CH-6-7 The Marketing Program – Marketing Strategy, Text and Cases : Chapter Notes

This Document Contains Chapters 6 to 7 Chapter 6: The Marketing Program Chapter Outline I. Introduction A. Beyond the Pages 6.1 discusses the marketing program at Barnes & Noble and how it compares to its chief rival, Amazon.com. B. The marketing program refers to the strategic combination of the four basic marketing mix elements: product, price, distribution, and promotion. C. The outcome of the marketing program is a complete “offering” that consists of an array of physical (tangible), service (intangible), and symbolic (perceptual) attributes designed to satisfy customers' needs and wants. D. The best marketing strategy is likely to be one that combines the product, price, distribution, and promotion elements in a way that maximizes the tangible, intangible, and perceptual attributes of the complete offering. E. Given the state of commoditization in many markets, the core product (the element that satisfies the basic customer need) typically becomes incapable of differentiating the offering from those of the competition. II. Product Strategy A. Product offerings in and of themselves have little value to customers. Rather, an offering’s real value comes from its ability to deliver benefits that enhance a customer's situation or solve a customer's problems. B. Strategic Issues in the Product Portfolio 1. Products fall into two general categories: consumer products (used for personal use and enjoyment) and business products (purchased for resale, to make other products, or for use in a firm’s operations). [Exhibit 6.1] 2. A product line consists of a group of closely related product items. A product mix or portfolio is the total group of products offered by a company. [Exhibit 6.2] 3. The number of product lines to offer (the width or variety of the product mix) is an important strategic decision. 4. The depth of each product line (the assortment) is an important marketing tool. Firms attract a wide range of customers and market segments by offering a deep assortment of products in a specific line. 5. Benefits of offering a large portfolio of products: a) Economies of Scale—in production, bulk buying, and promotion. b) Package Uniformity—all packages in a product line have the same look and feel. c) Standardization—product lines can use the same component parts. d) Sales and Distribution Efficiency—sales personnel can offer a full range of choices and options to customers. e) Equivalent Quality Beliefs—customers expect and believe that all products in a line are equal in terms of quality and performance. C. The Challenges of Service Products 1. Firms lying closer to the intangible end of the product spectrum face unique challenges in developing marketing strategy. 2. Services possess many unique characteristics. [Exhibit 6.3] 3. Because of the intangibility of service, it is difficult for customers to evaluate a service before they actually purchase and consume it. 4. Because most services are dependent upon people (employees, customers) for their delivery, they are susceptible to variations in quality and inconsistency. 5. Customers typically have few problems in expressing needs for tangible goods, buy they often have difficulty in expressing or explaining needs for services. D. Developing New Products 1. The development and commercialization of new products is a vital part of a firm's efforts to sustain growth and profits. 2. Six strategic options related to the newness of products: a) New-to-the-World Products (Discontinuous Innovations)—These products involve a pioneering effort by a firm that eventually leads to the creation of an entirely new market. b) New Product Lines—These products represent new offerings by the firm, but the firm introduces them into established markets. c) Product Line Extensions—These products supplement an existing product line with new styles, models, features, or flavors. d) Improvements or Revisions of Existing Products—These products offer customers improved performance or greater perceived value. e) Repositioning—This strategy involves targeting existing products at new markets or segments. f) Cost Reductions—This strategy involves modifying products to offer performance similar to competing products at a lower price. 3. The key to new product success is to create a differential advantage for the new product. This advantage can be real or based entirely on image. 4. Five typical stages of the new product development process are: a) idea generation b) screening and evaluation c) development d) test marketing e) commercialization III. Pricing Strategy A. There is no other component of the marketing program that firms become more infatuated with than pricing. There are at least four reasons for this attention: 1. There are only two ways for a firm to grow revenue: increase prices or increase the volume of product sold. 2. Pricing is the easiest of all marketing variables to change. 3. Firms take considerable pains to discover and anticipate the pricing strategies and tactics of other firms. 4. Price is considered to be one of the few ways to differentiate a product in commoditized and mature markets. B. Beyond the Pages 6.2 discusses how prices vary around the world. C. Key Issues in Pricing Strategy 1. The Firm's Cost Structure a) A firm that fails to cover both its direct costs (e.g., finished goods/components, materials, supplies, sales commission, transportation) and its indirect costs (e.g., administrative expenses, utilities, rent) will not make a profit. A popular way to associate costs and prices is through breakeven pricing: Breakeven in Units = Total Fixed Costs Unit Price - Unit Variable Costs b) Cost-plus pricing is another strategy that is commonly used in retailing. Here, the firm sets prices based on average unit costs and its planned markup percentage: Selling Price = Average Unit Cost 1 - Markup Percent (decimal) c) A firm's cost structure should not be the driving force behind pricing strategy because different firms have different cost structures. 2. Perceived Value a) Value can be defined as a customer’s subjective evaluation of benefits relative to costs to determine the worth of a firm’s product offering relative to other product offerings. A simple formula: Perceived Value = Customer Benefits Customer Costs b) Value is a key component in setting a viable pricing strategy. In fact, value is intricately tied to every element in the marketing program and is a key factor in customer satisfaction and retention. 3. The Price/Revenue Relationship a) Virtually all firms face intense price competition from their rivals, which tends to hold prices down. b) Although it is natural for firms to see price-cutting as a viable means of increasing sales, all price cuts affect the firm's bottom line. There are two general pricing myths: 1. Myth #1: When business is good, a price cut will capture greater market share. 