MARKETING

2016

Instituto SuperiordeEstatística eGestãodeInformaçãoUniversidade NovadeLisboa

Licenciatura

GESTÃO DE INFORMAÇÃO

Part 7: Marketing Mix

7.1. Product and the Product Mix7.2 Price and Pricing Strategy

7.3 Place and Distribution

The marketing mix

• ‘The marketing mix is a recipe for effective marketing. Using the marketing mix when planning the marketing for a product allows for a consistent approach’

• Getting a good balance of the 4 Ps will mean an effective marketing campaign

Marketing - 4P-Model

Product, Price, Place, Promotion

Marketing Mix

Product

Place

PricePromotionTargetMarket

Marketing 4P‘s

4Ps

Product Price Promotion PlaceMain usage Conditions Advertisement Strategic distribution/ sales

Side usage Rebate Sales Physicaldistribution/logistics

Additional usage Discount Sponsoring Location

Brand Leasing Sales promotion

Content Event

Quality PPR

Packaging

Marketing Mix - 7PClassical and new instruments

Product policy „product“

Equipment policy „physical facilities“

Communication policy „promotion“

Personnel policy „personnel“

Distribution policy „place“

Price policy „price“

Process policy „process“

Classical instrumentsNew instruments

Marketing Mix (4P‘s)Components of the marketing mix

Product policy Price policy Communication policy Distribution policy

§ Product innovations

§ Product improvements§ Product differentiation

§ Marking§ Naming

§ Service performance§ Assortment planning

§ Packaging

§ Price

§ Price deductions§ Rebates and discounts

§ Delivery conditions§ Payment conditions

§ Media advertisement

§ Sales promotion§ Direct marketing

§ Public relations§ Sponsoring

§ Personal communication§ Fairs and exhibitions

§ Multi-media communication§ Employee communication

§ Distribution systems

§ Sales organs§ Logistic systems

Marketing mix

Sub-markets and customer groups

Service marketing (from 4P’s to 7P’s)Comparison of 4P�s and 7P�s

advertisement

product

price

positioning

processmanagement

physical facilitiesprice

employees

advertisement product

positioning

4 P‘s of the classical consumption goods

marketing

7 P‘s of the service marketing

The marketing mix

• Decisions about Mkt Mix are based on the results of market research– problem-identification research– problem-solving research.

• There are two main sources of data - primary and secondary. – Primary research is conducted from scratch. It is

original and collected to solve the problem in hand.

The marketing mix

• Secondaryresearchalreadyexistssinceithasbeencollectedforotherpurposes.Itisconductedondatapublishedpreviouslyandusuallybysomeoneelse.– Secondaryresearchcostsfarlessthanprimaryresearch,butseldomcomesinaformthatexactlymeetstheneedsoftheresearcher.

• Methodologically,marketingresearchusesthefollowingtypesofresearchdesigns:– Basedonquestioning– Basedonobservations

The marketing mix

Based on questioning• Qualitative marketing research - generally used for

exploratory purposes - small number of respondents - not generalizable to the whole population - statistical significance and confidence not calculated - examples include focus groups, in-depth interviews, and projective techniques

Based on questioning• Quantitative marketing research - generally used to draw

conclusions - tests a specific hypothesis - uses random sampling techniques so as to infer from the sample to the population -involves a large number of respondents - examples include surveys and questionnaires. Techniques include choice modelling, maximum difference preference scaling, and covariance analysis.

The marketing mix

Basedonobservations•Ethnographicstudies- bynaturequalitative,theresearcherobservessocialphenomenaintheirnaturalsetting- observationscanoccurcross-sectionally(observationsmadeatonetime)orlongitudinally(observationsoccuroverseveraltime-periods)-examplesincludeproduct-useanalysisandcomputercookietraces.

The marketing mix

Basedonobservations§ Experimentaltechniques- bynaturequantitative,the

researchercreatesaquasi-artificialenvironmenttotrytocontrolspuriousfactors,thenmanipulatesatleastoneofthevariables- examplesincludepurchaselaboratoriesandtestmarkets

The marketing mix

• Researchers often use more than one research design. – They may start with secondary research to get

background information, – then conduct a focus group (qualitative research

design) to explore the issues.– Finally they might do a full nation-wide survey

(quantitative research design) in order to devise specific recommendations for the client.

The marketing mix

http://www.cim.co.uk/marketingplanningtool/home.asp

• Startwithbuildingyourmarketingplan!

Product

1. What are the characteristics of products?

2. How can a company build and manage its product

mix and product lines?

3. How can a company make better brand

decisions?

4. How can packaging and labeling be used as

marketing tools?

