Market Analysis and

Development

Instructor:

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 New Business Trends in the Next Few
Decades
• New Retailing
O2O + logistics

• New Manufacturing
-Shift from standardization and mass production to
customization and individualization
-Shift from B2C to C2B

• New Finance
-New sources of money for 80% of SMEs

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• New Technologies
-IOT
-Smart manufacturing

• New Resource
Data will become a new resource.

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 Marketing Opportunities and Threats

• In spite of the new changes in the business environment,

business logics has yet to change. So marketing will continue to
play a key role in corporate growth.

• The principle of “Customer First” is likely to become more

prominent.

• Disintermediation will be prevailing. However, in some

industries, counter-disintermediation is likely to occur.

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• To adapt to the changes in customer behavior in the Internet,
esp. mobile Internet era, companies need to engage in smart
marketing (or Big Data marketing).

• Business model innovation should be a key consideration in

marketing.

• Internet Thinking vs Craftsman Spirit

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 Chapter 1

Defining Marketing for the 21st Century

• What is marketing?
• Core marketing concepts
• The marketing process
• Marketing management orientations
• Customer relationship management

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1 What Is Marketing
• Marketing is more than selling and advertising.

Philip Kotler observes that marketing is not a clever way

of selling a product but rather the art of creating genuine
customer value.

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Peter Drucker noted that “the aim of marketing is to
make selling superfluous…Ideally, marketing should
result in a customer who is ready to buy”.

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We define marketing as the process by which companies
create value for customers and build strong customer
relationships in order to capture value from customers in
return.
• Marketing occurs in a competitive environment.

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• Marketing requires an organization to be both
customer-driven and customer-driving.
• Customer-driven marketing is the marketing effort
devoted to identifying and satisfying the needs that
customers are conscious of.
• Customer-driving marketing is the marketing effort
devoted to identifying and satisfying the needs that
customers are unconscious of, telling them what they
need.

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“Customers come first. If you focus
on what customers want and build a
relationship, they will allow you to
make money.”

⎯Jeff Bezos, founder of Amazon.com

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• Marketers must study competitors as well as
customers.
• Marketing management can be defined as the art
and science of choosing target markets and getting,
keeping, and growing customers through creating,
delivering, and communicating superior customer
value.
• Peter Drucker noted that marketing should be
viewed as the core function of a business.

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 Marketing

Customer
HR

Modern View of Marketing’s Role in the Company

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2 Core Marketing Concepts

• Needs and wants

• Markets
• Segmentation, target markets, and positioning
Core • Market offerings
marketing • Customer value and satisfaction
concepts
• Relationships and networks
• Marketing channels
• Value chain and supply chain
• Marketing mix

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Needs and Wants
• Needs are states of felt deprivation.
• Wants are product-specific needs shaped by culture and
individual preferences.

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Markets
• A market is the set of all actual and potential buyers of a
product or service.
• Marketers see the sellers as constituting an industry and
the buyers as constituting a market.

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Segmentation, Target markets, and Positioning
• Market segmentation is the process of dividing a market
into distinct segments of customers with common needs or
characteristics.
• The segments selected by a company and offering the
greatest opportunity are the company’s target markets.
• Positioning involves implanting a brand’s unique value
into the minds of the target customers.

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Market Offerings
• A market offering is anything offered to the market that
will satisfy a customer need or want.
• Market offerings can be goods, services, events,
experiences, persons, places, properties, organizations,
information, and ideas.

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Customer Value and Customer Satisfaction
• Customer value ( also called customer-delivered value or
customer perceived value) is the difference between total
customer value and total customer cost.

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Product value

Services value Total

customer
Personnel value value

Image value
Customer-
delivered
value
Monetary cost

Time cost Total

customer
Energy cost cost
Determinants of
Psychic cost Customer-Delivered
Value
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• Customer satisfaction is the feeling that results from the
extent to which a product’s perceived performance (P)
matches a buyer’s expectations (E).

P = E Satisfied

P > E Delighted

P < E Dissatisfied

Customer Satisfaction Dynamics

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Relationships and Networks
• Relationships are economic, social, and structural
connections between a company and its customers and
suppliers.
• A marketing network consists of the company and its
supporting stakeholders (customers, employees, suppliers,
distributors, retailers, ad agencies, university scientists,
and others) with whom it has built mutually profitable
business relationships.
• Today’s competition takes place more between networks
than between individual companies.

