06-Jul-19

Marketing Management

By Dr Amgad Fahmy

Chapter 1

Introduction to marketing

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Marketing

Marketing is defined to be the process

responsible for anticipation, identification , and
satisfaction of customer needs through a profit

Marketing manager

• He is the bridge between the company

and the customers
• His functions are (APIC)
– Analysis
– Planning
– Implementation
– Control

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What are Consumers’ Needs,

Wants, and Demands?
Needs - state of felt deprivation
including physical, social, and
individual needs i.e hunger

Wants - form that a human

need takes as shaped by
culture and individual
personality i.e. bread

Demands - human wants

backed by buying power i.e.
money
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Marketing and Sales Concepts

Contrasted

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Push versus pull strategies

• A push strategy involves the manufacturer using its sales
force and trade promotion money to induce intermediaries
to carry, promote, and sell the product to end user.
• A pull strategy involves the manufacturer using advertising
and promotion to induce consumers to ask intermediaries for
the product, thus inducing the intermediaries to order it

Marketing Management
Philosophies
Production Concept

Product Concept

Selling Concept

Marketing Concept

Societal Marketing Concept

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Production concept

The production concept holds that consumers will prefer

products that are widely available and inexpensive.

Product concept
-The product concept holds that consumers will favor those products that offer
the most quality, performance, or innovative features

-In order to compete effectively, the product needs to have features that
appeal to individual consumers. In a product-oriented firm, the products are
designed to incorporate a large number of features in order to meet the
needs of a large number of consumers. Unfortunately, the cost becomes too
high for most people, and of course people do not want to pay for features
that they are unlikely ever to use.

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Selling concept

The selling concept holds that consumers and

businesses, will ordinarily not buy enough of the
organization’s products, therefore, the
organization must undertake aggressive selling
and promotion effort.

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Marketing concept
The marketing concept holds that the key to achieving organizational
goals consists of the company being more effective than
competitors in creating, delivering, and communicating superior
customer value to its chosen target markets.
1. Reactive marketing orientation: understanding and meeting
consumers’ expressed needs.
2. Proactive marketing orientation: researching or imagining latent
consumers’ needs through a “probe-and-learn” process
e.g. Wal Mart
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Company Orientations towards business

Marketing Concept

Reactive market Proactive marketing

Understanding and meeting Finding latent consumers’

.
consumers’ expressed needs needs through a “probe-and-
learn” process.

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Marketing Concept Evolution

Consumers prefer products that are

Production Concept widely available and inexpensive

Consumers favor products that offer the

Product Concept most quality, performance, and
innovative features
Consumers will buy products only if the
Selling Concept company aggressively promotes/sells
these products
Focuses on needs/wants of target
Marketing Concept markets & delivering value better than
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competitors

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Selling focuses on the needs

of the seller ,
Marketing on the needs of
the buyers

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Marketing Management Philosophies

•Consumers favor products that are

Production Concept available and highly affordable.
•Improve production and distribution.

•Consumers favor products that offer

Product Concept the most quality, performance, and
innovative features.
•Consumers will buy products only if
Selling Concept the company makes a substantial effort
to promote/ sell these products.
•Focuses on needs/ wants of target
Marketing Concept markets & delivering satisfactions
better than competitors.
•Adds to the mktg. concept “…for the
Societal Marketing Concept objective of preserving & enhancing
consumer’s & society's well being.”
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Evolution of the Marketing Concept

Product Late 19th century: efficient production of goods

Orientation allowed firms to meet strong customer demand.

Mid-1920s–early 1950s: weakened demand required

Sales
that products would have to be “sold.” (personal
Orientation selling, advertising, and distribution was the focus)

Early 1950s–2000s: adopting a customer focus

Marketing
means a commitment to researching and responding
Orientation to customer needs.

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Social Responsibility and Marketing

Ethics

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Ethics

• It is the science which determines what is

right and what is wrong

• Products may be:

1. Ethical and legal
2. Ethical and illegal
3. Unethical and legal
4. Unethical and illegal
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Ethics and marketing mix

1. Product
2. Price
3. Place
4. Promotion

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Social responsibility

• It is the obligation of any organization to

increase its positive effects and decrease
its negative effects on the society

Types
1-Stakeholder
2-Profit
3-Societal

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Specific Benefits/Costs of
Social Responsibility

Benefits Costs
• Worker and public health • Unequal distribution of Benefits
• Cleaner air • Dollar costs
• Efficient use of resources
• Removal of some goods from the
• Economic growth market
• Improved business image
• Conservative product planning
• Government cooperation
• Resources allocated to
• Public education
prevention rather than invention
• Attractive environment
• Better standard of living
• Self-satisfaction of firm

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Consumerism
Consumerism is an Organized Movement of Citizens and
Government Agencies to Improve the Rights and Power of
Buyers in Relation to Sellers.

