o   Search

• Characteristics that can be evaluated prior to purchase (goods)
• Clothing, furniture, jewelry, homes, cars

o   Experience

• Characteristics that can be evaluated post-purchase (goods and services)
• Restaurants, hair cuts

o   Credence

• Characteristics that cannot be evaluated easily post-purchase (goods and services)
• Legal services, auto repair

§  Intangibility

·         Cannot be sensed before purchase

·         Buyers infer quality based on place, people, and price

§  Inseparability

·         Services are produced and consumed at same time (therapy, attorneys)

·         Thus, provider-client interaction is important

·         When clients have strong provider preferences, provider can raise price to ration time

§  Variability

• Quality control is critical
• Not all are the same (33 in Blue Man Group)!
• A service guarantee can decrease risk

§  Perishability

·         Services cannot be stored

·         Capacity/demand management is critical

• Demand-side strategies (matinee movie pricing)
• Supply-side strategies
  (bag your own groceries)

o   Cost-based

§  Breakeven…

§  To make target profit…

·         Profit = ((Price - Variable Cost) * (Number of Units Sold)) - Fixed Cost

o   Competition-based

o   Value-based

§  Psychological value and perceived benefits

§  Demand

• Elasticity (or E) = ((Change in Quantity) / (Sum of Quantitities/2)) / ((Change in Price) / (Sum of Prices/2))
• Inelastic (E less than 1)
• Elastic (E greater than 1)

o   Product-line pricing

o   Captive-product pricing

o   Product-bundle pricing

o   Time pricing

o   Introductory stage

§  Skim pricing or penetration pricing

o   Growth

§  Stabilizing prices

§  Competitors have entered increasing supply

§  Economies of scale lower costs

o   Maturity and Decline stage

§  Price decreases

o   Reference Prices

§  Consumers compare to internal and/or external reference price

o   Price-Quality Inferences

§  Image pricing is effective with ego-sensitive products (e.g., expensive cars)

§  If alternative info is available, then price is less of a quality cue

o   Price Cues

§  Consumers process prices from left to right

§  $299 is $200ish and not $300ish – important if $300 is threshold

§  Prices ending in odd numbers imply discount; high-priced image should avoid having prices that end in odd numbers

o   Choose Pricing Objective

§  Survival, maximum current profit, maximum market share

o   Determine Demand

§  Demand and price are usually inversely related; not true for many prestige goods; estimate demand curves by setting different prices in similar areas or by assessing purchase intention at various prices

o   Estimate Costs

§  How do costs vary with more or less production?

o   Analyze Competitors’ Costs/Prices

§  Add to competitor’s price what you offer that they do not (and vice versa)

o   Select Pricing Strategy

§  Cost-based, competition-based, value-based

o   Select Final Price

§  Consumers pay more for known than unknown

§  Companies with above-average advertising can charge more

o   Cost is small compared to buyer’s income

o   Others help with purchase

o   Switching costs are high

o   Hard for buyer to compare suppliers

o   Cost of not getting the benefit is high

o   Product is small part of overall cost to get benefit

o   Price is a strong cue for quality

o   Williams-Sonoma Bread Maker

§  $275 home bread making machine (no sales)

§  Introduce another at $412.50 and sales go up (sales of the less expensive bread maker)

·         The SS# Effect

o   What happened?

o   Anchors are easy to bring to focus

o   Customer Priorities

• Retailer

·         From which manufacturers do our customers want to purchase?

• Manufacturer

·         Where does our target market expect to find our products?

Conflict between competitors of the same marketing channel, resulting in oversaturation of the target population area and extreme competition. For example, if two or more large home product retailers operate in the same marketing area, smaller competitors will be at an extreme disadvantage.

Conflict occurring between two or more different hierarchical members of a channel of distribution. For example, a retail distributor may refuse to carry a manufacturer’s product because of low sales, further decreasing the manufacturer’s total sales.

