Dimensions Of Marketing Strategy 4g623s

Chapter 13 Dimensions of Marketing Strategy OBJECTIVES 1. Describe the role of product in the marketing mix, including how products are developed, classified, and identified. 2. Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. 3. Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. 4. Specify the activities involved in promotion, as well as promotional strategies and promotional positioning. 5. Evaluate an organization’s marketing strategy plans.

KEY AND DEFINITIONS advertising

A paid form of nonpersonal communication transmitted through a mass medium, such as television commercials or magazine ments.

advertising campaign

Deg a series of ments and placing them in various media to reach a particular target audience.

branding

The process of naming and identifying products.

business products

Products that are used directly or indirectly in the operation or manufacturing processes of businesses.

commercialization

The full introduction of a complete marketing strategy and the launch of a product for commercial success.

consumer products

Products intended for household or family use.

discounts

Temporary price reductions often employed to boost sales.

exclusive distribution

The awarding by a manufacturer to an intermediary of the sole right to sell a product in a defined geographic territory.

generic products

Products with no brand name that often come in plain, simple packages and carry only their generic name.

integrated marketing communications

The process of coordinating the promotion mix elements and synchronizing promotion as a unified effort.

intensive distribution

A form of market coverage whereby a product is made available in as many outlets as possible.

labeling

The presentation of important information on the package.

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

35

Chapter 13 Dimensions of Marketing Strategy manufacturer brands

Brands initiated and owned by the manufacturer to identify products from the point of production to the point of purchase.

marketing channel

A group of organizations that moves products from their producer to customers; also called a channel of distribution.

materials handling

The physical handling and movement of products in warehousing and transportation.

packaging

The external container that holds and describes the product.

penetration pricing

A low price designed to help a product enter the market and gain market share rapidly.

personal selling

Direct, two-way communication with buyers and potential buyers.

physical distribution

All the activities necessary to move products from producers to customers— inventory control, transportation, warehousing, and materials handling.

price skimming

Charging the highest possible price that buyers who want the product will pay.

private distributor brands

Brands, which may cost less than manufactured brands, which are owned and controlled by a wholesaler or retailer.

product line

A group of closely related products that are treated as a unit because of similar marketing strategy, production, or end-use considerations.

product mix

All the products offered by an organization.

promotional positioning

The use of promotion to create and maintain an image of a product in buyers’ minds.

psychological pricing

A pricing strategy that encourages purchases based on emotional rather than rational responses to the price.

publicity

Nonpersonal communication transmitted through the mass media but not paid for directly by the firm.

pull strategy

The use of promotion to create consumer demand for a product so that consumers exert pressure on marketing channel to make it available.

push strategy

An attempt to motivate intermediaries to push a product down to their customers.

quality

The degree to which a good, service, or idea meets the demands and requirements of customers.

36

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy retailers

Intermediaries that buy products from manufacturers (or other intermediaries) and sell them to consumers for home and household use rather than for resale or for use in producing other products.

sales promotion

Direct inducements offering added value or some other incentive for buyers to enter into an exchange.

selective distribution

A form of market coverage whereby only a small number of all available outlets are used to expose products.

test marketing

A trial minilaunch of a product in limited areas that represent the potential market.

trademark

A brand that is ed with the U.S. Patent and Trademark Office and is thus legally protected from use by any other firm.

transportation

The shipment of products to buyers.

warehousing

The design and operation of facilities to receive, store, and ship products.

wholesalers

Intermediaries that buy from producers or from other wholesalers and sell to retailers.

LECTURE OUTLINE AND NOTES (PPT notations below refer to the Content slides.) I.

The Marketing Mix

PPT13.05 A. The key to developing a marketing strategy is maintaining the right marketing mix that satisfies the target market and creates long-term relationships with customers. PPT 3.06 B. Successful companies offer at least one dimension of value that sures all competitors in the marketplace in meeting customer expectations, aka Competitive Advantage. C. Successful companies must also maintain acceptable, and if possible, distinguishable differences in the other dimensions as well. II. Product Strategy PPT13.07 A. A product is a good, service, or idea containing tangible and intangible attributes that provide satisfaction and benefits.

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

37

Chapter 13 Dimensions of Marketing Strategy B. Developing New Products—is a multi-step process PPT13.08 1. Idea Development a. New ideas can come from marketing research, engineers, and outside sources. b. New ideas can also come from customers, brainstorming, and intracompany incentives. 2. New Idea Screening a. In this phase, a marketing manager should look at the organization’s resources and objectives and assess the firm’s ability to produce and market the product. b. Important considerations are consumer desires, the competition, technological changes, social trends, and political, economic and environmental considerations. 3. Business Analysis a. Business analysis is a basic assessment of a product’s compatibility in the marketplace and its potential profitability. b. The most important question relates to market demand—how the product will affect the firm’s sales, costs, and profits. 4. Product Development a. In the product development stage, the firm develops a prototype that should reveal the intangible attributes as perceived by the consumer. b. Product development is often expensive, and few product ideas make it to this stage. PPT 13.09 5. Test Marketing a. Test marketing is a trial minilaunch of a product in limited areas that represent the potential market. b. It allows a complete test of the marketing strategy in a natural environment. PPT 13.10 6. Commercialization a. Commercialization is the full introduction of a complete marketing strategy and the launch of a product for commercial success. b. During this stage, the firm gears up for full-scale production, distribution, and promotion. C. Classifying Products 1. How a product is used and why it is purchased determines how a product is classified. PPT 13.12 2. Consumer products are purchased for household or family use; they are not intended for any purpose other than daily living. a. Convenience products are bought frequently, without a lengthy search, and often for immediate consumption. Consumers spend little time in planning where to buy the product and usually take any available brand. b. Shopping products are purchased after the consumer has compared competitive products. Price, features, quality, style, service, and image all influence buyers’ decisions.

