Marketing exam 2
TEST 2 START
Ch 5 Notes:
- Not all consumers are equal, some more interested, some can afford it, some more profitable
- Some companies have limited resources
- Marketing Segments: diving or segmenting people into different groups of potential buyers with similar characteristics; tailor products for these different groups - Targeting Segments: Selecting market segments to pursue with plans - Positioning: Creating a preferred position for the company’s products in the minds of consumers
- Targeted Marketing: differentiated marketing for selected groups of customers, Mass Marketing: undifferentiated marketing, selling same products to everybody
Benefits of Segmented Markets
- Avoid direct competition with other firms
- Develop new offerings
- Identify early adopters
- Focus on most profitable customers
- Retain “at risk” customers
Targeting Markets
- Use internet or social media to track people's patterns
Targeting a Firm's Customers
- Finding and attracting new customers is more difficult
- About studying customers buying patterns
- Use social media to develop closer relationships w customers
- Some customers are highly profitable, others not
- Many firms use one-to-one marketing
- Now attracting new customers is more difficult and costly than retaining customers - Forming close and personal relationships with customers and giving them exactly what they want is one-to-one marketing, opposite of mass marketing
Segmentation Bases:
- Criteria used to classify and divide buyers into different groups
- Includes:
- Behavioral how do they use the product? (benefits customers want) - Demographic age,gender,income,race,ethnicity? (profile of customers) - Geographic how they can be reached? (where are customers located) - Psychographic how do they live their lives? (what do customers think and value)
Segmentation by Behavior:
Benefits: segment buyers by the benefits they seek from the product
Usage: segment buyers by frequency which they use or buy products
Application: segment buyers by the way they use products
- Demographic segmentation is the most popular type of segmentation - Geodemographics: combines demographic and geographic information for marketing purposes
Segmentation by Psychographics: Why they behave the way they do, what is high priority to them?
B2B markets:
- Price-focused adjustment: small companies w low profit margin
- Quality and brand-focused segment: firms that prioritize best products and willing to pay for
- Service-focused: firms that required high-quality products and demand excellence - Partnership-focused: firms that prioritize trust and reliability in their supporters - NOT ethnic
- Firm use multiple bases to get a fuller picture of its customers and create value for them - Many use B2B business to business markets but generally fewer based segments in B2B
- Firms that engage in mass marketing are vulnerable to competition
Brand Perception Map: the closer two companies are the more competition
Targeting Criteria:
- Large enough market
- Growing market
- Room for new competitor
- Market accessible
- Does company have necessary resources to compete in market
- Does market align with business mission and objectives
Multi-Segment Marketing:
- Tailor offerings in various ways to meet needs of different customer segments - Less vulnerable to competition since don't have all eggs in one basket - Allows firms to respond to demographic changes and other market trends - Help companies weather economic downturns by enabling customers to trade up or down among brands and products
Concentrated Marketing
- Highly select group of customers
- Can be a risky strategy
- Niche marketing involves targeting a more select group of consumers - Creates highly personalized communications
Power of Personalization
- Coca colas name campaign
- Lays in essence of brands identity
- While the company used the most popular names for personalization, was an inclusivity controversy
- Created a sense of intimacy and relevance
Positioning: how consumers perceive a product relative to the competition - Companies aim to establish a distinctive image and offering that stands out from the competition in minds of consumers
- Perceptual map visually shows where your product stands
Tagline: a catchphrase designed to sum up the essence of a product
Repositioning: an effort to move a product into a diff place in the minds of the consumers Ex. old spice was a dying brand and for old people but repositioned
Customer lifetime value: represents the financial worth of a customer to a company over the course of their relationship
CLV takes into account usage rate, loyalty, and cost to serve
How to calculate: 10 yrs at $50/month for a year is $600/year
Over ten years, $6,000
CLV>CAC
- Customer acquisition cost: the cost to acquire a customer
- CLV is the monetary value a customer spends over their lifetime
Ch 6 Product and Service Decisions:
Three Components of an Offering:
- People buy things to solve a need/meet goals
- Marketing fills these needs with product,price, and services
Product: a tangible good that can be bought, sold, and owned
Feature: a physical characteristic of a product
- Features matter differently to different users based on their own value equation Benefit: the degree to which a feature satisfies a buyers need or desire
Price: the amount exchanged by the buyer to receive the value offered by the product or service Total cost of ownership: total amount of time and money spent to acquire, use, and dispose of an offering
- TCO matters differently to different users based on their value equation Service: an intangible component of offering
- A service requires the consumer to be present, additionally it is perishable which can create marketing challenges
Product-Dominant Marketing
- Focus on lower cost products
- Capital most frequently used barrier to entry for competition
- There is an advantage in economies of scale
Creating barriers to entry through economies of scale, capital, brand recognition, and proprietary technology
Service-Dominant Marketing
- Integrates the product, price, and services of an offering
- Location decisions are important and can serve as barriers to entry
Barriers to entry created by location, technology, advertising, reputation, and proprietary technology
Ex: Starbucks coffee is the core product, augmented features include free wifi, charging stations, etc.