The product is in as many outlets as possible

Use of more than one but fewer than all TAG Heuer

·         Reaction to Emergence of Walmart:
EDLP or High/Low?

o   Walmart = limited service; thin assortments and low prices of grocery items à cost savings and credibility with consumers

o   EDLP (lower fixed costs)

o   H/L (higher revenues; $6.2M/year more)

o   Repositioning is costly (advertising and educating consumers; reworking channel relationships)

• Offer frequent discounts via sales promotions
• Excitement increases store traffic

• Have low-price guarantee policies; they can still have sales promotions (but do not often)
• Spend less on marketing communications
• Less inventory fluctuation (fewer stock shortages)
• Reduce inventory costs

o   Cross merchandising: A creative way to generate sales.

o   Profitable food marketing includes three things: Sampling, sampling, sampling!

o   Now is the time to merchandise meals!

o   Turning your store into a shopping experience.

o   Enhancing the wine shopping experience.

Supermarket shopper traffic: How consumers navigate the produce department and what may encourage them to buy more.

·         Advertising

o   Advantages

• Reaches large numbers
• Creative flexibility

o   Drawbacks

• 200 grand?
• 2 - 3 seconds?!?!

·         Sales Promotions

o   Advantages and Drawbacks

• Stimulates purchase via incentive to buy
• Consumers wait for the next coupon, rebate. . .
• Is the brand/retailer impacted by price habituation?

·         Public Relations

o   Advantages

• Unpaid promotion more credible than paid
• Association enhances brand

o   Drawbacks

• No control of how message is interpreted

·         Personal Selling

o   Advantages

• 2-way communication
• Ease confusion and encourage purchase

o   Drawbacks

• Expensive cost/customer
• A lot rides on one individual

o   Identify the target audience

o   Select and develop promotion mix elements to meet goals

o   Set the marketing communications budget

o   Develop the communications plan (what, to whom, how often, how (e.g., TV, radio, online, etc.); marketers often must trade-off wider reach for lower frequency

• o   Attention
  
  §  Toyota Prius
  
  Built awareness of need for hybrid cars and educated market
  Gas price went up, environmental issues became big; Prius was set up as a leader with a first-mover advantage
  
  o   Interest
  
  §  You need persuasive communication to go from Attention à Interest
  
  §  Attention for Apple not a problem with iPhone
  
  Used form and functionality in early promotions to differentiate
  
  o   Desire
  
  §  You also need persuasive communication to go from needing à wanting; personal selling enters the mix here
  
  o   Action
  
  §  The purchase!
  
  §  Sales promotions and personal selling (e.g., coupons and BOGOs) engender Action

·         Affordable

• Small business owners; often underestimate touch cost

·         Percentage of Sales

• Most popular approach
• Target (5%); Wal-Mart (2%)
  promotion should lead to sales; should not be result

·         Competitive-Parity

• Good to analyze competition but do not get too sidetracked; is
  comparison apples-to-apples?

·         Objective-and-Task

• Superior; not most widely used

·         Diversity of target segments

• Greater diversity = more promotion mix elements

·         Geographic dispersion

• Less personal selling; more online

·         Type of purchase/Involvement

• Personal selling plays a bigger role as involvement becomes greater

·         PLC

o   Introduction

• Attention and Awareness through Advertising and PR (stimulate primary demand)

o   Growth

• Advertising increases and peaks

o   Maturity

• Advertising decreases; sales promotions increase

o   Decline

• Direct marketing to make sure loyal customers stay supplied

·         Rational Processing

o   Design of Communication…

• Should be “Informational”
  (if consumer is processing rationally)
• Elaborates on attributes/benefits
• Excedrin stops headache pain quickly
• Otherwise, “Transformational” works best
• Elaborates on non-product related benefit (VW to active/youthful) or experience resulting from brand use

·         Pull

• Longer-run objectives trying to create awareness via advertising

·         Push

• Short-run sales goals (increasing units sold, encouraging trial) through sales promotions and personal selling

o   Informative

• Awareness, knowledge

o   Persuasive

• Liking, preference, conviction, purchase

·         Institutional Advertising

• Promote a family of brands more than a specific product
• Creates positive associations