2. Myth #2: When business is bad, a price cut will stimulate sales. c) The reality is that any price cut must be offset by an increase in sales volume just to maintain the same level of revenue. Percent Change in Unit Volume = Gross Margin % Gross Margin % ± Price Change % – 1 d) It is often better for a firm to find ways to build value into the product and justify the current price, or even a higher price, rather than cut the price. 4. Pricing Objectives [Exhibit 6.4] a) Pricing objectives must be realistic, measurable, and attainable. b) Firms make money on profit margin, volume, or some combination of the two. A firm's pricing objectives will always reflect this market reality. 5. Price Elasticity a) Price elasticity refers to customers' responsiveness or sensitivity to changes in price. A more precise definition defines elasticity as the relative impact on the demand for a product, given specific increases or decreases in the price charged for that product. b) Firms cannot base prices solely on price elasticity calculations because they will rarely know the elasticity for any product with great precision over time. c) Since the same product can have different elasticities in different times, places, and situations, firms often consider price elasticity in regard to differing customer behavior patterns or purchase situations. d) Situations That Increase Price Sensitivity 1) Availability of substitute products 2) Higher total expenditure 3) Noticeable price differences 4) Easy price comparisons e) Situations That Decrease Price Sensitivity 1) Lack of substitutes 2) Real or perceived necessities 3) Complementary products 4) Perceived product benefits 5) Situational influences 6) Product differentiation D. Pricing Service Products 1. Service pricing is critical because it may be the only quality cue that is available in advance of the purchase experience. Services pricing becomes more important—and more difficult—when: a) service quality is hard to detect prior to purchase b) the costs associated with providing the service are difficult to determine c) customers are unfamiliar with the service process d) brand names are not well established e) the customer can perform the service themselves f) advertising within a service category is limited g) the total price of the service experience is difficult to state beforehand 2. Due to limited capacity, service pricing is also a key issue with respect to balancing supply and demand during peak and off-peak demand times. 3. Many service firms use yield management to balance pricing and revenue considerations with their need to fill unfilled capacity. [Exhibit 6.5] 4. Yield management allows the service firm to simultaneously control capacity and demand in order to maximize revenue and capacity utilization. a) The service firm controls capacity by limiting the available capacity at certain price points. b) The service firm controls demand through price changes over time and by overbooking capacity. 5. Yield management systems are also useful in their ability to segment markets based on price elasticity. That is, yield management allows a firm to offer the same basic service to different market segments at different price points. E. Base Pricing Strategies 1. A firm's base pricing strategy establishes the initial price and sets the range of possible price movements throughout the product's life cycle. 2. Base pricing approaches: a) Price Skimming—occurs when a firm intentionally sets a high price relative to the competition. b) Price Penetration—occurs when a firm sets a relatively low initial price to maximize sales, gain widespread market acceptance, and capture a large market share quickly. c) Prestige Pricing—setting prices at the top end of all competing products in a category to promote an image of exclusivity and superior quality. d) Value-based Pricing (EDLP)—setting reasonably low prices, but still offering high quality products and adequate customer services. e) Competitive Matching—focuses on matching competitors' prices and price changes. f) Non-Price Strategies—building a marketing program around factors other than price. F. Adjusting the Base Price 1. Adjusting base prices in consumer markets: a) Discounting—using sales or other temporary price reductions to attract customers and create excitement. b) Reference Pricing—comparing the actual selling price to an internal or external reference price. c) Price Lining—occurs when a firm creates lines of products that are similar in appearance and functionality, but are offered with different features and at different price points. d) Odd Pricing—prices are rarely set at whole, round numbers. e) Price Bundling—bringing together two or more complementary products for a single price. 2. Adjusting base prices in business markets: a) Trade Discounts—Manufacturers will reduce prices for certain intermediaries in the supply chain based on the functions that the intermediary performs. b) Discounts and Allowances—Business buyers can take advantage of sales and other price breaks including discounts for cash, quantity or bulk discounts, seasonal discounts, or trade allowances for participation in advertising or sales support programs. c) Geographic Pricing—Selling firms often quote prices in terms of reductions or increases based on transportation costs or the actual physical distance between the seller and the buyer. d) Transfer Pricing—Transfer pricing occurs when one unit in an organization sells products to another unit. e) Barter and Countertrade—In business exchanges across national boundaries, companies sometimes use products, rather than cash, for payments. IV. Supply Chain Strategy A. Supply chain management is essentially invisible to customers because the process occurs behind the scenes. Customers take these processes for granted and only notice interruptions of the supply chain. B. The picture is drastically different from the firm's perspective. Supply chain concerns now rank at the top of the list for achieving a sustainable advantage and true differentiation in the marketplace. C. Supply chain management consists of two interrelated components: 1. Marketing channels—an organized system of marketing institutions, through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user. 2. Physical distribution—coordinating the flow of information and products among members of the channel to ensure the availability of products in the right places, in the right quantities, at the right times, and in a cost- efficient manner. D. The term supply chain expresses the connection and integration of all members of the marketing channel. Creating an extended enterprise requires investments in and commitment to three key factors: connectivity, community, and collaboration. E. The goal of channel integration is to create a seamless network of collaborating suppliers, vendors, buyers, and customers. [Exhibit 6.6] F. Strategic Supply Chain Issues 1. The importance of the supply chain ultimately comes