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150 Cards in this Set
- Front
- Back
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What is a product?
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a product is a need-satisfying offering of a firm. It is some combination of a physical good and/or a service. Total or augmented product includes instructions, package, warranty, etc.
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Example of an iPod as a product
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includes the device, interface/software, cables, accessories, iTunes, and the brand.
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Two types of products
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Service-oriented and Goods-Oriented, can be a blend of both
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Why does the increased demand for more service make product management more difficult?
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Products now are a creation of both goods and services. At the same time, it is difficult to manage service products because it is intangible, cannot be inventories, and is inconsistent, depending on how and who is delivering it.
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Service (Products), 3 traits
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1. Intangible: a performance or experience rather than an object / 2. Produced (provided) in real time: it is sold and produced almost simutaneously, produced in the customer's presence, cannot inventory service, and the producer and service are inseparable. For example, if you buy an iPod from Best Buy and have a bad experience, you don't blame the iPod, you blame Best Buy. / 3. Inconsistent: there is a great deal of variable given the role of people delivering the service; it cannot be easily controlled or standardized.
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Product Classification Approach: Tangibility
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Type of User x Degree of Tangibility. There are consumer products and business / industrial products as the two types of users. The three degrees of tangibility are a) services, b) Nondurables / Consumables, and c) Durables / Capital Items. It's important to note that Durables within businesses can either be support goods (such as assembly equipment) or production goods, such as materials and compenents. This approach is product oriented
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Product Classification Approach: Degree of Involvement in Purchase Decision
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Places Mix Element x Involvement level. Product: LI items are Packaged goods and oil changes while HI items are durables such as cars, vacation tours, and advertising agencies. Price: LI inexpensive, more price sensitive while HI are more expensive, less price sensitive.. they can technically be price sensitive but because there are also more attributes, its less important. Place: LI involves wide distribution while HI involves limited distribution / availability. Promotion: LI Price, awareness while HI is uniqueness. Note that these apply to both the products and services
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The product hierarchy
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Product Portfolio (the set of product lines offered by a company) > Product Line (a group of product that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same tpe of outlets, or fall within a given price range) > Product Item (a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value) > Stock Keeping Unit (SKU, a unique version of the product item, differentiating Advil 25 from Advil 50, for example)
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Why are different products created, even though they may be so similar? (such as the Black & Decker drills with and without a comfort grip).
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variants are often created to avoid retail competition, create different prices, or address different needs. Retail distribution has a lot to do with it. They don’t want you to price shop so that customers think that they’re different products.
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The Different Roles of "Design" (6)
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1. Gain Attention, 2. Categorization (try to make it look like other relevant products), 3. Aesthetics, 4. Symbolism (have the product represent something like the Prius), 5. Functional Information (can influence preferences over time like with the Saab), 6. Ergonomic Information
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What is a brand?
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a set of associations evoked by a brand identifier (name, logo, etc.), all put together from consistent, intentional marketing. (Perrier vs. soda water)
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Products vs. Brands
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Products come and go, brands evolve over times
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Brand Equity
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the values of the product beyong the objective good/service, the value of the brands' strength in the market
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How are brands preserved legally?
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Trademarks are words, symbols, or marks that are legally registered for use by a single company. A service mark is a trademark that refers to a service offering.
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What are benefits of brands for consumers?
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They are easy to identify, simplify decision making, lower purchase risks, and enhanced (perceived) value. They ultimtely make shopping easier, because consumers can identify levels of quality with specific products and and shorten the time needed for information search. We tend to go with what is familiar (saves time, increases confidence)
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What are benefits of brands for companies?
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Quickly communicate benefits, promote inclusion in consideration set, increase likelihood of purchase, increase perceived value, enable repeat purchase and extensions. They ultimately reduce selling time and cost, improve the company's image, and provude a unique identity for offerings that competitors can't copy.
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What are some characteristics of a good brand name?
