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Marketing Planning & Problem Solving [Dr. Carter; MKTG. 4900] COMBINED SET OF 2 nd section MARKETING PLANNING TEXT SLIDES
Chapter 5: Planning Direction, Objectives, and Marketing Support The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 5 -1
Determining Marketing Plan Direction n The ultimate purpose of the marketing plan is to help the organization achieve its objectives. q q n Goals = Long-term objective targets. Objectives= Short-term objective targets The direction chosen must be consistent with the organization’s priorities and strengths. 5 -2
Options for Marketing Plan Direction 5 -3
Growth Most business plans call for unit or dollar sale growth. The four broad strategies for growth are: n Market penetration n Market development n Product development, and n Diversification 5 -4
Six Approaches to Growth Based upon permutations of markets and products. CURRENT Market Penetration MODIFIED INNOVATED Product Development EXISTING EXPANDED (Geographic) ENTIRELY NEW Market Development Diversification From Ch. 1; 1 -12
Market Penetration n n Is the growth strategy in which the company sells more of the existing products to customers in existing markets or segments. It is especially viable for companies that can build on established customer relationships and positive value perceptions. 5 -5
Market Development n Market development involves identifying and reaching new segments or markets for existing products. 5 -6
Product Development n Product development is a growth strategy in which the company sells new products to customers in existing markets or segments. 5 -7
Diversification n Diversification is a growth strategy of offering new products in new markets to take advantage of new opportunities: q q Through internal product development capabilities, or By starting or buying a business 5 -8
Pros and Cons of Diversification n Advantage: Diversification can help avoid overreliance on a small number of products or markets n Disadvantage: Diversification can dilute available resources and open the organization to competitive attacks on multiple fronts. 5 -9
Growth Not Always Possible n Growth not always desirable or possible q n E. g. , tough economic times Priorities may be to: q q q Maintain current share Seek highest possible profits Retrench 5 -10
Nongrowth Strategies Nongrowth strategies include: n n n Filing for bankruptcy Withdrawing from certain markets Deleting products Limiting distribution Closing a division 5 -11
Setting Marketing Plan Objectives Exact objectives depends upon: n n n The current situation. Environmental issues and keys to success. Customers in targeted segments. The organization’s mission and goals. The chosen positioning. 5 -12
Keys to Effective Objectives n n n Specific, time-defined and measurable. Realistic, but challenging. Consistent with the mission and overall goals. Consistent with internal environmental analysis. Appropriate in light of opportunities and threats. 5 -13
Three Types of Objectives in Marketing Plans Marketers usually set three types of objectives in marketing plans: n n n Marketing objectives: Targets for managing certain marketing relationships and activities, Financial objectives: Targets for managing certain financial results, and Societal objectives: Targets for achieving particular results in social responsibility. 5 -14
Marketing Objectives Targets for managing certain marketing relationships and activities: n n n n Customer acquisition Customer retention Customer satisfaction Channel relationships Unit sales Market share Product development Order fulfillment 5 -15
Financial Objectives n n n To be effective, financial and marketing objectives should be consistent. At times, key financial objectives may give way to achieve a coveted marketing objective. Financial objectives generally include: q q Sales volume and product targets Profitability targets Return on Investment (ROI) targets Break-even targets 5 -16
Answering to Stakeholders n Various stakeholders have an interest in the activities of the organization: q q q n Customers Suppliers Employees Civic leaders Others These stakeholders track company progress on key issues and often hold them accountable. 5 -17
Societal Objectives Fulfilling societal objectives: n n n Polishes company and/or brand image. Shows the organization is doing something constructive about important issues. Some of the key issues include: q q q “Greener” products Charitable donations Involvement in community projects Energy conservation Issue awareness 5 -18
Cause Related Marketing n n Links the marketing of a brand, good or service to a charitable cause. Although charitable, there is an explicit marketing connection. 5 -19
Planning Marketing Support Before plunging into the details of planning the marketing mix, marketers need to set objectives for two aspects of marketing support: n Internal Marketing: marketing to managers and employees inside the company, and q n This includes upward communication Customer Service 5 -20
Internal Marketing May take the form of: n n n Internal newsletters Web pages Training meetings Marketing or sales meetings Other techniques 5 -21
Internal Marketing Support Objectives n n Keep employees focused on customers. Keep employees involved in marketing. Keep employees informed about marketing. Improve employee performance and satisfaction. 5 -22
Customer Service Customers have different customer service needs at different points in the buying process: n n n Before the sale At the moment or point of sale After the sale 5 -23
Customer Service Objectives n n n Meet targeted segment’s needs, expectations. Attract, retain, satisfy customers. Reinforce the product or brand positioning. Allocate service resources appropriately. Service recovery q Customer service is rarely perfect every time 5 -24