down to providing time, place, and possession utility for consumer and business buyers. However, the expense of distribution requires that firms balance customers' needs with their own need to minimize costs. [Exhibit 6.7] 2. Marketing Channel Functions a) Sorting—Manufacturers make one or a few products while customers need a wide variety and deep assortment of different products. Intermediaries overcome this discrepancy of assortment. b) Breaking Bulk—Manufacturers produce large quantities of a product; however, customers typically want only one of a particular item. Intermediaries—particularly retailers—overcome this discrepancy of quantity. c) Maintaining Inventories—Manufacturers cannot make products on demand, so the channel must store products for future purchase and use. Intermediaries overcome this temporal (time) discrepancy. This issue does not apply to services. d) Maintaining Convenient Locations—Since manufacturers and customers have a geographic separation, the channel must overcome this spatial discrepancy. e) Provide Services—Channels add value to products by offering facilitating services and standardizing the exchange process. 3. Marketing Channel Structure a) Exclusive distribution, the most restrictive type of market coverage, occurs when a firm gives one merchant or outlet the sole right to sell a product within a defined geographic region. b) Selective distribution, a somewhat restrictive type of market coverage, occurs when a firm gives several merchants or outlets the right to sell a product in a defined geographic region. c) Intensive distribution, the least restrictive type of market coverage, occurs when a firm makes a product available in the maximum number of merchants or outlets in each area to gain as much exposure and as many sales opportunities as possible. 4. Power in the Supply Chain a) True supply chain integration requires a fundamental change in how channel members work together, including moving from a "win lose" competitive attitude to a "win win" collaborative approach. b) Each firm in a supply chain has its own mission, goals, objectives, and strategies. It is not surprising that firms often assess their own interests before considering others in the supply chain. c) Power can be defined as the influence one channel member has over others in the supply chain. 1) Legitimate power deals with the firm's position in the supply chain—this power balance shifted to large retailers in the 1990s. 2) Reward power involves the ability to help other parties reach their goals and objectives. 3) Coercive power stems from the ability to take positive outcomes away from other channel members, or the ability to inflict punishment on other channel members. 4) Information power comes from having and sharing knowledge among members of the supply chain. 5) Referent power is based in personal relationships and the fact that one party likes another party. G. Trends in Supply Chain Strategy 1. Technological Improvements a) Significant advancements in information processing and digital communication have created new methods for placing and filling orders for both business buyers and consumers. b) E-commerce now accounts for 46 percent of transactions in manufacturing, 25 percent of transactions in wholesaling, and 4.4 percent of retail transactions. c) Radio frequency identification (RFID) involves the use of tiny computer chips with radio transmitters that can be attached to a product or its packaging. d) Beyond the Pages 6.3 discusses Walmart’s use of distribution technology to create supply chain advantages. 2. Outsourcing Channel Functions [Exhibit 6.8] a) Outsourcing has traditionally been used as a way of cutting expenses associated with labor, transportation, or other overhead costs. b) Today, the desire of many firms to focus on core competencies drives outsourcing decisions. c) Many firms have shifted to offshoring their own activities (rather than outsourcing) to maintain some control over operations. 3. The Growth of Nontraditional Channels a) Customers' demands for lower prices and greater convenience have put pressure on all channel intermediaries to justify their existence. b) When margins get squeezed, the channel typically evolves into a more direct form. The most obvious example of this evolution is the growth of e-commerce. c) Other forms of nontraditional channels: 1) Catalog and direct marketing 2) Direct selling 3) Home shopping networks 4) Vending 5) Direct response advertising d) Dual distribution (the use of multiple channels to offer two or more lines of the same merchandise) is a direct outgrowth of the increased use of nontraditional channels. However, it often creates conflict between the manufacturer and its supply chain members. V. Integrated Marketing Communications A. Integrated marketing communications (IMC) refers to the strategic, coordinated use of promotion to create one consistent message across multiple channels to ensure maximum persuasive impact on the firm's current and potential customers. B. IMC takes a 360-degree view of the customer that considers each and every contact that a customer or potential customer may have in their relationship with the firm. [Exhibit 6.9] C. Beyond the Pages 6.4 describes how marketers are being forced to adopt new marketing strategies as advancing technology and customer preferences are threatening to make traditional forms of promotion obsolete. D. Strategic Issues in Integrated Marketing Communications 1. The classic model for outlining promotional goals is the AIDA model: a) Attention—the first major goal of any promotional campaign is to attract the attention of potential customers. b) Interest—the firm must spark interest in the product by demonstrating its features, uses, and benefits. c) Desire—good promotion will stimulate desire by convincing potential customers of the product's superiority and its ability to satisfy needs. d) Action—promotion must push customers toward the actual purchase. 2. The firm must also consider its promotional goals with respect to the supply chain. a) Firms use a pull strategy when they focus their promotional efforts toward stimulating demand among final customers, who then exert pressure on the supply chain to carry the product. b) Firms use a push strategy when they focus their promotional efforts on members of the supply chain to motivate them to spend extra time and effort on selling the product. E. Advertising 1. Advertising is paid, nonpersonal communication transmitted through mass media such as television, radio, magazines, newspapers, direct mail, outdoor displays, the Internet, and mobile devices. [Exhibit 6.10] 2. Online advertising is growing rapidly due to its ability to reach highly specialized markets at a relatively low cost. [Exhibit 6.11] 3. Though the initial expense for advertising can be quite high, it can be a cost efficient means of reaching a large number of people. 