Buyers’ Sellers’
Rights Rights

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The Consumer Bill of Rights

• The right to be informed

• The right to be safe
• The right to choose
• The right to be heard

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Understanding a Consumer’s Basic Rights

To be informed and protected against fraudulent

deceitful and misleading statements, advertisements,
labels, etc.; and to be educated as to how to use
financial resources wisely.

To be protected against dangerous and unsafe products.

To be heard by government and business regarding

unsatisfactory or disappointing practices.

To be able to choose from several available goods

and services.
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Chapter 2

Planning and budgeting

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Plan

-It is a way of achieving something

Example :the shopping list you take to the supermarket is a
simple example

-Planning includes:
1-Setting objectives
2-Selecting strategies , tactics and policies

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Strategy ,Tactics and Objectives

-Strategy: the method used to achieve objectives

e.g. we will achieve our objective of increasing profits by growing
market share in existing market

-Tactics: how resources are deployed in an agreed strategy

e.g. we will set up a new telephone call center and target new customers

-Objectives: are quantified goals

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The contents and structure of the

marketing plan
• The executive summary
• Situational analysis and target market
• Marketing objectives
• Marketing strategies
• Marketing tactics
• STP
• Marketing mix
• Schedules and budgets
• Implementation
• Control

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Marketing plan

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Situational analysis

• SWOT analysis
• Gap analysis
• PESTEL analysis
• Market analysis
• Five forces analysis

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SWOT analysis

• Strengths (internal)
• Weaknesses (internal)
• Opportunities (external)
• Threats (external)

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Definitions

Strength A particular skill or distinctive competence which

organization possesses & will aid in achieving its
stated goals
Weakness Any aspect of the company that may hinder the
achievement of stated goals.

Opportunities Any feature that creates advantageous conditions

to the firm in relation to a particular objective or
set of them
Threats Any environmental development which present
problems & may hinder the achievement of org.
objectives
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PESTEL analysis
• Political factors
• Economic factors
• Socio-cultural factors
• Technological factors
• Ecological
• Legal

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Political

• Taxation policy
• Government policy
• Pressure group

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Economic Factors
• Inflation
• Employment
• Disposable income
• Business cycles
• Energy availability and cost
• Others?

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Socio-cultural factors
• Demographics
• Distribution of income
• Social mobility
• Lifestyle changes
• Consumerism
• Levels of education
• Others?

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Culture

 Language
 Religion
 Superstitions
 Etiquette
 Customs
 Traditions
 Notion of time

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The Concept of Culture

Although pizza is eaten most everywhere, what is

on the pizza can be quite different!

Pepperoni Tuna & Corn

Black
Squid Bean
Sauce

BBQ
Eggs
Chicken

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Technological

• New discoveries and innovations

• Speed of technology transfer
• Rates of obsolescence
• Internet
• Information technology
• Others?

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Legal
• Environmental protection laws
• Employment laws
• Competition law
• Consumer protection law
• Contract law
• Patency

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Objectives

Objective should be SMART

S Specific
M Measurable
A Achievable
R Realistic
T Time related

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Internal influences include:

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Categories of objectives

Sales/revenue maximization
• Firms may decide that maximizing sales and
revenue is a good way of shutting out
competition and maintaining a strong presence in
a competitive market. This may mean reducing
profit; a firm that competes on price may sell
more, but will certainly reduce profitability per
unit sold and the extra sales may not compensate
for this, so overall net profit may very well
reduce.
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Categories of objectives

Marketing objectives
Some managers like to achieve high customer loyalty
levels, or high levels of word-of-mouth
recommendations. While these may not maximize
profits, they do ensure survival; customer loyalty
comes at a price, but does make the company more
resistant to competitive pressure since loyal
customers are (by definition) difficult to lure away.

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Categories of objectives

Growth
Often firms aim for growth rather than profit, since
this again ensures survival. A growing firm will be
investing more in marketing than one which is in a
steady state, but the larger a firm is the less likely
it is to have to go bankrupt if business drops off –
it is relatively easy to find ways of cutting back.

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Categories of objectives

Technological innovation
Firms such as Sony and 3M pride themselves on their
technical strengths. They are very much driven by
engineering talent; in the case of Sony, the
company was founded by two engineers, and
appears to exist mainly for engineers to enjoy
creating novel electronic devices. Profit is simply a
way of funding their inventiveness, rather than the
other way round.

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Categories of objectives

Ethical and social responsibility

Body Shop is frequently quoted as a firm that
has aimed for, and achieved, ethical trading as
its prime objective. Fair Trade companies also
exist purely as vehicles for social change, and
for whom profit is a necessary, but secondary,
outcome.