Shaping the Marketing Mix n n Managers look to the key priorities of the organization as they determine action steps and allocate resources. All tactics and programs developed : q q Must be consistent with mission, direction, goals and objectives, and Support the mission, direction, goals and objectives. 5 -25
The Strategy Pyramid 5 -26
Chapter 6: Developing Product and Brand Strategy The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 6 -1
Introduction n Product strategy is critical to the success of the overall marketing strategy. n Value is captured in two key areas: q Product Strategy n q Existing and proposed products. Branding n Value enhancement through awareness and image. 6 -2
Product Strategy n Product value is derived from q q n Features, and Benefits received Products can be tangible goods, services, places, ideas, organizations, or people. 6 -3
Designing a Service Tangible Activities Item Processing Health care Hotels Mass transit Intangible Activities People Processing Delivery service Janitorial service Parking garage Mental Processing Information Processing Entertainment Management consulting Local phone service Banking Legal services Accounting services 6 -4
Features and Benefits n Features: Specific attributes that enable a product or service to perform its function. n Benefits: Need-satisfaction outcomes. 6 -5
Mass Customization n Mass Customization: Creating products, on a large scale, with features tailored to the needs of individual customers. Offerings should be analyzed, feature by feature, to help understand the benefits and value derived by the target customers. Try to avoid “feature bloat”. 6 -6
Sample Needs, Features and Benefits Product Targeted Segment Cordless drill Do it yourselfers Need Feature Benefit Drill holes without electricity Extra battery pack included Drill can be used for long periods of time Low down payment Less money needed up front to buy a home Mortgage loan First-time Obtain home buyers money to buy a home Laser printer Small business owners Print Draft-quality documents printing economically mode uses less toner Toner cartridge lasts longer, saving money 6 -7
Quality: Put simply, how well the product satisfies n n n customers. Basic functionality is only the price of entry. Superior quality attracts business. Poor quality can lead to negative word-of-mouth. 6 -8
Design: Quality comes from design, n n components/ingredients and processes. At the forefront of many categories. Includes “emotional quality” – the impact of design on how it makes the customer feel. 6 -9
Packaging n n Keeps products safe. Helps companies burnish their brand imagery and highlight points of differentiation. 6 -10
Labeling n n n Communicates product contents, uses and warnings. Conforms to national, regional and local laws and requirements mandating warnings, allowable use of certain phrases, and even the size and type of words used. Helps attract attention, stand out from retail clutter. 6 -11
Product Development Steps in the Product Development Process: n Idea generation. n Screening of new ideas. n Initial concept testing. n Business analysis. n Prototype design. n Market testing. n Commercialization. n Monitoring customer reaction. Let’s look at product strategy from the perspective of this development process… 6 -12
Product Strategy and The Product Development Process Idea Generation and Screening Initial Concept Testing Business Analysis Design Prototype Market Testing Commercialization Based on customer needs and wants Research customer value of product concepts Estimate development, production and marketing mix costs Design and produce working prototypes Limited market trials or simulate d testing Test different marketin g mix combinat ions for support Plan targeting and timing of launch Screen out unprofitable or unsuitable ideas Refine concept based on research Compare costs with potential share, sales, profitability to identify good candidates Test prototype functionality, customer appeal Plan production and marketing mix support for launch 6 -13
The Product Life Cycle Marketers must carefully monitor the environment to determine where their industry or product may be among the following stages of the PLC: n Introduction n Growth n Maturity n Decline Let’s look at product strategy from the perspective of the Product Life Cycle… 6 -14
Product Strategy and the Product Life Cycle Introduction Growth Maturity Decline Launch the new product. Add brand or line extensions. Reposition, reformulate, or cut struggling products. Enhance product (new features, improved quality, added Support launch with services, new packaging). marketing mix programs to build customer Support rising sales awareness, make with expanded channel product available, coverage, pricing for and encourage trial. market penetration, and communications to start and reinforce customer relationships. Defend market share through competitive pricing, channel expansion, communicating differentiation, and promotion to reinforce customer loyalty. Manage profitability through careful pricing, pruning channel outlets, and minimal or highly targeted communications. 6 -15
Product Mix and Product Lines n n Product Mix: The overall assortment of all product or services offered. Product Lines: A group of products that are all similar in some way. Product Mix Width: Number of lines offered. Product line Depth: Number of products in a line. 6 -16
