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1. The Marketing Concept An introduction to the marketing concept, beginning with the production concept, the sales concept, and the changes responsible for the shift to the marketing concept. 2. The Marketing Process An overview of the marketing process with brief explanations of situation analysis, marketing strategy, marketing mix decisions, and implementation and control. 3. Situation Analysis Analyze the internal and external marketing situation using the 5 C's of marketing - company, collaborators, customers, competitors, and climate. 4. Market Definition A discussion of market definition, including the progressively narrowing scope of potential market, available market, qualified available market, target market, and penetrated market. 5. Market Segmentation Introduces the need for market segmentation, requirements of market segments, and some bases for segmenting consumer and industrial markets. 6. Market Analysis An outline of some of the dimensions of market analysis including market size, growth rate, profitability, cost structure, distribution channels, trends, and key success factors. 7. Target Market Selection Lists criteria for selecting target market segments and presents five target market strategies. 8. Product Life Cycle The concept of the product life cycle and how different life cycle stages call for different strategies and marketing mix decisions. 9. The Marketing Mix An introduction to the marketing mix framework, including the marketing mix elements of product, price, place, and promotion. 10. Brand Equity Defines brand equity from multiple perspectives, then outlines aspects of building, managing, and protecting brand equity. 11. Pricing Strategy Discusses the basics of pricing a product or service, including pricing objectives and methods of achieving them.
1. Marketing Concept
The marketing concept is the philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs, better than the competition. Today most firms have adopted the marketing concept, but this has not always been the case. In 1776 in The Wealth of Nations, Adam Smith wrote that the needs of producers should be considered only with regard to meeting the needs of consumers. While this philosophy is consistent with the marketing concept, it would not be adopted widely until nearly 200 years later. To better understand the marketing concept, it is worthwhile to put it in perspective by reviewing other philosophies that once were predominant. While these alternative concepts prevailed during different historical time frames, they are not restricted to those periods and are still practiced by some firms today. The Production Concept The production concept prevailed from the time of the industrial revolution until the early 1920's. The production concept was the idea that a firm should focus on those products that it could produce most efficiently and that the creation of a supply of low-cost products would in and of itself create the demand for the products. The key questions that a firm would ask before producing a product were: Can we produce the product? Can we produce enough of it? At the time, the production concept worked fairly well because the goods that were produced were largely those of basic necessity and there was a relatively high level of unfulfilled demand. Virtually everything that could be produced was sold easily by a sales team whose job it was simply to execute transactions at a price determined by the cost of production. The production concept prevailed into the late 1920's. The Sales Concept By the early 1930's however, mass production had become commonplace, competition had increased, and there was little unfulfilled demand. Around this time, firms began to practice the sales concept (or selling concept), under which companies not only would produce the products, but also would try to convince customers to buy them through advertising and personal selling. Before producing a product, the key questions were: Can we sell the product? Can we charge enough for it? The sales concept paid little attention to whether the product actually was needed; the goal simply was to beat the competition to the sale with little regard to customer satisfaction. Marketing was a function that was performed after the product was developed and produced, and many people came to associate marketing with hard selling. Even today, many people use the word "marketing" when they really mean sales. The Marketing Concept After World War II, the variety of products increased and hard selling no longer could be relied upon to generate sales. With increased discretionary income, customers could afford to be selective and buy only those products that precisely met their changing needs, and these needs were not immediately obvious. The key questions became:
Often these departments were sales departments with expanded responsibilities. Situation Analysis A thorough analysis of the situation in which the firm finds itself serves as the basis for identifying opportunities to satisfy unfulfilled customer needs. the strategy is formulated for a value proposition. the marketing team makes decisions about the controllable parameters of the marketing mix. they typically set up separate marketing departments whose objective it was to satisfy customer needs.everybody must be concerned with customer satisfaction. firms began to adopt the marketing concept. The Marketing Process I. and their needs. many firms have structured themselves into marketing organizations having a company-wide customer focus. In addition to identifying the customer needs. the plan is implemented and the results are monitored. 2. their size. The marketing concept relies upon marketing research to define market segments. To satisfy those needs. the firm must understand its own capabilities and the environment in which it is operating. While this expanded sales department structure can be found in some companies today. which involves: Focusing on customer needs before developing the product Aligning all functions of the company to focus on those needs Realizing a profit by successfully satisfying customer needs over the long-term When firms first began to adopt the marketing concept. Since the entire organization exists to satisfy customer needs. nobody can neglect a customer issue by declaring it a "marketing problem" .What do customers want? Can we develop it while they still want it? How can we keep our customers satisfied? In response to these discerning customers. the firm must find a way to discover unfulfilled customer needs and bring to market products that satisfy those needs. The external environment can be described in . The Marketing Process Under the marketing concept. The situation analysis thus can be viewed in terms an analysis of the external environment and an internal analysis of the firm itself. tactical decisions are made. The process of doing so can be modeled in a sequence of steps: the situation is analyzed to identify opportunities.