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Strategies
• SWOT strategies

• Competitive strategies (Porter )

• Growth strategies (Ansoff)

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SWOT strategies

Strength Weakness
Conversion

Opportunities Threats
Conversion

Matching & Conversion are 2 major strategic options from a SWOT

analysis; to match the strengths to the opportunities & to convert
the weakness & threats to strengths & opportunities.
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Product/Market Expansion Grid

Existing New
Products Products
Existing 1. Market 3. Product
Markets Penetration Development

2. Market
New 4. Diversification
Development
Markets

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Porter’s Generic Strategies

Michael Porter has proposed three generic strategies that

provide a good starting point for strategic thinking:
–Overall cost leadership (WalMart)
–Differentiation (Sainsbury)
–Focus.

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Differentiation Strategies

Product Personnel

Channel Image

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Product Differentiation

• Product form • Style

• Features • Design
• Performance • Ordering ease
• Conformance • Delivery
• Durability • Installation
• Reliability • Customer training
• Reparability • Customer consulting
• Maintenance

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Poor firms ignore their

competitors; average
firms copy their
competitors; winning
firms lead their
competitors.

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Chapter 3

S.T.P
Market segmentation
Market Targeting
Market Positioning

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Market Segmentation

“Market segmentation is a natural result of the

vast differences among people.”
Donald Norman

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Connecting With Customers

• Market Segmentation: determining distinct groups of buyers
(segments) with different needs, characteristics, or behavior.

• Market Targeting: evaluating each segment’s attractiveness

and selecting one or more segments to enter.

• Market Positioning: arranging for a product to occupy a

clear, distinctive, and desirable place relative to competing
products in the minds of target consumers. i.e. Chevy Blazer
is “like a rock.”

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Steps in Market Segmentation, Targeting, and

Positioning

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Basic Market-Preference Patterns

Example: Ice cream

(a) Homogeneous (b) Diffused (c) Clustered

preferences preferences preferences
Creaminess

Creaminess

Creaminess

Sweetness Sweetness Sweetness

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Levels of Market Segmentation

Dividing Markets into Smaller Segments that Can be

Reached More Efficiently And Effectively With Products
and Services That Match Their Unique Needs.

Mass Marketing
Same product to all consumers
(no segmentation, i.e Coca-Cola at one time)

Segment Marketing
Different products to one or more segments
(some segmentation, i.e. Marriott)
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Segmentation Variables

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Targeting

Once the firm has identified its market-segment

opportunities, it has to decide how many and
which ones to target.
Marketers are increasingly combining several
variables in an effort to identify smaller, better-
defined target groups.

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Positioning

How the customers are perceiving the product

versus other products in the market

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Examples
Table of Value
10.1 Examples of Propositions Demand
Value Propositions DemandStates
States &
&
Marketing
Marketing Tasks
Tasks

Company Target Value

Benefits Price
& Product Customers Proposition

Safest
Safety- Durability
Volvo most durable
conscious & 20 % wagon
Station
“upscale” premium
wagon safety your family
families
can ride

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Perceptual map

Brands can be positioned against competitive brands

on product maps

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Measures of Brand equity

• Recognition: being known

• Reputation: being known for something

• Relevance: being known for something

which is relevant

• Relationship: depth of loyalty and

involvement

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Perceptual Mapping
Brands of Soap
High Moisturizing

Zest
Tone 6
3 Safeguard
2
Dove
4
Coast
Lux 5
7
Non-deodorant High Deodorant

1
Dial

Lava
8 Lifebuoy

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Low Moisturizing

Repositioning

Reasons:
1-The current position may become very competitive

2-Change in customer needs

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Chapter 4

Managing the marketing mix

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The 4 P’s & 4 C’s of the

Marketing Mix

• 4 P’s • 4 C’s
– Product – Customer Solution
– Price – Customer Cost
– Place – Convenience
– Promotion – Communication

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Internal marketing

-It is the creation of customer focus concept

within the organization

-Marketing mix of internal marketing

-Training and education

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Marketing mix
1. Product
2. Price
3. Promotion
4. Place
5. People
6. Process
7. Physical evidence

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Marketing mix

-It is defined as controllables that the organization

can influence

-Uncontrollables include competitor’s actions

,government policy , economic conditions

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Synergy

Is where the outcome of combining individual

elements together is greater than the simple sum
total of each of the elements .It is often expressed
as
2+2=5

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Synergy

For example where the marketer ensures that a

high price is set to reflect a quality product sold
through exclusive distribution outlets with costly
and quality sales promotion

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Synergy
-Sometimes there is some consistency in the
marketing mix itself but the mix as a whole is
inappropriate for the target market

Example :
Top quality and premium priced products being
targeted at lower income group

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Chapter 5

Products and services

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What is a Product?

