Introduction to Business

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Chapter 11 CREATING PRODUCTS AND PRICING STRATEGIES TO MEET CUSTOMERS’ NEEDS

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Learning Outcomes

1. What is the marketing concept and relationship-building?
2. How do managers create a marketing strategy?
3. What is the marketing mix?
4. How do consumers and organizations make buying decisions?
5. What are the five basic forms of consumer and business market segmentation?
6. What is a product, and how is it classified?
7. How do organizations create new products?
8. What are the stages of the product life cycle?
9. What strategies are used for pricing products, and what are the future trends?
10. What trends are occurring in products and pricing?

1. What is the marketing concept and relationship-building?

1. Marketing is the process of getting the right goods or services or ideas to the right people at the right place, time, and price, using the right promotion techniques and utilizing the appropriate people to provide the customer service associated with those goods, services, or ideas.
1. This concept is referred to as the “right” principle and is the basis of all marketing strategy.
2. marketing is finding out the needs and wants of potential buyers (whether organizations or consumers) and then providing goods and services that meet or exceed the expectations of those buyers.
3. Marketing is about creating exchanges. An exchange takes place when two parties give something of value to each other to satisfy their respective needs or wants.

1. What is the marketing concept and relationship-building?

1. The marketing concept is the use of marketing data to focus on the needs and wants of customers in order to develop marketing strategies that not only satisfy the needs of the customers but also the accomplish the goals of the organization.
2. Customer value is the ratio of benefits for the customer (organization or consumer) to the sacrifice necessary to obtain those benefits.
3. Customer satisfaction is the customer’s feeling that a product has met or exceeded expectations.
1. https://www.consumerreports.org/car-reliability-owner-satisfaction/who-makes-the-most-reliable-cars/

1. What is the marketing concept and relationship-building?

1. Relationship marketing is a strategy that focuses on forging long-term partnerships with customers. Companies build relationships with customers by offering value and providing customer satisfaction.
1. Customer Lifetime Value (CLV) is a prediction of the net profit attributed to the entire future relationship with a customer.
1. Ex: Carol loves her venti Starbucks cappuccino ($4.45) each workday.
1. 4.45 x 5 days = $22.25; x 52 weeks per year = $1,157; x 30 years = $34,710
2. Carol has a CLV of $34,710

1. What is the Marketing Mix?

• Product: Something offered in exchange and for which marketing actions are taken and marketing decisions made. Products can be goods (physical things such as smartphones) or services (such as the telecommunications that must be used for a smartphone to work) or ideas (such as the thought that being constantly connected through telecommunications is absolutely crucial in today’s society). All products have both tangible and intangible aspects.
• Price: Something given in exchange for a product. Price may be monetary or nonmonetary (such as waiting in long lines for a restaurant or giving blood at the local blood bank). Price has many names, such as rent, fees, charges, and others.
• Place (of distribution): Some method of getting the product from the creator of the product to the customer. Place includes a myriad of important tasks: transportation, location, supply chain management (managing each entity that deals with the product in its route to the buyer), online presence, inventory, and atmospherics (how the office, store, or even the website looks).
• Promotion: Methods for informing and influencing customers to buy the product. Promotion includes several different components – traditional advertising, sales promotion, public relations, personal selling, social media, and e-commerce. Promotion is often mistaken for marketing because it is the most visible part of marketing; however, marketing encompasses much more than just promotion.

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4P’s

2. What is the marketing concept and relationship-building?

1. Environmental scanning is a process where the company continually collects and evaluates environmental information.
1. Cultural/social forces: Includes such factors as the buying behaviors of specific cultures and subcultures, the values of potential customers, the changing roles of families, and other societal trends such as employees working from home and flexible work hours
2. Demographic forces: Includes such factors as changes in the ages of potential customers (e.g., baby boomers, millennials), birth and death rates, and locations of various groups of people
3. Economic forces: Includes such factors as changing incomes, unemployment levels, inflation, and recession
4. Technological forces: Includes such factors as advances in telecommunications and computer technology
5. Political and legal forces: Includes such factors as changes in laws, regulatory agency activities, and political movements
6. Competitive forces: Includes such factors as new and shifting competition from domestic and foreign-based firms
7. Global forces: Include such factors as competition, demand, trade barriers, economic changes outside the U.S.

2. Defining the Target Market

The target market is the specific group of customers (which could be organizations or individual consumers) toward which a firm directs its marketing efforts.

https://blog.hootsuite.com/twitter-demographics

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Creating a Competitive Advantage

1. A competitive advantage, also called a differential advantage, is a set of unique features of a company and its products that are perceived by the target market(s) as significant and superior to those of the competition.
1. A firm that has a cost competitive advantage can produce a product or service at a lower cost than all its competitors while maintaining satisfactory profit margins.
2. differential competitive advantage can be more successful for the long-term viability of the company. Common differential advantages are brand names (Tide detergent), a strong dealer network (Caterpillar for construction equipment), product reliability (Lexus vehicles), image (Neiman Marcus in retailing), and service (Federal Express).
3. Service Differentiation Competitive Advantage Higher-level services require more planning, better execution, and constant evolution through the relationships with the customers. The use of service differentiation as a competitive advantage can be one of the most enduring and viable types of advantage.
4. A company with a niche competitive advantage targets and �effectively serves a single segment of the market.

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3. What is the marketing mix?

• Product Strategy involves choosing a brand name, packaging, colors, a warranty, accessories, and a service program.
• Pricing strategy is based on demand for the product and the cost of producing that product.
• Place (distribution) strategy is creating the means (the channel) by which a product flows from the producer to the consumer. Place includes many parts of the marketing endeavor.
• Promotion strategy covers personal selling, traditional advertising, public relations, sales promotion, social media, and e-commerce.
• Not-for-Profit Marketing helps not-for-profit groups identify target markets and develop effective marketing mixes.

Exhibit 11.4 Consumer Purchase Decision-Making Process

1. Buyer behavior is the actions people take with regard to buying and using products.

4. How do consumers and organizations make buying decisions?

1. Influences on Consumer Decision-Making
1. Culture
2. Social factors
3. Individual factors
4. Psychological influences
2. B2B Purchase Decision Making
• Intended use is key difference
1. NAICS or SIC
1. https://www.census.gov/eos/www/naics/

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Table 11.2 Forms of Consumer Market Segmentation

https://claritas360.claritas.com/mybestsegments/#zipLookup

Table 11.3 Age Segmentation for Fritos, Doritos, and Tostitos

Source: Adapted from Frito Lay website, accessed October 1, 2017.

Exhibit 11.5 Tangible and Intangible Attributes of a Product Create Value

Classification of Consumer Products by the Effort Expended to Buy Them

Exhibit 11.7 Sales and Profits during the Product Life Cycle

Table 11.5 Strategies for Success at Each Stage of the Product Life Cycle

9. What strategies are used for pricing products?

1. The practice of introducing a new product on the market with a high price and then lowering the price over time is called price skimming.
2. With penetration pricing, the company offers new products at low prices in the hope of achieving a large sales volume. 
3. Pricing products below the normal markup or even below cost to attract customers to a store where they wouldn’t otherwise shop is leader pricing.
1. A product priced below cost is referred to as a loss leader. 
4. Odd-even pricing (or psychological pricing) is the strategy of setting a price at an odd number to connote a bargain and at an even number to imply quality.
5. The strategy of raising the price of a product so consumers will perceive it as being of higher quality, status, or value is called prestige pricing.