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Short and simple., Easy to spell and read., Easy to recognize and remember., Easy to pronounce., Can be pronounced in only one way., Can be pronounced in all languages., Suggests product benefits., Meets packaging/labeling needs. – e.g. Del Monte sticker on banana, No undesirable imagery., Always timely – won’t go out of date, Adapts to any advertising medium, Legally available.
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Four different brand strategies
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1. Family Brand, 2. Licensed Brand, 3. Generic Brand, 4. Individual Brand
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Family Brand
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the same brand used for several products, such as Sunkist, which appears on fresh fruit, juice, vitamins, and soft drinks. Using a family brand is helpful if the individual products are of a similar quality
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Licensed Brand
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Special case of family branding: a well-known brand that sellers pay a fee to use.
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Generic Brand
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products with no brand at all other than the identification of their contents (e.g. aspirin). They can be important, low-cost alternatives for consumers, such as in the market for prescription drugs.
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Individual Brand
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A brand created for a specific product.. May be used for outside and inside competition. When a company makes very unrelated products that require a separate identity to avoid confusion, developing individual brands for each can be a good idea.
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Strategic Importance of Packaging (3)
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Packaging involved promoting and protecting the product. Good packaging makes products easier to identify and promotes the brand. A) PACKAGING CAN ENHANCE THE PRODUCT: Packaging can do more than contain and protect the product. The package can make the product easier to use or safer to use. Packaging can deter shoplifting and it can also be designed to achieve ecological objectives. B) PACKAGING SENDS A MESSAGE: Creative use of design in packaging can visually help to tie the product to other elements of the promotion mix. Packages also convey information, such as the nutritional information on food products. The package can also promote the brand at the point of purchase or in use. C) PACKAGING MAY LOWER DISTRIBUTION COSTS: Good packages save space and are easier to handle and display. In helping distributors and end-sale retailers, good packages are more welcome by these intermediaries. (example, Wal Mart and concentrated detergents)
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3 Important Facets of New Product Development and Product Management
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1) New Product Development (NPD); 2) The Product Life Cycle (PLC); 3) Managing Products and Brands
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Importance of New Products
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New products are critical to the survival of the the company. Markets change, competition changes, technology changes, but the product life cycles keeps going. The life of a product can be months or years. You have to renew products before your other products' life cycles are over to ensure consistent revenue.
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What is a new product? Firm's & FTC's perspective
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Firm: a product that is new in any way. FTC: a product must be entirely new, or changed in a functionally significant way, can only be called new for six months.
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When marketers make improvements to their products, are they creating wholly new product concepts that should have their own life cycles, or are they merely technical adjustments of the original product idea?
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Most new products don't create new product-markets. The key is the actual product idea. For example, if the modification is dramatic, then it's a new product with a new life cycle. However, if if it's a modification that's not as extreme, it can help extend the maturity of the product life cycle.
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New-Product Development Process (5 Stages)
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An organized approach for bringing new products to the market. 1. Idea generation; 2. Screening; 3. Idea evaluation; 4. Development; 5. Commercialization. It's important to note that NPD is expensive and that many products end up failing. Some products don't offer a unique benefit, or competition is underestimated. Design and cost problems, or poor timing (either too quick of an intro or too slow), doom a product to failure. The process, however, weeds out products that have a low likelihood of success before they are introduced to the entire target market.
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NPD: Idea Generation
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Ideas from customers and users, marketing research, competitors, other markets, company people, middlemen, etc.
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NPD: Screening
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Strengths & Weaknesses, Fit with Objectives, Market trends, Rough ROI estimate
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NPD: Idea Evaluation
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Concept testing, Reactions from customers, Rough estimates of costs, sales, and profits
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NPD: Development
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R&D, Develop model or service, Test marketing mix, Revise plans as needed, ROI estimate
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NPD: Commercialization
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Finalize product and marketing plan, Start production and marketing, Roll Our in select marketing, Final ROI estimate
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Parallel vs. Serial Development
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Most development tends to be very cross-functional, expediting the process significantly. Many of the steps happen parallel to one another, rather than as a step-by-step process. They are, however, difficult to manage.