Line Extensions & Brand Extensions n n Line Extension: Putting an established brand on a new product and adding it to an existing product line. q A low fat version of Lay’s potato chips. Brand Extension: Putting an established brand on a new product in a different category for a new customer segment. q E. g. , Snicker’s brand ice cream. 6 -17
Product Line and Mix Decisions DECISION RESULT New product Lengthens product line Line extension Lengthens product line New line Widens product mix Brand extension Widens product mix Product deletion Shortens product mix Line deletion Narrows product mix 6 -18
Planning Branding n n Branding gives a product a distinct identity and differentiates it from competitive products using: words, designs, and symbols. In terms of branding, a product may carry: q Company name and individual brand. n q Individual name. n q Gap, Old Navy Private-label brand. n q Courtyard by Marriott Wal-Mart Multiple Brands (co-branding, ingredient branding). n Dell PC with Intel computer chips 6 -19
Brands Should Be…. Meaningful. n Recognizable and memorable. n Capable of being legally protected. n Suitable for international markets. n
Branding and Positioning n n Branding not only identifies a particular product, but it sets it apart from the competition (both direct and indirect). Positioning: What the target group perceives about your brand relative to how they perceive the competition. 6 -20
The Power of Brand Equity n Brand Equity: the extra value customers perceive that enhances their long-term loyalty to a brand. q q n Can insulate a company against competitive threats. Can help new products achieve acceptance. The Value of Strong Brands: q q Encourages brand loyalty. Boosts customer lifetime value. n The total amount that a customer spends on a brand or with a company during the life of their relationship. 6 -21
Pyramid of Brand Equity Resonance Judgments Performance Feelings Imagery Salience 6 -22
Chapter 8: Developing Channel and Logistics Strategy The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 8 -1
Channel Strategy n n How, when and where to make goods and services available to customers. Decisions must be based upon: q q Other elements of the marketing mix strategy. A thorough understanding of the targeted segment. An understanding of the environment. The product’s characteristics and its stage in the product life cycle. 8 -2
The Value Chain n A series of interrelated, value-added functions plus the structure of organizations performing them. On the inbound side: To obtain the inputs needed for creating the goods and services. On the outbound side: To meet demand by making the product or service available. 8 -3
Major Links in the Value Chain During the planning process, marketers analyze how value is added at each connection in the value chain. 8 -4
Three Flows in the Value Chain Channel and logistics involves managing the three value-chain flows: n Products: Refers to physical items such as raw materials and product packaging on the inbound side and finished products on the outbound side. n Data: Refers to information such as the number of items ordered, customer requirements and feedback, and other information that adds value. n Money: Refers to payments for supplies, reseller or customer payments for finished goods, and other money movements between participants. 8 -5
Adding Value Through the Chain n Each participant adds value to satisfy the needs of the next link. The price paid by each successive participant reflects the value added by the previous link. Customers at the end of the chain ultimately pay for the combined value added by all participants. 8 -6
Services and the Value Chain n n Marketers planning for service business face the same supply chain challenges as those who manage tangible goods. However, because services are generally produced and consumed simultaneously, marketers must plan flows to more accurately match supply and demand. 8 -7
Planning Channel Strategy Each organization must make decisions regarding: n Which channel functions must be covered by someone other than the organization? n Who will handle each function? n How many channel levels to use? , and n How many and what type of channel members to choose? The answers to these questions will vary from product to product and market to market. 8 -8
Types of Channel Functions n n Matching volume, amount, or offer to customer needs. Providing intermediaries and customers with product and market information. Contacting and negotiating with customers to maintain relationships and complete sales. Transporting and storing products prior to purchase. 8 -9
Decisions Regarding Channel Functions The configuration of functions must be tailored to products and markets. n Determine which functions are best handled by the firm and which are best handled by an intermediary. n Determine who the channel intermediary should be. n Determine the compensation for the intermediary. 8 -10
Channel Levels Each channel level adds value in some way. Basic channel level configurations: n Zero-level: direct linking of the seller to the buyer. n One-level: The seller works with a single type of intermediary. q n Typically a manufacturer – retailer configuration. Multiple-level: The seller works with tow or three levels of distribution partners. q Typically a manufacturer – wholesaler – retailer configuration. 8 -11
Channel Levels Illustrated 8 -12
Reverse Channels n n To return products for exchange, repair or recycling. Can be used to build relationships with customers and the community. Must take into consideration the laws and regulations that may govern their reverse channel strategy. Can also represent profit opportunities for enterprising companies. 8 -13
Channel Members Key considerations include: n Customer needs and habits n Financial considerations n Product’s life cycle n Product’s positioning n The target segment n Relations with channel members should be reexamined periodically. 8 -14