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Marketing Channels
A company’s marketing channels are the distribution
channels that display, sell, or deliver the company’s
offerings to buyers or users.

Manufacturer Resellers End-users

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Value chain and Supply Chain
• A company’s value chain consists of the series of value-
creating activities to design, produce, market, deliver, and
support the company’s products.
• A company’s supply chain (also called value-delivery
network) is a channel through which materials, final goods,
and related information flow among suppliers, the
company, resellers, and final consumers.

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Marketing Mix
Marketing mix is the set of controllable tactical marketing
tools —product, price, place, and promotion —that the
firm blends to produce the response it wants in the target
market.

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26
 3 The Marketing Process

Understanding the Design a Construct a Build profitable

marketplace and customer-driven marketing program relationships and
customer needs marketing that delivers create customer
and wants strategy superior value delight

Capture value
from customers to
create profits and
customer equity

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4 Marketing Management Orientations

Marketing Management Orientations

The production concept

The product concept
The selling concept
The marketing concept
The societal marketing concept

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5 Customer Relationship Management
• Customer relationship management as a strategy is the
overall process of building and maintaining profitable
customer relationships by delivering superior customer
value and satisfaction.
• As a management tool, customer relationship
management (CRM) involves managing detailed
information about individual customers and carefully
managing customer “touch points” in order to maximize
customer loyalty.

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5.1 Benefits from CRM
• Effective CRM can generate high customer equity.
• Customer equity is the total combined customer lifetime
values of all of the company’s customers. Clearly, the
more loyal the firm’s profitable customers, the higher the
firm’s customer equity.
• Customer lifetime value is the value of the entire stream
of purchases that the customer would make over a lifetime
of patronage.
Customer lifetime value = spending per purchase  number of
purchases per year  number of years of patronage

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• Studies have found that it costs 6 to 10 times as much to
develop a new customer as it does to keep an existing
customer.
• Loyal customers are likely to spread positive word of
mouth (WOM), which can help bring new customers.

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5.2 Procedures of Practical CRM
On a practical level, a company’s CRM involves three
steps:
1. To build a customer database by collecting customer
data from every customer touch-point.
2. To classify the company’s existing customers
according to their profitability and consumption
potential.
3. To conduct different levels of relationship marketing
on different categories of customers.

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5.3 Customer Relationship Levels
• Customers are not equally profitable (the 80/20 rule).
• It’s important for firms to conduct customer profitability
analysis and determine customer investment accordingly.
One study divided customers into four tiers based on their
profitability: the platinum tier (heavy users who are not
price sensitive), the gold tier (heavy users who ask for
discounts), the iron tier (brand switchers and discount
seekers), and the lead tier (losing customers who spread
negative word of mouth).

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 Platinum customers

Gold customers

Iron customers

Lead customers

Profit pyramid Marketing

investment pyramid

Allocating Marketing Investment according to

Customer Profitability

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• Companies must build selective customer relationships.
Depending on the number of customers/distributors and the
profit margin level, companies can build customer
relationships at any of the five levels: basic marketing,
reactive marketing, accountable marketing, proactive
marketing, and partnership marketing.

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 High Margin Medium Margin Low Margin

Many customers/ Accountable Reactive Basic or reactive

distributors
Medium number of Proactive Accountable Reactive
customers/distributors
Few customers/ Partnership Proactive Accountable
distributors

Levels of Relationship Marketing

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It is important to note that with the development of e-
commerce, the Long Tail Theory may be more revealing
of the business reality.

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5.4 Relationship Marketing
5.4.1 Application Scope of Relationship Marketing

B2B B2C

B2B goods B2C goods

Goods
marketers marketers

B2B service B2C service

Services
marketers marketers

Types of Marketers

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5.4.2 Relationship Marketing Tools
A company can build relationships with its customers by
forging three types of ties.
1. Financial Ties
e.g. Many companies now offer frequency marketing programs that
reward customers who buy frequently or in large amounts. Airlines
offer frequent-flier programs; hotels give room upgrades to their
frequent guests; supermarkets give patronage discounts to VIP
shoppers.

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2. Social Ties
e.g. Harley-Davidson sponsors the Harley Owners Group (H.O.G),
which gives Harley owners “an organized way to share their passion
and show their pride.” The worldwide club now has more than 1,300
local chapters and 800,000 members.