Product levels and product lines
- To enhance value and improve customer satisfaction, effective product management is essential
Product lines: group of related offerings created to make marketing strategies efficient - Line Depth: the number of offerings within a product line (within a brand)(nike diff types of sneakers)
- Line Breadth: indicates how many distinct product lines a company offers (types of water) (selling electronics n clothes)
- Line Extension: introducing a new, similar product to an existing product line (new flavor)(now light cal beer)
- Product Mix: refers to complete range of products that a firms offers (sells wine and snacks, coolers, etc.)
Branding: a name, picture, design, or combination of these elements used to identify a seller’s offerings and differentiate them from competitors’ offerings (set of activities to position brand in minds of consumers)
- Brand Name: spoken part of a brands identity (nike)
- Brank Mark/Logo: symbol associated with brand (nike swoosh)
- Brand Extension: Utilizing an existing brand name or brand mark for a new product category
- Cannibalization: when a firm’s new offering eats into sales of its older offerings
Packaging must fulfill: communicating brand benefits, protecting the product from damage, safeguarding from tampering once in retail, preventing leakage of contents, displaying gov required warning and information labels
Packaging
● Primary: holds a single retail unit of a product
● Secondary: holds single wholesale unit of a product
● Tertiary: designed specifically for shipping and efficiently
handling large quantities
Managing Brands by Expanding Users and Usage
- Increase usage and frequency of use
Sales Volume: # of brand users x usage rate per user
Expand Brand Users
- Enter new market segments
- Win competitors customers
Usage Strategies
- Introduce more frequent use and more varied use
- Increase usage per occasion
Ch 7: Developing and Managing Offerings
- Needs have always existed
- Pain unchanged but solutions have
Why new products are important?
- Consumers want choices, companies need growth, retailers wants to keep things interesting
Why do new products fail?
- Target wrong consumer, lack of POD, shelf space insufficient, marketing poorly executed *Consumption Effects Newness
Developing and Managing Offers:
- Developing new products is a constant process
- Some are just improved versions of existing products
Stages of New product development stages
Offering Development 7 Steps:
1. Idea generation
- Can get ideas by watching competitors
- Many new ideas are just line extensions
- Companies get ideas thru crowdsourcing (obtain from large number of people rather than just employees, etc.)