Distribution Intensity n n n Intensive Distribution: In many outlets for maximum market coverage. Selective Distribution: In a number of selected outlets. Exclusive Distribution: In few outlets for exclusivity within each market. 8 -15
Distribution Intensity (cont’d) Distribution Intensity Value to Marketer Value to Customer Intensive Increase unit sales. Market impulse items. Cover more of each market. Convenient. Lower prices due to competition. Selective Reduce dependence on a few outlets. Control costs. See product. Receives sales help. Obtain some services as needed. Exclusive Support product or brand positioning. Better supervise service, etc. Receive personalized attention. Access to delivery, alterations, customizations, etc. 8 -16
Influences on Channel Strategy 8 -17
Planning for Logistics Marketer’s Balancing Act: Being responsive to customers needs while still meeting internal financial targets. 8 -18
Logistics Decisions 8 -19
Influences on Logistics Decisions n n The organization’s approach to social responsibility. Cost constraints and the marketer's logistics budget. 8 -20
The Logistics Strategy The marketing plan need not contain very detail of the logistics strategy. But it should contain: n A general outline, n An explanation of the balance of total costs versus responsiveness, and n An indication of how logistics functions will support other marketing decisions. 8 -21
Chapter 9: Developing Integrated Marketing Communication The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 9 -1
Integrated Marketing Communications n n n Every marketing plan anticipates the use of marketing messages. For maximum effect, marketers should coordinate the content and delivery of all marketing communications to ensure consistency and support the positioning and direction. This approach is known as integrated marketing communications. 9 -2
Five Basic Promotion Tools Integrated Marketing Communications consists of five basic tools: 1. Advertising 2. Sales Promotion 3. Public Relations 4. Direct Marketing 5. Personal Selling 9 -3
IMC Strategy The IMC strategy involves: 1. Defining target audiences, 2. Establishing objectives and a budget, 3. Analyzing pertinent issues, 4. Selecting appropriate IMC tools, and 5. Planning appropriate pre- and postimplementation research to evaluate effectiveness. 9 -4
Choosing the Target Audience n n Target market can vary from end customers to employees to distribution partners. Target markets need to be understood in as much detail as possible: q q To help shape the message. To help choose the appropriate tool. 9 -5
“Push” and “Pull” Strategies q q Push strategy: the company targets intermediaries, encouraging them to carry and promote the product. Pull strategy: The company encourages end consumers to ask intermediaries for the product. 9 -6
Understanding Target Market Consumer Behavior n n n IMC can be used to move the audience through a series of responses corresponding to beliefs, behavior and feelings about the product or brand. The order that the consumer moves through these responses is dependent upon whether the good or service is “low involvement” , “high involvement”, or “experiential”. The marketer should understand the response model for a given product or category when setting objectives. 9 -7
Low Involvement, High Involvement & Experiential Models of Behavior q q q Under high involvement, beliefs precede all subsequent steps. Under low involvement, behavior precedes feelings. Under experiential, feelings, precede both behavior and beliefs. 9 -8
Setting Objectives n Objectives can be related to influencing beliefs, influencing feelings, or influencing behaviors. Objective Sample Influencing Beliefs “Achieve 25% awareness of Product A among the target audience within 4 months. ” Influencing Feelings “Achieve 18% preference for Product E among the target audience within 3 months. ” Influencing Behavior “Achieve 9% trial of Product C among the target audience within 6 months. ” 9 -9
Setting the Budget Factors to be considered when setting the IMC budget: n Overall marketing budget. n Objectives to be achieved. n Competitive circumstances. n Potential ROI (Return on Investment). 9 -10
Examining Issues Types of issues that can impact IMC strategy: n Legal n Regulatory n Technological n Ethical n Cultural n Competitive 9 -11
Choosing IMC Tools 9 -12
Word of Mouth and Buzz Marketing n When possible, marketers want to spark positive word-of-mouth (WOM) communication: q q n Information spread by WOM has more credibility because it comes from a personal source. However, the outcome of WOM is unpredictable, and cannot often be accurately measured. Buzz marketing: When the company seeks to generate more intense WOM, it may provide communicators with samples or coupons. 9 -13
Planning Research n n n The marketing plan should allow for pre-testing and post-implementation research to evaluate the IMC activities. Pre-testing: To find out if the target audience understands the message and retains information. Post-implementation: To determine whether or not the IMC program has achieved its objectives and which elements of the plan were particularly effective. 9 -14
Using IMC Tools n n Marketers typically use multiple tools in any one campaign. Marketers should consider the overall effect when planning the IMC program. q Careful coordination of content and delivery across messages and media is essential for consistency. 9 -15
Advertising Two basic decisions: n Message n Media 9 -16
Message Appeal: determined by the ad’s wording, format and design, graphics, sound, and other elements. Types of appeals include: n Rational: Using facts and logic to stimulate a response. n Emotional: Evoking feelings to stimulate a response. 9 -17