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The "Gut Check" of NPD
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Measures product success through different perspectives: A) Do consumers/ buyers want it? B) Can we make / provide it? C) Could it make money? Could be three potential product combinations: Pet projects, which are not profitable but consumers want it and the company can make it, Science Projects, which the company can make and would make money but no one would want, and finally, Dream Projects, which could make money and buyers want but is not feasible and can't be made by the company.
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Why do new products fail?
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Gut Check reasons. Do consumers want it? (not reaching customer needs, insignificant advantage relative to competition), Can we provide it? (poor product quality, poor execution of the Marketing Mix 4Ps, bad timing), Will it make money? (Too little market demand to recover investment or high product cost).
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Product Life Cycle Stages
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Four Stages: Market Introduction, Market Growth, Market Maturity, Sales Decline
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Whose sales is the PLC concerning?
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Sales are total sales of the product-market, not a single brand or company. Each product-market will have its own unique PLC, however, with varying lengths (film camera vs. bicycle).
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Marketing Mixes throughout the PLC
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The marketing mix usually changes throughout the PLC, in response to changes in customer needs or attitudes, repositioning of the product, or changes in the competitive stricture of the industry (4 Cs).
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PLC Trends
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Total industry sales start out very low in market introduction, increase to their peak in market maturity, and then decline. HOWEVER, profits declie while industry sales are still rising throughout market maturity.
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PLC: Market Introduction
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Sales are very low as the idea is first introduced to the market. Informative promotion is needed to tell potential customers about the advantages and uses of the new product. Because the process of informing and education is expensive, company resources are all being spent in market introduction. Revenues are large / zero.
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PLC: Market Growth
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The industry sales grows quickly, but industiry rise and then start falling by the end. The innovator, however, receives big profits and attracts competition, who will either copy, try to improve, or slightly tweak the product to reach a narrower target market. The eventual downward slope of revenue can be attributed to the monopolistic competition that inevitably develops. Also, greater consumer price sensitivity. Ultimately, there is a better understanding of customer needs, differentiation, some level of competition, and pressure to lower prices.
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PLC: Market Maturity
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Sales level off and competition continue to increase. Most of the products we use every day are mature products. Promotion costs increase and price competition in some segments cuts into profits. As a result, the less efficient firms drop out of the market. Some new firms may enter the market in the maturity phase, but competing with established strong competitors is difficult. This stage will last until a new product idea comes along.
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What type of promotion is important during Market Maturity?
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Persuasive promotion because competitors try to encourage consumers to buy one brand over another. Also, the prices are going to be more and more sensitive and demand becomes more and more elastic.
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PLC: Sales Decline
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During the sales decline stage, new products replace old ones.Sales are primarily to the most loyal customers or to those who have waited the longest to enter the market. Strong brands may possibly continue to be profitable if marketers cut back on their expenditures and lower the costs of production and marketing. Little / no Investion in new product development and relatively little promotion.
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Products vs. PLC
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Products: increasing diversity over time until market maturity, where needs are more known, then it becomes battle of the brands.
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Places vs. PLC
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Place: first working on buildling channels and maybe selective distribution moving into intensive distribution.
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Promotion vs. PLC
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Promotion: build primary demand and pioneering / informing, then emphasize differentiation, then emphasize differentiating, frantically informing, persuading, reminding.
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Price vs. PLC
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Starts out with skimming and penetration, then moves into price dealing and cutting bc of competition (especially in oligopoly). Driven greatly by competition:value.
