MKT Final
Chapter 13: Supply Chain and Marketing Channels
Supply Chain and Supply Chain Management
Supply Chain:
The sequence of entities, processes, and resources involved in producing, delivering, and consuming a product or service.
Includes raw material suppliers, manufacturers, distributors, retailers, and consumers.
Supply Chain Management (SCM):
The integration and coordination of all supply chain activities to deliver products efficiently and effectively.
Goals:
Reduce costs.
Improve customer satisfaction.
Increase responsiveness and flexibility.
Upstream vs. Downstream
Upstream:
Refers to processes and entities involved in sourcing raw materials and manufacturing products.
Example: Suppliers, raw material producers, and component manufacturers.
Downstream:
Refers to activities focused on delivering products to the final consumer.
Example: Distributors, wholesalers, retailers, and end customers.
Channel of Distribution
Definition:
The path through which goods and services flow from producers to consumers.
Involves multiple intermediaries to bridge the gap between production and consumption.
Importance:
Facilitates the flow of goods.
Helps in reaching target markets efficiently.
Adds value through time, place, and possession utilities.
Contact Efficiency
Definition:
The reduction in the number of contacts required between producers and consumers when intermediaries are used.
Example: Instead of a manufacturer selling directly to hundreds of consumers, a retailer handles distribution, consolidating the process.
Intermediaries
Intermediaries are entities that act as a link between manufacturers and consumers, helping with distribution, storage, and sales. Major types:
Retailers:
Sell directly to end consumers.
Example: Walmart, Target, or online stores like Amazon.
Key Role: Provide the final connection to the consumer.
Merchant Wholesalers:
Buy goods in bulk from manufacturers, store them, and resell to retailers or other businesses.
Take title/ownership of the goods.
Example: Sysco (foodservice wholesaler).
Agents/Brokers:
Facilitate sales between buyers and sellers without taking title to the goods.
Example: Real estate agents, stockbrokers.
Major Differences:
Ownership: Merchant wholesalers take ownership; agents/brokers do not.
Function: Retailers serve consumers, while wholesalers and agents/brokers serve businesses.
Channel Structures
Direct Channel:
Producers sell directly to consumers.
Example: Farm-to-table businesses or company-owned websites (e.g., Tesla’s direct sales).
Indirect Channel:
Involves intermediaries such as retailers or wholesalers.
Example: Coca-Cola selling to distributors who then sell to retailers.
Dual/Multi-Channel:
Using more than one channel to reach different customer segments.
Example: Apple selling through its website, retail stores, and third-party retailers.
Non-Traditional Channels:
Innovative or unconventional methods of reaching customers.
Example: Home shopping networks, online-only brands like Warby Parker.
Strategic Channel Alliances:
Partnerships between companies to leverage each other's distribution channels.
Example: Starbucks selling bottled drinks through grocery stores in partnership with PepsiCo.
Three Intensities of Distribution
Intensive Distribution:
Products are available in as many outlets as possible.
Example: Soft drinks in grocery stores, vending machines, and gas stations.
Selective Distribution:
Products are available in a limited number of outlets.
Example: High-end electronics like Bose speakers available only in specialty stores.
Exclusive Distribution:
Products are sold through a single or very limited number of outlets in a geographic area.
Example: Luxury brands like Gucci or exclusive car dealerships.
M-Commerce (Mobile Commerce)
Definition:
Buying and selling products or services through mobile devices.
Includes mobile apps, SMS marketing, and mobile-friendly websites.
Example: Shopping on Amazon’s mobile app or using food delivery services like Uber Eats.
Omni-Channel
Definition:
Integrating all available channels (physical stores, online platforms, mobile apps) to provide a seamless customer experience.
Example:
A customer browsing products online, checking availability via a mobile app, and picking up in-store.
Marketing Implication:
Enhances customer convenience and satisfaction by bridging the gap between online and offline experiences.
Chapter 15: Promotion and Promotional Strategy
Promotion – Defined
Promotion is the process of communicating with a target audience to inform, persuade, or remind them about a product, service, or brand. It’s a critical tool for creating awareness, generating demand, and driving customer action.
Promotional Mix
The promotional mix refers to the combination of tools used to achieve a company’s marketing objectives. The elements are:
Advertising:
Paid, non-personal communication to a mass audience.
Examples: TV commercials, online display ads, billboards.
