage and lower cost

–Downstream motives

•Distributors can lower inventory costs

•Maintain a steady supply of products

Horizontal Marketing System

• **a retail station within another store**

–**Sephora within JCPenny**

–**Samsung Experience Shop within BestBuy**