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Competitive Situation vs. PLC
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Starts out as a monopoly to monopolistic competition to pure competition by the end of the PLC
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Four types of PLCs in regards to length and shape
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High learning Product (TiVo), Low-Learning (Swiffer-type mops), Fashion Product (rugby shirts), Fad (beanie babies)
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Adoption Rate in relation to Rogers' 5 factors
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1. Comparative Advantage: how much improvement over current option; 2. Compatibility: compatible with existing systems, values, beliefs, and ideas; 3. Ease of use: how hard is it to use the innovation; 4. Trailability: ability of potential users to try on a limited basis; 5. Observability: easy to communicate, degree to which innocation and results are observable by others. NOTE: help explain how fast a product will move through the earlier stages of PLC (intro) and also relevant to specific products within the product market. Explain the different lifecycle curves. Consider TiVo.
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Three ways to manage a PLC
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1. Modify position (respond to competitors, catch a rising trend, change perceptions, quality, performance, same product-market); 2. Modfy the market (new users, increasing use, new use situation); 3. Modify the product (change the value offered).
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Product Manager vs. Brand Manager
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PM focused on NPD and approaches 4Ps from a product perspective (Product line strategy, PD, etc.) BM is more market oriented( vs. product and technology) and emphasizes price, promo, and place.
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Spectrum of Organization Options
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Smaller companies include all-inclusive roles for managers, however, depending on the company size, portfolio, technology, and complexity, it's possible to have a tactical marketing support team and a brand manager as well. Increasing specialization comes with increasing company assets
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Promotion
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Communication information between a seller and a potential buyer or others in the channel to influence attitudes and behavior
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Promotional Tools (5)
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Advertising, Publicity, Sales Promotion, Direct Marketing, Personal Selling
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Promotional Mix
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The combination of promotional tools. A key part of modern marketing is the use of several prmotional tools that work together to achieve a company's overall promotion goals.
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Integrated Marketing Communications
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The intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message
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Mass Marketing
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Advertising, Publicity and Sales Promotion. Mass Marketing involves communicating with large number of potential ustomer at the same time, useful when the market is large and grographically dispersed
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Advertising
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any paid form of nonpersonal presentation of ideas, foods, or services. Includes television, radio, magazines, direct mail and the internet.
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Publicity
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any unpaid form of nonpersonal presentation of ideas, goods, or services.
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Sales Promotion
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refers to promotion activities--other than advertising, publicity, and personal selling--that stimulate interest, trial, or purchase by final customers or others in the channel. Sales promotion may be aimed at consumers, at middlemen, or even at a firm’s own employees.
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Personalized Marketing
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Communicating with individual potential customers
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Direct Marketing
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refers to direct communication between a seller and an individual customer using a promotion method other than face-to-face personal selling
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Personal Selling
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direct spoken communication between sellers and potential customers.
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Pros and Cons of Advertising
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PROS: efficient with big markets (mass reach), control over the message, control over timing, control of target (to a large degree). CONS: expensive, lacks direct feedback, often ignored by intended target
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2 Major Types of Advertising
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1. Institution Advertising: tries to promote the org's image, reputation, and ideas. Supports the overall objectice of developing goodwill or improving an organization's relations with various important groups / 2. Product / Brand Advertising: Tries to sell a product and can be targeting to channel members or final consumers. Product ads are designed to get consumers to know, like, and remember an organization's products or services.
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3 Types of Product / Brand Advertising
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There are three types: Pioneering Advertising, Competitive Advertising, Reminder Advertising.
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Pioneering Advertising
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tries to develop primary demand for a product category rather than demand for a specific product. It is appropriate for the early stages in a product’s life cycle when consumers still need to understand what the product category is all about.
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Competitive Advertising
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tries to develop selective demand for a specific product or brand. Competitive ads become more important as competition increases and as a product moves into maturity.
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Reminder Advertising
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tries to keep the product’s name before the public. It is useful for supporting successful products well into the market maturity and sales decline stages of the product life cycle.
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Comparative Advertising
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A subsection of competitive advertising. Compares directly with competition. Should be supported by research.