38

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy c. Specialty products are products that the consumer makes a special effort to obtain. They are purchased less often, have a lower turnover, and consumers are unwilling to accept a substitute. PPT 13.13 3. Business products are used directly or indirectly in the operation or manufacturing processes of businesses. a. Raw materials are natural products that usually require additional processing for use in production. b. Major equipment covers large, expensive items used for production purposes. c. Accessory equipment is used for production, office, or management purposes and does not become part of the final product. d. Component parts are finished items, ready to be assembled into the final product. e. Processed materials are things that are used directly in production or management operations but are not readily identifiable as component parts. f. Supplies are materials that make production, management, and other operations possible. g. Industrial services include financial, legal, marketing research, janitorial, and exterminating services. D. Product Line and Product Mix PPT13.14 1. A product line is a group of closely related products that are treated as a unit because of similar marketing strategies and production or end-use considerations. 2. A product mix is all the products offered by the organization. E. Product Life Cycle PPT13.15 1. Some products have very long lives, and others are comparatively short lived. 2. In the introductory stage, consumer awareness and acceptance are limited; sales start at zero, and profits are negative. 3. During the growth stage, sales increase at a rapid rate, and profits peak and start to decline. a. Competing firms become aware that the product has achieved some success, which may result in their entry into the market. b. The firm tries to strengthen its position in the market. 4. In the maturity stage, industry sales continue to increase, peak, and then decline. Severe competition and heavy marketing expenses characterize this stage. 5. During the decline state, sales and profits decline. a. Certain models may be eliminated, and marketing expenditures may be cut. b. Plans must be made to phase out the declining product and introduce new ones to take its place. F.

Identifying Products

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

39

Chapter 13 Dimensions of Marketing Strategy 1. Branding, packaging, and labeling can be used to identify or distinguish one product from other products. 2. Branding PPT 13.18 a. Branding is the process of naming and identifying products. 1) A brand is a name, term, symbol, design, or combination that identifies and distinguishes a product. 2) The brand name is the part of the brand that can be spoken and consists of letters, words, or numbers. 3) A brand mark is the part of the brand that is a distinctive design. 4) A trademark is a brand that is ed with the U.S. Patent and Trademark Office and is legally protected from use by any other firm. b. There are two main categories of brands. PPT13.20 1) Manufacturer brands are brands initiated and owned by the manufacturer to identify products from the point of production to the point of purchase. 2) Private distributor brands are middleman or store brands owned and controlled by a wholesaler or retailer. 3) In addition, there are generic products, which have no brand name at all. c. Companies use two basic approaches to branding multiple products. 1) Each product within a company’s product mix is given its own brand name. 2) In family branding, each of a firm’s products is branded with the same name or at least part of the name. PPT 13.21 3. Packaging a. Packaging is the external container that holds and describes the product. b. The packaging influences consumers’ attitudes and their buying decisions. c. A package can perform several functions including protection, economy, convenience, and promotion. PPT 13.22-13.13-23 4. Branding a. Labeling b. Labeling is the presentation of important information on the package. c. Warranties, contents, nutritional information, safety precautions, and instructions are the kinds of information contained on labels.

40

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy 5. Product Quality PPT13.24 a. Quality reflects the degree to which a good, service, or idea meets the demands and requirements of customers. b. Quality of service is difficult to gauge because it depends on customers’ perceptions of how well the service meets or exceeds their expectations. Quality is judged by customers, not service providers. III. Pricing Strategy A. Price is the value placed on the object involved in an exchange between a buyer and seller. 1. Buyers’ interest in price stems from their expectations about the usefulness of a product or the satisfaction they may derive from it. 2. Price is a key element in the marketing mix because it relates directly to the generation of revenue and profits. 3. For most products, the quantity demanded goes up as the price goes down, and vice versa. 4. Price is probably the most flexible variable in the marketing mix. PPT 13.26 B. Pricing Objectives. Four common pricing objectives are maximization of profits and sales, boosting market share, maintaining the status quo, and survival. C. Specific Pricing Strategies PPT13.27 1. Pricing strategies provide guidelines for achieving the company’s pricing objectives and overall marketing strategy. 2. Pricing New Products. a. Setting the correct price is critical: the right price leads to profitability, but the wrong price may kill the product. b. There are two basic approaches to setting the base price for a new product. 1) Price skimming is charging the highest possible price that buyers who want the product will pay. 2) Penetration pricing is a low price designed to let a product enter the market and gain market share rapidly. 3) Penetration pricing is less flexible; it is more difficult to raise a penetration price than to lower a skimming price. 3. Psychological Pricing a. Psychological pricing is a policy designed to encourage purchases based on emotional rather than rational responses to the price. b. Even/odd pricing ($9.99 rather than $10) is an example of psychological pricing. c. Symbolic/prestige pricing creates an image of high quality to buyers.

