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Chapter 5-Marketing
| Question | Answer |
|---|---|
| Marketing Channel (Distribution Channel or channel of distribution) | entities necessary to move a product from producer to user also involves transferring ownership (not just products) Members of Distribution called: Intermediaries, middlemen, the trade, wholesalers, distributors, jobbers, resellers, retailers |
| Intermediary Functions | Retailers and wholesalers make it possible for customers to receive products when, where, and how they prefer economic terms: create time, place, & possession utility also eliminate number of contacts for transaction-Grocery shopper goes to 1 place |
| Channel Intermediaries | Wholesale intermediaries and Retailers |
| Wholesale Intermediaries | Sell products to business/orgs to be used to make another good or service Sell products to be resold Ex: Food services, Grocery, Electronics |
| Types of Wholesale Intermediaries | Merchant Wholesalers, Agents and Brokers, and Manufacturers' Sales Branches and Offices |
| Merchant Wholesalers | Full Service or Limited Service and General, limited-line, or specialty-line wholesaler |
| Full Service or Limited Service | Merchant Wholesaler distinguished on the basis of the number of activities they perform |
| General, limited-line, or specialty-line wholesaler | Merchant Wholesaler distinguished on the basis of the number of product lines they handle (ex: rack jobbers, cash and carry wholesalers, truck wholesalers, drop shippers, mail order wholesalers) |
| Agents and Brokers | do not take title or acquire ownership of products (may take possession but never title), work on a fee or commission |
| Manufacturers’ Sales Branches and Offices | owned and operated by manufacturer even though they may perform same functions and Merchant wholesaler or agents/brokers |
| Retailers | Intermediaries who sell to consumers as end users Purchase products from wholesaling intermediaries or from producers & add value of place, time & possession utility Retailers are classified by variety of product lines, ownership, & location of sale |
| Types of Retailers | General Merchandise Retailer, Specialty Retailers, Non-Store Retailers, Franchises |
| General Merchandise Retailer | Carry many product lines and offer varying levels of customer service Department Stores (JC Penney, Macy’s) Discount Stores (Wal-Mart, Target) Supermarkets (Whole Foods, Kroger) |
| Specialty Retailers | Fewer product lines, higher levels of service Traditional Specialty Stores (Victoria’s Secret, Payless) Off-price Retailers (TJ Maxx) Category Killers (Home Depot, Best Buy)-extensive merchandise depth in small number of product categories |
| Non-Store Retailer | Direct Sellers (Avon or Mary Kay) Direct Marketers (Telemarketer, tv home shopping, online retailers, retailers who sell via catalog) Vending machines |
| Brick and Mortar (Click and Mortar) | type of Non-Store Retailer Biggest growth area Combo of traditional general merchandise or specialty retailers with online and/or catalog activities |
| Franchises | Franchisees have purchased right from franchisor to sell products under common brand name or way of doing business Ex: Subway Not an example (Macy’s owned by single corporation) |
| Channel Structure | o Strategic choice by marketing organization o Producer selects best channel of distribution to meet marketing objectives |
| Direct Channel | Fewer intermediaries between producer and user More common in B2B markets or marketing services Less common for consumer products |
| Indirect Channel | More intermediaries More common in consumer markets |
| Consumer Market Structure (First two) | 1. Producer – wholesaler – retailer – consumer • Most common • Ex: Marlboro cigarettes 2. Producer – agent/broker – wholesaler – retailer – consumer • Ex: situation with lots of small producers and lots of small retailers like produce |
| Consumer Market Structure (last two) | 3. Producer – retailer – consumer • Ex: Wal-Mart 4. Producer – consumer • Ex: Dell |
| Business Market Structure Info. | retailer is missing b/c they sell only to consumers more direct than consumer market |
| Business Market Structure (first two) | 1. Producer – industrial user/organizational buyer 2. Producer – industrial distributor – industrial user/organizational buyer |
| Business Market Structure (last two) | 3. Producer – agents/brokers – industrial user/organizational buyer 4. Producer – agents/brokers – industrial distributor – industrial user/organizational buyer |
| Supply Chain Management | Also referred as logistics or logistic management Think of marketing channel as a subset of a supply chain Integrating supply and demand management within and across companies |
| Supply Chain Management (Official Definition) | Planning & management of activities involved in sourcing & procurement, conversion, and all logistics management activities Includes coordination & collaboration w channel partners: suppliers, intermediaries, 3rd party service providers, & customers |
| "Front End" Supply Chain Management | Acquiring and managing raw materials needed to produce product |
| "Back End" Supply Chain | Marketing channels Begins at point of the finished product |
| Logistics | refers to physical distribution activities which take place in front or back end Ex: order processing, inventory management, materials handling, warehousing and transportation Typically the responsibility of the wholesaling intermediary |
| Channel Strategy Decision | o Extent or intensity of distribution outlets o Decision tied to customer purchase decision (routine, limited, extended prob-solving) And product type (Convenience, shopping, specialty) |
| Intensive Distribution | •Low priced convenience products routinely purchased (Diet Coke) •Companies must ensure products are stocked everywhere needed |
| Selective Distribution | • Shopping products with limited problem solving • Consumer will compare brands and exerts some effort o Ex: Ralph Lauren clothes or Seven Jeans brand • Product found in limited, but multiple locations |
| Exclusive Distribution | • Specialty products with extended problem solving • Producer selects single retail outlet • Ex: Tiffany diamonds, Rolex watches, high end cars |