Choosing Media n n Each medium has characteristics that convey the message in a different way. Two key decisions in planning media: q q Reach Frequency 9 -18
Media Choices n n n n Television Radio Outdoor Newspaper Magazine Internet Direct Mail Other 9 -19
Sales Promotion n n Influences customer behavior by reducing perceived price or enhancing perceived value for a limited time. Sale promotion techniques vary depending on the target audience; q q Consumer promotions: Targeting end consumers. Trade promotions: targeting channel members and salespeople. 9 -20
Consumer Promotions n n n n Sampling Coupons Rebates Refunds Premiums Sweepstakes and contests Bonus packs Loyalty programs Objectives n n n Building awareness Encouraging product trial or usage Encouraging speedy response Reinforcing loyalty Supporting advertising or other IMC activities Defending against competitors 9 -21
Trade Promotions n n Allowances and incentives Sales contests Training and support Point-of-purchase materials Objectives n n n Enhancing product knowledge Building commitment Reinforcing focus and loyalty Supporting advertising or other IMC activities Defending against competitors 9 -22
Public Relations Purpose: To open the lines of communication and develop positive relationships with the company’s stakeholder groups: n Customers and prospects n Employees and job applicants n Channel members n Suppliers n Government officials n Local community groups n Special interest groups n Financial community 9 -23
Objectives for PR Activities n n Understanding stakeholders’ perceptions and attitudes. Managing the company’s image. Communicating views and information. Building brand product awareness. 9 -24
Direct Marketing n n Through mail, broadcast and print media, the Internet, and other media. Direct marketing is cost-effective for: q Precise targeting, and q The use of customized messages. Marketers can easily measure results. To be effective, the direct marketing message must be relevant to the target audience and not be perceived as junk mail or spam. 9 -25
Personal Selling More appropriate if the target audience: n Requires customized goods and services. n Needs assistance assessing needs. n Makes large purchases. n Requires individual attention for other reasons. The one-to-one nature of personal selling supports strong customer relationships. n For an immediate sale, or for a sale in the future. 9 -26
Personal Selling Decisions n n n Whether to hire salespeople or work with an outside sales agency. How many salespeople are needed, and how they will be organized. Related to sales staff, how to: q q q Recruit Train Manage Motivate Compensate 9 -27
The Personal Selling Process 1. 2. 3. 4. 5. 6. Identifying and qualifying prospects. Planning the presales approach. Making sales contact. Addressing objections. Closing the sale. Following up after the sale. 9 -28
Chapter 7: Developing Pricing Strategy The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 7 -1
Unique Aspects of Pricing n n Pricing directly produces revenues, whereas other marketing functions require investments of money, time and effort. Most pricing decisions can be implemented relatively quickly, while other elements of the marketing mix usually take longer to implement. 7 -2
Fixed vs. Dynamic Pricing n n Fixed Pricing: customers in the targeted segment pay the price set (fixed) by the marketer. Dynamic Pricing: Prices vary from customer to customer or situation to situation. 7 -3
Value n n n Marketers must research and analyze value from the customers perspective Marketers must also consider how the product’s value will be communicated to customers. Customers’ perceptions of value and price sensitivity can be used to deal with imbalances in supply and demand. 7 -4
Weighing Benefits vs. Total Price 7 -5
Price Elasticity n n Price elasticity is the level of demand for a product at different price points. Price elasticity is calculated by dividing the percentage change in unit sales demanded by the percentage change in price. Demand is said to be “elastic” when a small price change significantly increases or decreases demand. Demand is said to be “inelastic” when a price change does not significantly change the number of units demanded. 7 -6
Price Elasticity (cont’d) Change in Price Inelastic Demand Elastic Demand Small Increase Demand drops slightly significantly Small Reduction Demand rises slightly Demand rises Significantly 7 -7
Factors Impacting Elasticity In general, customers tend to be less sensitive to a product’s price when they: n Are considering a relatively small amount. n Are unaware of or can’t easily compare substitutes and prices. n Would incur costs or difficulties in switching products. n Perceive that the product’s quality, status, or another benefit justifies the price. n Are spending a relatively small amount or are sharing the cost. n Perceive the price as fair. n Are buying products bundled rather than separately. 7 -8
Cost-Based Pricing / Value-Based Pricing n Cost-based pricing: q q q n Start with the product and its cost. Set a price that covers the cost. Communicate value to customers. Value-based pricing: q q Research customers perceptions of value and the price they are willing to pay. Find a way to make the product at a reasonable cost (target costing) to return a reasonable profit or achieve other objectives. 7 -9
Cost-Based Pricing / Value-Based Pricing Of the two methods, cost-based is more common. 7 -10