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

41

Chapter 13 Dimensions of Marketing Strategy 4. Price Discounting. a. Temporary price reductions, or discounts, are often employed to boost sales. b. Quantity discounts reflect the economies of purchasing in large volumes. c. Seasonal discounts are used to stimulate purchases of products out of season. d. Promotional discounts attempt to improve sales by advertising price reductions on selected products to increase customer interest. e. Some organizations shun price discounting and focus more on building relationships with customers and/or providing “everyday low prices.” D. A Green Marketing Strategy PPT 13.28 a. b. c. d. e.

Target consumers who want to make eco-friendly decisions Design products to reduce environmental impact Include added costs in price Promote via electronic mail to reduce use of paper Distribute through efficient transport and supply chain management

IV. Distribution Strategy PPT13.29 A. Marketing Channels 1. A marketing channel, or channel of distribution, is a group of marketing organizations that directs the flow of products from producers to consumers. 2. Middlemen, or intermediaries, are organizations that bridge the gap between the producer of the product and the ultimate of the product. a. Retailers buy products to sell to consumers rather than for resale or use in producing other products. 1) Retailing usually occurs in a store, but it can also occur through the Internet, vending machines, mail-order catalogs, and entertainment. 2) By bringing together an assortment of products from competing producers, retailers create place utility (a convenient shopping location), time utility (convenient hours of operation), and ownership utility (the risk of ownership). 3) Competition between similar retailers has become very intense. b. Wholesalers generally buy from producers or other wholesalers and sell to retailers. 1) Wholesalers are extremely important because of the marketing activities they perform. 2) Although it is true that wholesalers can be eliminated, their functions must be ed on to some other intermediary or even the consumer. B. Intensity of Market Coverage PPT13.31 1. Intensity of market coverage relates to the number and variety of product outlets; it depends on the behavior of customers and the nature of the target

42

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy market and competition. 2. Intensive distribution makes a product available in as many outlets as possible. This type of distribution is usually used for convenience goods. 3. Selective distribution uses only a small portion of all available outlets. It is used most often for products for which consumers compare price, quality, and style. 4. Exclusive distribution exists when a manufacturer gives a middleman the sole right to sell a product in a defined geographic territory. This method is used when products are purchased and consumed over a long period of time and requires service or information to develop a satisfactory sales relationship. C. Physical Distribution PPT13.32 1. Physical distribution is all the activities needed to move products from producer to consumer. 2. Transportation a. Transportation, the shipment of products to buyers, is an essential part of distribution. b. Five major modes of transportation are used to move products. 1) Railroads offer the least expensive transportation for many products. 2) Trucks have greater flexibility than railroads, can handle freight quickly and economically, can deliver door-to-door, and have more flexible packaging requirements than ships or airplanes. 3) Air transport is expensive, but it offers a high degree of dependability and speed. 4) Shipping by waterways is the least expensive and slowest form of transportation. 5) Pipelines are important for moving heavy, bulky liquids such as petroleum products, natural gas, semi-liquid coal, and certain chemicals. c. Factors affecting the selection of a mode of transportation include cost, capability, reliability, and availability. 3. Warehousing a. Warehousing involves deg and operating facilities to receive, store, and ship products. b. Companies can use their own private warehouses or lease space in public warehouses. c. Warehousing is important because it makes products available for shipment to match demand at different geographic locations. 4. Materials Handling. Materials handling is the physical handling and movement of products in warehouse operations and transportation. V. Promotion Strategy PPT 13.33 A. The role of promotion is to communicate with individuals, groups, and organizations to facilitate an exchange directly or indirectly. 1. It encourages marketing exchanges by attempting to persuade individuals, groups, and organizations to accept goods, services, and ideas.

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

43

Chapter 13 Dimensions of Marketing Strategy 2. It is used not only to sell products but also to influence opinions and attitudes toward an organization, person, or cause. B.

The Promotion Mix 1. Advertising, personal selling, publicity, and sales promotion are called the promotion mix because a good promotion program results from carefully selecting and blending these elements. 2. The process of coordinating the promotion mix elements and synchronizing promotion as a unified effort is called integrated marketing communications. 3. Advertising a. Advertising is a paid form of nonpersonal communication transmitted through a mass medium. b. An advertising campaign involves deg a series of ments and placing them in various media to reach a particular target audience. 1) A product’s features, uses, and benefits affect the content of the campaign message and individual ads. 2) Characteristics of the people in the target audience also influence both content and form, as do an advertising campaign’s objectives and platform. c. Advertising media, both print and electronic, are the vehicles or forms of communication used to reach a desired audience. d. The use of online advertising is increasing. e. Infomercials—large blocks of radio or television air time featuring a celebrity or upbeat host talking about and demonstrating a product— have evolved as an advertising method. 4. Personal Selling

PPT13.34 a. Personal selling is direct, two-way communication with buyers and potential buyers. b. Personal selling is the most flexible of the promotional methods. c. There are three distinct categories of salespersons: order takers, creative salespersons, and salespersons. d. In general, personal selling is a six-step process: 1) Prospecting—identifying potential buyers. 2) Approaching—using a referral or calling on a customer without prior notice to determine interest in a product. 3) Presenting—getting the prospect’s attention with a demonstration. 4) Handling objections. 5) Closing—asking the prospect to buy the product. 6) Follow-up—checking customer satisfaction with the purchased product. 5. Publicity a. Publicity is nonpersonal communication transmitted through the mass media, but the firm does not directly pay for this communication. b. Publicity is mainly informative (which differs from advertising, which is informative, persuasive, or both). c. Publicity describes what a firm is doing, what products it is launching, or other newsworthy information, but seldom calls for action.