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Comparing Advertising Media
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Television and cable are the strongest, allows for demonstrations and wide reaches. At the same time, it's expensive and difficult to differentiate amidst the clutter. Other mediums include direct mail, newspaper, radio, yallow pages, magazine, internet, and outdoor advertising.
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Pros and Cons of Publicity
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PROS: High credibility and low cost; CONS: lack of control of message content, lack of control of message delivery / reach
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Pros and Cons of Sales Promotion
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PROS: Immediately stimulates sales; CONS: benefits may be temporary, easy to duplicate, may degrade image, can lose effectiveness over time
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Sales Promotion and Sales Stimulation (3)
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1. Increase/Decrease: Issues coupons to help clear excess inventory, some consumers might buy in advance "stockpile" to take advantage of the coupon, but unless they use more of the product, their new purchase will be delayed, creating an increase then decrease in sales. 2. Increase/Normal: consumption increases during a limited-time promotion, but when the promotion ends, sales go back to normal. 3. Increase/Stay: Free samples of a product pull in new customers who like the product and keep coming back. This pattern is the kind of long-term result that is the aim of effective sales promotion.
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Pros and Cons of Direct Marketing
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PROS: personalized/customized and more relevant, can be interactive; CONS: expensive databases, concerns about privacy, the more it is used the more it is ignored.
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Pros and Cons of Personal Selling
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PROS: two-way interaction with prospect, message can be tailored to recipient, prospect isn't likely to be distracted, seller involved in purchase decision, source of research information; CONS: messages may be inconsistent, possible management / sale force conflict, cost is often extremely high per prospect, the reach may be very limited, potential ethic problems
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Personal Selling is important when (4Ps)
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Product: complex, high involvement, personal demonstration required. Price: negotiable, adequate margin. Place: selling needed to push product through, intermediaried can provide personal selling. Promotion: information can't be provided by media, sparse market makes ads uneconomical.
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Factors affecting the Promotional Mix (4)
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Target audience, PLC, Product characteristics, channel strategy.
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The Target Audience (Promotional Mix)
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What is the audience's values / objectives? Consumer, industrial customer? Mass / Micro target? Where does target work, read, or play? Where are they on the adoption process?
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Adoption Curve (5 types of adopters)
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Shows when different groups accept ideas. Marketers have long observed that the rate of adoption of a new-product idea varies across these different groups. Promotion must vary for different adopter groups. Groups are innovators, early adopters, early majority, late majority, and laggards/nonadopters.
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Innovators (Adoption Curve)
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Innovators are the first to buy and don't mind taking risks. They search out product information and rely on impersonal and scientific sources or other innovators to make decisions.
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Early Adopters (Adoption Curve)
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well respected by their peers and also often serve as opinion leaders for others. Of all groups, this one has the most contact with salespeople. High satisfaction among early adopters can aid word-of-mouth information about a product, which is highly credible.
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Early Majority (Adoption Curve)
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The early majority group wants to avoid risk and waits to consider a new idea until many early adopters have tried a product and like it. This is a group of deliberate decision makers. They have extensive contact with salespeople, mass media, and early adopter opinion leaders.
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Late Majority (Adoption Curve)
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Whereas the early majority group is deliberate in decision making, the late majority is downright cautious. People in this group are often older than the early majority group and are more set in their ways. This group makes little use of marketing sources of information.
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Laggards or Nonadopters
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Hang to tradition and are very suspicious of new ideas. They are older and less educated. Tend to listen to other laggards
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The PLC and the Promotion Mix
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Introduction: Inform (PR is more common although all mediums can be used. Sales promotion is focused on trial). Growth: Persuade (uses advertising, personal selling, and direct marketing). Maturity: Remind (Advertising and increased use of sales promotions)
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Product Characteristics (relating Promotional Mix)
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Complexity (need more personal selling) and Risk of purchase for consumer/buyer (more personal selling) affect promotion.