2. Screening
- Concept Testing: run idea by potential customers
Focus groups: 8-12 consumers react to concept or Depth interviews: individuals react differently to concept
- Process Feasibility: degree to which the company can feasibly make and service a product
- Financial Feasibility: ability of the new offering to make money
- Risk Analysis:
Investment Risk: possibility that company will not earn ROI
Opportunity Risk better idea gets ignored because company invested in idea at hand 3. Feature Specification
- Narrow down products features GFD
4. Development
- Offering is designed and specifications are written, prototype created 5. Testing
- Alpha testing-in a lab vs. Beta testing-actual customers; usually expensive - Market testing: companies test strategy in market to ensure offering generates sales 6. Launch
- Rolling launch: offering available to certain markets initially, then others 7. Evaluation
- Evaluate progress and adjust strategy accordingly
Product Life Cycle: tool that helps marketers manage stages of a products acceptance and success in marketplace
Factors:
- Some products never experience success
- Some remain in phases longer
- Some have limited cycles
Introduction Stage: first stage of PLC after product is launched
● Marketing costs are higher
● Profits are low
● Distribution channels may be limited to early adopters
● Pricing strategies can vary
So.. companies build awareness and trial
(they can build awareness and trial in introduction stage)*
Penetration Pricing Strategy: using a low initial price to encourage customers Skimming Pricing Strategy: setting a high initial price to recover initial investment quickly (phone)
Growth Stage: product accepted by market
● Companies can increase distribution and production
● Continue increasing awareness trial, and repeat purchases
Pricing:
- Typically constant in this phase
- Companies aim to increase profits from increased sales
(they attempt to gain awareness and give out promotions)
Maturity Phase: products level off of growth
- From replacements or repeat users rather than new customers
- Only strongest suppliers will survive
What can they do?
- Focus on building loyalty
- Enter new markets
Decline Stage: product sales decrease
- Fads generally short lifespan
What can they do?
- Harvesting of products by reducing costs to maintain profits
- Modifying products during maturity to avoid decline phase
To extend maturity companies can also redesign packaging, add new features to extend use, and increase amount purchased for same price
- Today standing still is like moving backwards
- Some barriers to successful innovation is focus, fear, and fortitude
Ch 15. Building the Price Foundation- Value
Price: only revenue generator
Pricing Objectives:
- ROI (Targeted return on investment): the profit an organization aims to achieve based on the assets or money invested in a product
- Maximizing profits: setting prices to increase revenues as much as possible relative to costs
- Maximizing sales: pricing products to generate highest revenue
- Maximizing Market Share: setting prices to capture a larger share of market - Maintaining Status Quo: matching or equaling competitors prices
Pricing Factors:
- Customers: how buyers will respond? Will they perceive the product offers value, what is size of the market, how sensitive customers are to changes in price
Price Elasticity: people's sensitivity to price changes, which affects the demand for a product = % change in Q demanded/% change in price
Elastic- price is elastic if consumers are highly sensitive to price changes Inelastic- price is inelastic if consumers are not sensitive to price changes *price effects demand curve but shifts in demand curve can be due to other factors as well
Competition:
- Firm’s pricing decisions are affected by how competitors price their products and if availability of substitute is available (if subs available demand can be lower) Buyer is less price sensitive when:
Economy and Regulations
- Economy impacts pricing; weak economies and high unemployment leads to lower prices
- Regulations are designed to protect consumers and promote comp and ensure fair/ethical business practices
Robinson-Patman Act: limits price discrimination, charging diff prices to diff customers for same product in same quantities
Ex: senior discounts are legal because offered to all individuals within that age group
Price fixing: firms agree to charge same price is illegal
Predatory pricing: setting excessively low prices to drive competitors out of business Bait n switch: bait customers w low prices and switch to higher prices; illegal in many states
For a company to be profitable, its revenue must exceed its costs* so breakeven point is calculated to determine what is required to achieve profitability
Breakeven: where total costs = total revenue
- Fixed costs incurred regardless of sales/production level
- Variable costs fluctuate w company's production and sales
- Once company establishes pricing, must determine pricing strategy to achieve those objectives
Ex: skimming, penetration, and everyday low prices (EDLP) seller expects to charge consistently throughout product life cycle
Cost-Plus Pricing (markup pricing): adding a profit margin to the cost of product to determine its price (do %50 markup on sandwich to make profits)
Odd-Even Pricing: setting price of a product few cents below next dollar (99.97) Price-Lining: setting diff price levels of a group of similar products (basic, standard, pro memberships)
Leader Pricing: offering low prices on one or more key items to attract customers (milk low price so customers buy other stuff)