• A PRODUCT is anything that can be offered to a market for

attention, acquisition, use, or consumption and that might
satisfy a want or need.
• Includes:
– Physical Objects
– Services
– Events
– Persons
– Places
– Organizations
– Ideas
– Combinations of the above 84

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What is a Service?

• A SERVICE is a form of product that consist of activities,

benefits, or satisfactions offered for sale that are essentially
intangible and do not result in the ownership of anything.
• Examples include:
– Banking
– Hotels
– Tax preparation
– Home repair services

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Product Classifications: Consumer

Convenience Products Shopping Products

 Buy frequently & immediately  Buy less frequently

 Low priced  Higher price
 Mass advertising  Fewer purchase locations
 Many purchase locations  Comparison shop
i.e Candy, newspapers i.e Clothing, cars, appliances

Specialty Products Unsought Products

 Special purchase efforts
 High price
 Unique characteristics
 Brand identification
 Few purchase locations
i.e Lamborghini, Rolex
 New innovations
 Products consumers don’t
want to think about
 Require much advertising &
personal selling
i.e Life insurance, blood donation
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Service

Service is an activity or a benefit that one party

can offer to another that is essentially intangible
and does not result in the ownership of anything.

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Products, Services, and Experiences

Tangible Good Service

Pure With Hybrid With Pure
Tangible AccompanyingOffer AccompanyingService
Good Services Minor Goods

Auto With Airline Trip

Soap Accompanying Restaurant With Doctor’s
Repair Accompanying Exam
Services Snacks

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Service continuum

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Nature and Characteristic of a

Service

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Service characteristics & how to deal

with each of them (Marketing
response)

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1-Intangability

* Provide tangibility through:

-Physical appearance of facility

-Furnishings
-Employee uniforms
-Logo
-Website
-Packaging
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2-Perishability
-The perishability of services is not a problem when demand is
steady however when demand fluctuates service firms have
difficult problems .
Example :because of rush- hour demand public transportation
companies have to own much more equipment

-Adjust pricing to influence demand

-Capacity management: adjusting services to match demand

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3-Inseparability

-Employee training
-Disintermediation

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4-Variability

-Service guarantees
- Improving service delivery process
- TQM

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Service quality model

(SERVQUAL model)
Understanding customer needs
-Marketing research
-open communication with customers

Service quality
Service quality specifications Reliability
-Service goals
-Management commitment to service quality
Responsiveness
Assurance
Tangibles
Employee performance
-Employee training Empathy
-Evaluation & compensation systems

Managing service expectations

-Advertising
-Good internal communications
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Service quality

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1-Tangibles

Physical evidence of the service

-Appearance of physical facilities
-Appearance of service personnel
-Equipments used to provide the service
e.g. the equipment used in medical exam

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2-Reliability

consistency &dependability in performing

the service
Accuracy of billing
e.g. an accurate bank statement
an airline flight departing & arriving on time

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3-Responsiveness

Willingness of employees to
provide the service
Handling urgent requests
e.g. a waiter refilling a customer’s glass of tea
without being asked

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4-Assurance

knowledge and competence

of employees

Knowledge and skills of employees

e.g. a highly trained financial adviser

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5-Empathy

Caring provided by employees

listening to customer needs

e.g. a nurse counseling a heart patient

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Dimensions of service quality

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Boston Consulting Group Matrix

Relative Market Share
H L

Intensify
Marketing
Intensify
Marketing
?
H Efforts to Efforts
Increase or Leave
Share Market
Industry
Growth
Rate
Use Profits to Reduce Efforts
Aid Growing SBUs, or Divest
L Maintain Position

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Analyzing Current SBU’s:

BCG Growth-Share Matrix
Relative Market Share
High Low
Stars Question Marks
?
High
Market Growth Rate

• High growth & share • High growth, low share

• Profit potential • Build into Stars or phase out
• May need heavy • Require cash to hold
investment to grow market share
Cash Cows Dogs
• Low growth, high share • Low growth & share
Low

• Established, successful • Low profit potential

SBU’s
• Produce cash

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Example of UK bank portfolio

1. Dog: Mortgage products

2. Star : ATMs
3. Cash cow : Personal current accounts
4. Problem child : Corporate accounts

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Portfolio types

1-Balanced portfolio :
- There is a balance between the stars, question
marks ,cash cows and dogs

2-Unbalanced portfolio:
-There is no balance between the stars, question
marks ,cash cows and dogs

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Criticisms of BCG

1-It concentrates only on 2 dimensions

2-The matrix assumes a relationship between

profitability and market share

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Product Life Cycle

Sales and
Profits ($) Sales

Profits

Time
Product Introduction Growth Maturity Decline
Develop-
ment
Losses/
Investments ($)