Product

4 P’s - Product

A product is defined as

"Anything that is capable of satisfying customer needs"

•The process by which companies distinguish their product offerings from the competition is called branding.•For most companies, brands are not developed in isolation - they are part of a product group.•A product group (or product line) is a group of brands that are closely related in terms of their functions and the benefits they provide (e.g. Dell's range of personal computers or Sony's range of televisions).

Componentsof the Market Offering

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¨ Physical goods¨ Services¨ Experiences¨ Events¨ Persons¨ Places¨ Properties¨ Organizations¨ Information¨ Ideas

Five Product Levels

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Customer value hierarchy• Core benefit• Basic product• Expected product• Augmented product

Product Levels

Product hierarchy

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• Need family• Product family• Product class• Product line• Product type• Item

The Product and the Product Mix

Product classificationsDurability and Tangibility

Classification:Nondurable goodsDurable goodsServices

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Consumer-Goods Classification:Convenience goods

StaplesImpulse goodsEmergency goods

Shopping goodsHomogeneous shopping goodsHeterogeneous shopping goods

Specialty goods

Unsought goods

The Product and the Product Mix

Industrial- -Goods ClassificationMaterials and parts

Farm productsNatural productsManufactured materials and partsComponent materialsComponent parts

Capital itemsInstallationsEquipment

The Product and the Product Mix

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Supplies and business services

Maintenance and repair itemsOperating suppliesMaintenance and repair servicesBusiness advisory services

The Product and the Product Mix

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Product mix (Product assortment)

Product mix has a certain:WidthLengthDepthConsistency

The Product and the Product Mix

Product-Mix Width and Product-Line Length example

The Product and the Product Mix

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Product Mapfor aPaper-ProductLine

The Product and the Product Mix

Brand decisionsWhat is brand?

AttributesBenefitsValuesCulturePersonalityUser

The Product and the Product Mix

Corporate Identity vs. Image

Differentiation of two perspectives

CorporateIdentity Image

Image from inside Image from Outside

Company

Branding policyTask steps of branding

Recognition of originator

Recognition

Popularity

Securitywhen buying

Customer Loyalty(Brand loyalty)

(origin)

Branding policy - Requirements for a BrandMajor tasks of branding policy: development of brand names and trademarks

1 Brand name/ marking

Product designPackagingTrademark

2 Brand protection

Protectability of branddifferentiation from

other brands

3 Distinctiveness

Difference in performance compared

with competitive offerings

4 Standards

Standardized QualityConsistently high Quality

5 Price stability

No specials, action prices or sales

6 Availability

Availability and widespreaddistribution

7 Publicity

Perception and recognition in the market

through advertising

Criteria and characteristics of a brand

Differentiation of TrademarksExamples according to trademark types

Word-Image Trademark

Highest conciseness bylogo and illustration of the peculiarity of the offer.

Word signs

Recognition by self-developed script. Easily represented in all media.

Image Trademark

Only work if you about to be published across years (through advertising)

Corporate IdentityThe total of all communication political measures, the behavior, appearance and market communication of a company

CorporateIdentity

Corporate IdentityDetailed presentation of the three activities of a company, aligned upon a corporate philosophy

Internal and external corporate communication: press releases, ads, posters, TV spots, staff newspaper, customer magazine, website, banners, Open house, company celebration, trade show appearance, packing design

Appearance:logo, fonts,color, layout

Behavior from inside to outside:to employees, customers and suppliers

Building Brand IdentityBrand bonding

Brands are not built by advertising but by the brandexperience

Everyone in the company lives the brand

Three ways to carry on internal branding –Employees must

UnderstandDesire, andDeliver on the brand promise

The Product and the Product Mix

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Brand EquityBrand awarenessBrand acceptabilityBrand preference

Aaker’s five levels of customer attitude:The customer will change brands, especially for price reasons. No brand loyalty.Customer is satisfied. No reason to change brands.Customer is satisfied and would incur cost by changing brand.Customer values the brand and sees it as a friend.Customer is devoted to the brand.

The Product and the Product Mix

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Value of Brand EquityBrand valuationCompetitive advantages of high brand equity:

The company will have more leverage in bargaining withdistributors and retailers because customers expect themto carry the brand.The company can charge a higher price than itscompetitors because the brand has higher perceived quality.The company can more easily launch extensions becausethe brand name carries high credibility.The brand offers some defense against price competition.

The Product and the Product Mix

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Branding gives the seller several advantages:Brand name makes it easier for the seller toprocess orders and track down problemsSeller’s brand name and trademark provide legalprotection of unique product featuresBranding gives the seller the opportunity toattract a loyal and profitable set of customers.Branding helps the seller segment markets.Strong brands help build corporate image,making it easier to launch new brands and gainacceptance by distributors and consumers.

The Product and the Product Mix

Branding Decision: To Brand or Not to Brand?