44

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy d. Publicity is extremely important when communication focuses on a company’s activities and products and is directed at interest groups, current and potential investors, regulatory agencies, and society in general. e. A variation of traditional advertising is buzz marketing, in which marketers attempt to create a trend or acceptance of a product through publicity. 6. Sales Promotion a. Sales promotion uses such items as coupons, contests, and free samples to persuade buyers to purchase products. b. The major tools of sales promotion are store displays, s, trading stamps, samples and demonstrations, coupons, contests and sweepstakes, refunds, and trade shows. c. Sales promotion stimulates customer purchasing and increases dealer effectiveness in selling products. d. It is used to enhance and supplement other forms of promotion. e. Sales promotions are generally easier to measure and less expensive than advertising. C. Promotion Strategies: To Push or Pull PPT13.35 1. In developing a promotion mix, marketers must decide whether to fashion a mix that pushes or pulls the product. 2. A push strategy is used to motivate middlemen to push the product down to their customers. 3. With a pull strategy, promotion creates consumer demand for the product so that consumers will exert pressure on marketing channel to make the product available. 4. Exclusive use of advertising denotes a pull strategy, while personal selling to marketing channel indicates a push strategy.

BOXED TEXT DISCUSSION QUESTIONS Going Green: Levi’s Blue Jeans Go Green 1. Why can companies charge a price for green products? About 35 million people in the US regularly purchase “green” products. Consumers are increasingly willing to pay more for earth-friendly products and services. Many people are willing to pay more to farmers committed to harvesting through organic methods. Consumers are excited about green products and services and companies are spending big bucks to promote their stances on going green. 2. What else might Levi’s do to increase its offering of moderately-priced green products? Levi’s can increase production of partially green products, with some organic or recycled material combined with conventional materials. As popularity of such gods grows, the company can be finding additional sources for organic and recycled materials to lower their costs and increase the content of these materials in moderately-priced products and to lower the prices on completely green Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

45

Chapter 13 Dimensions of Marketing Strategy products. 3. How much more would you be willing to pay for environmentally-friendly clothing such as Levi’s new green jeans? Student responses will vary. Solve the Dilemma 1. Design a marketing strategy for the new product line. Students’ answers will vary but should reflect understanding of the chapter material. Specifically, look for inclusion and correct use of key such as test marketing, product line, branding, packaging, labeling, marketing channels, retailing, advertising, sales promotion, push strategy, pull strategy, and so forth. The flow of the strategy should move from development of the new product line to full-scale introduction. 2. Critique your marketing strategy in of its strengths and weaknesses. Students’ answers will vary but should reflect thoughtful evaluation of their marketing strategies. 3. What are your suggestions for implementation of the marketing strategy? Again, students’ answers will vary but should reflect comprehension of the relevant chapter material.

SUPPLEMENTAL LECTURE Prolonging the Life Cycle of a Product This is the story of a comedian and some of the techniques he used to survive many years in show business. At the end of the tale, identify what there is in his life story that illustrates a point from this chapter in your textbook. In the early years of the 20 th century, Nathan Birnbaum decided that he wanted to spend the rest of his life in show business. The nation, in those days, did not have radio, television, or talking movies, and one of the premier forms of diversion for the overworked American public was vaudeville. Several times a day in theaters of major cities across the nation, vaudeville performers would come on-stage and pursue their craft in front of generally appreciative audiences. Sometimes the vaudeville acts would share time with a silent movie or two; that gave the performers a break. The performers included singers, dancers, stand-up comedians, jugglers, acrobats, magicians, animal trainers, trapeze artists, and musicians. Nathan Birnbaum fancied himself a stand-up comedian, and he was able to get bookings in theaters in smaller cities like Albany, Akron, Peoria, and Wilkes-Barre. It wasn’t like playing the Palace Theater in New York, but he made a living. Looking back on those days, Nathan its that he probably was not the greatest comedian on the