Sales and Profits Over the Product’s Life From Inception to

Demise 110

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Introduction Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

Sales Low sales
Costs High cost per customer

Profits Negative or low

Marketing Objectives Create product awareness and trial

Product Offer a basic product

Price Usually is high

Distribution High distribution expenses
Advertising Spending is high to inform consumers
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Growth Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

Sales Rapidly rising sales

Costs Average cost per customer

Profits Rising profits

Marketing Objectives Maximize market share

Product Offer new product features and models

Price Remain where they are or fall slightly

Distribution Increase number of distribution outlets
Advertising Educating consumers and meeting
competition 112

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Maturity Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

Sales Begin to slow
Costs Low cost per customer

Profits High profits, then lower profits

Maximize profits while defending
Marketing Objectives
market share
Product May modify product

Price May decline

Distribution Build more intensive distribution
Advertising Stress brand differences and benefits
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Decline Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

Sales Declining sales
Costs Low cost per customer
Profits Declining profits
Reduce expenditure and maintain,
Marketing Objectives harvest, or drop the product
Product Phase out weak items
Price Cut price
Distribution Selective: phase out unprofitable outlets
Advertising Reduce to level needed to retain
hard-core loyal customers 114

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PLC insight

• A particular problem faces the manufacturers of

classic fragrance brands
• There are fashion trends in fragrances and
younger consumers may find an established
classic fragrance not to their taste
• The solution is to launch a variant but maintain
the brand values
• Poison now has “Tender Poison”

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PLC insight

• Such brands can also be rejuvenated with limited life

products available for a restricted period only (e.g. Jean-Paul
Gaultier Summer Fragrance)
• However this outcome is not always inevitable
• Some products appear to go forever
• Chanel No.5 is 80 years young and remains among the top
10 selling perfumes in the twenty first century
• Chanel’s success is built on its excellent marketing

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Different cycles

• Some products appear to have an almost infinite life cycle

such as tea
• We may switch from loose tealeaves to bags but we still drink
tea
• This is contrast to some other products where the life cycle
can be measured in months
• Computer games are an example of a very turbulent market
with many new introductions but by the end of the year
today’s top game will be in the bargain bin (limited life cycle )

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Different cycles

• Again the brand may possibly be rejuvenated by the re-

launching of a modified product (e.g. Tomb Raider II )
• Sometimes a product may decline in the major market yet find
an extended life cycle in a specialist sector
• The traditional vinyl record has predominantly been replaced
by digital technology except in the nightclub where the DJs
still find vinyl the medium of choice

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Criticisms of PLC

1. The stages are not always easily defined

2. Not all the products go through each stage
3. Strategic decisions can change the cycle
4. The life cycle varies between different industries

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Chapter 6

Pricing Products
Pricing Considerations and Strategies

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Old Russian proverb

There are two kinds of fools in any

market. One does not charge
enough. The other charges too
much

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4 Cs on price setting

Cost
Company
Customer
Competitor

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Pricing

Pricing is the monetary value placed upon a

product /service by the marketer

Revenue =price x quantity

Profit =revenue – cost

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Types of Cost Factors that

Affect Pricing Decisions

Fixed Costs Variable Costs

(Overhead)
Costs that don’t Costs that do vary
vary with sales or directly with the
production levels level of production
Executive Salaries, Rent Raw materials

Total Costs
Sum of the Fixed and Variable Costs for Any Given
Level of Production
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Some expressions

• Total cost
• Average cost
• Fixed costs
• Variable costs
• Marginal cost
• Scale economies

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Pricing importance
• Price brings together the other elements of the marketing
mix, and affects each one of them. For example, price is often
used by consumers to judge the likely quality of the product
(a product function) and price can also be used as a short-
term incentive to buy (a promotion function). Price can also
be used to encourage people to buy on-line (a process
function).
• Price determines the firm’s income and profits for each
product and each market. A relatively small increase in price
can lead to a very large increase in profits, unless of course
the higher price means customers buy competing products
instead.
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Pricing importance
• Price contributes to the firm’s business and financial objectives.
Pitching a low price will probably increase unit sales (at the cost
of losing profit), so price can be used to control demand,
perhaps in order to maintain efficient use of production
capacity. This is particularly important in service industries,
where the product cannot be stockpiled – this is why many
restaurants offer early-evening discounts or weekday discounts,
to use capacity at less popular times.

