Product What the Customer Wants What is a Product? “ … the need satisfying offering of a firm...
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ProductProduct
What the Customer Wants
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What is a Product?What is a Product?
“ … “ … the need satisfying offering of a firm …”the need satisfying offering of a firm …”
TranslationTranslation
what you buy, that satisfies what you want to what you buy, that satisfies what you want to be able to dobe able to do
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What is a Product?What is a Product? what you buy, that satisfies what you want to what you buy, that satisfies what you want to
be able to dobe able to do it can be “good feeling” cause you bought it can be “good feeling” cause you bought
some cosmetics and someone said you some cosmetics and someone said you looked prettylooked pretty
it could be a happy stomach cause you it could be a happy stomach cause you bought a meal that tasted greatbought a meal that tasted great
it could be easier homework cause you it could be easier homework cause you bought new software for your computerbought new software for your computer
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Customers Buy Benefits, Not ProductsCustomers Buy Benefits, Not Products
NeedNeed
Benefits soughtBenefits sought
Choice criteriaChoice criteria
Product/service featuresProduct/service features
Brand/supplier chosenBrand/supplier chosen
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“… A product’s ability to satisfy a customer’s needs or requirements …”
Quality is often tied in to comparison with what the competitor does at the same price
- always important to remember the “Competitive Environment”
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GoodsGoods - things you can touch - “tangible”
ServicesServices - things you can’t touch - but you can see their effect “intangible”“… services are not physical, they are intangible…”
ServiceServiceAny activity or benefit that one party can offer to Any activity or benefit that one party can offer to another that is essentially intangible and does not another that is essentially intangible and does not result in ownership of anything.result in ownership of anything.
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What is a Product? A ProductProduct is anything that can be offered to a
market for attention, acquisition, use, or consumption and that might satisfy a want or need.
Includes: Physical Objects Services Events Persons Places Organizations Ideas Combinations of the above
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BrandName
QualityLevel
Packaging
Design
Features
Delivery& Credit
Installation
Warranty
After-Sale
Service
CoreBenefit orService
CoreBenefit orService
Actual ProductActual Product Core ProductCore Product
Augmented ProductAugmented Product
Levels of ProductProducts can be viewed at three satisfaction levels - formal, core and augmented product levels:
Actual - quality, features, styling, brand and packagingCore - utility or benefit (key to selling)Augmented - totality of product; warranty, maintenance, focuses on buyer’s total consumption system
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Unsought Products New innovations Consumers don’t want to think about Require much advertising & personal selling i.e Life insurance, blood donation
Product Classifications Consumer Products
Specialty Products Special purchase efforts High price Unique characteristics Brand identification Few purchase locations i.e Mercedes, Rolex
Shopping Products Buy less frequently Higher price Fewer purchase locations Comparison shop i.e Clothing, cars, appliances
Convenience Products Buy frequently & immediately Low priced Mass advertising Many purchase locations i.e Candy, newspapers
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Different ClassesDifferent Classes
ConvenienceConvenience goods and services goods and services things consumer wants to buy frequentlythings consumer wants to buy frequentlyminimum effort, low riskminimum effort, low risksmall amount of money, not much timesmall amount of money, not much time
three typesthree types
1. Staples 1. Staples - bought routinely- bought routinely
2. Impulse products2. Impulse products- unplanned purchases- unplanned purchases
3. Emergency products3. Emergency products- bought immediately- bought immediately
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Different ClassesDifferent Classes
ShoppingShopping goods and services goods and services““stuff” people buy after they “shop & stuff” people buy after they “shop &
compare”compare”they have the time to compare pricesthey have the time to compare pricesHomogenous - stuff that is the sameHomogenous - stuff that is the same
simply pick the lowest pricesimply pick the lowest priceeg. Condensed milk, eg. Condensed milk,
Heterogeneous - stuff that is different, Heterogeneous - stuff that is different, so the customer will take time to so the customer will take time to compare features and pricescompare features and prices- “some retailers carry competing - “some retailers carry competing brands”brands”
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Different ClassesDifferent Classes
SpecialitySpeciality goods and services goods and servicesjewellery, special clothingjewellery, special clothingspecial entertainmentspecial entertainment““Willingness to search, not extent of Willingness to search, not extent of
searching, makes it a specialty product”searching, makes it a specialty product”if people are willing to look and look at if people are willing to look and look at
different products, before they commit, it different products, before they commit, it is a specialty itemis a specialty item
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Different ClassesDifferent Classes
UnsoughtUnsoughtthings people don’t want to buy, but things people don’t want to buy, but
have to eg. Auto insurance, funeral planhave to eg. Auto insurance, funeral planthe only way to sell this is to convince the only way to sell this is to convince
people of the benefit because the benefit people of the benefit because the benefit is not easily seen by the average is not easily seen by the average person.person.