46

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy vaudeville circuit, and there were managers who would agree with that assessment. As a consequence, once Nathan had played a theater, the manager was often less than enthusiastic about bringing Nathan back a second time. Despite this managerial reluctance, Nathan had two things working in his favor. First, Nathan would tour the nation over a period as long as two years before having to go back to a manager and ask for a spot as a comedian. Maybe the manager would forget how bad Nathan was. Second, because most of the bookings were handled by mail (rather than a personal audition), Nathan could use a different name when negotiating a new contract for a two-week appearance in Oshkosh, for example. True, when Nathan arrived in person, the manager might discover the ruse, but a contract was a contract, and Nathan would have his two weeks’ employment. Switching names would work for only so long, so Nathan added a partner. He lined up an attractive young lady to feed him straight lines. The audience liked her straight lines so much (and did not laugh at Nathan’s jokes) that Nathan changed the act—giving the humor to his partner and becoming the straight man himself. The act was off and running. The couple moved from vaudeville to a long career in radio. Radio was the king of entertainment for many years, but it too faded, and people stopped tuning in to radio networks to hear comedians. At about this point, Nathan and his partner, who was now his wife, performed in a situation comedy for the newest medium—television. By the time TV came along, Nathan and his wife had a grown son who was worked into the comedy series, and it was very popular for quite a few years. Then tragedy struck. Nathan’s partner of so many years died. Not only was Nathan now a widower, but he was again alone as a performer. Entertainment did not forget Nathan, however. He did some stand-up comedy routines here and there and appeared on his share of talk shows, keeping his face in front of the news cameras. Then he began making movies. By now, he was able to play just what he was—an old man. This exposure in suitable screen vehicles led to all sorts of other bookings, as many as Nathan wanted. It should come as no surprise to your class to reveal that back in the old vaudeville days when Nathan used all those fake names, one of the names was “George Burns.” Now, the question is: What does this story have to do with Chapter 13 on the marketing mix? What George Burns was trying to do through all those years was prolong the life cycle of a product known as George Burns, comedian. Large firms may accomplish the same thing by declaring a product as “new and improved,” or make the product in “7 new and exciting exotic flavors.” George Burns extended the product life cycle but altered the product as it went along. Among his devices were 1. New names. 2. New partner. 3. Switch to radio. 4. Switch to television. 5. Switch to movies. 6. Switch to talk shows and “age” material. Let’s use George for one more illustration. At the end of the decline stage, the company takes its product off the market. There were thousands of people in vaudeville who did not survive in entertainment. Finding no work in the entertainment industry, these people virtually took themselves off the market in entertainment and entered other fields. The same fate would have faced Nathan if he had not found Gracie Allen, his partner and wife. More than any other factor, Gracie Allen prevented George Burns from taking his unique product off the market. What a lucky break for us all!

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

47

Chapter 13 Dimensions of Marketing Strategy Questions 1. Was George (Nathan Birnbaum) Burns successful in stretching the product life cycle? 2. What stage of the product life cycle would you say George Burns is in now? 3. If a firm is to prolong the life cycle of a product, what steps must be taken?

CONTROVERSIAL ISSUE How Dare They Stop Our Ball Game? It has been done in the past, and chances are good that it is still being done—stopping professional football games for the insertion of a commercial. Upon learning of this, people have one of at least two possible reactions—one favoring the practice and one condemning it. A first reaction might well be that no r has the right to stop a sports event. The networks that broadcast these games are to remain uninvolved observers and must not interfere with the progress of the sporting event in any way. A time-out may be called by only three parties—each of the two teams participating in the game and the officials. The idea that a TV director has the right to relay signals to the playing surface as a way to insert a commercial is a corruption of a great national pastime— professional football. The question arises of whether, at some future time, a director could say that the game is too uneven and, as a way to increase viewer interest, the officials should tell one team to let the other score. Or whether, if the Kansas City Chiefs should more often, a director could relay instructions to that effect to their coach. On the other hand, one needs to keep in mind that the television networks have paid millions of dollars for the rights to broadcast football games. The networks knew they could afford to pay for the rights as long as they could sell advertising time to large national sponsors, and to sell time to such sponsors requires plenty of slots for commercials. A part of the agreement between the National Football League and the networks is that there will be sufficient moments in each game for commercials. If the regular flow of the game does not provide enough such moments, then the National Football League has agreed that the networks may stop action. A further defense of the networks’ action might well be the fact that a successful National Football League is considered by some to be a product of television. Ask older people how much people outside NFL cities knew of professional football before the advent of television. The marriage of TV and professional football has been good for both parties. Questions 1. Should the networks be able to interrupt professional football games? 2. What are the benefits of advertising for the television viewers? For the National Football League? 3. If advertising was not permitted, what would be the alternative for football fans across the nation?

REVISIT THE WORLD OF BUSINESS 1. How has Concord used marketing to achieve success? Concord Music Group uses innovative marketing plans to achieve its goals. The company ed a PBS documentary featuring its Stax record label known for showcasing Otis Redding, Isaac Hayes and other soul music greats. The popular documentary increased Concord’s sales. 48

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy Concord became part of a t venture with Starbucks, the Hear Music label partnership. This partnership offers the benefits of shared risk and low-cost marketing. The company also benefits by finding niche markets for most of its products. 2. Why do you think Paul McCartney released his album through Concord’s t venture label Hear Music at Starbucks? Through Concord, McCartney sold 75 percent more copies in the first week than his previous release for a major record label. 45 percent of McCartney’s album sales occurred inside Starbucks locations, reaching a wide audience. The rest were marketed and promoted by Concord at various locations outside the coffee chain. This allowed McCartney greater promotion opportunities concentrated to his target markets. 3. Why would Concord permit free s of songs? Concord allows free s of songs hoping to entice ers into purchasing the entire album. Allowing customers a free sample of music from a new artist, in particular, gives more exposure to that artist’s music and encourages people to purchase music they like that they may otherwise have ignored.