• Price can operate as a competitive tool – with care. Competing

by reducing prices can lead to retaliation by competitors, and a
price war will always favour the firm with the most cash
resources
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Contribution

Contribution =selling price – variable cost

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Breakeven analysis

The point at which total revenue is exactly equal to

the total cost of production and marketing

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Economy of scale

Definition:
Getting discounts for buying materials and services of
bulk

Technical
-Commercial (marketing)
-Financial

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Breakeven Analysis or Target Profit

Pricing

Tries to Determine the Price at Which a Firm

Will Break Even or Make a Certain Target Profit.
Total Revenue
12
Cost in Dollars (millions)

10 Target Profit
($2 million)
8
6 Total Cost
4 Fixed Cost
2

200 400 600 800 1,000

Sales Volume in Units (thousands)
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Breakeven analysis

Breakeven analysis = fixed cost / contribution per unit

133

Perspectives on pricing decisions

1-Economist’s perspective
-Demand / supply
-Elasticity
-Competition

2-Accountant’s perspective
-Costs
-Profitability

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Perspectives on pricing decisions

3-Marketer’s perspectives
-Price sensitivity
-Competition
-Promotion
-Product positioning
-Market share

135

Exam hint -December 2002

An unusual question asked about how an

economist , an accountant , a marketer might
view and contribute to pricing decisions

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Factors Affecting Price Decisions

137

Exam Question

Explain the factors that should be taken into account

when setting the price of hair care products ???

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Demand Curve

139

Price Elasticity of Demand

A. Inelastic Demand -
Demand Hardly Changes With
a Small Change in Price.
Price

P2
P1

Q2 Q1
Quantity Demanded per Period
B. Elastic Demand -
Demand Changes Greatly With
Price

P’2 a Small Change in Price.

P’1

Q2 Q1 140
Quantity Demanded per Period

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Price Elasticity of Demand

Change in quantity demanded %

Change in price %
-When elasticity is greater than 1 ----- Elastic

-When elasticity is less than 1 ----- Inelastic

141

Pricing methods

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Strengths of cost plus pricing

1. It is an easy method to be calculated

2. It can be seen to be fairer to both buyers and
sellers
3. It provides a means of trying to ensure that all
overheads are met in addition it tries to allow for
profit return

143

Weaknesses of cost plus pricing

1. It takes no account of other elements in the

marketing mix like product or place
2. It may be difficult to identify direct costs and
overheads for each item
3. It does not reflect customers perceptions :cheap
price =poor product
4. It does not consider the needs of customers
5. It does not consider the elasticity of demand for
the product
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New-Product Pricing Strategies

(Pioneer Pricing strategies)

• Use Under These Conditions:

Market-Skimming
 Setting a High Price for a
New Product to “Skim”
Maximum Revenues from
the Target Market.
 Results in Fewer, But More
Profitable Sales.
 I.e. Intel
– Product’s Quality and
Image Must Support Its
Higher Price.
– Costs Can’t be so High that
They Cancel the Advantage
of Charging More.
– Competitors Shouldn’t be
Able to Enter Market Easily
and Undercut the High
Price.

145

Strengths of skimming pricing

1. It allows for quick recovery on investment in the

new product
2. It provides prestigious/quality image to customers
3. Higher prices are likely to appeal to innovator
groups

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Weaknesses of skimming pricing

1. It may encourage the competitors to enter the

market quickly
2. It results in lower levels of sales and so fewer
economies of scale
3. It may attract attention from regulatory bodies

147

New-Product Pricing Strategies

• Use Under These Conditions:
– Market Must be Highly
Market Penetration
Price-Sensitive so a Low  Setting a Low Price for a
Price Produces More New Product in Order to
Market Growth. “Penetrate” the Market
– Production/Distribution Quickly and Deeply.
Costs Must Fall as Sales
Volume Increases.  Attract a Large Number of
Buyers and Win a Larger
– Must Keep Out Market Share.
Competition & Maintain Its
Low Price Position or  I.e. Dell
Benefits May Only be
Temporary.
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Strengths of penetration pricing

1. Large sales volume

2. Economy of scale
3. Prevent competitors from entering the market

149

Weaknesses of penetration pricing

1. It is often difficult to raise price after using this
policy
2. It may not be appropriate due to costs of R&D
and competitor positions

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New-Product Pricing

Skimming Price
 A very high, premium price
 Product is new & highly desirable with unique benefits
 Demand is highly inelastic
 Allows the company to recover R&D & promotional costs
 There is a high barrier for entry to competitors
Penetration Pricing
 A very low price to encourage consumers to buy
 The objective is to sell more at a short period of time
 Discourage competitors to enter the market (increase entry barriers)
Trial Pricing
 Pricing a new product low for a limited period of time in order to lower the risk
for consumers
 Win customer acceptance first, and then make profits later

151

Perceived value pricing

• Is perhaps one of the most marketing oriented ways of

setting prices
• The price is set on the perceived value of the product to
the customer
• The marketer uses other elements of the mix (product or
promotion ) to build the perceived value of the product or
service in the mind of customers

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Demand pricing

• This method is customer-oriented, because prices are set at a

level that will ensure that demand for the product is at a
point that will meet corporate objectives. For example, a
company may be able to produce economically at a
particular level, so the price will be set to ensure that
demand reaches that level, no more and no less.
Alternatively, demand pricing can be used to determine the
point at which profit will be maximized, i.e. the point at
which a further increase in price will reduce the production
run past the most economical point.