| Channel Relationships | o Goal is to have smooth relationships within marketing channel to better serve channel members and customers o producers, wholesalers, & retailers are inspired to join in cooperative strategic alliances |
| 3 levels of Distribution Intensity | Intensive Distribution, Selective distribution, Exclusive distribution |
| Price | Marketing managers have little control over price Executive management is involved with pricing decision as well as finance, accounting, and production management |
| Definition and Importance of Price | o Selling price is indicator of customer’s value of product in market place o Most of the time customers pay less or same amount of their perceived valued o Rare circumstances they may pay more (Ex: run out of gas in middle of nowhere) |
| Value | o Selling price should be based off of perceived value o Value-trade off between what the customer is willing to give up to get the benefits he or she desires |
| Calvin Klein Value Example based off of Product, Promotion, Place | Calvin Klein is high end well known brand (Product) Sold in high end departments and specialty stores (Distribution) Advertises ability to attract opposite sex (Promotion) |
| Mistake some companies make on setting a price | o Many companies based selling price off of cost of production yet customers determine the marketplace not the company (customers do not care or know cost of production) o Companies need to command a selling price that will make it a profit |
| 3 Pricing Objectives | Profit Maximization, Sales Maximization, Status Quo |
| Profit Maximization | • Choosing a selling price that will maximize profit • Usually less concerned about growth • Products must be desirable enough for an above market price • Company can sell fewer items but make high profit margin o Ex: selling jewelry |
| Sales Maximization | • Companies that pursue growth strategy • Sell more items at a lower margin • Sell below the market price point o Ex: Grocery stores |
| Status Quo | • Setting a price at the same level as competitors in the same industry o Ex: Coke and Pepsi • Going to high, no business and too low on price would start a price war meaning both companies earn lower margins |
| Factors that determine price | Cost Structure, Demand, Competition, Marketplace Dynamics, Objectives, Other Marketing Mix Variables |
| Cost Structure | cost impacts profit company can earn at given price point If companies cannot make a profit they need to Reevaluate Product Mix, production process, and/or supplier relationships some companies base prices solely off of cost of production |
| Demand | Companies that try to understand demand usually earn high profit margins on some items in mix and lower on others Many companies avoid learning about demand bc of cost and uncertainty and may simply stick to cost structure |
| Elastic Demand Products | Customers are highly sensitive to price fluctuations Ex: happens a lot with products with many substitutes like alcohol |
| Inelastic Demand Products | • Customers are less sensitive to price fluctuations-if prices rise, the reduction in customer purchases will not be great enough to reduce overall revenues o Ex: Gas-You have to buy it |
| Competition | Making pricing decision based on competitor’s prices Has problems bc competitors may have different objectives, different resources, and different marketing mixes |
| Marketplace Dynamics | Based on the product life cycle & changes that happen in prices in each phase Ex: Maturity phase-price goes down bc market is saturated |
| Objectives | Different pricing objectives (Profit Maximization, Sales Maximization, Status Quo) influence price setting |
| Other Marketing Mix Variables | Influenced by competitive position in market place Price tied to promotional strategy Price determined by channel member who sells directly to customer • Consumer market-Retailer determines price • Business market-typically wholesaling intermediary |
| Types of Pricing Strategies | New Product Pricing, Product Line Pricing, Promotional Pricing |
| Types of 1.New Product Pricing | Skimming, Penetration, Status Quo Pricing |
| Skimming | setting a high price point o Works if backed by protection from competition and high position to support high price o Attracts competition bc of high profit margins |
| Penetration | o Competitor enters market with low price point o Implies low profit margin and less competition o Allows marketer to quickly gain sales and market share |
| Status Quo Pricing | o Occurs in very competitive markets o Prices are equal to competitors o Product usually cannot differentiate itself as having superior benefits and profit margins are too thin for the low price penetration strategy |
| 2. Product Line Pricing | For a group of closely related products offered by a company • They have to consider impact of their prices of other refrigerators in the product line when the add these extensions and set prices |
| 3. Promotional Pricing | • Pricing strategy tied to promotional strategy o Ex: If store has one day sale, will they be able to make enough profit on discounted items and will customers be willing to pay non-discounted prices in future? |
| Pricing Tactics | Product’s selling price is easiest variable to adjust in marketing mix, but easy for competitors as well Advantages-can increase sales Disadvantages-can lower brand equity and change competitive positioning |
| Common Price Reduction Tactics | discounts, allowances, coupons, rebates, bonus packs |
| Legal Issues in Pricing | Price Fixing, Price Discrimination, Resale Price Maintenance, Predatory Pricing |
| Price Fixing | competitors cannot conspire to agree upon pricing |
| Price Discrimination | charging different customers (particularly B2B customers) different prices is illegal unless the price differential can be justified on the basis of cost differences or market differences |
| Resale Price Maintenance | manufacturer can suggest a retail selling price, but cannot require retailer sell products at a certain price point |
| Predatory Pricing | company cannot set prices below cost point to prevent new competitors from entering the market |
Created by:
MelMarWar