Public Relations (PR):
Building positive relationships with the public and managing reputation.
Examples: Press releases, sponsorships, community events.
Sales Promotion:
Short-term incentives to encourage purchases or actions.
Examples: Coupons, discounts, contests.
Personal Selling:
Direct, face-to-face communication between a salesperson and a potential customer.
Example: In-store product demonstrations, B2B sales presentations.
Social Media and Digital Marketing:
Online platforms to interact with and engage customers.
Examples: Social media posts, influencer marketing, email campaigns.
Promotional Strategy
Promotional strategy is the coordinated plan to use the promotional mix to achieve marketing goals. It focuses on delivering a consistent message across channels to drive desired customer behaviors.
Competitive Advantage
Competitive advantage is a unique feature or benefit of a product that sets it apart from competitors.
Examples:
Superior quality or performance.
Innovative technology.
Exceptional customer service.
Marketing Implication: Highlighting competitive advantages in promotions can attract customers and build brand loyalty.
Four Goals of Promotion
Inform: Create awareness and educate customers about a product.
Seen during the Introduction stage of the Product Life Cycle (PLC).
Persuade: Encourage brand preference and drive action.
Most common in the Growth stage.
Remind: Keep the product in the consumer’s mind to maintain loyalty.
Seen in the Maturity stage.
Connect: Build and strengthen relationships with the audience.
Ongoing throughout all PLC stages, especially in the digital age.
Push Versus Pull Strategy
Push Strategy:
Focuses on promoting products through intermediaries to reach the consumer.
Example: Trade promotions to wholesalers/retailers to stock a product.
Pull Strategy:
Targets the end consumer directly to create demand, encouraging retailers to stock the product.
Example: Advertising campaigns, consumer promotions.
Chapter 16: Sales Promotion
Sales Promotion – Defined
Sales promotion consists of short-term incentives designed to encourage immediate action, such as purchasing, trying a product, or engaging with a brand.
Consumer vs. Trade Sales Promotions
Consumer Sales Promotions:
Targeted at end consumers to stimulate demand.
Examples:
Coupons: Discount on future purchases.
Rebates: Money-back offers post-purchase.
Premiums: Free or discounted items included with purchase (e.g., "Buy one, get one free").
Contests: Skill-based competitions.
Sweepstakes: Random drawings for prizes.
Sampling: Free trial products.
Trade Sales Promotions:
Targeted at wholesalers, retailers, or distributors to encourage them to stock and promote a product.
Examples:
Trade Allowances: Discounts or incentives for stocking a product.
Push Money: Bonuses paid to sales staff for promoting certain products.
Training Programs: Educating sales teams about product features.
Free Merchandise: Extra products provided to retailers for free.
Key Difference: Consumer promotions are pull strategies, while trade promotions are push strategies.
Advantages of Rebates Over Other Price Reductions
Rebates require customers to take action after purchase to receive the discount, which:
Helps ensure full-price purchases initially.
Encourages brand loyalty as customers interact with the company to claim rebates.
Reduces the likelihood of immediate price erosion compared to direct discounts.
Contest vs. Sweepstakes
Contests:
Require participants to perform a skill-based activity or task.
Example: Writing an essay or creating a video.
Sweepstakes:
Winners are selected randomly, and no skill is required.
Example: Entering by submitting contact information for a prize drawing.
Key Difference: Contests are effort-based; sweepstakes are luck-based.
Push vs. Pull Strategy in Sales Promotion
Push Strategy:
Uses trade promotions to encourage retailers or wholesalers to stock and promote a product.
Example: Offering discounts to retailers for bulk purchases.
Pull Strategy:
Uses consumer promotions to create demand, encouraging retailers to stock the product.
Example: Advertising and coupons targeting consumers directly.
Trade Sale Promotion Tools vs. Consumer Sale Promotion Tools
Trade Sale Promotion Tools (Push):
Trade allowances, push money, free merchandise, training programs.
Consumer Sale Promotion Tools (Pull):
Coupons, rebates, premiums, contests, sweepstakes, sampling.
Application: Trade promotions incentivize intermediaries to sell more, while consumer promotions create demand that drives sales through the supply chain.
Chapter 19: Pricing Concepts
Price – Defined
Price is the monetary value a customer must give up to acquire a product or service. It represents the exchange of value between the buyer and the seller, serving as both a measure of value and a tool for revenue generation.