153

EDLP
- An importanttype of value pricing is everyday low pricing which
involves charging a constant , everyday low price with few or
no temporary price discounts. In contrast , high –low pricing
involves charging higher prices on an everyday basis ,but
running frequent promotions to temporarily lower prices on
selected items below the EDLP level

The king of EDLP is Wal-Mart that practically defined

the concept

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To offer everyday low prices a

company must first have
everyday low costs

155

Pricing for Multiple Products

– Price bundling (e.g., monitor, keyboard, CPU in a

computer package)

– Captive pricing (e.g., razors and razor blades)

156

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Product Mix-Pricing Strategies

• Optional-Product
– Pricing optional or
accessory products sold
with the main product. i.e
camera bag.
• Captive-Product
– Pricing products that must
be used with the main
product. i.e. film.

157

Captive pricing

HP began drastically cutting prices on its printers

by as 60% in some cases. HP could afford to
make such dramatic cuts because customers
typically spend twice as much on replacement
ink cartridges ,toner, and specialty paper as on
the actual printer over the life of the product .As
the price of the printers dropped printer sales
rose. HP now owns about 40% of the worldwide
printer business
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Loss-Leader Pricing

Deliberately selling a product below its

customary price to attract attention to it.

159

Psychological Pricing
• Considers the psychology of prices
and not simply the economics.
• Customers use price less when they
can judge quality of a product.
• Price becomes an important quality
signal when customers can’t judge
quality; price is used to say
something about a product.

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Odd-even pricing

Certainly it is less effective in some markets. An

extension of this type of pricing is found in China,
where some numbers are regarded as lucky;
collectively, pricing that creates perceptions of this
type is called psychological pricing.

161

Prestige Pricing

Setting a high price so that status-conscious consumers

will be attracted to the product and buy it.

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Segmented Pricing

163

Price discrimination
(differential pricing)

1-By time
2-By place
3-By person

-Price discrimination is useful especially in services

where the marketer will charge different prices to iron
out fluctuations in demand
-Example: airline - hotels

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Predatory Pricing (dumping)

Means that a company sets a very low price for

the purpose of driving competitors out of
business

165

Chapter 7

Place or distribution

166

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Intermediaries

1. Retailers :sell directly to consumers

2. Wholesalers: sell to retailers
3. Distributor and dealers: sell to customers
through profit
4. Agents : they do not purchase the products but
they earn commission
5. Franchisees e.g. KFC

167

Types of Distribution Channels

• Consumer channels
– Direct
– Manufacturer-retailer-consumer
– Manufacturer-wholesaler-retailer-consumer
• Business-to-business channels
– Manufacturer-industrial distributor-business
customer
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Factors determining the choice of

distribution strategy
1. Customers
2. Product characteristics
3. Distributor characteristics
4. The channel used by the competitor
5. The suppliers own characteristics
6. Organizational objectives and resources
7. The target market (local, national or international)
8. The level of expertise required when dealing with customers
9. Costs and profitability of channel alternatives
10. Legal and regulatory considerations
169

Marketing Systems

• Conventional - multi-level distribution channel in

which members work independently of one another
• Vertical - channel in which there is cooperation
among channel members at two or more different
levels of the channel
• Horizontal - two or more firms at the same channel
level agree to work together

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Conventional Distribution Channel Vs. a Vertical

Marketing System

171

Types of Vertical Marketing Systems

Corporate VMS
Common Ownership at Different
Levels of the Channel i.e. Sears

Contractual VMS
Degree of Contractual (formal) Agreements Among
Direct Channel Members i.e Franchising (KFC)
Control

Administered VMS
Leadership is Assumed through informal agreement
a Few Dominant Members i.e. Marks &Spencer
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Corporate vertical marketing systems

• Levi-Strauss was originally a manufacturer of

clothes

• The company created a corporate vertical

marketing system by integrating forward and
opening its own retail clothing stores to sell its
merchandise

173

Number of Marketing Intermediaries

Intensive Selective
Distribution Distribution

Exclusive
Distribution
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Intensity of Channel Coverage

A firm severely limits the number of resellers in

Exclusive an area. It seeks a prestige image, channel
control, and high profit margins and
Distribution
accepts lower total sales.

A firm employs a moderate number of resellers in

Selective an area. It tries to combine some channel control
Distribution and a solid image with good sales volume
and profits.