climate.terms of macro-environmental factors that broadly affect many firms. Good forecasting can reduce the chance of spending a year bringing a product to market only to find that the need no longer exists.for macro-environmental political. a strategic plan for pursuing the opportunity can be developed. If the situation analysis reveals gaps between what consumers want and what currently is offered to them. the marketing plan has been developed and the product has been launched. A SWOT analysis can be used to condense the situation analysis into a listing of the most relevant problems and opportunities and to assess how well the firm is equipped to deal with them. There are several frameworks that can be used to add structure to the situation analysis: 5 C Analysis . and threats .continual monitoring and adaptation is needed to fulfill customer needs consistently over the long-term. competitors. Company represents the internal situation. the other four cover aspects of the external situation PEST analysis . collaborators. As the market changes. the results of the marketing effort should be monitored closely.for the internal and external situation.specifying. and producing the first units of the product. II. customers. Market research will provide specific market information that will permit the firm to select the target market segment and optimally position the offering within that segment. a product redesign or an entirely new product may be needed. The marketing strategy then involves: Segmentation Targeting (target market selection) Positioning the product within the target market Value proposition to the target market III. then there may be opportunities to introduce products to better satisfy those consumers. Marketing Mix Decisions Detailed tactical decisions then are made for the controllable parameters of the marketing mix. The result is a value proposition to the target market. and future aspects. societal. From this summary. and technological factors. Implementation and Control At this point in the process. Pricing decisions Distribution contracts Promotional campaign development IV. designing. As the changes become more significant. Given that few environments are static. The marketing process does not end with implementation . and micro-environmental factors closely related to the specific situation of the firm. opportunities. present. The situation analysis should include past. Hence. Marketing Strategy Once the best opportunity to satisfy unfulfilled customer needs is identified. and an analysis of trends in order to forecast where it is going. weaknesses. SWOT analysis . the situation analysis should yield a summary of problems and opportunities. Often.company. It should include a history outlining how the situation evolved to its present state. small changes in consumer wants can addressed by changing the advertising message. The action items include: Product development . . economic. A PEST analysis can be used as the "climate" portion of the 5 C framework. the marketing mix can be adjusted to accomodate the changes.strengths. the firm can match its own capabilities with the opportunities in order to satisfy customer needs better than the competition.
business cycle. The further addition of a macro-environmental analysis (climate) results in a 5 C analysis. and the macro-environmental situation.3. the firm first must understand its external and internal situation. The 5 C analysis is an extension of the 3 C analysis (company. Motivation behind purchase. including the customer. to which some marketers added the 4th C of collaborators. some aspects of which are outlined below. impulse or careful comparison Frequency of purchase. A useful framework for performing a situation analysis is the 5 C Analysis. and the firm's own capabilities. inflation rate.governmental policies and regulations that affect the market Economic environment . tangible and intangible. interest rates. The 5C analysis is an environmental scan on five key areas especially applicable to marketing decisions. value drivers. Company Product line Image in the market Technology and experience Culture Goals Collaborators Distributors Suppliers Alliances Customers Market size and growth Market segments Benefits that consumer is seeking.g. and competitors). the micro-environmental. Furthermore. costs Decision maker or decision-making unit Retail channel . the market environment. Situation Analysis In order to profitably satisfy customer needs.how consumer needs and preferences change over time Competitors Actual or potential Direct or indirect Products Positioning Market shares Strengths and weaknesses of competitors Climate (or context) The climate or macro-environmental factors are: Political & regulatory environment .where does the customer obtain information about the product? Buying process. it needs to forecast trends in the dynamic environment in which it operates. benefits vs. It covers the internal.where does the consumer actually purchase the product? Consumer information sources . e. seasonal factors Quantity purchased at a time Trends . customers. and other macroeconomic issues .
country reports can be used as a general information source for the macro-environment.society's trends and fashions Technological environment . Market Definition In marketing. 4. and is permitted by law and other regulations to acquire the product. which provide a market analysis for a particular industry. the firm can identify and select the more favorable opportunities to provide value to the customer.Social/Cultural environment . The analysis of these four external "climate" factors often is referred to as a PEST analysis. Information Sources Customer and competitor information specifically oriented toward marketing decisions can be found in market research reports. By combining the regional and market analysis with knowledge of the firm's own capabilities and partnerships. has the resources to purchase the product. the impact of technology on the demand for existing products. The market definition begins with the total population and progressively narrows as shown in the following diagram. the term market refers to the group of consumers or organizations that is interested in the product.new knowledge that makes possible new ways of satisfying needs. For foreign markets. Market Definition Conceptual Diagram .