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Channel Strategy
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Push vs. Pull Promotion, often times happen at the same time. Push is when marketing channel is willing to promote for you. Pull is when marketing channel is not supportive
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Push Promotion
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Pushing a product through a distribution channel means using normal promotion tools to help sell the whole marketing mix to possible channel members. Emphasized personal selling
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Pull Promotion
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getting customers to ask middlemen for the product. Involves use of mass selling tools to stimulate demand for a particular brand. Customers, who are aware of and interested in the product look for it at retail stores. Ads may even encourage consumers to ask the retailers to carry the product if the store doesn't have it in stock. Resulting sales of the product encourage the middlemen to order more or give the product more attention
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Definition of Price
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“The money or other considerations (including goods and services) exchanged for the ownership or use of a good and/or service”
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Price Equation
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Price = List Price - Discounts & Allowances + Transportation & Taxes
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The Value in relation to Perceived Benefits and Price
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The value increases/decreases as the Perceived Benefits increase/decrease, and the price decreases/increases. Value pricing could mean lower prices for same product (vs. competition) or more benefits at the same price.
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Price Elasticity and Demand
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The more horizontal, the more elastic. E = [% Change in Quantity Demanded] / [% Change in Price] = sensitivity in price. Elastic Demand: E > 1; Inelastic Demand: E < 1.
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What influences shifts on a demand curve?
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consumer tastes and expectations, changes in consumer incomes, the price, and availability of substitutes.
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Factors that influence price elasticity of demand
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Who is paying (company, individual?), total expenditure (or % of income), end benefit (importance), switching costs (already using a given storage media format for your electronic, so it is more expensive to buy a product that uses a different format). Car, Plane, Shirt: Elastic, Paperback, Medical Care, Gas: Inelastic.
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Total Cost
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Price = (Unit Price x Quantity Sold) - Total Cost. Total Cost depends on the Quantity Sold
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Total Fixed Cost (FC)
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Sum of those costs that are fixed and don't depend on quantity produced / sold. Rent, salaries, depreciation, etc.
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Total Variable Cost (VC)
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Sum of expenses that depend on quantity produced / sold (parts, freight, sales commissions, etc.)
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Break Even Analysis
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The quantity at which total revenue = total costs at a given price.
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How does one compute a break-even point?
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The first thing to determine is the fixed-cost (FC) contribution per unit: the assumed selling price per unit minus the variable cost per unit. To find the BEP in units, divide the total fixed costs (TFC) by the contribution per unit.
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Types of Pricing Objectives (3)
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1. Profit Oriented; 2. Sales Oriented; 3. Status quo oriented
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Profit Oriented Objectives
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Target return & maximize profits
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Sales Oriented Objectives
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Dollar or unit sales growth & Growth in market share
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Status quo Oriented Objectives
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"Don't Rock the Boat" Objectives: Meeting competition: stablizes market prices because no firm benefits from raising or lowering prices… this objective is often used when the total market for a product is not growing. Nonprice competition: aggressive action is taken in the other three areas of the 4Ps, staying clear of price as a competitive battleground. Many speciality goods compete using nonprice competition aimed at the consumer who is seeking advantages other than price-- such as prestige image or high quality.
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Framework for Pricing
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Pricing objectives > Pricing Constraints > Pricing Approaches > Setting List Price > Adjustments to List
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Pricing Constraints (4Cs)
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Customer: demand for the product class / product / brand, newness of the product; Company: single product vs. product line, production & marketing costs, cost of price changes; Competitor: their prices, type of competitive market; Context: laws and regulations
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Pricing Approaches
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Demand Oriented: considers factors underlying customer tastes and preferences; Cost Oriented: Emphasizes costs including production, marketing, direct expenses, overhead; Profit Oriented: attempts to balance both revenues and costs to achieve profit targets; Competition Oriented: Considers what competitors or "the market" is doing.