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Various Classes of Consumer and Industrial Various Classes of Consumer and Industrial GoodsGoods and Servicesand Services
eg . n ewsp ap er
eg . Mac's Milk
Con ven ien ce G ood s
eg . g roceries
eg . cloth in g
Sh op p in g G ood s
C on su m er G ood s
eg . travel
eg . b an kin g
Sp ecialty Services
eg . fast food s
Con ven ien ce Services
C on su m er S ervices
raw m ateria lg ra in , s tee l
eg . w irin gh arn ess
eg . c ircu it b oard
com p on en tp arts
m aterialsn u ts, b olts
P rod u c tion G ood s
In d u s tria l G ood s
accessory eq u ip m en ttools, com p u ters
eg . b u ild in g s
in stallation s
S u p p ort S ervices
In d u s tria l S ervices
Good s an d S ervic es
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TermsTerms
A series of related products A series of related products A group of products that are physically similar in performance, A group of products that are physically similar in performance,
use or features and intended for a similar marketuse or features and intended for a similar market
Product Line
Line stretching:Line stretching: adding products that are higher or adding products that are higher or lower priced than the existing linelower priced than the existing lineLine filling:Line filling: adding more items within the present price adding more items within the present price rangerange
Product line width:Product line width:number of different product lines carried by companynumber of different product lines carried by company
Product line depth:Product line depth:Number of different versions of each product in the lineNumber of different versions of each product in the line
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TermsTerms
The assortment of product lines and The assortment of product lines and individual offerings available from a individual offerings available from a company. company.
the combination of product lines offered the combination of product lines offered by the manufacturerby the manufacturer
Product Mix
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Time
ProductDevelop-
ment
Introduction
Profits
Sales
Growth Maturity Decline
Losses/Investments (Rs)
Sales andProfits (Rs)
Sales and Profits Over the Product’s Life From Inception to Demise
Product Life Cycle (PLC)
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Question Marks
• High growth, low share • Build into Stars or phase out • Require cash to hold market share
Question Marks
• High growth, low share • Build into Stars or phase out • Require cash to hold market share
Stars
• High growth & share• Profit potential • May need heavy investment to grow
Cash Cows
• Low growth, high share• Established, successful SBU’s•Produce cash
Cash Cows
• Low growth, high share• Established, successful SBU’s•Produce cash
Dogs
• Low growth & share • Low profit potential
Dogs
• Low growth & share • Low profit potential
Relative Market ShareHigh Low
Mark
et
Gro
wth
Rate
Low
H
igh
Boston Consulting Group (BCG) Approach
?
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Low sales Low sales
High cost per customerHigh cost per customer
Negative or lowNegative or low
Create product awareness and trialCreate product awareness and trial
Offer a basic productOffer a basic product
Usually is high; use cost-plus formulaUsually is high; use cost-plus formula
DistributionDistribution High distribution expensesHigh distribution expenses
AdvertisingAdvertising Build product awareness among early adopters and dealers
Build product awareness among early adopters and dealers
Summary of Characteristics, Objectives, & Strategies
Introduction Stage of the PLC
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Rapidly rising sales Rapidly rising sales
Average cost per customerAverage cost per customer
Rising profitsRising profits
Maximize market shareMaximize market share
Offer new product features, extensions, service, and warranty
Offer new product features, extensions, service, and warranty
Price to penetrate marketPrice to penetrate market
DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets
AdvertisingAdvertising Build awareness and interest in the mass market
Build awareness and interest in the mass market
Summary of Characteristics, Objectives, & Strategies
Growth Stage of the PLC
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Peak salesPeak sales
Low cost per customerLow cost per customer
High profits, then lower profitsHigh profits, then lower profits
Maximize profits while defending market share
Maximize profits while defending market share
Diversify brand and modelsDiversify brand and models
Price to match or best competitorsPrice to match or best competitors
DistributionDistribution Build more intensive distributionBuild more intensive distribution
AdvertisingAdvertising Stress brand differences and benefits
Stress brand differences and benefits
Summary of Characteristics, Objectives, & Strategies
Maturity Stage of the PLC
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Maturity Stage of the PLC
Company tries to increase
consumption of the current product.
Changing characteristics such as quality, features, or styles to attract
new users.
Company tries to improve sales by
changing one or more marketing mix elements.