The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. and mass communication. Available market . and the size of the qualified available market can be increased through changes in legislation that result in fewer restrictions on who can buy the product. In the above listing.those in the available market who legally are permitted to buy the product. Penetrated market . Accessible: the segments must be reachable through communication and distribution channels.the segment of the qualified available market that the firm has decided to serve (the served market). Target market . mass distribution. But different customers have different needs.those in the total population who have interest in acquiring the product. Qualified available market . market segmentation is useful in order to better understand those needs and to select the groups within the market that the firm will serve. For example.those in the target market who have purchased the product. Market Segmentation Market segmentation is the identification of portions of the market that are different from one another. The size of the market is not necessarily fixed. Since the market is likely to be composed of consumers whose needs differ. and the incumbant firms would lose those customers. The Need for Market Segmentation The marketing concept calls for understanding customers and satisfying their needs better than the competition. The first step in target marketing is to identify different market segments and their needs. Mass marketing allows economies of scale to be realized through mass production. and it rarely is possible to satisfy all customers by treating them alike. Substantial: the segments should be sufficiently large to justify the resources required to target them. Segmentation allows the firm to better satisfy the needs of its potential customers.Beginning with the total population. the size of the available market for a product can be increased by decreasing the product's price. Requirements of Market Segments In addition to having different needs. Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Defining the market is the first step in analyzing it. If firms ignored the differing customer needs.those in the potential market who have enough money to buy the product. Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. for segments to be practical they should be evaluated against the following criteria: Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified. "product" refers to both physical products and services. 5. . another firm likely would enter the market with a product that serves a specific group. various terms are used to describe the market based on the level of narrowing: Total population Potential market .
Geographic Demographic Psychographic Behavioralistic Geographic Segmentation The following are some examples of geographic variables often used in segmentation. interests. Income Occupation Education Ethnicity Nationality Religion Social class Many of these variables have standard categories for their values. Bases for Segmentation in Consumer Markets Consumer markets can be segmented on the following customer characteristics. A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous. or even neighborhood Size of metropolitan area: segmented according to size of population Population density: often classified as urban. or solitary survivor. or III depending on the age of the children. For example. Activities. Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. and as different as possible between segments. etc. family lifecycle often is expressed as bachelor. as similar as possible within the segment. No Kids). or rural Climate: according to weather patterns common to certain geographic regions Demographic Segmentation Some demographic segmentation variables include: Age Gender Family size Family lifecycle Generation: baby-boomers. and opinions (AIO) surveys are one tool for measuring lifestyle. full-nest I. that is. Generation X. married with no children (DINKS: Double Income. Durable: the segments should be relatively stable to minimize the cost of frequent changes. Some of these categories have several stages. for example. Unique needs: to justify separate offerings. suburban. Some psychographic variables include: Activities Interests Opinions Attitudes Values . the segments must respond differently to the different marketing mixes. country. II. state. empty-nest. Region: by continent. full-nest.
Some behavioralistic variables include: Benefits sought Usage rate Brand loyalty User status: potential. first-time. negotiations. They evaluate offerings in more detail. etc. etc. customer location may be important in some cases. and institutions. Purchase procedure: sealed bids. These characteristics apply to organizations such as manufacturers and service providers. and the decision process usually involves more than one person. regular. patterns of purchase behavior can be a basis for segmentation. Company Type Business customers can be classified according to type as follows: Company size Industry Decision making unit Purchase Criteria Behavioral Characteristics In industrial markets. as well as resellers. industrial customers tend to be fewer in number and purchase larger quantities. Readiness to buy Occasions: holidays and events that stimulate purchases Behavioral segmentation has the advantage of using variables that are closely related to the product itself. regular. It is a fairly direct starting point for market segmentation. governments. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio.Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region. so distance from the vendor may be critical. . first-time. Bases for Segmentation in Industrial Markets In contrast to consumers. Industrial markets might be segmented on characteristics such as: Location Company type Behavioral characteristics Location In industrial markets. etc. Such behavioral characteristics may include: Usage rate Buying status: potential. Many of the consumer market segmentation variables can be applied to industrial markets.
Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. identifies five factors that influence the market profitability: Buyer power Supplier power Barriers to entry Threat of substitute products Rivalry among firms in the industry . Market Profitability While different firms in a market will have different levels of profitability. While this method may provide a first-order estimate. the emergence of substitute products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data. Ultimately. This framework. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past. and the lack of growth drivers. it does not predict important turning points. known as Porter's five forces. Some leading indicators of the decline phase include price pressure caused by competition. A better method is to study growth drivers such as demographic information and sales growth in complementary products. David A. Market Analysis The goal of a market analysis is to determine the attractiveness of a market and to understand its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm. Aaker outlined the following dimensions of a market analysis: Market size (current and future) Market growth rate Market profitability Industry cost structure Distribution channels Market trends Key success factors Market Size The size of the market can be evaluated based on present sales and on potential sales if the use of the product were expanded. the maturity and decline stages of the product life cycle will be reached. a decrease in brand loyalty.6. The following are some information sources for determining market size: government data trade associations financial data from major players customer surveys Market Growth Rate A simple means of forecasting the market growth rate is to extrapolate historical data into the future. the average profit potential for a market can be used as a guideline for knowing how difficult it is to make money in the market. market saturation. Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve.
demand for variety. retailers have negotiating power over manufacturers and can capture more margin. and level of emphasis on service and support. which offers a single product to the entire market. The relevant trends are industry-dependent. Target marketing contrasts with mass marketing. For example. Channel power structure . in some environments the experience curve effect can be used to develop a cost advantage over competitors. Distribution Channels The following aspects of the distribution system are useful in a market analysis: Existing distribution channels . A few examples of such factors include: Access to essential unique resources Ability to achieve economies of scale Access to distribution channels Technological progress It is important to consider that key success factors may change over time. Key Success Factors The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. in the case of a product having little brand equity. Regional trends also may be relevant.can be described by how direct they are to the customer. resources. Porter's value chain model is useful for determining where value is added and for isolating the costs.Industry Cost Structure The cost structure is important for identifying key factors for success.for example. but some examples include changes in price sensitivity. especially as the product progresses through its life cycle. and capabilities. Market Trends Changes in the market are important because they often are the source of new opportunities and threats. To this end. Target Market Selection Target marketing tailors a marketing mix for one or more segments identified by market segmentation. 7. Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives. Trends and emerging channels . Attractiveness of a Market Segment The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment: Size of the segment (number of customers and/or number of units) Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segment . The cost structure also is helpful for formulating strategies to develop a competitive advantage.new channels can offer the opportunity to develop a competitive advantage.
.this is a multiple-segment strategy. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market. buyer intentions. Different marketing mixes are offered to different segments.in many cases only the promotional message or distribution channels vary. A single-segment approach often is the strategy of choice for smaller companies with limited resources. On the other hand.the firm specializes in serving a particular market segment and offers that segment an array of different products. the greater the profit potential to the firm. and the more attractive the market segment. The product itself may or may not be different . and capabilities. Full market coverage . Market specialization. Note that larger segments are not necessarily the most profitable to target since they likely will have more competition.the firm specializes in a particular product and tailors it to different market segments. One market segment (not the entire market) is served with one marketing mix. via patent protection. test marketing. for example. Selective specialization. Product specialization. resources.also known as a concentrated strategy. salesforce estimates. Some aspects of fit include: Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firm's image Access to distribution channels required to serve the segment The firm's resources vs. capital investment required to serve the segment The better the firm's fit to a market segment. Target Market Strategies There are several different target-market strategies that may be followed. and statistical demand analysis are useful for determining sales potential.the firm attempts to serve the entire market.Market research and analysis is instrumental in obtaining this information. The impact of applicable micro-environmental and macro-environmental variables on the market segment should be considered. Suitability of Market Segments to the Firm Market segments also should be evaluated according to how they fit the firm's objectives. it may find it profitable to pursue a larger market segment. or by a differentiated strategy in which a separate marketing mix is offered to each segment. if the firm can develop a competitive advantage. It may be more profitable to serve one or more smaller segments that have little competition. Targeting strategies usually can be categorized as one of the following: Single-segment strategy . For example. also known as a differentiated strategy.