4. Setting the advertising budget too high will obviously result in overspending, waste, and lower profits. However, setting the budget too low may be even worse. Firms that do not spend enough on advertising find it very difficult to stand out in an extremely crowded market for customer attention. 5. Evaluating the effectiveness of advertising is one of the most challenging tasks facing marketers. a) Many of the effects and outcomes of advertising take a long time to develop. b) The effect of advertising on sales is lagged in some cases, with the effect occurring long after the campaign has ended. 6. Most marketers struggle with the fine line between what is permissible and not permissible in advertising. F. Public Relations 1. Public relations, an element of a firm’s corporate affairs activities, tracks public attitudes, identifies issues that may elicit public concern, and develops programs to create and maintain positive relationships between a firm and its stakeholders. 2. Public relations can be used to promote the firm, its people, its ideas, and its image; and can even create an internal shared understanding among employees. 3. Public Relations Methods a) Firms use a number of public relations methods to convey messages and to create the right attitudes, images, and opinions: news (or press) releases, feature articles, white papers, press conferences, event sponsorship, and employee relations. b) Public relations often becomes confused with publicity. Publicity is more narrowly defined to include the firm's activities designed to gain media attention through articles, editorials, or news stories. 4. Although public relations activities are often seen as being more credible, they are often difficult for the firm to control. G. Personal Selling and Sales Management 1. Personal selling is paid personal communication that attempts to inform customers about products and persuade them to purchase those products. 2. Compared to other types of promotion, personal selling is the most precise form of communication because it assures companies that they are in direct contact with an excellent prospect. 3. The most serious drawback of personal selling is the cost per contact. 4. Because firms depend on repeat sales and ongoing customer relationships, personal selling activities must include elements of customer service and marketing research. 5. The Sales Management Process a) Developing Sales Force Objectives—objectives must be fully integrated with the objectives and activities of other promotional elements. b) Determining Sales Force Size—size is a function of many variables, including the type of salespeople used, specific sales objectives, and the importance of personal selling within the IMC program. c) Recruiting and Training Salespeople—should be a continuous activity as firms must ensure that new salespeople are consistently available to sustain the sales program. d) Controlling and Evaluating the Sales Force—requires a comparison of sales objectives with actual sales performance. [Exhibit 6.12] 6. Many sales activities are now done through sales automation systems and CRM systems to push integrated customer, competitive, and product information to the sales force. H. Sales Promotion 1. Sales promotion involves activities that create buyer incentives to purchase a product, or that add value for the buyer or the trade. 2. Sales promotion activities account for the bulk of promotional spending in many firms. 3. Consumer Sales Promotion a) Coupons are used to reduce the price of a product and encourage customers to try new or established brands. [Exhibit 6.13] b) Rebates are similar to coupons except that they require much more effort on the consumer's part to obtain the price reduction. Most firms prefer rebates to coupons. c) Samples stimulate trial of a product, increase volume in the early stages of the product's life cycle, and encourage consumers to actively search for a product. d) Loyalty programs reward loyal customers who engage in repeat purchases. e) Point-of-purchase (POP) promotion includes displays, counter pieces, display racks, or self-service cartons that are designed to build traffic, advertise a product, or induce impulse purchases. f) Premiums are items offered free or at a minimum cost as a bonus for purchasing a product. g) Contests and sweepstakes encourage potential consumers to compete for prizes or try their luck by submitting their names in a drawing for prizes. h) Direct mail, which includes catalog marketing and other printed material mailed to individual consumers, is a unique category because it incorporates elements of advertising, sales promotion, and distribution into a coordinated effort to induce customers to buy. 4. Business (Trade) Sales Promotion a) Trade allowances include both merchandise and price allowances for bulk buying or for special promotional considerations. b) Free merchandise is sometimes offered to intermediaries instead of quantity discounts. c) Cooperative advertising is an arrangement where a manufacturer agrees to pay a certain amount of an intermediary's media cost for advertising the manufacturer's products. d) Training assistance and sales incentives are sometimes offered to intermediaries. Sales incentives come in two general forms: push money and sales contests. Questions for Discussion 1. Consider the number of product choices available in the U.S. consumer market. In virtually every product category, consumers have many options to fulfill their needs. Are all of these options really necessary? Is having this many choices a good thing for consumers? Why or why not? Is it a good thing for marketers and retailers that have to support and carry all of these product choices? Why or why not? Students should immediately see that this situation is not necessarily a good thing for marketers and retailers. It would be much easier and much less expensive to sell only a few products or choices in each category. The limited shelf space available in retail stores is also an important consideration (this is a good point to bring up slotting allowances). That said, students will have a harder time determining whether this situation is good for consumers. Obviously, more choices mean a higher standard of living. But at what cost? Encourage students to discuss how prices would change if marketers eliminated some or most of the options that they make available to consumers. 2. Pricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues? Most customers have few, if any, reference prices for what services should cost. As a result, the best way to consider prices for services is to shop around. Although this is easy in some service categories (hotels, air travel), it is extremely difficult or time consuming in others (professional services, hairstyling, dry cleaners). Many services quote prices by the hour. However, this is also problematic because many customers will compare these rates to their own hourly wages. Service firms should be as open and transparent as possible about their prices. They should also make pricing information easy to find and easy to compare to competing firms. 