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SalesSales
CostsCosts
ProfitsProfits
Marketing ObjectivesMarketing Objectives
ProductProduct
PricePrice
Declining salesDeclining sales
Low cost per customerLow cost per customer
Declining profitsDeclining profitsReduce expenditure and maintain,
reposition, harvest or drop the product
Reduce expenditure and maintain, reposition, harvest or drop the
productPhase out weak itemsPhase out weak items
Cut priceCut price
DistributionDistribution Go selective: phase out unprofitable outlets
Go selective: phase out unprofitable outlets
AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers
Reduce to level needed to retain hard-core loyal customers
Summary of Characteristics, Objectives, & Strategies
Decline Stage of the PLC
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1. Increase frequency of use by present customers
2. Add new users
3. Find new uses
4. Change product quality or packaging
Extending the Product Life Cycle
Market Modification
Product Modification
Purpose: to sell more product and cover original investment
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Idea -Idea - 38% of new product ideas come from looking at 38% of new product ideas come from looking at competitorscompetitors- one of the best ways is to listen to employee new ideas- one of the best ways is to listen to employee new ideas
Screening Screening - purpose is to “screen” out the bad ideas and - purpose is to “screen” out the bad ideas and focus on the good ideas that might workfocus on the good ideas that might work and and AnalysisAnalysis - is making the cost estimates and sales - is making the cost estimates and sales forecasts to estimate profitabilityforecasts to estimate profitability
DevelopmentDevelopment - concept testing for totally new products (ie. - concept testing for totally new products (ie. holographic maps)holographic maps) Testing Testing - taking the prototypes to a sample group of - taking the prototypes to a sample group of consumers and watch their reactionsconsumers and watch their reactions
CommercializationCommercialization - promoting the product and developing - promoting the product and developing advertising and sales campaignsadvertising and sales campaigns
Major Stages in New-Product Development
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Causes of New Product Failures One study estimated that as many as 80% of
new consumer packaged products failed. Only about 40% of new consumer products are
around 5 years after introduction. Why?
Overestimation of market size, Product design problems, Product incorrectly positioned, priced or advertised, Product may have been pushed despite poor
marketing research findings, Costs of product development, or Competitive actions &
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5. What is a “market?”5. What is a “market?”
A market is A market is – individuals and organizationsindividuals and organizations– interested and willing to buy a particular productinterested and willing to buy a particular product– have the resources to engage in the transactionhave the resources to engage in the transaction
Markets are seldom homogenousMarkets are seldom homogenous– they are fragmented, segmented, disorderlythey are fragmented, segmented, disorderly
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Market segmentationMarket segmentation
Some markets are sufficiently homogenous that Some markets are sufficiently homogenous that segmentation is not necessary.segmentation is not necessary.
Most markets are defined by specific characteristics Most markets are defined by specific characteristics defining the consumer.defining the consumer.
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Decisions Within the Four Elements of the Marketing MixDecisions Within the Four Elements of the Marketing Mix
ProductProduct• Quality• Features• Brand name• Guarantees/warranties• Services/spare parts
PlacePlace• Numbers and types of
middlemen• Locations/availability• Inventory levels• Transportation
The target marketThe target market
• Style• Options• Packaging
PricePrice• Discounts• Allowances• Credit terms• Payment period• Rental/lease• List price
PromotionPromotion• Advertising• Personal selling• Sales promotion• Point-of-purchase
materials• Publicity
The marketing mix is the combination of controllable marketing variables that a manager uses to carry out a marketing strategy in pursuit of the firm’s objectives in a given target market.
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PositioningPositioning
Positioning:Positioning:– The place the product occupies in consumers’ The place the product occupies in consumers’
minds relative to competing products.minds relative to competing products.– Typically defined by consumers on the basis of Typically defined by consumers on the basis of
important attributes.important attributes.
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Levels of POSITIONINGLevels of POSITIONING There are 3 levels of product positioning:There are 3 levels of product positioning: Core productCore product is short-term positioning and typically works is short-term positioning and typically works
for a year or less - companies focus on the tangibles: for a year or less - companies focus on the tangibles: price, quality, and technical specificationsprice, quality, and technical specifications
Extended productExtended product - firms create the necessary infra- - firms create the necessary infra-structure to develop strong relationships with channel structure to develop strong relationships with channel members, suppliers, and customers; strategy tends to members, suppliers, and customers; strategy tends to last in the intermediate term, 1 to 5 yearslast in the intermediate term, 1 to 5 years
Total ProductTotal Product - companies have clearly identified who the - companies have clearly identified who the company is and what they stand for. Firms have company is and what they stand for. Firms have garnered a long term position - lasts more than 5 years garnered a long term position - lasts more than 5 years (they have won the market’s respect)(they have won the market’s respect)
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PositioningPositioningChoosing a Positioning Strategy:Choosing a Positioning Strategy:
–Identifying possible competitive advantagesIdentifying possible competitive advantagesProducts, services, channels, people or image can be sources of differentiation.Products, services, channels, people or image can be sources of differentiation.