or by pursuing a market specialization strategy and offering new products to its existing market segment.The following diagrams show examples of the five market selection patterns given three market segments S1. While in the past impractical. it can expand by pursuing a product specialization strategy. 8. an example of which is shown below: Product Life Cycle Curve . Another strategy whose use is increasing is individual marketing. P2. Once it gains a foothold. in which the marketing mix is tailored on an individual consumer basis. and S3. The Product Life Cycle A product's life cycle (PLC) can be divided into several stages characterized by the revenue generated by the product. tailoring the product for different segments. it may take one of many different shapes. and three products P1. If a curve is drawn showing product revenue over time. A firm that is seeking to enter a market and grow should first target the most attractive segment that matches its capabilities. S2. individual marketing is becoming more viable thanks to advances in technology. and P3.
During the introduction stage. Competition may result in decreased market share and/or prices. Growth Stage The growth stage is a period of rapid revenue growth.Maintained at a high level if demand is high. sales will increase further as more retailers become interested in carrying it.Promotion is aimed at building brand awareness.The life cycle concept may apply to a brand or to a category of product. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. the primary goal is to establish a market and build primary demand for the product class. Promotion . The marketing mix may be modified as follows: Product . there may be price competition and/or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition. increasing the difficulty of differentiating the product. Its duration may be as short as a few months for a fad item or a century or more for product categories such as the gasoline-powered automobile. improvement of product quality.New product features and packaging options. There are no sales and the firm prepares to introduce the product. they do so at a slower pace. In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly. The marketing team may expand the distribution at this point. Promotion . or reduced to capture additional customers. relatively undifferentiated Price . sales will be low until customers become aware of the product and its benefits.Generally high. When competitors enter the market. Because brand awareness is strong. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. Distribution . During the growth stage. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. increasing usage . While sales continue to increase into this stage. Introduction Stage When the product is introduced.one or few products. Trade discounts are minimal if resellers show a strong interest in the product.Distribution becomes more intensive. The following are some of the marketing mix implications of the introduction stage: Product . Some firms may announce their product before it is introduced. The firm places effort into encouraging competitors' customers to switch. changes in the marketing mix usually are required in order to adjust to the evolving challenges and opportunities. but such announcements also alert competitors and remove the element of surprise. Product development is the incubation stage of the product life cycle. the goal is to gain consumer preference and increase sales. assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. Distribution . The competing products may be very similar at this point.Distribution is selective and scattered as the firm commences implementation of the distribution plan.Increased advertising to build brand preference. Once the product has been proven a success and customers begin asking for it. Maturity Stage The maturity stage is the most profitable. advertising expenditures will be reduced. As the product progresses through its life cycle. The introductory promotion also is intended to convince potential resellers to carry the product. often during the later part of the growth stage. Samples or trial incentives may be directed toward early adopters. Price .
Prices may be lowered to liquidate inventory of discontinued products. Incentives to get competitors' customers to switch. the life cycle concept is not well-suited for the forecasting of product sales. Channels that no longer are profitable are phased out.per customer. Discontinue the product when no more profit can be made or there is a successor product.Expenditures are lower and aimed at reinforcing the brand image for continued products.Possible price reductions in response to competition while avoiding a price war. If the product has developed brand loyalty. Limitations of the Product Life Cycle Concept The term "life cycle" implies a well-defined life cycle as observed in living organisms. the firm generally has three options: Maintain the product in hopes that competitors will exit. Nonetheless.The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again. the profitability may be maintained longer. . Distribution . managers may conclude that the product is in the decline phase and therefore cut the advertising budget. During the maturity stage.Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced. Price . Promotion .New distribution channels and incentives to resellers in order to avoid losing shelf space. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products. but products do not have such a predictable life and the specific life cycle curves followed by different products vary substantially. Reduce costs and find new uses for the product. Harvest it. or customer tastes change. Unit costs may increase with the declining production volumes and eventually no more profit can be made. It also is useful for monitoring sales results over time and comparing them to those of products having a similar life cycle. if sales peak and then decline. thus precipitating a further decline. the product becomes technologically obsolete. Consequently. and converting non-users into customers. the primary goal is to maintain market share and extend the product life cycle. Marketing mix decisions may include: Product . Distribution . reducing marketing support and coasting along until no more profit can be made. Promotion . Furthermore. critics have argued that the product life cycle may become self-fulfilling.Emphasis on differentiation and building of brand loyalty. Prices may be maintained for continued products serving a niche market. For example. Price . Decline Stage Eventually sales begin to decline as the market becomes saturated. the product life cycle concept helps marketing managers to plan alternate marketing strategies to address the challenges that their products are likely to face.Distribution becomes more selective. The marketing mix may be modified as follows: Product . During the decline phase.