A firm uses a large number of resellers in an area.

Intensive Its goals are to have wide market coverage,
Distribution channel acceptance, and high total sales and
profits. Per-unit profits are low.

175

Select a distribution channel for

each of the followings
1-Rolex watches

2-Cigarettes

3-Mid priced high-fi systems

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1-Rolex watches (Exclusive)

2-Cigarettes (Intensive)

3-Mid priced high-fi systems (Selective)

177

Supply Chain Management

178

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New trends in distribution

1-The growth of zero level channel

(due to growth in IT and advances in direct response media)

2- The increased power of retailers

3-The growth of own branding
4-The growth of horizontal marketing channels
5-The growth of vertical marketing channels

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ICT and distribution

-Newspapers are now distributed via the mixture of
traditional and digital distribution (digital to the
regions then local printing and physical
distribution )

-E-commerce (Dell computers)

-EPOS (Electronic point of sale)

-RFID (radio-frequency identification )

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Distribution (6/2002)

Specifically considering the role of technology

explain and evaluate the changing nature of the
distribution channels within the marketing mix
(12 marks)

181

Answer guidelines

• Introduction
• Role of the internet –E-commerce
• EPOS
• RFID
• EDI
• The changing nature of distribution
-zero level distribution
-vertical & horizontal systems
-increased power of distributors
-retailers own branding

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chapter 8

Promotion

183

Marketing Communication Mix

or Promotion Mix
Product’s
Design

Stores that Sell Product’s

the Product Price

Product’s
Package
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185

Sender Encoding Decoding Receiver

Message
Media

Feedback Response

186

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Advertising

187

Communication strategies
1. Push strategy

2. Pull strategy

3. Strategy mix

188

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Push versus Pull Promotion Strategy

189

Advertising Message

High Rational product attribute appeals

involvement
Information provision Benefit claims

Emotional image-based appeals

Low
involvement
Social, ego, hedonic orientation

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Public relations

The planned and sustained effort to establish and

maintain goodwill and mutual understanding
between an organization and its publics

191

Public relation activities

1. Press release & video news release
2. Press conferences
3. Sponsorship
4. Exhibitions
5. Corporate social responsibility
6. Corporate literature
7. Corporate hospitality
8. Videos
9. Special events “celebrity store openings”
10. Website
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Exhibitions

Purposes
1. Public relations
2. Promotion and selling
3. Networking
4. Testing the response

193

Sponsorship

Objectives:
-Awareness creation
-Media coverage by the sponsored event
-Association with prestigious event
-Opportunity for corporate hospitality
-Internal employee motivation

194

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Sales Promotion

It is one of the promotional tools used to add

value for a product or service on the short run

195

Rapid Growth of Sales

Promotion
• Sales promotion can take the form of consumer promotions,
business promotions, trade promotions, or sales force
promotions.
• Rapid growth in the industry has been achieved because:
– Product managers are facing more pressure to
increase their current sales,
– Companies face more competition,
– Advertising efficiency has declined,
– Consumers have become more deal oriented.

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Sales Promotion Objectives

• Consumer Promotions:
increase short-term sales or help build long-term market
share.

• Trade Promotions: get retailers to:

– carry new items and more inventory,
– advertise products,
– give products more shelf space, and
– buy product ahead.

197

Two-thirds of purchases result from in-

store decisions

198

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Personal Selling

It is personal paid promotional tool in which there

is a face to face contact between a company
representative and a customer

199

Major Steps in Effective Selling

200

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Direct marketing
-The planned recording ,analysis and tracking of customer
behavior to develop relational marketing strategies

-It creates and develop direct one to one relationships

-To carry out direct marketing you need Databases

201

Tools of direct marketing

1. Direct mail (mail shots) “most common”

2. E-mail
3. Mobile phone text messaging (SMS)
4. Direct response advertising
5. Catalogue marketing /brochures / website
6. Call centers and telemarketing
7. “V-Reps “ : Virtual Reps
8. Door drops
9. E-commerce
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Chapter 9

Advertising

203

Media scheduling patterns

1. Continuous pattern
2. Flighting patterns
3. Pulsing

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Evaluating Advertising

Advertising Program Evaluation

Communication Effects Sales Effects

(Copy Testing)
Is the Ad Communicating Is the Ad Increasing
Well? Sales?

205

Evaluating Advertising

1-Pre-testing :
-Focus group

2-Post-testing :
-Recognition test
-Recall test

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207

Chapter 10

Budgeting & control

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The marketing budget

• How much the company intend to spend

Methods:
1. Task method
2. Percentage of sales
3. Competitive parity
4. All you can afford
5. Same as Last Time (S.A.L.T.)
209

Implementation Timetable

210

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