3. Some manufacturers and retailers advertise that customers should buy from them because they “eliminate the middleman.” Evaluate this comment in light of the functions that must be performed in a marketing channel. Does a channel with fewer members always deliver products to customers at lower prices? Defend your position. While some channels may physically eliminate the middleman, the functions performed by that middleman cannot be eliminated. Customers who buy from warehouse clubs, for example, break bulk and provide storage. Channels with fewer members should theoretically be able to offer lower prices. However, in many direct channels the manufacturer is prohibited from offering lower prices due to trade agreements with retail firms. In these cases, the prices are likely to be the same. 4. Review the steps in the AIDA model. In what ways has promotion affected you in various stages of this model? Does promotion affect you differently based on the type of product in question? Does the price of the product (low versus high) make a difference in how promotion can affect your choices? Explain. Student responses will vary. Students will argue that the effectiveness of promotion designed to gain attention will vary greatly depending on the product in question. It will also vary depending on whether the customer is currently in the market for the product (the concept of selective attention is key here). The effectiveness of promotion designed to stimulate desire and action will depend on how motivated the customer is to buy. Get the students to discuss situation where only a gentle nudge is needed to get them to buy. Many students will argue that the price of the product is not that important, especially if they are truly interested in the product or if they have a need for the product. Exercises 1. You are in the process of planning a hypothetical airline flight from New York to St. Louis. Visit the websites of three different airlines and compare prices for this trip. Try travel dates that include a Saturday night layover and those that do not. Try dates less than seven days away, and compare those prices with flights that are more than twenty-one days out. How do you explain the similarities and differences you see in these prices? The similarities and differences can be explained by (1) the competition on the route from New York to St. Louis, and (2) the yield management system being used by each airline. 2. Locate a product offered by a manufacturer using a dual distribution approach. Are there differences between the customers targeted by each channel? How do the purchase experiences differ? In the end, why would a customer buy directly from a manufacturer if the prices are higher? A good example of this occurs when Sony sells products through its www.sonystyle.com website. Customers can buy from Sony, local stores, or online merchants. In most cases, Sony charges the manufacturer’s suggested retail price. The prices at other stores are likely to be less expensive. Sony often throws in a free product to sweeten the deal. Still, students will have a hard time developing reasons for buying direct in this case. 3. Shadow a salesperson for a day and talk about how his or her activities integrate with other promotional elements used by their firm. How does the salesperson set objectives? How is he or she made aware of the firm’s overall IMC strategy? Does the sales force participate in planning marketing or promotional activities? This is a great exercise for any marketing student. Experiences will vary dramatically. 4. Visit the Cents Off website (www.centsoff.com) and browse the available coupons and read the FAQs. What are the benefits of the Cents Off service for advertisers and consumers? If you were a manufacturer that issues coupons, what factors would favor using the Cents Off website for distribution rather than the traditional Sunday newspaper insert? The benefits for consumers and manufacturers are tied to efficiency. Both parties receive major benefits without wasted time and effort. Manufacturers can specifically target customers that are truly interested in their products. Exercise 6.1 FedEx Supply Chain Services http://www.fedex.com/us/supply-chain 1. What services does FedEx provide that would assist firms in their distribution and supply chain efforts? The product (service) portfolio of supply chain services includes 1) FedEx Supply Chain, 2) FedEx Critical Inventory Logistics, 3) FedEx Transportation Management, 4) FedEx Fulfillment Services, and 5) FedEx Healthcare Shared Network. In their response to this question, students are likely to argue that FedEx can do anything and everything to assist any firm with distribution and supply chain management. Through a combination of transportation management, integrated logistics, and consulting services, FedEx can handle the needs of just about any customer, and do it on a global scale. 2. Why would a firm turn to FedEx Supply Chain Services rather than perform its own supply chain activities? This question asks students to think about why a firm would turn to FedEx rather than handle their own supply chain activities. Students are likely to cite the growing trend in outsourcing and the advantages that it can bring. Other reasons include that the firm lacks the capabilities to manage their supply chain, competing firms are using FedEx, or that FedEx is simply the best. Exercise 6.2 Golf Discount http://www.golfdiscount.com 1. What pricing strategies does Golf Discount use? Which strategies are likely to be the most effective for novice golfers? Students should be able to recognize several pricing strategies in action. For example, Golf Discount makes extensive use of reference pricing, odd pricing, and some prestige pricing on premium brands. The site also uses cluttered space to its advantage (clutter signifies low prices) and offers free shipping and no sales tax in 49 states. For novice golfers, the use of price bundling is likely to be quite effective. 2. In what ways does the Golf Discount website illustrate the shifting balance of power to consumers? To respond to this exercise, students must think beyond the Golf Discount site. The site itself certainly gives customers power in the sense that they have complete freedom of choice among brands and price levels. The site also provides a great deal of information that customers may find useful. The site also illustrates the shift in power because it is one of many online golf retailers. Students could compare Golf Discount to Edwin Watts (http://www.edwinwattsgolf.com). Together, these and other sites give customers the ability to comparison shop. Exercise 6.3 SAP http://www.sap.com 1. What are the key benefits of implementing a supply chain solution such as SAP? To complete this exercise, students will have to fully explore the SAP website and learn more about what is arguably the industry standard in terms of integrated enterprise resource planning (ERP). Students will most likely argue that the benefits include reduced costs, stronger customer satisfaction and retention, stronger compliance, and increased profitability. 