CHECK YOUR PROGRESS 1. What steps do companies generally take to develop and introduce a new product? Introducing a new product involves a six-step process: (1) idea development, (2) screening new ideas, (3) business analysis, (4) product development, (5) test marketing, and (6) commercialization. 2. What is the product life cycle? How does a product’s life cycle stage affect its marketing strategy? Product life cycle refers to the life of a product in the marketplace. Like people, products are born and they grow, mature, and eventually die—that is, they are pulled from the market. The four stages of the product life cycle are introduction, growth, maturity, and decline. A marketer must perform different tasks for each life cycle stage of a product. In the introductory stage, consumer awareness and acceptance are limited. Thus, buyers must be made aware of the fact that the product exists and offers benefits. In the growth stage, competing firms become aware that the product has achieved some success and may make decisions to enter the market. During the growth stage, the firm tries to strengthen its position in the market by emphasizing benefits in identifying market segments that want these benefits. The maturity stage is characterized by severe competition and heavy expenditures for marketing expenses. New competitors emphasize improvements and differentiation of the product. A company may have to introduce new brand extensions. This is done to maintain a large market share. During the decline stage, sales continue to fall rapidly. As profits drop, firms may eliminate certain models or items. Plans must be made for phasing out the product and introducing new products to take its place. 3. Which marketing mix variable is the most flexible? Why? Price is the most flexible variable in the marketing mix. Although it may take years to develop a

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

49

Chapter 13 Dimensions of Marketing Strategy product, establish channels of distribution, and design and implement promotion, a product’s price may be set and changed in a few minutes. 4. Distinguish between the two ways to set the base price for a new product. Price skimming is setting the highest possible price that buyers will pay. This method allows a company to generate revenue to offset research and development costs and guards against setting a price that does not cover expenses. It is easier to lower prices on a successful product than it is to raise them. However, the high price and quick profits may attract competitors into the market, lowering profits. By contrast, a penetration price is a low price designed to let a product enter the market and gain market share rapidly. This policy is less flexible than price skimming because it is more difficult to raise a penetration price than it is to lower a skimming price. Penetration pricing is used most often when it is suspected that competitors will enter a market soon after a product has been introduced. Penetration pricing allows the marketer to gain a large market share and discourage competitors from entering the market. It is most appropriate when demand is highly elastic. 5. What is probably the least flexible marketing mix variable? Why? Distribution is probably the least flexible marketing mix variable. Distribution decisions are among the least flexible marketing mix decisions because they involve committing resources and establishing contractual relationships. They are difficult or impossible to change. 6. Describe the typical marketing channels for consumer products. There are four basic marketing channels for consumer products: a. Channel A moves the product from the producer directly to the consumer. b. In Channel B, the product moves from the producer, to a retailer, to the consumer. c. In Channel C, the product goes from the producer, to a wholesaler, to a retailer, to the consumer. d. Channel D moves the product from the producer to an agent, to a wholesaler, to a retailer, to the consumer. 7. What activities are involved in physical distribution? What functions does a warehouse perform? Physical distribution includes all the activities necessary to move products from producers to customers—inventory control, transportation, warehousing, and materials handling. Warehousing involves the design and operation of facilities to receive, store, and ship goods. Warehousing makes products available for shipment to match demand at different geographic locations. 8. How do publicity and advertising differ? How are they related? Advertising is paid for by an identified sponsor and is usually directed to a mass market. The seller has complete control over this form of promotion. Publicity is often viewed as being part of a public relations program, a broad set of communication activities designed to maintain favorable relations between an organization and the public. Advertising messages tend to be informative, persuasive, or

50

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy both; publicity is mainly informative. Advertising is often designed to have an immediate impact or to give specific information to persuade a person to act. Publicity usually describes what a firm is doing and the type of products that are being launched, or it offers others newsworthy information that is not a call for action. When using advertising, the organization must pay for media time. A company may spend money to release information to the press or to call a news conference, but this is not paying for media time. Therefore, people outside the organization shape the message—either positively or negatively. Advertising can be directed and repeated a number of times; most publicity appears in the mass media once and is not repeated. 9. What does the personal selling process involve? Briefly discuss the process. Personal selling is a process of informing potential buyers and persuading them to purchase a product. For most salespeople, personal selling is a six-step process: prospecting, approaching, presenting, answering objections, closing, and following up. The following is a brief description of each step in personal selling process. 1. Prospecting is identifying potential buyers. 2. Approaching involves referrals or cold canvassing to call on potential customers. 3. Presenting is making a presentation to get the prospect’s attention and to persuade the prospect to buy. 4. Handling objections, or reasons for not buying the product, may be done before or as soon as problems arise. 5. Closing is asking the prospect to buy the product. 6. A good salesperson will follow up on a successful sale to make sure the customer is satisfied with the product. 10. List the circumstances in which the push and pull promotional strategies are used. In developing a promotion mix, marketers must decide whether to fashion a mix that pushes or pulls the product. When using the push strategy, the marketer attempts to motivate these middlemen to push the product down to their customers. In contrast, a pull strategy uses promotion to create consumer demand for a product so that the consumers exert pressure on marketing channel to make the product available. Consumers create a pull for the product by requesting it from their retail outlet. A company can use either strategy, or it can use a variation or combination of the two. The allocation of promotional resources to various marketing mix elements probably determines which strategy will be used.

GET INVOLVED 1. Pick three products you use every day (either in school, at work, or for pleasure—perhaps one of each). Determine what phase of the product life cycle each is in. Evaluate the marketer‘s strategy (product, price, promotion, and distribution) for the product and whether it is appropriate for the life cycle stage. 2. Design a distribution channel for a manufacturer of stuffed toys. 3. Pick a nearby store and briefly describe the kinds of sales promotion used and their effectiveness.