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Desirable qualities for a brand nameIt should suggest something about the product’s benefitsIt should suggest the product or service categoryIt should suggest concrete, “high imagery” qualitiesIt should be easy to spell, pronounce, recognize, and rememberIt should be distinctiveIt should not carry poor meanings in other countries and languages

The Product and the Product Mix

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PackagingPackage

Primary PackageSecondary PackageShipping Package

Factors which have contributed to the growing useof packaging as a marketing tool

Self- -ServiceConsumer affluenceCompany and brand imageInnovation opportunity

The Product and the Product Mix

Price

Pricing Decisions

• Definition• Pricing strategies• Ten ways to �increase� prices

without increasing price -Winkler

Definition

• Price– The amount of money charged for a product

or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Goal 1: Identify and define internal factors affecting pricing decisions

Price Has Many Names

What is Price?

• Rent• Fee• Rate• Commission• Assessment

• Tuition• Fare• Toll• Premium• Retainer

What is Price?

• Dynamic Pricing on the Web allows SELLERS to:– Monitor customer behavior and tailor offers.– Change prices on the fly to adjust for

changes in demand or costs.– Aid consumers with price comparisons.– Negotiate prices in online auctions and

exchanges.

What is Price?

• Price and the Marketing Mix:– Only element to produce revenues– Most flexible element– Can be changed quickly

• Common Pricing Mistakes– Reducing prices too quickly to get sales– Pricing based on costs, not customer value

Factors to Consider When Setting Price

• Marketing objectives• Marketing mix strategies• Costs• Organizational

considerations

• Market positioning influences pricing strategy

• Other pricing objectives:– Survival– Current profit

maximization– Market share leadership– Product quality

leadership

Internal Factors

• Marketing objectives• Marketing mix strategies• Costs• Organizational

considerations

• Pricing must be carefully coordinated with the other marketing mix elements

• Target costing is often used to support product positioning strategies based on price

• Nonprice positioning can also be used

Internal Factors

• Marketing objectives• Marketing mix strategies• Costs• Organizational

considerations

• Types of costs:– Variable– Fixed– Total costs

• How costs vary at different production levels will influence price setting

• Experience (learning) curve affects price

Internal Factors

• Marketing objectives• Marketing mix strategies• Costs• Organizational

considerations

• Who sets the price?– Small companies: CEO or top

management– Large companies: Divisional

or product line managers• Price negotiation is common in

industrial settings where pricing departments may be created

Internal Factors

• Nature of market and demand

• Competitors� costs, prices, and offers

• Other environmental elements

• Types of markets– Pure competition– Monopolistic competition– Oligopolistic competition– Pure monopoly

• Consumer perceptions of price and value

• Price-demand relationship– Demand curve– Price elasticity of demand

External Factors

Goal 2: Identify and define external factors affecting pricing decisions

• Nature of market and demand

• Competitors� costs, prices, and offers

• Other environmental elements

• Consider competitors� costs, prices, and possible reactions

• Pricing strategy influences the nature of competition– Low-price low-margin strategies

inhibit competition– High-price high-margin strategies

attract competition• Benchmarking costs against the

competition is recommended

External Factors

• Nature of market and demand

• Competitors� costs, prices, and offers

• Other environmental elements

• Economic conditions– Affect production costs – Affect buyer perceptions of

price and value• Reseller reactions to prices must

be considered• Government may restrict or limit

pricing options• Social considerations may be

taken into account

External Factors

General Pricing Approaches

• Cost-Based Pricing: Cost-Plus Pricing– Adding a standard markup to cost– Ignores demand and competition– Popular pricing technique because:

• It simplifies the pricing process• Price competition may be minimized• It is perceived as more fair to both buyers and sellers

Goal 3: Contrast the three general approaches to setting prices

Cost-Based Pricing Example

- Variable costs: $20 - Fixed costs: $ 500,000- Expected sales: 100,000 units - Desired Sales Markup: 20%

Variable Cost + Fixed Costs/Unit Sales = Unit Cost$20 + $500,000/100,000 = $25 per unit

Unit Cost/(1 – Desired Return on Sales) = Markup Price$25 / (1 - .20) = $31.25

General Pricing Approaches

Goal 3: Contrast the three general approaches to setting prices

General Pricing Approaches

• Cost-Based Pricing: Break-Even Analysis and Target Profit Pricing– Break-even charts show total cost and total

revenues at different levels of unit volume.– The intersection of the total revenue and total cost

curves is the break-even point.– Companies wishing to make a profit must exceed

the break-even unit volume.