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3. Structural Ties
Structural ties are mechanisms designed to increase
customers’ switching costs.
e.g. Tetra Pak, a Swedish manufacturer of packaging materials,
offers packaging machines for free. But a company which uses
packaging machines provided by Tetra Pak must buy packaging
materials from Tetra Pak, because the machines are compatible only
with Tetra Pak’s packaging materials.

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 Chapter 2

Strategic Planning and Marketing Strategy

• Strategic planning
• Marketing strategy and the marketing mix
• Contents of a marketing plan

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1 Strategic Planning
1.1 What Is Strategic Planning about?
• Strategic planning is the process of developing and
maintaining a strategic fit between the organization’s
goals and capabilities and its changing marketing
opportunities.
• Essentially, strategic planning involves building and
maintaining competitive advantages based on an
analysis of the company’s external environmental
factors and its internal capabilities, particularly its core
competencies.

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• Successful strategic planning results in doing the
right thing at the right time in the right place.

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Example: Chinese Manufacturers of Home
Appliances

Time Frames Key Market Successful Firms

Variables
1985-1989 Price Changhong, Konka
1989-1992 Quality Haier, Frestec,
Ronshen
1992-1996 Services Haier, TCL
1996-2000 Speed Haier, Midea, TCL
2005-2010 Internationalization Haier, TCL, Midea
2010-2015 Value-delivery Gree, Midea, TCL
Network

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• Strategy can be divided into three levels:
→Corporate strategy
→Business strategy (Competitive strategy)
→Functional strategy

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• Michael Porter proposed three generic competitive
strategies:
→Overall cost leadership
→Differentiation
→Focusing

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 1.2 Steps in Strategic Planning

Corporate level Business unit,

product, and
market level

Defining Setting company Designing Planning marketing

the company objectives the business and other functional
mission and goals portfolio strategies

Steps in strategic planning

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1.2.1 Defining a Market-Oriented Mission
• A mission is an organization’s purpose⎯what it
wants to accomplish in the larger environment.
• A company’s mission can be defined by answering
these questions:
⎯What is our business? (business scope)
⎯Who is the customer? (target market)
⎯What values can we deliver to these customers?
(value proposition and distinctive competency)
⎯What should our business be in the future? (vision)

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• Mission statements must be:
⎯Market-oriented rather than product- or technology-
oriented
⎯Motivating

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• Two examples of good mission statements:
⎯Our Mission is to be the Global Market Share Leader
in each of the markets we serve. We will earn this
leadership position by providing to our distributor and
end-user customers innovative, high-quality, cost-
effective and environmentally responsible products. We
will add value to these products by providing legendary
customer service through our Uncompromising
Commitment to Customer Satisfaction. (Rubbermaid
Home Products Inc.)

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⎯Our mission is to grow and dominate the U.S.
specialty tea market by exceeding consumer
expectations: The best tasting, 100 percent natural hot
and iced teas, packaged with Celestial art and
philosophy, creating the most valued tea experience
(Celestial Seasonings)

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1.2.2 Setting Company Objectives and Goals
• A company’s mission needs to be materialized into a
hierarchy of objectives, including corporate overall
objectives, business objectives, and marketing objectives.
• Formal objectives provide decision criteria that guide a
company’s business units and employees toward specific
dimensions and levels of performance. Those same
objectives provide the benchmark for evaluating actual
performance.

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Example
Monsanto, a company operating in many businesses,
including agriculture, pharmaceuticals, and food products.
⎯Mission: to create abundant food and a healthy
environment
⎯Overall objective: to create environmentally better
products and get them to market faster at lower costs
⎯The agricultural division’s objective: to increase
agricultural productivity and reduce chemical pollution
by researching new pest- and disease-resistant crops that
produce higher yields without chemical spraying

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⎯Marketing objective: to increase sales by improving the
company’s share of the U.S. market, by entering new
foreign markets, or both

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1.2.3 Designing the Business Portfolio
• A company’s business portfolio is the collection of
businesses and products that make up the company.
• The best business portfolio is the one that best fits the
company’s strengths and weaknesses to opportunities in
the environment.
• Business portfolio planning involves two steps: First,
the company must analyze its current business portfolio
and decide which businesses should receive more, less,
or no investment. Second, it must shape the future
portfolio by developing strategies for growth and
downsizing.