2. What are the likely challenges in implementing a supply chain solution? Most students will have difficulty with this question because they have not contemplated this issue before. At least three major challenges include (1) overcoming the organization’s resistance to change, (2) finding ways to integrate data, people, and processes across the supply chain, and (3) simply getting people to talk with each other. Exercise 6.4 Zoo Atlanta http://www.zooatlanta.org 1. Who are the zoo’s customers? How does Zoo Atlanta communicate with each target customer group? This exercise requires students to focus on customer analysis, but this time in relation to communication objectives. Based on the website, students are likely to cite Atlanta citizens, tourists, and especially the children of both groups, as the primary customers of the zoo. Other customers include educators, corporations, environmentalists, conservationists, and philanthropists. Special events, such as the birth of a new panda cub, obviously attract many other customers to the zoo and the website. The zoo communicates with each group in many different ways. The website, newsletters, special events, and hosting corporate events are but a few examples. 2. Based on the information contained on its website, how does Zoo Atlanta use each element of the integrated marketing communications mix? Based on a tour of the website, students should be able to identify several elements of the communications mix at work (especially public relations activities). Student answers will vary based on the site’s content at the time. Chapter 7: Branding and Positioning Chapter Outline I. Introduction A. Beyond the Pages 7.1 discusses how Steinway’s branding strategy makes the company’s pianos much more works of art than musical instruments. B. A brand is a combination of name, symbol, term, or design that identifies a specific product. Brands have two parts: 1. Brand name—the part of a brand that can be spoken, including words, letters, and numbers. 2. Brand mark—symbols, figures, or a design that cannot be spoken. C. To be truly effective, a brand should succinctly capture the total offering in a way that answers a question in the customer’s mind. D. Brands may have many different attributes that make up the way customers think about them. [Exhibit 7.1] II. Strategic Issues in Branding A. Most firms consider their corporate brands to be equally as important as individual product-related brands. In fact, product-related brands and corporate brands are clearly intertwined. 1. Corporate branding activities are typically aimed at a variety of stakeholders, including customers, shareholders, advocacy groups, government regulators, and the public at large. 2. Corporate branding and reputation are critical to effective product-related branding and positioning as they create trust between the firm and its stakeholders. [Exhibit 7.2] 3. Negative coverage of a company's problems can have quick, dramatic, and long-lasting effects on its brand and reputation. B. Basic Branding Decisions 1. Branding has many advantages: product identification, comparison shopping, shopping efficiency, risk reduction, product acceptance, enhanced self-image, and enhanced product loyalty. 2. Manufacturer versus Private-Label Brands [Exhibit 7.3] a) Private-label brands, or store brands, are owned by the merchants that sell them. They are typically more profitable for the merchant than manufacturer brands. b) Manufacturer brands are important in driving customer traffic. They also give customers confidence that they are buying a widely known brand from a respected company. 3. Individual versus Family Branding a) A firm uses individual branding when it gives each of its product offerings a different brand name. b) Family branding occurs when a firm uses the same name or part of the brand name on every product. C. Strategic Brand Alliances 1. Cobranding is the use of two or more brands on one product to leverage the image and reputation of multiple brands to create distinctive products with distinctive differentiation. 2. Brand licensing involves a contractual agreement where a company permits an organization to use its brand on non-competing products in exchange for a licensing fee. D. Brand Value 1. Brand Loyalty a) Brand loyalty is a positive attitude toward a brand that causes customers to have a consistent preference for that brand over all other competing brands in a product category. 1) Brand recognition occurs when a customer knows about the brand and is considering it as one of several alternatives in the evoked set. 2) Brand preference is a stronger degree of brand loyalty where a customer prefers one brand to competitive brands and will usually purchase this brand if it is available. 3) Brand insistence occurs when customers will go out of their way to find the brand and will accept no substitute. b) Overall, brand loyalty is declining because of increasing commoditization and the overuse of sales promotion activities. 2. Brand Equity a) Brand equity is the value of the brand to the firm, or the marketing and financial value associated with a brand's position in the marketplace. b) Brand equity is hard to measure; however, it represents a key asset for any firm. [Exhibit 7.4] c) Firms will go to great lengths to protect their brand assets. E. Packaging and Labeling 1. Packaging and labeling strategy go hand-in-hand with branding as both are involved with developing a product, its benefits, its differentiation, and its image. 2. Packaging serves a number of important functions, including protection, storage, convenience, product modification, repositioning, and cobranding. 3. Beyond the Pages 7.2 examines the problems faced by Tropicana when it changed the packaging for its well-known line of orange juice products. 4. Product labels not only aid in product identification and promotion; but they also contain a great deal of information to help customers make proper product selections. 5. Product labeling is an important legal issue as several federal laws and regulations specify the information that must be included on a product's packaging. III. Differentiation and Positioning A. Differentiation involves creating differences in the firm's product offering that set it apart from competing offerings. Differentiation typically has its basis in distinct product features, additional services, or other characteristics. B. Positioning refers to creating a mental image of the product offering and its differentiating features in the minds of the target market. This mental image can be based on real or perceived differences among competing offerings. C. In differentiating and positioning the product offering, the principle task for the firm is to develop and maintain a relative position for the product. This task is typically addressed using tools such as perceptual mapping and the strategy canvas. [Exhibits 7.5 and 7.6] D. Bases for Differentiation 1. Customer perceptions of a brand are of utmost importance in differentiation because differences among competing brands can be based on real or psychological qualities. 