–Choosing the right competitive advantageChoosing the right competitive advantageHow many differences to promote?How many differences to promote?
– Unique selling propositionUnique selling proposition– Positioning errors to avoidPositioning errors to avoid
Which differences to promote?Which differences to promote?
Criteria for Meaningful DifferencesCriteria for Meaningful DifferencesImportantImportantSuperiorSuperiorPreemptivePreemptiveDistinctiveDistinctiveCommunicableCommunicableAffordableAffordableProfitableProfitable
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PositioningPositioning Choosing a Positioning Strategy:Choosing a Positioning Strategy:
– Selecting an overall positioning strategySelecting an overall positioning strategy More for More Value PropositionMore for More Value Proposition More for the Same Value PropositionMore for the Same Value Proposition The Same for Less Value PropositionThe Same for Less Value Proposition Less for Much Less Value PropositionLess for Much Less Value Proposition More for Less Value PropositionMore for Less Value Proposition
– Developing a positioning statementDeveloping a positioning statement Positioning statements summarize the company or Positioning statements summarize the company or
brand positioningbrand positioning EXAMPLE: To (target segment and need) our (brand) EXAMPLE: To (target segment and need) our (brand)
is (concept) that (point-of-difference).is (concept) that (point-of-difference).– Communicating the chosen positionCommunicating the chosen position
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How toHow to AAdd dd VValue to Productsalue to ProductsCompanies must constantly search for new ways to add value to Companies must constantly search for new ways to add value to
distance themselves from their rivalsdistance themselves from their rivals
Additional features/benefitsAdditional features/benefits AffordabilityAffordability BrandingBranding Customer involvementCustomer involvement Customization and choiceCustomization and choice Enhanced qualityEnhanced quality Exceptional serviceExceptional service Frequency marketing incentivesFrequency marketing incentives Internet as a value adderInternet as a value adder Simplify or bundle the offeringSimplify or bundle the offering Solve customer problemsSolve customer problems Technological leadershipTechnological leadership WarrantiesWarranties
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Brand DecisionsBrand Decisions
The AMA definition of a brand:The AMA definition of a brand:
“ “A name, term, sign, symbol, or design, or a A name, term, sign, symbol, or design, or a combination of these, intended to identify the goods combination of these, intended to identify the goods or services of one seller or group of sellers and to or services of one seller or group of sellers and to differentiate them from the competition.”differentiate them from the competition.”
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Brand DecisionsBrand Decisions
Brands can convey six levels of meaning:Brands can convey six levels of meaning:– AttributesAttributes– BenefitsBenefits– ValuesValues– CultureCulture– PersonalityPersonality– UserUser
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Brand DecisionsBrand Decisions
Brand identity decisions include:Brand identity decisions include:– NameName– LogoLogo– ColorsColors– TaglineTagline– SymbolSymbol
ConsumerConsumer experiences experiences create brand bonding, create brand bonding, brand advertising does not.brand advertising does not.
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Brand DecisionsBrand Decisions
Marketers should attempt to create or facilitate Marketers should attempt to create or facilitate awarenessawareness, , acceptabilityacceptability, , preferencepreference, and , and loyaltyloyalty among consumers. among consumers.
Valuable and powerful brands enjoy high levels Valuable and powerful brands enjoy high levels of brand loyalty.of brand loyalty.
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Brand DecisionsBrand Decisions
Aaker identified five levels of customer Aaker identified five levels of customer attitudes toward brands:attitudes toward brands:– Will change brands, especially for price. No Will change brands, especially for price. No
brand loyalty.brand loyalty.– Satisfied -- has no reason to change.Satisfied -- has no reason to change.– Satisfied -- switching would incur costs.Satisfied -- switching would incur costs.– Values brand, sees it as a friend.Values brand, sees it as a friend.– Devoted to the brand.Devoted to the brand.
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Brand DecisionsBrand Decisions
Brand equityBrand equity refers to the positive differential refers to the positive differential effect that a brand name has on customers.effect that a brand name has on customers.
Brand equity: Brand equity: – is related to many factors. is related to many factors. – allows for reduced marketing costs.allows for reduced marketing costs.– is a major contributor to customer equity.is a major contributor to customer equity.