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1.2.3.1 Analyzing the Current Business Portfolio
• Current business portfolio analysis consists of two
steps: First, management identifies the key businesses,
called strategic business units (SBUs), that make up the
company. Second, management assesses the
attractiveness of the various SBUs and decides how
much support each deserves.

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 Stars Question marks

High
Market Growth rate

Low

Cash cows Dogs

High Low
The BCG
Growth-Share Relative market share
Matrix

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• Once it has classified its SBUs, the company must
determine what role each will play in the future. One of the
four strategies for each SBU: (1)To build, (2) To hold, (3)
To harvest, (4) To divest.
• Limitations of the BCG growth-share matrix:
⎯Market growth rate is an inadequate indicator of overall
industry attractiveness, and relative market share is
inadequate as an indicator of overall competitive strength.
⎯The model may lead a company into a high-growth
industry that is unrelated to its current businesses.
⎯The model fails to consider the synergies between two or
more businesses.
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1.2.3.2 Developing Strategies for Growth and
Downsizing
• Three growth strategies:
(1) Intensive growth strategies⎯identifying
opportunities to achieve growth within the company’s
current businesses: market-penetration, market-
development, and product-development.

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 Existing New
products products

Existing Market Product

markets penetration development

New Market
(Diversification)
markets development

The Product-Market Expansion Grid

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(2) Integrative growth strategies⎯identifying
opportunities to achieve growth by acquiring supply
chain members or competitors: vertical integration
(backward integration, forward integration), and
horizontal integration.
(3) Diversification growth strategies⎯identifying
opportunities to achieve growth by acquiring businesses
that are related or unrelated to the company’s existing
businesses: concentric diversification, horizontal
diversification, conglomerate diversification.

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• Downsizing means reducing the business portfolio by
eliminating products or business units that are not
profitable or that no longer fit the company’s overall
strategy.

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2 Marketing Strategy and the
Marketing Mix
Marketing strategy is the marketing logic by which
the business unit hopes to achieve its marketing
objectives. It includes segmenting the market the
SBU has identified (segmentation), selecting the most
promising segments (targeting), and positioning its
offering (positioning).

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 Product Price
Variety List price
Quality Discount
Design Allowances
Features Payment period
Brand name Credit terms
Packaging
Services Target
customers

Intended
positioning
Promotion Place
Advertising Channels
Personal selling Coverage
Sales promotion Assortments
Public relations Locations
Direct marketing Inventory
Transportation
Logistics

The four Ps of the marketing mix

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 4Ps 4Cs
Product Customer solution
Price Customer cost
Place Convenience
Promotion Communication

4Ps versus 4Cs of the marketing mix

Marketers would do well to think through the 4Cs

first and then build the 4Ps on that platform.

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 3 Contents of a Marketing Plan
Section Purpose
Executive summary Presents a brief summary of goals or
recommendations of the plan for management
review
Current marketing situation Provides information about market, product
performance, competition, distribution
Threat and opportunity analysis Assesses major threats and opportunities
Objectives and issues States the marketing objectives and discusses the
issues that will affect their attainment
Marketing strategy Outlines the STP and marketing mix strategies
Action programs Spells out how the strategies will be carried out
Budgets Creates a projected profit-and-loss statement
Controls Specifies the control that will be used to monitor
progress and review results

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 Chapter 3

Analyzing the Marketing Environment

• The company’s microenvironment of marketing

• The company’s macroenvironment of marketing
• Responding to the marketing environment

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• A company’s marketing environment consists of the
actors and forces outside marketing that affect
marketing management’s ability to build and maintain
successful relationships with target customers.
• The marketing environment is made up of a
microenvironment and a macroenvironment.
• A company’s microenvironment of marketing
consists of the actors close to the company that affect
its ability to serve its customers⎯the company,
suppliers, marketing intermediaries, customers,
competitors, and publics.

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• A company’s macroenvironment of marketing
consists of the larger societal forces that affect the
microenvironment⎯demographic, economic, natural,
technological, political, and cultural forces.
Marketing does not operate in a vacuum.
Environmental actors and forces shape marketing
opportunities, pose marketing threats, and affect
marketing management’s ability to serve customers
and develop profitable relationships with them.