2. The most important basis for differentiation is the brand. 3. Product Descriptors [Exhibit 7.7] a) Product Features—factual descriptors of the product and its characteristics. b) Advantages—performance characteristics that communicate how the features make the product behave, hopefully in a fashion that is distinctive and appealing to customers. c) Benefits—the positive outcomes or need satisfaction that customers acquire from purchased products. 4. Customer Support Services a) Providing good customer support services—both before and after the sale—may be the only way to differentiate the firm's products and move them away from a price-driven commodity status. b) Support services include anything the firm can provide in addition to the main product that adds value to that product for the customer. E. Positioning Strategies 1. Strengthen the Current Position a) The key to strengthening a product's current position is to monitor constantly what target customers want and the extent to which customers perceive the product as satisfying those wants. b) Strengthening a current position is all about continually raising the bar of customer expectations and being perceived by customers as the only firm capable of reaching this new height. 2. Repositioning a) Repositioning may involve a fundamental change in any of the marketing mix elements, or perhaps even all of them. b) Some of the most memorable marketing programs involve attempts to move to new positions. IV. Managing Brands over Time A. The traditional product life cycle is a useful tool for addressing the management of products, brands, and product strategy over time. [Exhibits 7.8 and 7.9] B. Development Stage 1. A firm has no sales revenue during the development stage. 2. Expenses involved in product innovation and development usually cause the firm to experience a net cash outflow. 3. The firm assumes a great deal of financial, market, and opportunity risk due to the uncertainty involved in developing new products. 4. Over 80 percent of all new products fail. This high failure rate underscores the need to correctly identify target customer needs before developing the product strategy. C. Introduction Stage 1. The introduction stage begins when development is complete and ends when sales indicate that target customers widely accept the product. 2. Marketing strategy goals common to the introduction stage include: a) attracting customers b) inducing customers to try and buy the product c) engaging in customer education activities d) strengthening or expanding channel and supply chain relationships e) building availability and visibility through trade promotion f) setting pricing objectives that balance the firm's need to recoup investment with the competitive realities of the marketplace D. Growth Stage 1. The length of the growth stage varies according to the nature of the product and competitive reactions. 2. The firm has two main priorities during the growth stage: a) establish a strong, defensible market position, and b) achieve financial objectives that repay investment and earn enough profit to justify a long-term commitment to the product. 3. During the growth stage, the overall strategy shifts from acquisition to retention, from stimulating product trial to generating repeat purchases and building brand loyalty. 4. Another major challenge during the growth stage is the increasing number of competitors entering the market. E. Maturity Stage 1. At the end of the growth stage, the strategic window of opportunity will all but close for the market and it will enter the maturity stage. 2. In the typical life cycle, we expect maturity to be the longest stage. 3. A firm has four general goals during the maturity stage: a) generate cash flow b) hold market share c) steal market share d) increase share of customer 4. A firm has at least four general options for strategy selection throughout the maturity stage: a) develop a new product image b) find and attract new users to the product c) discover new applications and uses for the product d) apply new technology to the product 5. Beyond the Pages 7.3 discusses how Nintendo used a rebranding strategy to attract new users to its line of puzzle and skill-building games. 6. Stealing customers away from the competition involves creating incentives for noncustomers to try the firm's product. F. Decline Stage 1. A product's sales plateau will not last forever, and eventually a persistent decline in revenue begins. 2. A firm has two basic options during the decline stage: a) attempt to postpone the decline b) accept the inevitability of decline 3. Firms that accept the inevitability of decline can either harvest profits or take steps to divest the product. a) Harvesting—a gradual reduction in marketing expenditures and the use of a less resource-intensive marketing mix. b) Divesting—withdraw all marketing support from the product and continue to sell the product until it sustains losses, or arrange for the product to be acquired by another firm. 4. Important strategic considerations during the decline stage: a) Market Segment Potential—The firm might have loyal customer segments that will continue to buy the product. b) The Market Position of the Product—A product in a leading market position with a solid image may continue to be profitable. c) The Firm's Price and Cost Structure—If the firm is a low cost producer and can maintain its selling price, the product can remain viable in a declining market. d) The Rate of Market Deterioration—The faster the rate of market deterioration, the sooner the firm should divest the product. 5. Products have life cycles only because markets and customers change. Therefore, it is imperative that the firm stays focused on changes in the market, not on the firm’s products. Questions for Discussion 1. Consider the notion that a truly effective brand is one that succinctly captures the product offering in a way that answers a question in the customer’s mind. Now, consider these brands (or choose your own): Coca-Cola, Disney, Marlboro, American Express, and Ford. What questions do these brands answer? Why are these effective brands? Student answers will vary greatly with respect to this question. One interesting angle is the notion of brand preference or brand loyalty. Some students will argue that Coca-Cola does not answer any question for them because they do not drink Coca-Cola. The important point is not necessarily the question, but that each brand provides an answer. 