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Some examples of demand oriented pricing
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psychological pricing attempts to discover the price range a customer prefers for a given product. Price cuts within the range don't affect demand very much. Skimming, penetration, prestige, demand backward, odd-even, sequential reductions, loyalty, reference, (loss) leader, baiting, value-in-use, price lining, bundle, complementary
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Methods of Cost Oriented Approaches
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1. Standard markup pricing: adding a fixed percentage to the cost of all itesm in a specific product class. 2. Cost-plus pricing: Summing the total unit cost and adding a specific amount to that cost. 3. Experience curve pricing: Lowering prices (based on lower costs) as production and selling volume increases
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Mark Ups
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Price = Cost x (1 + markup%). Mark ups are standard to increase efficiency and cut costs. Markups are often related to the company's desired or expected gross margin-- net sales minus cost of goods sold.
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Markup Chain
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the sequence of markups firms use in channel pricing
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Profit Oriented Approaches
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1. Target profit pricing: setting prices that will give a target annual dollar volume of profit. 2. Target ROS Pricing: Setting prices that will give a target annual return on sales (Profit/Sales). 3. Target ROI Pricing: setting prices that will give a target annual return on investment(Profit/Investment).
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Competition oriented approaches
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1. Customary Pricing: setting price based on tradition, a standardized distribution channel or other competitive factors; 2. Above/At/Below Market Pricing: Setting price based on a benchmark or the manager's feel for that benchmark (Neiman Marcus vs. JCPenney).
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Setting List Price Methods (2)
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One-Price Policy & Flexible-Price Policy. Price policies usually lead to administrated prices, although this is difficult to ensure in indirect distribution.
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One-Price Policy
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The same for everyone, frequently purchased items, convenient, low cost, maintains goodwill. It can be more convenient entail lower transaction costs and maintain goodwill with customers.
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Flexible-Price Policy
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Different customers, different prices, databases make it easier, salespeople can adjust prices, too much cutting can hurt profits. May prompt resentment from customers who do not get the lowest price.
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Adjustments to List Types (3)
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Discount policies, Allowance policies, and Geographic Pricing Policies
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Discount Policies (5)
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Quantity (cumulative vs noncumulative), Seasonal (policy helps shift the storing function down the channel and to stabilize demand), Cash (reduction in the face value to get people to pay quickly), Trade (reductions in list price given to channel members that perform one or more marketing functions for the producer), Sale (prices reduce list prices temporarily to encourage immediate buying; they can condition buyers and sellers to shop for sales and may erode brand loyalty). It's always just possible to rely on everyday low list prices as well, instead of any discounts.
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Allowance Policies (4)
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Allowances are given to channel members or final consumers for doing something or accepting less of something (i.e. perception that Price, itself, hasn't changed). Advertising, Stocking, Trade-Ins, and Push Money.
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Advertising allowances
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exchange something for something else, price reductions given to firms in the channel to promote the supplier's products locally, i.e. tied to marketing event/ad
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Stocking allowances
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Also called slotting allowances, given to middlemen to get attention and shelf space for a product. Stocking allowances are used mainly in supermarkets, where space is at a premium, forcing producers to pay for product placement.
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Are stocking allowances unethical?
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Some producers think so, calling them a form of extortion. Small prodducers think that stocking allowances put them at a real disadvantage compared to larer producers with more resources. Retailers, on the other hand, call stocking allowances an insurance against product failures. Producers must profuce better products that consumers really want in order to secure shalf space.
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Push Money allowances
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Manufacturers or wholesalers give push money allowances to retailers to be used as inventives for their salesclerks to aggressively push the targeted items (aka SPIFF)
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Trade-in allowances
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the customer receives a price reduction for used products when similar new products are bought
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Geographic Policies
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retail prices sometimes vary according to the location of the buyer relative to the seller. For many industries, geographic pricing policies are an important component of the price variable of the marketing mix.
