Marketing

Chapter 12-13-14

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Yavuz Karazeybek

Marketing Mix

• 4P’s of marketing
• Product
• Price
• Place
• Promotion

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Background on Products

• Product is a physical good or service that can satisfy consumer needs.
• Firms must improve existing products and develop new products

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• Products can be classified as
• Convenience Products: Products that are widely available for consumers, purchased frequently, and easy to accessible (milk, bread etc.)
• Shopping Products: Before purchasing consumers typically compare the quality and prices of competing products (furniture, appliances etc.)
• Specialty Products: Specific consumers consider to be special and therefore make a special effort to purchase (Rolex Watch, Bentley automobiles etc)

• Product Line: It is a set of related products or services offered by a single firm.
• The Coca-Cola Company: Coke, Diet Coke, Sprite, Fanta etc. (soft drinks)
• Product Mix: The assortment of products offered by a firm
• Unilever: Axe, Cif, Knorr, OMO, Rexona, Clear
• It is about diversification.

Product Life Cycle

• Product Life Cycle: The typical set of phases that a product experiences over its lifetime.
• The marketing decisions may be influenced by the prevailing phase of the cycle:
• Introduction
• Growth
• Maturity
• Decline

• Introduction
• Consumers are informed about a new product
• Promotion: introducing the product, make consumers aware of it
• Initial costs may exceed the revenues.
• Prices may initally be set high if there is no competitor (price skimming)

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• Growth
• Sales of the product increase rapidly
• Marketing is about reinforcing the product’s features
• Competitors may see the oppurtunity and try to get into this market
• Prices may be lowered because of new entrances into the market

• Maturity
• There is a competition right now in the market
• Losing market share
• Marketing activities focus on showing that product still exists
• Discounts may be used in order to increase market share
• May be redesign the existing product

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• Decline
• Sales of the product decline
• Reduced customer demand and high competition
• Businesses should prepare for this phase (revisions on products)

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Identifying a Target Market

• Consumers who purchase a particular product may have specific traits in common
• Firms attempt to identify these traits so that they can target their marketing toward those people with those traits
• Common traits: age, gender, income bracket etc.
• Target Market: A group of individuals or organizations with similar traits who may purchase a particular product
• Consumer Markets: Various consumer products or services
• Cameras, clothes etc.
• Industrial Markets: Industrial products that are purchased by firms
• Plastic, steel etc.

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Factors That Affect the Size of a Target Market

• With time customer preferences change and therefore the demand for products change
• Firms monitor customer preferences to predict the size of the target market
• Key factors that affect the size of the target market:
• Demographics
• Geography
• Economic Factors
• Social Values

• Demographics: Characteristics of the human population or specific segments of the population
• As demographics change, so does the demand
• Age groups, number of women who work outside the house etc.
• Geography: Total demand for a product is influenced by geography
• Targeting snow tires for the Northern countries
• Economic Factors: Economic conditions affect the consumer preferences (economic growth, interest rates etc.)
• Recessionary period leads a decline in demand (Specialty and shopping products)
• Social Values:
• Demand for cigarettes and alcohol has declined because customers have become more aware about the dangers to health
• Firms can modify the products: low alcohol whiskey, low nicotine cigarettes

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Creating New Products

• New product does not have to represent a famous invention
• Most new products are simply improvements of existing ones
• Existing products are obsolete for two reasons
• Obsolete: less useful than in the past
• Fashion obsolescence: No longer being in fashion (clothes)
• Technological obsolescence: Being inferior to new products (smart phones)
• Some products are created as an addition to the existing product line
• Starbucks: new flavors
• Coca Cola: new soft drinks
• Firms can follow their competitors or use marketing research in order to make a particular marketing decision

Steps Necessary to Create a New Product

• Develop a product idea
• Determine what customer wants
• Assess the feasibility of a product idea
• Determine whether benefits will exceed costs
• Design and test the product
• Determine whether consumers will buy the product
• Distribute and promote the product: inform customers about it
• Make the product available and make consumers in the target market aware that the product exists
• Post-audit the product
• Determine whether the product needs to be revised

Product Differentiation

• Product differentiation: A firm’s effort to distinguish its product from competitors’ products in a manner that makes the product more desirable
• All firms look for some type of competitive advantage that will distinguish their product from the rest
• Common methods used to differentiate the product:
• Unique product design
• Unique packaging
• Unique branding

Pricing Strategies

• Managers typically attempt to set a price that will maximize the firm’s value
• Higher prices: increases the revenue per unit but decreases the demand
• Lower prices: decreases the revenue per unit but increases the demand
• Firms set the prices of their products by considering the following:
• Cost of production
• Supply of inventory
• Competitiors’ prices
• Price elasticity: The responsiveness of consumers to a price changes
• Price-elastic: highly responsive to price changes
• Price-inelastic: not very responsive to price changes

• Cost-Based Pricing: estimating the per-unit cost of producing a product and then adding a markup
• Penetration Pricing: The strategy of setting a lower price than those of competing products to penetrate a market
• Defensive Pricing: The strategy of reducing a product’s price to defend (retain) market share
• Predatory Pricing: The strategy of lowering a product’s price to drive out new competitors
• Prestige Pricing: The strategy of using a higher price for a prıduct that is intended to have a top of the line image

Break-Even Point

• Fixed Costs: Operating expenses that do not change in response to the number of products produced
• Variable Costs: operating expenses that vary directly with the number of products produced

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• Question?