General Pricing Approaches

• Value-Based Pricing:– Uses buyers� perceptions of value rather than

seller�s costs to set price.– Measuring perceived value can be difficult.– Consumer attitudes toward price and quality have

shifted during the last decade.– Value pricing at the retail level

• Everyday low pricing (EDLP) vs. high-low pricing

General Pricing Approaches

• Competition-Based Pricing:– Also called going-rate pricing– May price at the same level, above, or below the

competition– Bidding for jobs is another variation of

competition-based pricing• Sealed bid pricing

Low High

Low

High

EconomyStrategye.g. …

Penetratione.g. …

Skimminge.g. …

Premiume.g. BA first class

Price

Quality

Pricing strategies

• Premium pricing• Uses a high price, but gives a good product/service

exchange e.g. Private Jets, The Ritz Hotel

• Penetration pricing• offers low price to gain market share - then

increases price• e.g. MEO- to attract new clients

• Economy pricing• placed at �no frills�, low price• e.g. Soups, spaghetti, beans - �economy� brands

• Price skimming• where prices are high - usually during introduction• e.g new albums or films on release• ultimately prices will reduce to the �parity�

• Psychological pricing• to get a customer to respond on an emotional, rather

than rational basis • .e.g 99p not £1.01 �price point perspective

• Product line pricing• rationale of a product range• e.g. MARS 32p, Four-pack 99p, Bite-size £1.2

• Pricing variations• �off-peak� pricing, early booking discounts,etc• e.g Grundig offers a �cash back� incentive for expensive

goods

• Optional product-pricing• e.g. optional extras - BMW famously under-equipped

• Captive product pricing• products that complement others• e.g Gillette razors (low price) and blades (high price)

• Product-bundle pricing• sellers combine several products at the same price• e.g software, books, CDs.

• Promotional pricing• BOGOF (Buy one, get one free)

e.g. toothpaste, soups, etc

• Geographical pricing• different prices for customers in different parts of

the world• e.g.Include shipping costs, or place onPLC

• Value pricing• usually during difficult economic conditions• e.g. Value menus at McDonalds

Ten ways to �increase� prices without increasing price - Winkler

1. Revise the discount structure2. Change the minimum order size3. Charge for delivery and special services4. Invoice for repairs on serviced equipment5. Charge for engineering, installation6. Charge for overtime on rushed orders7. Collect interest on overdue accounts

8. Produce less of the lower margin models in the line

9. Write penalty clauses into contracts10.Change the physical characteristics of the

product

PLACE

Channel and Distribution Tactics

• Bucklin�s definition of distribution• Today�s system of exchange• Channel intermediaries• Six basic channel decisions• Selection consideration• Potential Influence Strategies - Frazier and

Sheth (1989)• Frequencies of use of influence strategies -

Frazier and Summers (1984)

A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a

product and its title from production to consumption

Bucklin - Theory of Distribution Channel Structure (1966)

Negotiation

Promotion

Contact

Transporting and storing

Financing

Packaging

Money

Goods

Today�s system of exchangePr

oduc

ers

Users

Channel intermediaries - Wholesalers

• Break down �bulk�• buys from producers and sell small quantities to

retailers• Provides storage facilities• reduces contact cost between producer and

consumer• Wholesaler takes some of the marketing

responsibility e.g sales force, promotions

Channel intermediaries - Agents

• Mainly used in international markets• Commission agent - does not take title of the

goods. Secures orders.• Stockist agent - hold �consignment� stock• Control is difficult due to cultural differences• Training, motivation, etc are expensive

Channel intermediaries - Retailer

• Much stronger personal relationship with the consumer

• Hold a variety of products• Offer consumers credit• Promote and merchandise products• Price the final product• Build retailer �brand� in the high street

Channel intermediaries - Internet

• Sell to a geographically disperse market• Able to target and focus on specific segments• Relatively low set-up costs• Use of e-commerce technology (for payment,

shopping software, etc)• Paradigm shift in commerce and consumption

Six basic channel decisions

• Direct or indirect channels• Single or multiple channels• Length of channel• Types of intermediaries• Number of intermediaries at each level• Which intermediaries? Avoid intrachannel

conflict

Selection consideration

• Market segment - must know the specific segment and target customer

• Changes during plc - different channels are exploited at various stages of plc

• Producer-distributor fit - their policies, strategies and image

• Qualification assessment - experience and track record must be established

• Distributor training and support

Potential Influence StrategiesFrazier and Sheth (1989)

• Indirect influence strategies - information is merely exchanged with channel member personnel

• Direct unmediated strategies - consequences of a poor response from the market are stressed

• Reward and punishment strategies - given to channel members and their firms

• Direct unweighted strategy or request -producer�s wishes are communicated . No consequences are applied or mentioned

• Direct mediated strategies - specific action is requested and consequences of rejection are stressed– e.g.1 control of retail pricing– e.g.2 minimum order size– e.g.3 salesperson training– e.g.4 physical layout of store– e.g. 5 territorial and customer restrictions