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FOB Pricing
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Free on board. The seller pays to have the product loaded on a transportation vehicle at which time the titles if transferred to the buyer, who pays shipping and is responsible for the product at that point. FOB pricing is easy for the seller but may limit the range of the market
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Zone Pricing
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easy for the seller but may limit the range of the market. Zone pricing smoothes delivered prices by applying an average freight charge to all customers in the same specified geographic area. This implifies billing and helps buyers know the delivery charges in advance.
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Uniform Delivered Pricing
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charges one price to all buyers, in effect all buyers are in the same "zone", helping open large-area markets.
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Freight Absorption Pricing
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The company pays the cost of shipping without changing the price in order to get the sale. Freight absorption helps a distant company to compete on equal grounds in another territory.
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Benefits of storing inventory (4)
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1. Needed when production doesn't match consumption
2. Keeps prices steady 3. Production Economies of Scale 4. Build Channel Flexibility |
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Importance of channels and channel decisions
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Logistical Functions:
1. managing quantity (accumulating & bulk breaking) 2. managing assortment (sorting and assorting) 3. transportation |
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Horizontal Conflicts
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occur among firms at the same level of the channel, e.g., two car dealers. There are different retailers selling your product. (Best Buy & Barnes and Noble)
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Benefits of storing inventory (4)
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1. Needed when production doesn't match consumption
2. Keeps prices steady 3. Production Economies of Scale 4. Build Channel Flexibility |
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Vertical Conflicts
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occur between different levels of the same channel, e.g., Publisher and Barnes & Noble
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Importance of channels and channel decisions
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Logistical Functions:
1. managing quantity (accumulating & bulk breaking) 2. managing assortment (sorting and assorting) 3. transportation |
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disintermediation
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removal of intermediaries in the supply chain.
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Horizontal Conflicts
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occur among firms at the same level of the channel, e.g., two car dealers. There are different retailers selling your product. (Best Buy & Barnes and Noble)
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Costs of storing inventory (6)
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1. Interest expense and opportunity cost of money tied up in inventory.
2. Cost of storage facilities and maintaining them. 3. Handling costs. 4. Costs of damage to products while in inventory. 5. Cost of risks such as theft and fire. 6. Costs of inventory becoming obsolete. |
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What cuts inventory costs?
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Rapid response does. Just-in-time (JIT) inventory or efficient customer response (ECR) systems, storing costs will drop because less inventory is needed at any particular point in time.
Electronic data interchange (EDI) linkages that spark replenishment orders will also help to make storing more efficient. |
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Vertical Conflicts
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occur between different levels of the same channel, e.g., Publisher and Barnes & Noble
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Physical Distribution Concept
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dictates that all transporting, storing, and product-handling activities of a business and a whole channel system should be coordinated as one syste, that seeks to minimize the cost of distribution for a given custoer service level. unfortunately, too many firms still treat physical distribution activities as separate and unrelated.
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disintermediation
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removal of intermediaries in the supply chain.
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Costs of storing inventory (6)
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1. Interest expense and opportunity cost of money tied up in inventory.
2. Cost of storage facilities and maintaining them. 3. Handling costs. 4. Costs of damage to products while in inventory. 5. Cost of risks such as theft and fire. 6. Costs of inventory becoming obsolete. |
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Physical Distribution Concept: Total Cost Approach
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evaluating each possible physical distribution system and identifying the total costs of each alternative system. the challenge is to minimize total costs while maintaining a satisfactory service level.
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What cuts inventory costs?
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Rapid response does. Just-in-time (JIT) inventory or efficient customer response (ECR) systems, storing costs will drop because less inventory is needed at any particular point in time.
Electronic data interchange (EDI) linkages that spark replenishment orders will also help to make storing more efficient. |
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Steps to choosing a supply chain strategy
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1. Understand the target customer
2. Understand the supply chain options 3. Harmonize the supply chain with the marketing strategy. |