Planning Pricing Decisions n Pricing decisions must be: q q q n Value-based Profit-driven Proactive When planning pricing, marketers must examine: q q Objectives External influences n q Tend to suggest the price “ceiling”. Internal influences n Tend to suggest the price “floor”. 7 -11
Pricing to Meet the Firm’s Objectives n n The pricing strategy must be consistent with the firm’s overall goals and objectives Due to market realities, organizations may have to trade off market share growth with profitability. 7 -12
Samples of Pricing Objectives Type of Objective Sample Pricing Objective Financial n. For profitability: Set prices to achieve gross margin of 40%. n. For ROI: Set prices to achieve full-year ROI of 18%. Marketing n. For Societal n. For higher market share: Set prices to achieve a market share increase of 5% within 6 months. n. For customer acquisition: Set prices to attract 1500 new customers from January to June. philanthropy: Set prices to raise $10, 000 for charity during the second quarter of the year. n. For energy conservation: Set prices to sell 500 alternative fuel vehicles nationwide during August. 7 -13
External Pricing Influences Key external influences on pricing strategy include: n Customers n Competitors n Channel Members n Legal, Regulatory and Ethical Concerns 7 -14
Customers n Consumer Customers q q n Perceptions of value, behavior, and attitudes all affect consumers reaction to pricing. Research shows consumers allow some latitude in the range of prices deemed acceptable. Business Customers q q Globalization has increased range of choices. Customers frequently search for the lowest price. n q Willing to switch suppliers frequently. Emphasis on building relationships, thereby increasing switching costs. Customers tend to set the price “ceiling”. 7 -15
Competitors n By analyzing prices, special deals and probable costs of competing products, a company can get a better sense of: q q n The alternatives available to customers, and Competitors’ pricing objectives and strategies. Pricing is highly visible in many industries, often exerting downward pressure on profits and limiting pricing options. 7 -16
Reacting to Competitors’ Changes in Pricing Strategy 7 -17
Channel Members n n Companies must consider the pricing expectations and marketing objectives of their distribution partners: wholesalers and retailers. The marketer must also consider that the Internet is bringing wholesale and retail prices down in many categories, due to: q q q More efficient transaction capabilities, Convenient price comparisons, and Higher competition – sometimes from unexpected sources. 7 -18
Sample of Consumer Pricing in the Retail Channel Note the % increase in price required by each channel intermediary. 7 -19
Legal and Regulatory Concerns Companies need to comply with a variety of pricing laws and regulations. Some of these include: n No price collusion. n No minimum retail price. n No price discrimination. n No predatory pricing. n Price limits. 7 -20
Ethical Concerns Some examples of ethical decisions in pricing: n n n Is it ethical to raise prices during an emergency, when products may be scarce or particularly valuable? Should a company set a high price for an indispensable product, knowing that some customers will be unable to pay? How far in advance should customers be notified of planned price increases? 7 -21
Internal Pricing Influences Key external influences on pricing strategy include: n Costs and break-even objectives. n Targeting and positioning strategy. n Product strategy. n Other marketing decisions. 7 -22
Costs and Break-even Objectives n n Costs typically establish theoretical “floor” of the pricing range. Break-even point: the sales level at which revenues cover costs. Costs and break-even are more easily calculated for existing products in existing markets. For new products, marketers must rely on forecasts and/or expert estimates of costs and expected sales volumes. 7 -23
Total, Fixed and Variable Costs n n n The total cost consists of both fixed and variable cost. Fixed costs: Overhead expenses such as rent and payroll, which do not vary with volume. Variable costs: Expenses such as raw materials, which do vary with volume. 7 -24
Average Cost/Unit n n n Once the marketer knows the total costs, they can divide the total by the number of units produced to compute the average cost per unit. The marketer can then compute this average cost at various output levels, corresponding to different assumptions about demand. This provides important insight to the marketer at how the price could be set at each level of demand to recover total costs, or earn a targeted level of profit. 7 -25
Break-even Example The break-even formula is: n Break-even volume = fixed cost/pricevariable cost. n Example: n n Fixed cost = $40, 550 Variable cost = $45 per unit Price = $995 per unit Therefore: q q q Breakeven = $40, 550/$995 - $45 Breakeven = $40, 550/$950 Breakeven = 42. 6 units (roundup to 43 units) 7 -26
Targeting and Positioning Strategy The price must be appropriate to support the targeting and positioning strategy. n Target Market: q q n A target of price–sensitive customers would likely require lower price points. A target of affluent customers would likely tolerate higher price points. Positioning q q A product positioned as being a “good value” will likely require a lower price point, A product positioned as a luxury good, or as a status symbol would best be supported by a higher price point. 7 -27
Product Strategy Pricing can be used to manage the product’s movement through the life cycle: n n Introduction: Decision between skim and penetration pricing. Growth: Pricing used to stimulate demand, drive toward break-even point. Maturity: Pricing used to defend market share, retain customers, pursue profitability and expand into additional channels. Decline: Pricing can be used to stimulate demand “clear out” old products, or to “milk” existing products for profitability at end of life. 7 -28