depicted below: The Marketing Mix These four P's are the parameters that the marketing manager can control. Borden began using the term in his teaching in the late 1940's after James Culliton had described the marketing manager as a "mixer of ingredients". The goal is to make decisions that center the four P's on the customers in the target market in order to create perceived value and generate a positive response. advertising. packaging.9. Here are some examples of the product decisions to be made: Brand name Functionality Styling . personal selling. The ingredients in Borden's marketing mix included product planning. servicing. Borden published his 1964 article. promotions. and fact finding and analysis. pricing. E. distribution channels. branding. physical handling. The Concept of the Marketing Mix. physical products as well as services. Product Decisions The term "product" refers to tangible. subject to the internal and external constraints of the marketing environment. The Marketing Mix (The 4 P's of Marketing) Marketing decisions generally fall into the following four controllable categories: Product Price Place (distribution) Promotion The term "marketing mix" became popularized after Neil H. Jerome McCarthy later grouped these ingredients into the four categories that today are known as the 4 P's of marketing. display.
. penetration. the marketing mix most commonly remains based on the 4 P's. Today however. or exclusive distribution) Specific channel members Inventory management Warehousing Distribution centers Order processing Transportation Reverse logistics Promotion Decisions In the context of the marketing mix. people. pull. selective. Marketing communication decisions include: Promotional strategy (push. Today. Quality Safety Packaging Repairs and Support Warranty Accessories and services Price Decisions Some examples of pricing decisions to be made include: Pricing strategy (skim. the communication of information about the product with the goal of generating a positive customer response. some authors have attempted to extend its usefulness by proposing a fifth P. that is. etc. process. with marketing more integrated into organizations and with a wider variety of products and markets. etc. etc.) Suggested retail price Volume discounts and wholesale pricing Cash and early payment discounts Seasonal pricing Bundling Price flexibility Price discrimination Distribution (Place) Decisions Distribution is about getting the products to the customer.) Advertising Personal selling & sales force Sales promotions Public relations & publicity Marketing communications budget Limitations of the Marketing Mix Framework The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. such as packaging. Some examples of distribution decisions include: Distribution channels Market coverage (inclusive. promotion represents the various aspects of marketing communication.
introduce a quality product with the strategy of using the brand as a platform from which to launch future products. For example.A successful brand can be used as a platform to launch related products. Brand equity is an asset that can be sold or leased. Furthermore.A strong brand increases the consumer's attitude strength toward the product associated with the brand.Despite its limitations and perhaps because of its simplicity. appropriate brand extensions can enhance the core brand. brand loyalty. Brand extensions . inferred attributes. reducing promotional costs. There are at least three perspectives from which to view brand equity: Financial . This importance of actual experience by the customer implies that trial samples are more effective than advertising in the early stages of building a strong brand. Some brands acquire a bad reputation that results in negative brand equity. if consumers are willing to pay $100 more for a branded television over the same unbranded television. Negative brand equity can be measured by surveys in which consumers indicate that a discount is needed to purchase the brand over a generic product. this premium provides important information about the value of the brand.One way to measure brand equity is to determine the price premium that a brand commands over a generic product. . Attitude strength is built by experience with a product. and eventually. Peter H. 10. Managing Brand Equity. and allowing premium pricing. Consumer-based . Increases cash flow by increasing market share. the value of brand extensions is more difficult to quantify than are direct financial measures of brand equity. Brand Equity A brand is a name or symbol used to identify the source of a product. Building and Managing Brand Equity In his 1989 paper. Introduction . The benefits of brand extensions are the leveraging of existing brand awareness thus reducing advertising expenditures. branding is an important decision. and a lower risk from the perspective of the consumer. However. This concept is referred to as brand equity. Strong brand equity provides the following benefits: Facilitates a more predictable income stream. The consumer's awareness and associations lead to perceived quality. the use of this framework remains strong and many marketing textbooks have been organized around it. What is Brand Equity? Brand equity is an intangible asset that depends on associations made by the consumer. brand equity is not always positive in value. Farquhar outlined the following three stages that are required in order to build a strong brand: 1. A positive evaluation by the consumer is important. However. expenses such as promotional costs must be taken into account when using this method to measure brand equity. When developing a new product. The brand can add significant value when it is well recognized and has positive associations in the mind of the consumer. However.