Three Major Categories of Pricing Objectives
Pricing objectives align with an organization’s overall goals. The three main categories are:
1. Profit-Oriented Objectives
Profit Maximization: Setting prices to achieve the highest possible profit.
Return on Investment (ROI): Setting prices to meet a target ROI.
ROI Formula: ROI=Net ProfitTotal Investment×100
Example: A company invests $100,000 and earns a net profit of $20,000. ROI = (20,000 ÷ 100,000) × 100 = 20%.
2. Sales-Oriented Objectives
Market Share: Pricing to increase or maintain a company’s percentage of total industry sales.
Example: A company prices aggressively to capture a larger share of a competitive market.
Sales Maximization: Prioritizing revenue growth over profitability in the short term.
3. Status Quo Objectives
Maintaining Existing Prices: Avoiding price changes to preserve stability in the market.
Meeting Competitors’ Prices: Aligning with competitors to avoid price wars.
Price Elasticity
Price Elasticity measures how sensitive demand is to changes in price.
Elastic Demand: A small change in price leads to a significant change in demand.
Example: Luxury goods or discretionary items like electronics.
Inelastic Demand: Price changes have little effect on demand.
Example: Necessities like gasoline or prescription drugs.
Importance in Marketing:
Helps businesses predict how price changes will affect sales and revenue.
Determines whether price reductions will boost sales volume enough to offset lower margins.
Markup Pricing
Markup pricing is the practice of adding a predetermined percentage to the cost of a product to determine its selling price.
Markup on Cost Formula:
Selling Price=Cost+(Cost×Markup %)
Markup on Sales Price Formula:
Selling Price=Cost1−Markup
Practice Problems: Be prepared to solve both markup on cost and markup on selling price problems.
Recommended Pricing Strategies Based on Product Life Cycle (PLC) and Elasticity
Introduction Stage:
Products often have inelastic demand.
Recommended Strategies:
Price Skimming: High initial price to maximize profits from early adopters.
Penetration Pricing: Low initial price to quickly gain market share.
Growth Stage:
Elasticity depends on market competition.
Recommended Strategies:
Competitive pricing.
Value-based pricing to highlight benefits over competitors.
Maturity Stage:
Demand may become more elastic due to competition.
Recommended Strategies:
Discounts and promotions to maintain market share.
Status quo pricing to remain competitive.
Decline Stage:
Products often have inelastic demand among remaining loyal customers.
Recommended Strategies:
Maintain or slightly reduce prices to maximize remaining revenue.
Avoid investing heavily in price adjustments.
Skimming, Penetration, and Status Quo Pricing
Price Skimming:
Setting a high initial price for a new or innovative product.
When Used: Introduction stage, with inelastic demand or little competition.
Example: Early pricing for new smartphones or gaming consoles.
Penetration Pricing:
Setting a low initial price to attract customers and gain market share quickly.
When Used: Competitive markets with elastic demand.
Example: Streaming services like Netflix offering introductory low prices.
Status Quo Pricing:
Matching or slightly adjusting to competitors’ prices.
When Used: Markets with little differentiation and price-sensitive customers.
Example: Gas stations pricing within a few cents of competitors.
Dynamic Pricing
Definition: Adjusting prices in real-time based on market demand, competition, or other factors.
Examples:
Airline ticket prices fluctuating based on booking time and demand.
Surge pricing on ride-sharing apps like Uber during peak hours.
Adjustments to Pricing
Common pricing adjustments include:
Discounts and Allowances:
Quantity discounts, seasonal discounts, or trade-in allowances.
Geographic Pricing:
Adjusting prices based on location or shipping costs.
Example: Zone pricing for delivery services.
Psychological Pricing:
Using pricing to influence perception.
Example: Odd-even pricing (e.g., $9.99 instead of $10).
Promotional Pricing:
Short-term price reductions to boost sales.
Example: Flash sales or limited-time offers.
Pricing Tactics
Key pricing tactics include:
Bundling: Offering multiple products together at a lower combined price.
Unbundling: Charging separately for previously bundled items.
Leader Pricing: Setting low prices on popular items to attract customers to a store.
Monoprice Case Study
Skimming Strategy:
Monoprice likely used skimming on premium products with high demand and minimal competition.
Penetration Pricing:
Introduced products with low prices to quickly gain market share.
Odd-Even Pricing:
Used psychological pricing tactics like ending prices with .99 to signal value.