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

51

Chapter 13 Dimensions of Marketing Strategy BUILD YOUR SKILLS Answer Key 1. b. (pleasure travelers on a budget; business travelers looking to get the most for their dollar) 2. Here are some possible answers: Marketing Mix Variable a. Product

Current Strategy Clean, comfortable rooms.

5-Year Strategy In appealing to business travelers, Motel 6 should provide rooms that keep pace with the increased dependence of business travelers on communication technology.

b.

Price

The lowest price of any national motel chain.

This strategy should continue to work well for them for the next five years.

c.

Distribution

Motel 6 location sites are selected based on whether they provide convenient access to the highway system and whether they are close to areas such as shopping centers, tourist attractions, or business districts.

It makes sense to continue constructing new sites at placed where people need overnight lodging. Motel 6 should look for opportunities to provide low-cost lodging in high-traffic recreational and entertainment areas (theme parks, casinos, ski resorts, etc.) where lodging might normally be higher.

d.

Promotion

The company’s national spokesperson, Tom Bodett, is featured in radio and television commercials that use humorous stories to show why it makes sense to stay at Motel 6 rather than a pricey hotel.

Explore other avenues for advertising—the Internet and other forms of electronic communication.

SO YOU WANT TO BE A MARKETING MANAGER What factors have made the job of marketing manager more challenging in recent years? While a career in marketing can be very rewarding, marketers today agree that the job is getting tougher. Many advertising and marketing executives say the job has gotten much more demanding in the past 10 years, viewing their number one challenge as balancing work and personal obligations. Other challenges include staying current on industry trends or technologies, keeping motivated/inspired on the job, and measuring success.

52

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy BUILD YOUR BUSINESS PLAN Encourage students to consider developing a short survey instrument to ascertain demand for their business, especially if the business will primarily serve the needs of college students. The questionnaire could help them determine how much college students are willing to spend on a particular product category and how far they are willing to travel to obtain or experience the product/service. As far as setting the final price, have students identify a local business they perceive is too high priced. What you want to do is uncover the real reason students have this perception. This will help the students realize how important perception and the image of the establishment is to the customer. Using the example suggested in the Instructor’s manual for Chapter 12, have the students suggest ideas for special opening events for your new Thai Restaurant that will not drain them financially. How will they spread the “word of mouth” for this new establishment?

SEE FOR YOURSELF VIDEOCASE: Wal-Mart Revises its Marketing Strategy Case Overview After years of stellar growth, Wal-Mart finally began to falter in 2006. Target proved to be its closest competitor, which had been able to nearly close the price gap through restructuring. Target has especially become known for its cheap chic—low-priced and fashionable clothes for middle-income consumers. Wal-Mart tried to compete with Target by offering its own high-fashion, low-price clothing line—but neglected to acknowledge that its average female consumer wears a size fourteen. This is not exactly the demographic that buys skinny jeans and other trendy items. Advisors have suggested that Wal-Mart should slow its rate of growth and focus on improving existing stores, but so far the company has not heeded this advice. Wal-Mart has not identified a reason for its declining performance. One thing is clear, however, Wal-Mart must remain focused on its target demographic, which is not the same as Target’s. Because it caters to lower income consumers, Wal-Mart has benefited from the recent economic downturn. Questions for Discussion 1. What role does marketing play in Wal-Mart’s decisions to try to lure Target’s middleincome customers? Through marketing research, Wal-Mart discovered that its primary source of competition seemed to be Target, who figured out how to draw middle-income consumers in droves by creating a flourishing fashionable reputation. A BusinessWeek price comparison between Wal-Mart and Target concluded that over all differences in price came down to mere pennies. Wal-Mart’s marketing team was now forced to compete against stores with better aesthetics and savvier marketing favored by affluent and middle-income consumers while, at the same time, retaining its loyal, low price dedicated customers. 2. How could better marketing have prevented such snafus as Wal-Mart selling skinny jeans and consistently running out of popular sizes of its new clothing line? Wal-Mart underestimated demand for its new line of clothing. Better marketing would have been able to more closely predict the popularity of the new line. Better marketing would also keep a better handle on Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

53

Chapter 13 Dimensions of Marketing Strategy the demographics and habits of Wal-Mart customers to avoid ordering things like skinny jeans. 3. Why is it said that Wal-Mart and Target have different target markets? Wal-Mart and Target cater to different demographics. Target excels at household goods, fashionable clothing, and electronics, while Wal-Mart excels at low-cost groceries, pharmacy, and entertainment. Grocery items make up 40 percent of Wal-Mart’s business, an area in which most Target stores do not compete.

TERM PAPER OR PROJECT TOPICS 1. 2. 3. 4.

The Importance of Generic Products in the Marketplace The Success or Failure of New Products A Comparison of Research and Development for Japan and the United States A Comparison of Major Modes of Transportation in your city or geographical area.

GUEST SPEAKER SUGGESTIONS 1. A representative from a local firm to speak on any of the following topics: a. Research and Development b. Product Line and Product Mix c. Branding, Packaging, and Labeling d. Test Marketing 2. A representative of a distribution center to speak about the distribution process. 3. A representative of a wholesaler or other marketing intermediary to talk about the way his or her organization performs marketing functions.