brand equity can be borrowed by extending the brand name to a line of products in the same product category or even to other categories. and the promotional campaign should build consistent associations.all products under the same brand. and some companies use alternative means of achieving the benefits of a strong brand. For example. Managing Multiple Brands Different companies have opted for different brand strategies for multiple products. Extensions also should be avoided if the core brand is not yet sufficiently strong. the extensions are unsuccessful and can dilute the original brand equity. Nesquik. 3. Multi-brand categories . Pepperidge Farm for baked goods. Brand equity is an important factor in multi-product branding strategies. For example. if the brand is positioned as a premium product. As in line extensions by the same company. Brand equity also can be "bought" by licensing the use of a strong brand for a new product. and Nestea for beverages. In some cases.make the brand easy to remember and develop repeat usage. potentially dilutive extensions that are inconsistent with the consumer's perception of the brand should be avoided. low sale prices should not be used compete. For example.a separate brand for each product. Elaboration . Brand extensions can further fortify the brand. in laundry detergents Procter & Gamble offers uniquely positioned brands such as Tide. the consumer should easily remember his or her positive evaluation of the brand. the product quality should be consistent with what consumers expect of the brand. especially when there is a perceptual connection between the products. but only with related products having a perceived fit in the mind of the consumer. Campbell Soup Company uses Campbell's for soups. Alternative Means to Brand Equity Building brand equity requires a significant effort. Bold.2. Protecting Brand Equity The marketing mix should focus on building and protecting brand equity. etc. Fortification .the brand should carry a consistent image over time to reinforce its place in the consumer's mind and develop a special relationship with the consumer. such extensions are successful. that is. These strategies are: Single brand identity . There should be accessible brand attitude. Cheer. and V8 for juices. Umbrella . Family of names . For example. In other cases. Finally. the success of brand licensing is not guaranteed and must be analyzed carefully for appropriateness.Different brands having a common name stem. . Sony offers many different product categories under its brand.Different brands for different product categories. Nestle uses Nescafe. the distribution channels should be consistent with what is expected of a premium brand.
include fixed and variable costs associated with the product. Furthermore. otherwise. distribution. segmentation. and positioning. etc. there likely is at least a basic understanding of the costs involved.11. Marketing Strategy and the Marketing Mix Before the product is developed. Because of inherent tradeoffs between marketing mix elements. . These steps are interrelated and are not necessarily performed in the above order. there might be no profit to be made. and determines the profit margin at higher prices. revenue maximization.for example. While there is no single recipe to determine pricing. 5. profit maximization. so price is an important variable in positioning. the above list serves to present a starting framework. Develop marketing strategy . develop the pricing structure. it is important to understand the impact of pricing on sales by estimating the demand curve for the product.understand how quantity demanded varies with price. Estimate the demand curve . Determine pricing . and define discounts. 7. distribution. Pricing is an important strategic issue because it is related to product positioning. There usually is a tradeoff between product quality and price. For existing products. Inelastic demand indicates that price increases might be feasible. including target market selection and product positioning. and promotion decisions. 3. experiments can be performed at prices above and below the current price in order to determine the price elasticity of demand.evaluate likely competitor actions. The unit cost of the product sets the lower limit of what the firm might charge. Set pricing objectives . Pricing Strategy One of the four major elements of the marketing mix is price. and promotion. select a pricing method. the marketing strategy is formulated. understand legal constraints. Understand environmental factors . the following is a general sequence of steps that might be followed for developing the pricing of a new product: 1.define the product. and promotional tactics. targeting. pricing will depend on other product. pricing affects other marketing mix elements such as product features.perform marketing analysis. 6. Estimate the Demand Curve Because there is a relationship between price and quantity demanded. Calculate cost . channel decisions. 4. or price stabilization (status quo). 2.using information collected in the above steps. Calculate Costs If the firm has decided to launch the product. Nonetheless. Make marketing mix decisions .