Assume that you are planning to produce hot dogs for one year. Hot dog cooker can be rented for $4000 annually. To produce hot dog you will consume ketchup, buns, sausage etc. It will take $0,60 to produce just one hot dog. You are planning to sell these hot dogs with the unit price of $1,80. What will be the contribution margin and break-even quantity?

CH-13 Distributing Products�Channels of Distribution

• A firm’s distribution decision determines the manner by which its products are made accessible to its customers.
• Firms must develop a strategy to ensure that products are distributed to customers at a place convenient to them.
• Direct Channel: The situation when a producer of a product deals directly with customers
• One Level Channel: One marketing intermediary is between the producer and the customer
• Two Level Channel: Two marketing intermediaries are between the producer and the customer

• Marketing intermediaries: Firms that participate in moving the product from the producer toward the customer.
• Merchants: marketing intermediaries that become owners of products and then resell them
• Agents: Marketing intermediaries that match buyers and sellers of products without becoming owners

Factors That Determine the Optimal Channel

• The optimal channel of distribution depends on the product’s characteristics
• Ease of Transporting: If a product can be easily transported, the distribution channel is more likely to involve intermediaries. If the product can not ve transported, the producer may attempt to sell directly to consumers.
• Degree of Standardization: Products that are standardized are more likely to involve intermediaries.When specifications are unique for each consumer, the producer must deal directly with customer.
• Internet Orders: Firms that fill orders over the internet tend to use a direct channel because their website serves as a substitute for a retail store.

Selecting the Degree of Market Coverage

• Market coverage: The degree of product distribution among outlets.
• Any firm that ıses a marketing intermediary must determine a plan for market coverage.
• Intensive distribution: The distribution of a product across most or all possible outlets
• Customers will have easy access to the product
• Small, easy to transport and easy to sell (gum, cigarettes etc.)
• Selective distribution: The distribution of a product through selected outlets
• Some expertise needed to sell (specialized computer equipment)
• Exclusive distribution: The distribution of a product through onlu one or a few outlets
• Extreme form of selective distribution
• Very wealthy customers, prestige (limited edition products)

Selecting the Transportation

• Any distribution of products from producers to wholesalers or from wholesalers to retailers requires transportation.
• Most common forms of transportation:
• Truck: Can reach any destination on land. They are quick and can make several stops.
• Rail: Useful for heavy products. It is not good for short distances but it is cheaper for long distances.
• Air: It is quick and may be inexpensive for light items (jewellary, computer chips etc.) Trucks are still needed for final destination.
• Water: Coastal or port locations. Often used for transporting bulk products
• Pipeline: Products such as oil and gas. Limited use

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CH-14 Promoting Products

• Promotion: The act of informing or reminding consumers about a specific product or brand
• Even if a firm’s product is properlu produced, priced and distributed, it still needs to be promoted.
• Can be used to
• Make consumers aware of a new product
• Remind consumers that the product still exists
• Remind consumers about product’s qualities or adventages over competing products
• Protect product’s image and retain market share
• Aim is to enhance sales and therefore revenues

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Promotion Mix

• Promotion Mix: The combination of promotion methods that a firm uses to increase acceptance of its products.
• Advertising
• Personal Selling
• Sales Promotion
• Public Relations

Advertising

• Advertising: A nonpersonal sales presentation communicated thorugh media or nonmedia forms to influence a large number of consumers
• Although advertising is generally expensive, it can reach many consumers and may help to increase market share.
• Advertising is normally intended to enhance the image of a specific brand, institution or industry
• Most common reason to use advertisements is to enhance the image of a specific brand
• Newspapers, magazines, television, internet, e-mails, telemarketing etc.

• Brand Advertising: A nonpersonal sales presentation about a specific brand
• Comparative Advertising: Inteded to persuade customers to purchase a specific product by demonstrating a brand’s superiority by comparison with other brands
• Reminder Advertising: Intended to remind consumers of a product’s existence
• Institutional Advertising: A nonpersonal sales presentation about a specific institution’s product
• Industry Advertising: A nonpersonal sales presentation about a specific industry’s product

Personal Selling

• Personal Selling: A personal sales presentation used to influence one or more consumers.
• It requires a personal effort to influence a consumer’s demand for a product
• Salespeople conduct personal selling on a:
• Retail basis: Less challenging because customers already ready to shop. Generally no comission and less motivated
• Industrial basis: It is about selling products to companies. Salary + comissions
• Individual basis: Selling directly to individual customers (selling insurance)

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• Salespeople who sell on an industrial or individual basis generally perform the following steps:
• Identify the target market
• Contact potential customers
• Make the sales presentation
• Answer questions
• Close the sale
• Follow up
• Sales manager: An individual who manages a group of sales representatives.

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Sales Promotion

• Sales Promotion: The set of activities that is intended to influence consumers
• Most common sales promotion strategies:
• Rebates: A potential refund by the manufacturer to the consumer.
• Coupons: A promotional device used in newspapers, magazines and ads to encourage the purchase of a product
• Sampling: Offering free samples to encourage consumers to try a new brand or product
• Displays: Special displays to promote particular products.Used to attract consumers who are in the store for other reasons (near waiting lines)
• Premiums: A gift or prize provided free to consumers who purchase a specific product (coffee and mug)

Public Relations

• Public Relations: Actions taken with the goal of creating or maintaining a favorable public image
• Public relations can be used to enhance the image of a product or of the firm itself
• It may also be used to clarify information in response to adverse publicity
• Most common types of public relations strategies
• Special events: Being a sponsor of an event (marathons, festivals etc.)
• News releases: A brief written announcement about a firm provided by that firm to the media
• Press conferences: An oral announcement about a firm provided by that firm to the media

Thanks for Listening