Skim Pricing More appropriate when the firm is more focused on profitability, rather than unit volume. Most likely to occur at early stages and late stages of the PLC. Favorable conditions: n n n Considerable differentiation. Quality-sensitive customers. Sustainable advantage. Few competitors. Few substitutes. Difficult competitor entry. 7 -29
Penetration Pricing More appropriate when business is focused on building unit volume. Most likely to occur at the early stages of the PLC. Favorable conditions: n No/Limited differentiation. n Price-sensitive customers. n No sustainable advantage. n Many competitors. n Many substitutes. n Easy competitor entry. 7 -30
Skim and Penetration Pricing Note: Under skim pricing, prices start higher and are maintained higher over time. 7 -31
Pricing for Special Situations Special situations: n For survival: Price to cover costs at very least. n For bankruptcy: Price to liquidate stock and raise money quickly. n For aggressive growth: Set prices to return slim or no profit margins in the short run. 7 -32
Impact of Other Marketing Mix Variables n Channel members, suppliers and logistics q n Each independent business partner has its own business objectives which must be balanced with the objectives of the organization. Promotion strategy q q Higher-priced products often promoted differently and through different media than lower-priced products. Pricing is a challenge for companies that market through personal selling, when customers expect to negotiate prices with salespeople. 7 -33
Adapting Prices n n n Involves the activity of modifying and finetuning prices within an acceptable range. Sometimes prompted by changes in customer behavior. The chosen adaptation depends on the company’s: q q q Resources and capabilities Goals and strategic direction, and Marketing plan objectives 7 -34
Pricing Adaptations Some typical pricing adaptations include: n Discounts n Allowances n Bundling or Unbundling n Product Enhancement n Segment Pricing 7 -35
Pricing Adaptations (cont’d) Pricing Adaptation In Consideration of , , , Examples Discounts Buying in volume Buying out of season Quantity discounts Cash discounts Functional discounts Allowances Participating in special promotions Bringing in old products and trading up to new products Discounts Extra payments Extra product allocations Trade-in allowances Bundling or unbundling Buying multiple products together Buying parts of a product separately Increasing discounts as one purchases more items together. Lower overall prices as one purchases parts of an offering Product Enhancement Maintaining the current price point Raising the price point Adding more for same price Adding complementary products or services Segment Pricing Special requirements of specific segments Child’s menu Senior citizen discount 7 -36
Chapter 10: Planning Performance Measurement and Implementation Control The Marketing Plan Handbook: 3 rd ed. Marian Burk Wood 10 -1
Measurement and Control Measurement n Forecasts of future sales and costs, n Budgets allocating financial resources, n Schedules identifying the timing of marketing tasks, and n Metrics to gauge progress toward achieving objectives. Control n Identify n Analyze n Correct 10 -2
Overview of Measurement Tools 10 -3
Forecasts n n n Are future projections of what sales and costs are likely to be in the months and years covered in the plan. Can never be more than good estimates. However, still should be as accurate as possible. Need to be reviewed often. Must account for the effect that marketing activities will have on the direction and velocity of sales. 10 -4
Forecasts of Sales and Costs n External factors to consider: q q q n Demand Threats Opportunities Internal factors to consider: q q q Goals Capabilities Constraints 10 -5
Types of Forecasts n n Market and segment sales Company product sales Cost of sales Sales and costs by channel Creating the forecasts is only part of the task. Next, month-to-month and year-to-year changes must be estimated in order to examine trends and rates of change. 10 -6
Sources of Information Forecasting n n Value-chain partners Primary research: q n Secondary research: q q q n Studies of buying patterns and buying intentions. Trade associations. Government statistics. Industry analyst reports. Judgment is typically used to fine-tune the estimates. 10 -7
Judgment-based Forecasting 10 -8
Forecasting New Products n n n Forecasting for new products is even more challenging than for existing products. Bass model appropriate when: q The company has been able to collect sales data for even a brief period , and q The product is similar to an existing product or technology with a known sales history. When the product is so innovative that it establishes a new product category, companies will: q Use simulated test markets. q Look at sales patterns of products with similar market behavior. 10 -9
Budgets n n Budgets are time-defined allocations of financial outlays for specific functions, programs, customer segments or geographic regions. Enable marketing managers to: q q Allocate expenses, and Compare estimates with actual expenses. 10 -10
Examples of Budgeting Policies n n n Insist that budget preparation follow internal financial calendars. Specify profit hurdles. Specify particular assumptions about expenses and allocations. Mandate particular formats or supporting documentation. Based upon best-case, worst-case and mostlikely scenarios. Adjusting budgets monthly instead of annually. 10 -11
Budgeting Methods n n Affordability budgeting Percentage-of-sales budgeting Comparative-parity budgeting Objective-and-task budgeting 10 -12