Maximize profit margin . Partial cost recovery .an organization that has other revenue sources may seek only partial cost recovery. collusion with competitors to fix prices at an agreed level is illegal in many countries. To meet these objectives. Pricing Objectives The firm's pricing objectives must be identified in order to determine the optimal pricing. The underlying objective often is to maximize long-term profits by increasing market share and lowering costs. the firm must consider the implications of its pricing on the pricing decisions of competitors. so this objective is considered temporary. Maximize quantity .use price to signal high quality in an attempt to position the product as the quality leader. Joel Dean discussed these pricing policies in his classic HBR article entitled. Setting the price too high may attract a large number of competitors who want to share in the profits. there may be price controls that prohibit pricing a product too high. skim pricing and penetration pricing strategies often are employed. Skimming is most appropriate when: . Pricing Policies for New Products.seeks to maximize the number of units sold or the number of customers served in order to decrease long-term costs as predicted by the experience curve. taking into account revenue and costs. Current profit maximization may not be the best objective if it results in lower long-term profits. Pricing it too low may be considered predatory pricing or "dumping" in the case of international trade. a firm is not free to price its products at any level it chooses. setting the price too low may risk a price war that may not be in the best interest of either side. Skimming is a strategy used to pursue the objective of profit margin maximization.seeks to maximize current revenue with no regard to profit margins. Status quo .attempts to maximize the unit profit margin. Current revenue maximization . the goal may be to select a price that will cover costs and permit the firm to remain in the market.The total unit cost of a producing a product is composed of the variable cost of producing each additional unit and fixed costs that are incurred regardless of the quantity produced. Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and selling to those customers who are less price sensitive. Offering a different price for different consumers may violate laws against price discrimination. Environmental Factors Pricing must take into account the competitive and legal environment in which the company operates. Survival . Finally. survival may take a priority over profits. For example. For example. In this case. For new products.in situations such as market decline and overcapacity. From a legal standpoint. the pricing objective often is either to maximize profit margin or to maximize quantity (market share).the firm may seek price stabilization in order to avoid price wars and maintain a moderate but stable level of profit. From a competitive standpoint. The pricing policy should consider both types of costs. Quality leadership . recognizing that quantities will be low. Common objectives include the following: Current profit maximization .seeks to maximize current profit.
As such. The product is of the nature of something that can gain mass appeal fairly quickly. that is.set the price at the production cost plus a certain profit margin. the subscription must be renewed or the software no longer will function. the pricing policy should be reevaluated over time. customers are price sensitive and the quantity demanded will increase significantly as price declines. As the product lifecycle progresses. and what the consumer perceives to be fair.base the price on factors such as signals of product quality. barriers to entry. the customers are not highly price sensitive. the firm's resources. There is a threat of impending competition. . This model offers stability to both the supplier and the customer since it reduces the large swings in software investment cycles.set the price to achieve a target return-on-investment. It is most appropriate when: Demand is expected to be highly elastic. For example. product differentiation. rate of product diffusion. Penetration pricing pursues the objective of quantity maximization by means of a low price. there likely will be changes in the demand curve and costs. Demand is expected to be relatively inelastic. The company does not have the resources to finance the large capital expenditures necessary for high volume production with initially low profit margins. popular price points. These methods include: Cost-plus pricing . that is. In addition to setting the price level. software traditionally was purchased as a product in which customers made a one-time payment and then owned a perpetual license to the software. Afterwards. existence of economies of scale. The pricing objective depends on many factors including production cost. Value-based pricing . managers have the opportunity to design innovative pricing models that better meet the needs of both the firm and its customers. and the product's anticipated price elasticity of demand. Large cost savings are not expected at high volumes. Many software suppliers have changed their pricing to a subscription model in which the customer subscribes for a set period of time. Large decreases in cost are expected as cumulative volume increases. Target return pricing . or it is difficult to predict the cost savings that would be achieved at high volume. managers may make use of several pricing methods. Pricing Methods To set the specific price level that achieves their pricing objectives.base the price on the effective value to the customer relative to alternative products. such as one year. Psychological pricing .
For example. the travel industry offers much lower off-season rates.offered to customers who purchase in large quantities. a trade discount may be offered to a small retailer who may not purchase in quantity but nonetheless performs the important retail function. Quantity discount . . Such discounts do not have to be based on time of the year.Price Discounts The normally quoted price to end users is known as the list price. they also can be based on day of the week or time of the day. Cash discount . as outlined below. There are several types of discounts. Seasonal discount . This price usually is discounted for distribution channel members and some end users.based on the time that the purchase is made and designed to reduce seasonal variation in sales.extended to customers who pay their bill before a specified date. such as pricing offered by long distance and wireless service providers. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders. Cumulative quantity discount . Promotional discount . Trade discount .a functional discount offered to channel members for performing their roles.a short-term discounted price offered to stimulate sales. For example.a discount that increases as the cumulative quantity increases.
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