·         Product Advertising

• Majority of advertising; designed to build towards purchase of a specific item
• Pioneering advertising (increases primary demand)
• Tell consumers what a product is and how it is used
• Rational more than emotional. . .
• Comparative advertising

A marketing strategy in which a company shows how its product or service is superior to that of its competitors by comparing the benefits and costs within the advertisement itself. A comparative advertising campaign may involve printing a side-by-side comparison of the features of a company's products next to those of its competitor.

o   Product substitutability

• Less differentiated markets (e.g., soft drinks, beer, banks, airlines) = more ad spending

o   Market clutter

• AFLAC (sales up 28% the 1^st year the duck came on the air – name recognition from 13% to 91%)

o   PLC

• Spend more early on to create awareness/interest and inform/persuade

o   Rational Appeal

§  Focuses on benefits offered to customers

• Quality of product
• Good service
• Low price
• Dependability

o   Emotional Appeal

§  Human nature, drama, joy, love, surprise, guilt, shame, disgust, fear

§  High impact on consumers

o   Moral Appeals

§  “Doing the Most Good” with donation dollars

Condition that may apply to the point at which an advertisement or advertising campaign is no longer effective. The wearout factor depends on the frequency of communications, the target market, the quality of the advertising copy, the novelty of the campaign, and the variety of messages used. Some ads or campaigns wear out in a relatively short time, while others seem to last for years.

o   Too much reliance on advertising at the expense of other promotional options

o   Need new ads with adjusted themes

·         Beyond a certain point…

• Diminishing returns set in; market share becomes flat

·         What does this mean?

• Spend more on advertising
• Early in PLC
• When goals are to inform and persuade
• Advertising $$ is not as good for reminding

o   Advertising provides a reason; sales promotions provide an incentive

o   Habituation

o   Try to keep familiar and big brands on price promotion < 30 % of the time

·         Public Relations 101

o   Publications

o   Events

o   Sponsorships

o   News

o   Speeches

o   PSAs

o   Herbst’s Implications for Children’s Advertising

Actions taken by a company to maintain its credibility and good reputation after a situation has occurred that may affect the company in a negative manner and therefore reduce sales of that company's product or service.

·         The “+” and “-“ of the SC Options

o   The +

• Supermarket buyers want to expand into this hot organic trend
• Be first in the SC or else!
• 8-ounce (Option 1) merchandised at eye level
• Great shelf life (for the 32-ounce); consumers like wider windows; support promotions encouraging stockpiling; more easily ship cross-country and avoid capital expenditure of a new plant because can still produce out of Vermont
• Could always go to 8 if 32 succeeds

o   The –

• Upset NFC channel members (not a loss leader and important to the NFC); from channel captain to an “also-ran”
• The 8 will awaken Dannon and Yoplait (their marketing budget is > than NF’s sales)!  Less likely, however, to fight the 32.
• Very dependent on brokers; can Natureview leverage differentiating characteristics where people shop quickly and are more price-conscious?
• No experience in this channel; stress for MKTG dept.
• 32 is “in the well” (creating awareness is thus difficult)
• Motivate SC partners via slotting fees as well as promotional support
• Big geographic coverage; private label threat?

·         The + and the - of the NFC Option

o   The +

• NFC channel is excited about the multi-pack; be the 1^st with a multi-pack in the NFC!
• Less risk and investment

o   The –

• Natureview’s NFC competition is rumored to be considering entry into the SC!

·         Evaluating the TTC Copy Strategy

o   Unique strategy

§  Identify customer pain points and present TTC as solution

o   Unique execution

§  Rotoscoping; stands out; animated/approachable

o   Capitalized on Chuck (founder was still Chairman)

§  Hmm. . .why not use Chuck as spokesperson?

o   “Chuck” has employee respect

§  Implication for interactions with employees (WWCD?)

o   Informality; approachability

§  Promise of personal service; conversation of “equals”