TEACHING SUGGESTIONS 1. Cover the chapter content by using “Lecture Outline and Notes” and slides or transparency masters indicated in the left margins. 2. “Check Your Progress” is especially helpful for understanding the concepts of this chapter. To save time, these questions could be assigned as an outside assignment in which students will write answers or be prepared to answer in class. “Additional Discussion Questions and Exercises” are provided in this Instructor’s Manual. 3. As time permits, use the discussion of boxed material. 4. Check off each of the objectives given at the beginning of the textbook. 5. Have students view the video case.

DESTINATION CEO VIDEO NOTES (The Destination CEO Videos can be found on the OLC at www.mhhe.com/ferrell7e.)

54

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy Nordstrom Summary: From humble beginnings in the 1800’s, John Nordstrom founded what is today the gold standard for legendary customer service. Nordstrom’s started modestly as a shoe store, but expanded rapidly to what is today, the well-known department store giant. For generations, with one exception in the 1990’s, the CEO’s office has been occupied by a member of the Nordstrom family. Today, Blake Nordstrom, the great grandson of the founder, leads the company as its CEO. Blake Nordstrom began his career with the company in the shoe department when his father was president and CEO of the firm. Nordstrom’s has remained true to the founder’s values with the exception of a near disastrous change in strategy. The failed marketing approach was designed to appeal to a younger market segment but in the process, lost its way. The company apparently forgot about its core customer base. With the replacement of the CEO, again with a family member, the company was able to get back on track. Nordstrom is well known for its corporate culture that is based on the philosophy of the inverted pyramid. Unlike other traditional corporations, Nordstrom’s stands the traditional corporate pyramid on its head. Customers occupy the broadest and most important element in the pyramid followed by employees, and shareholders last. The philosophy suggests that if customers are satisfied and employees are empowered to do whatever it takes to delight customers, shareholders will benefit significantly. This approach has served Nordstrom’s well through several generations. Today, under the leadership of Blake, the company has regained its footing, has computerized inventory control systems, and has the ability to track customer preferences, colors, sizes, and so on, so that customers are continuously satisfied. Instructors may want to emphasize the role of branding and personal selling which appear to be key competitive advantages for Nordstroms. Discussion Questions: 1. How does the failed Nordstrom marketing strategy in the 1990’s demonstrate the importance of branding? Answer: Nordstrom’s abandoned its core marketing strategy and values. The Nordstrom brand was, for all intent and purposes, abandoned in an attempt to attract a new, more youthful market segment. Nordstrom moved away from its core brand, and, as a result, alienated its core customer base.. 2. How does technology help Nordstrom to achieve success in its distribution systems? Answer: Nordstrom’s has introduced computer-based inventory control systems. This technology tracks sales, sizes, colors, and customer preferences. The inventory control system ensures that each Nordstrom store has an appropriate mix of sizes and colors that meets the needs of its customers. 3. What differentiates Nordstrom’s from its competitors? Answer: Legendary, world-class customer service. Nordstrom’s used the inverted pyramid for its organizational structure. Customers are at the top of the organization followed by employees. Employees are empowered to make decisions to satisfy customer needs. Shareholders are at the bottom of the pyramid, but their return on investment is “assured” through putting customers first and providing employees with the appropriate tools to satisfy and delight customers. Additional Discussion Questions: 1. In your opinion, how does Nordstrom’s use promotion effectively? Answer: Promotion encourages sales. Nordstrom’s uses employees to establish strong relationships

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

55

Chapter 13 Dimensions of Marketing Strategy with their customers on a personal basis. This is the strongest form of promotion in that it creates a bond between customers and the company, and its employees. While the company certainly uses advertising, the personal selling aspect of promotion is clearly the most pervasive part of the company’s promotion strategy. 2. What should have Nordstrom’s done differently in the 1990’s if it desired to introduce a new product line and attract a new market segment? Answer: They should have used a combination of market research and, perhaps most important, test marketing of its new approach. It appears that Nordstrom’s simply introduced the new line and approach without having test marketed the new concept. As we now know, this approach proved nearly fatal for the company. Multiple Choice Questions for Students on the OLC: 1. Which of the following elements of the promotion mix is most important to Nordstrom’s? a. Advertising b. Advertising campaign c. Personal selling d. Publicity e. Sales promotion Answer: c. Personal selling 2. Which of the following would not be considered a function of marketing? a. Selling b. Buying c. Transporting d. Financing e. Employee Training and development Answer: e. Employee Training and development 3. Which of the following promotion strategies occurs when the company attempts to motivate wholesalers and retailers to make the product available to their customers? a. Pull strategy b. Sales promotion strategy c. Push strategy d. Promotion mix strategy e. None of the above Answer: c. Push strategy 4. Nordstrom, as a large retailer, is concerned about shoplifting. Which of the following is most accurate relating to shoplifting among retailers in the United States? a. There are 50 million shoplifters annually in the U.S. b. Retailers lose approximately $75 million each year. c. Retailers lose more than $10 billion annually. d. Only 25% of shoplifters are adults. e. 90% of shoplifters are under the age of 21. Answer: c. Retailers lose more than $10 billion annually. 5. Unlike Nordstrom, Sam’s Club and Costco would be considered as which of the following type of retailer? a. Department store b. Superstore

56

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

Chapter 13 Dimensions of Marketing Strategy c. Warehouse club d. Catalog showroom e. Hypermarket Answer: c. Warehouse club

Ferrell/Hirt/Ferrell, Business: A Changing World, Seventh Edition

57