ch 13 – marketing mix: product, price, promotion, price

product mix
business’s portfolio of product lines
product line
group of similar products
convenience products
consumers buy frequently, instinctually, w/ minimum thought (ex – gas, fast food)
shopping products
buy carefully and less frequently (ex – clothes, phones)
specialty products
buy infrequently w/ deliberate thought process; unique products (ex- jewelry, cars)
unsought products
products not initially or readily recognized as needed or wanted (ex- legal services, getting a shot for college)
business
org that buys a product for resale or use in producing another product
business products
products sold to businesses
materials and parts
businesses resell or use to create other products (ex – clothes sold by store)
capital items
products w/ life longer than 1 yr; used in acquiring, manufacturing, selling of products and services (ex – buildings, equipment)
supplies and services
used to operate business; not classified as materials and parts or capital items; short lives (ex – office supplies, air travel)
product features
physical and mental attributes that provide customers satisfaction when they use the product
product quality
product’s lack of defects (ex – durability)
branding
business’s attempt to differentiate its product from product of competitors w/ a brand (reduces customer uncertainty)
brand
name, term, symbol, design, or combo that identifies a product or business
trademark
owned by business when it registers brand w/ law
brand equity
ability of brand to create value
generic products
unbranded products
packaging
designing and producing the container in which a product is sold or delivered; promotes and protects product; can create convenience and storage
labeling
printed words or graphics to its products to educate the customer; reduce risk to buyer and seller
warranties
seller’s promise regarding property’s quantity and quality; expressed or implied
guarantees
promise to customer that they will be satisfied w/ product (not identical to warranty); customer has certain rights if not satisfied; reduces risk of buying = customer value increases
support services
at-sale or post-sale services that a seller promises the buyer (ex – repair for comp)
distribution
how and when a business delivers its product to its customer
marketing/distribution channel
composed of the orgs that help the business make its product available for ultimate consumption; help promote, finance, distribute product
direct marketing channel
where the business doesnt use a marketing intermediary (ex – sell google’s service directly to advertisers)
indirect marketing channel
uses 1 or more intermediaries (ex – p&g sells products to wholesaler)
marketing intermediaries
members of marketing channel; create value by providing efficiency, convenience, and cost savings
retailers
businesses that sell products to the final consumer
specialty store
carries limited product line
department store
several product lines
supermarkets
numerous lines of food and household products
convenience stores
small retailers in easily accessible places; limied # of products used everyday
discount stores
lots of product lines of household products to price-conscious customers (ex- target)
deep discount stores
product lines at very low prices (ex – costco)
non-store retailers
limited or no physical presence (ex- vending machines, kiosks)
wholesalers
businesses that sell products to businesses for resale or business use; buy from producers and sell to retailers
merchant wholesalers
buy and resell products; take ownership of products and create value by providing warehousing, inventory, and transportation (ex – grocery store bought produce from merchant wholesaler)
broker
brings buyer and seller together to help negotiate deal
agent
represents either a buyer or seller
variable costs
vary directly w/ amount sold
fixed costs
costs that dont vary w/ amount sold
contribution margin
amount from the sale that is contributed to business
CM = P – VC
p= price per unit of sales
vc = variable cost per unit of sales

CM = marginal revenue – marginal/variable costs

break-even point
number of sales a business must achieve to generate a 0 operating profit
BE = FC/CM
fc= fixed costs ($)
cm=contribution margin ($)

-if sales are below break-even point: operating loss = CM * # of sales below break-even level
– if sales are above break-even point: operating profit = CM * # of sales above break-even level

to achieve operating profit
-price is higher = # of products sold is lower = higher CM = lower break-even point
-price is lower = # of products sold is higher = lower CM = higher break-even point
cost-volume-profit analysis
analysis of diff pricing alternatives on business’s profitability
cost-plus pricing
when a business prices its products based on costs and desired profit; designed to provide the business sufficient sales revenue to 1) pay costs 2) create sufficient operating profit
marginal costs
variable costs; easy to allocate to products
pricing-on-the-margin
focuses only on variable costs; require higher CM to cover unallocated fixed costs
marginal revenue
price per sale
fixed costs
harder to allocate to products bc businesses often have multiple products that share fixed costs
-when not easy to allocate to product = price on the margin
-when easy = use avg cost to price product
total costs
variable + fixed costs
-when businesses can allocated fixed costs to products, business prices on total costs of product (ideal!!!)
average cost
AC= TC/sales
TC = total costs, sales = # of sales
-businesses that allocates fixed costs –> prices on avg cost
price elasticity
impact of price on the buyer’s decision to buy/not buy; higher price = buy less of product (ex – clothes)
price inelasticity
when prices dont matter and customer will buy regardless of price (ex – gas)
3 forces that affect the changes in demand and supply of products
cyclicality, seasonality, natural evolution of customer needs and wants
cyclicality
overall state of econ; econ goes through cycles; in bad econ, price is very impt factor to buy or not buy
cyclical product
when state of econ affects demand for product (ex – cars, house)
non-cyclical product
econ doesn’t affect demand (ex-food, medicine)
counter-cyclical products
good times hurt demand for products and bad times help demand for products
(ex – in bad times, ppl eat more hamburger and chicken than in good times)
seasonality
time of a year a product is produced and sold; affects price it affects demand (ex – school supplies)
seasonal products
affected by the seasons of the year (ex – swimsuits, lawn mower)
non-seasonal product
not affected by seasons
natural evolution of customer needs and wants
demand and supply evolve
perceived absolute value of product
create perception of product’s value based on perceived benefits –> compare perceived value w/ product’s price
perceived relative value of product
after customers perceive product has absolute value –> compare benefits and costs of product w/ benefits/costs of alt. products –> choose alt w/ best value
bundling
temporarily price products as a bundle to create perception of greater value (ex- make up bundles)
promotion
process of communicating to customers the absolute and relative values of product; informs, persuades, reminds customer of value
communication process
1-sender creates and sends msg
2-as msg goes through medium, its affected by noise (anything that interferes w/ understanding msg)
3-msg received –> receiver interprets it
4-receiver provides sender feedback w/ actions or no actions
promotion process
1-target market segment and customer
2-determine communication objective
3- design msg to be communicated
4- choose medium to communicate msg
5- execute by delivering the designed msg through the selected medium
6-collect and review feedback
AIDA model
msg should focus on customer attention, interest, desire, act (step 3 of promotion)
promotional/marketing communications mix
mix of advertising, sales promotion, personal selling, direct marketing techniques, PR used by a business to communicate a marketing msg
advertising
non-personal presentation of ideas about a product/line
sales promotions
techniques used to encourage the customer to buy the product immediately (ex-coupons, samples, displays)
personal selling
person interaction, intended to create a sale, btwn sales force and and potential customers
1- prospecting and qualifying potential customers
2- researching and understanding how to approach targeted customers
3- approaching targeted customers
4- approaching targeted customer and beginning buyer-seller relationship
5- presenting and demonstrating the product
6- dealing w/ customer concerns
7- completing or closing the sale
8- following up the sale to ensure customer satisfaction
direct marketing
used to get customers to purchase products from their home, office, or other non-retail settings (ex – direct mail, catalog, internet)
public relations
process of communicating to a business’s public that the business creates a value for the public as a whole; positive image and publicity
publicity
info that creates an image of a business and its products
promotional pull strategy
where product producer uses a lot of advertising focused on ultimate customer; creates demand in customer that PULLS retailers into offering product
promotional push strategy
producer’s promotional efforts are focused on retailers and other channel members –> channel members promote product to ultimate consumer; promotion pushes product from producer>retailer>consumer