Affordability Budgeting n n n Budgeting what you believe you can afford. May work for start-ups. Generally, not a good way to budget. q n Doesn’t allow for the kinds of significant, ongoing investments often needed to launch major new products or enter intensely competitive markets. Ignores profit payback calculation. 10 -13
Percentage-of-sales Budgeting n n Management sets aside a certain percentage of dollar sales to fund marketing programs. Based on internal budgeting guidelines or previous marketing experience. Advantage: Simple to implement. Disadvantages: q q q Sales are seen as the source of marketing funding, rather than as the result of budget investments. Difficult to justify the % set aside for marketing. Self-defeating: lower sales may lead to a lower marketing budget. 10 -14
Comparative-parity Budgeting n n n Funding marketing by matching what competitors spend. Advantage: Simple to implement. Disadvantages: q q Ignores differences between companies. Doesn’t allow for adjustments to meet specific marketing objectives. 10 -15
Objective-and-task Budgeting n n n Adding up the cost of completing all of the marketing tasks needed to achieve marketing plan objectives. Advantage: A reasonable build-up method. Disadvantage: May add up to more than the firm can afford. Priorities may have to be established. 10 -16
Budgets Within the Marketing Budget n n n Budgets for each marketing mix program. Budgets for each brand, segment or market. Budgets for each region or geographic division. Budgets for each division or product manager. Budget summarizing all marketing expenses. 10 -17
Schedules n Schedules are time-defined plans for completing a series of tasks or activities related to a specific program or objective. q n n Timing should be as concrete as possible. Help avoid conflicts. Help measure progress toward completion. 10 -18
The Scheduling Process n n List the main tasks and activities. Assign each a projected start and end date. q n n n Through research or experience. Determine who is responsible for each task. Develop an overall summary schedule. Develop detailed schedules for each subprogram. q q Gantt charts. Critical path schedules. 10 -19
Metrics: n Focus employees on activities that make a difference. n Set up performance expectations that can be objectively measured. n Lay a foundation for internal accountability and pride in accomplishments. 10 -20
Main Categories of Metrics 10 -21
Marketing Dashboard n n n A marketing dashboard is a computerized, graphical presentation that helps management track important metrics over time and spot patterns that signal deviations from the marketing plan. Helps managers see the situation at a glance, based upon a limited number of data inputs. Varying levels of dashboards: Corporate, divisional or functional. 10 -22
Identifying Metrics Methods of identifying appropriate metrics include: n Working backward from mission, goals and objectives. n Looking for key components or activities related to customer buying behavior. n This would include metrics for each of the three key areas: q q q Marketing objectives, Financial objectives, and Societal objectives 10 -23
Sample Marketing Metrics Objective Metric To acquire new customers. Measure number or percentage of new customers acquired by month, quarter, year. To retain current customers. Measure number or percentage of customers who continue purchasing during a set period. To increase market share. Measure dollar or unit sales divided by total industry sales during a set period. To accelerate product development Measure the time needed to bring a new product to market. 10 -24
Sample Financial Metrics Objective Metric To increase sales revenue by product. Measure product sales in dollars per week, month, quarter, or year. To improve profitability. Measure gross or net margin for a set period byproduct, line, channel, marketing program or customer. To reach break-even. Measure the number of weeks or months until a product’s revenue equals and begins to exceed costs. 10 -25
Sample Societal Metrics Objective Metric To make products more environmentally friendly. Measure the proportion of each product’s parts that are recyclable or have been recycled during a set period. To build awareness of a social issue. Measure awareness among the target audience after the program or a set period. To conserve electricity or fuel. Measure amount used by month, quarter, year. 10 -26
Metrics Based on Customer Behavior 10 -27
Using Metrics are most valuable to the marketer when viewed in the context of: n Expected outcomes. n Historical results. n Competitive or industry outcomes. n Environmental influences. 10 -28
Keys to Success in Implementing a Marketing Plan 10 -29
Controlling Marketing Plan Implementation Four types of marketing control help marketers gauge the effectiveness of the plan implementation: n Annual Plan, n Profitability, n Productivity, and n Strategic Control 10 -30
Four Forms of Control 10 -31
Applying Control Set objectives. Determine metrics. Determine measurement intervals. Measure. Take corrective action, if necessary. 1. 2. 3. 4. 5. q Or modify standards and/or objectives. 10 -32
Contingency Plans Contingency plans are plans that organizations have ready to implement if one (or more) of their original strategies or programs is disrupted by significant, unexpected changes. Often prepared to show the organization will respond in the case of emergencies such as: q q Computer system outages Power outages Natural disasters Etc. Should be creative in terms of considering options, priorities and resources. 10 -33
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