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Brand DecisionsBrand Decisions
Advantages of branding:Advantages of branding:– Facilitates order processingFacilitates order processing– Trademark protectionTrademark protection– Aids in segmentationAids in segmentation– Enhances corporate imageEnhances corporate image– Branded goods are desired by retailers Branded goods are desired by retailers
and distributorsand distributors
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Packaging and LabelingPackaging and Labeling
Packaging includes:Packaging includes:– The primary packageThe primary package– The secondary packageThe secondary package– The shipping packageThe shipping package
Many factors have influenced the increased use of Many factors have influenced the increased use of packaging as a marketing tool.packaging as a marketing tool.
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Packaging and LabelingPackaging and Labeling
Developing an effective package:Developing an effective package:– Determine the packaging conceptDetermine the packaging concept– Determine key package elementsDetermine key package elements– Testing:Testing:
Engineering testsEngineering tests Visual testsVisual tests Dealer testsDealer tests Consumer testsConsumer tests
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Packaging and LabelingPackaging and Labeling
Labeling functions:Labeling functions:– Identifies the product or brandIdentifies the product or brand– May identify product gradeMay identify product grade– May describe the productMay describe the product– May promote the productMay promote the product
Legal restrictions impact packaging for many products.Legal restrictions impact packaging for many products.
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DistributionDistributionDistribution System – the series of institutions and functionsDistribution System – the series of institutions and functionslinking manufacturers to marketslinking manufacturers to markets Transaction Channel Transaction Channel Physical Distribution (logistics) ChannelPhysical Distribution (logistics) ChannelChannel StructureChannel Structure Number of channelsNumber of channels Number of channel levelsNumber of channel levels Number of middlemen per channel levelNumber of middlemen per channel levelChannel Functions:Channel Functions: ResearchResearch PromotionPromotion Market contact Market contact AssortmentAssortment Physical distributionPhysical distribution Financing & risk takingFinancing & risk taking NegotiationNegotiation Storagetorage
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DistributionDistributionPerformance of functions determines compensationPerformance of functions determines compensation MarginsMargins CommissionsCommissions Price ReductionsPrice ReductionsIssues All flows can be shifted up or down the channel. All are subject to economy of scale efficiencies. All must be performed. If one flow fails, the entire channel can fail. Performance of flows determines compensationDistribution Intensity Intensive (convenience goods): Mass distribution and Intensive (convenience goods): Mass distribution and
promotionpromotion Selective (shopping goods): Reduced distribution, assortment Selective (shopping goods): Reduced distribution, assortment
breadth, channel cooperationbreadth, channel cooperation Exclusive (specialty goods): Sacrifice market coverage for Exclusive (specialty goods): Sacrifice market coverage for
channel control and prestigechannel control and prestige
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ManufacturerManufacturer
RetailerRetailer
WholesalerWholesaler
ConsumerConsumer
Flows
Structure
The retail level of the channel is the only channel level where the buyer goes to the seller. Retailers can use location dominance to achieve sustainablecompetitive advantage. B2C retailing does not have a dominant competitive advantage over traditional stores.
The manufacturer and wholesaler sellers normally goto the buyers so B2B is a natural for eCommerce. The buyers are already trained to deal with distant sellers,and do not care where where the seller is located as long as they can perform the required functions (flows).
B2B
B2B
B2C
Channel Structure and Flows
Functions of Retailers & Wholesellers?
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Promotion (Marketing Communications)The specific mix of advertising, personal selling, sales The specific mix of advertising, personal selling, sales promotion, and public relations a company uses to pursue promotion, and public relations a company uses to pursue its advertising and marketing objectives.its advertising and marketing objectives.
•Personal Selling – Direct Marketing
•Mass Selling-
Advertising
Publicity
Sales Promotion-•Point-of-purchase advertisingPoint-of-purchase advertising•specialty advertisingspecialty advertising•samplessamples•couponscoupons•premiumspremiums•loyalty points / air milesloyalty points / air miles•rebatesrebates•contestscontests
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3 promotional objectives4 Promotional Activities
•Attention•Interest•Desire•Action
AIDA
Push or PullPush strategy:Push strategy: trade promotions and personal selling trade promotions and personal selling
efforts push the product through the distribution channels.efforts push the product through the distribution channels.Pull strategy:Pull strategy: producers use advertising and consumer producers use advertising and consumer
sales promotions to generate strong consumer demand for products.sales promotions to generate strong consumer demand for products.
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Adoption ProcessAdoption Process (Diffusion of Innovation) (Diffusion of Innovation)
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Relationship between Advertising and the Product Life Cycle
Not mentioned in your textbook