2. Compare the corporate reputation scores in Exhibit 7.2 with the brand valuations in Exhibit 7.4. Why does Apple sit at the top of both lists? How has the company used good branding and positioning strategy to achieve this result? How is it that Wells Fargo can have a very high brand valuation, but a very low corporate reputation score? Students will argue that Apple sits at the top of both lists due to the incredible popularity of its products. Encourage students to examine all of the possible attributes (Exhibit 7.1) that make up the Apple brand, and how each contributes to the company’s reputation and its brand valuation. In addition, the company’s reputation for having products that “just work” should also be explored. With respect to Wells Fargo, it should be noted that the company/brand is the most valuable U.S.-based financial institution. It is also possible that Wells Fargo is suffering from guilt by association due to the damaged reputations of many competing firms in the financial sector. 3. Look back at the Top 10 brands in Exhibit 7.4. What bases do these brands use for differentiation? What strategies do they use to create a relative position in their respective markets? Why do these brands hold so much value? With some exceptions, most of these brands are considered to be the best in their respective industries. As such, creating a relative position for these companies is all about being the best/largest/strongest in their sector. It is also important to note that most brands on the list are based in the U.S., which could enhance differentiation and positioning in many countries. Likewise, all of these brands have longevity in common. Some students may be surprised at Marlboro’s position on the list given the anti-smoking backlash in the U.S. However, the real power of the Marlboro brand lies outside of the U.S. and North America. Exercises 1. Using the brand attribute framework in Exhibit 7.1, construct an overall branding statement about yourself. How would others, especially potential employers, look at your brand? What areas do you need to improve? Does your brand answer key questions or create questions about your abilities? Student responses will vary greatly on this question. Branding Statement: I am a reliable, innovative, and collaborative professional committed to delivering high-quality results. I promise to continuously improve, adapt to change, and contribute strategically to team success. How Others See My Brand: Potential employers would view me as a problem-solver with a strong work ethic and a positive attitude, but may question my experience in niche areas or specific technical skills. Areas for Improvement: • Technical Skills: Strengthen specific industry-related expertise. • Networking: Expand my professional network. • Public Speaking: Enhance presentation and communication skills. Key Questions: My brand answers questions about commitment, adaptability, and work ethic, but may create questions about specialized experience and leadership capabilities. 2. Do some background research the following markets: wireless phone service, DVD players, and pizza. Which stage of the product life cycle is each of these markets in currently? What market characteristics lead you to feel this way? Is there evidence that any of these markets are on the verge of moving into the next stage of the life cycle? Explain. Wireless phone service is still in the growth stage, but is clearly approaching maturity. AT&T’s attempted takeover of T-Mobile provides a clue. Consolidation is inevitable in this industry. DVD players are clearly in the decline stage. Electronic distribution of movies will hasten the decline of this market in the near-term. Pizza is harder to gauge. Most will argue that pizza is in the maturity phase. However, the industry continues to innovate with new options and product offerings. 3. Think about the last purchase you made in each of the following product categories. What were the features, advantages, and benefits of the specific product or brand that you selected? After completing the table, consider the positioning of the product or brand in the market. Does its positioning match your responses in the table? Explain. Features Advantages Benefits Athletic Shoes Brand ___________ Sit-Down Restaurant Name or Franchise __________ Airline Brand ___________ Student responses will vary. Encourage the students to think about the specific reasons why they purchased these brands. Exercise 7.1 Procter & Gamble http://www.pg.com/en_US/brands/all_brands.shtml 1. Review the U.S. product categories and brands offered by Procter & Gamble. How many of these brands are currently in your household? Which brands do you believe enjoy the highest brand loyalty? Why? Students are likely to be surprised at the sheer breadth of products and brands sold by P&G (This is an interesting point in itself. Most consumers do not recognize these brands as being owned by P&G.). Students are also likely to have many of these brands in their household. In terms of high brand loyalty, good candidates are Tide, Secret, Pampers, Cover Girl, Tampax, Bounty, Crest, Gillette, and Charmin. 2. Which of the brands in the list are likely to have the highest brand equity? Are brand equity and brand loyalty always closely related? Explain. Students will likely list the same brands as in Question 1. Brand equity and brand loyalty will always be closely related, but they are not the same. In P&G’s beauty and grooming category, Clairol and Olay clearly have higher brand equity than Zest or Safeguard. However, these latter brands could potentially have a larger number of loyal users. Exercise 7.2 State Farm Insurance http://www.statefarm.com 1. What elements of branding are visible on State Farm’s website? This exercise asks students to think holistically about branding. Some elements of branding on the site include the State Farm logo, the State Farm name, the slogan, the colors, and the copyright on the website itself. State Farm’s ratings in the insurance industry suggest that the brand has significant equity among customers. 2. How is State Farm’s positioning relative to competing firms evident on its website? Most students are aware of State Farm’s longstanding positioning: “Like a Good Neighbor, State Farm is There.” The question here is now much of this statement is evident in the website. At this writing, the site banner states “Helpful. Honest. Affordable.” and uses photos that clearly depict images of neighbors and family. The site also makes it easy to find an agent and file an online claim. The site also promotes trust between State Farm and its customers by citing reasons for choosing the company. Astute students will also recognize that insurance, like many industries, has become commoditized. This accounts for the website’s emphasis on pricing. Instructor Manual for Marketing Strategy, Text and Cases O. C. Ferrell, Michael Hartline 9781285073040, 9781285170435