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1 The Company’s Microenvironment
of Marketing

Marketing
intermediaries Customers

Suppliers Competitors

The company Marketing Publics

Actors in the Microenvironment of Marketing

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1.1 The Company
• Marketing managers make decisions within the
strategies and plans made by top management.
• Marketing managers must also work closely with
other company departments, which tend to pursue their
own interests from a departmental point of view.

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1.2 Suppliers
Suppliers affect marketing through the availability,
quantity, quality, and prices of materials and other
supplies.

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1.3 Marketing Intermediaries
• Marketing intermediaries include resellers, physical
distribution firms, marketing services agencies, and
financial intermediaries, helping the company to
promote, sell, and distribute its goods to final buyers.
• In its quest to create profitable customer relationships,
the company must do more than just optimize its own
performance. It must also partner effectively with
marketing intermediaries to optimize the performance
of the entire system.

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1.4 Customers
The company needs to study five types of markets:
consumer markets, business markets, reseller markets,
government markets, and international markets.

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1.5 Competitors
To be successful, a company must provide greater
customer value and satisfaction than its competitors do.
Thus, marketers must do more than just cater to the
needs of target markets. They also must gain strategic
advantage by positioning their offerings strongly
against competitors’ offerings in the minds of
consumers.

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1.6 Publics
A public is any group that has an actual or potential
interest in or impact on an organization’s ability to
achieve its objectives.
A company faces seven types of publics: financial
publics, media publics, government publics, citizen-
action publics, local publics, general public, and
internal publics.

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2 The Company’s Macroenvironment
of Marketing

Natural Technological
forces forces

Economic Political
forces forces

Demographic Cultural
forces Company forces

Major Forces in the Macroenvironment of Marketing

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2.1 Demographic Environment
• Demography is the study of the characteristics of
human population, such as size, density, location, age,
gender, race, occupation, education.
• Demographic factors that affect marketing:
(1) Size and change of population
(2) Structure of population (age structure, gender
structure, family structure, social structure)
(3) Geographic shifts in population

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2.2 Economic Environment
• The economic environment consists of factors that
affect consumer purchasing power and spending
patterns.
• Economic considerations for marketers:
(1) Level of economic development (per capita GDP)
(2) Changes in income (average income, income
distribution)
(3) Consumer spending patterns (Engel’s law, Engel
coefficient, savings and borrowing patterns)

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2.3 Natural Environment
• The natural environment involves the natural
resources that are needed as inputs by marketers or that
are affected by marketing activities.
• Major trends in the natural environment:
(1) Growing shortages of raw materials
(2) Increased pollution
(3) Increased government intervention in natural
resource management

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2.4 Technological Environment
Marketers should watch for three major trends in the
technological environment:
(1) Rapid pace of technological advances
(2) High R&D budgets
(3) Concentration by companies on minor product
improvements

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2.5 Political Environment
• The political environment consists of laws,
government agencies, and pressure groups that
influence or limit marketing actions.
• The political environment shows two major trends:
increasing business legislation, and increased emphasis
on ethic and socially responsible actions.

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2.5.1 Increasing Business Legislation
• Almost all countries practicing market economy have
developed a set of laws and regulations governing
competition, fair trade practices, environmental
protection, product safety, truth in advertising,
consumer rights and privacy, packaging and labeling,
pricing, etc.
• Business legislation has been enacted to protect
companies from each other, to protect consumers from
unfair business practices, to protect the interests of
society against unrestrained business behavior.

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2.5.2 Increased Emphasis on Ethics and Socially
Responsible Actions
• Beyond written laws and regulations, business is also
governed by social codes and rules of professional
ethics.
• Some companies are conducting cause-related
marketing. Others are practicing a “3BL” strategy. Still
others have incorporated SRM into the overall
management system.

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2.6 Cultural Environment
• The cultural environment consists of institutions and
other forces that affect a society’s basic values,
perceptions, preferences, and behaviors.
• Major cultural factors that affect marketing include
core values, language, religion, customs, colors, etc.

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3 Responding to the Marketing
Environment
Companies can passively accept the marketing
environment as an uncontrollabe element to which
they must adapt, avoiding threats and taking
advantage of opportunities as they arise. Or they can
take an environmental management perspective,
proactively working to change the environment rather
than simply reacting to it. Whenever possible,
companies should try to be proactive rather than
reactive.

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 Chapter 4

Managing Marketing Information

• Assessing marketing information needs

• Developing marketing information
• Analyzing marketing information
• Distributing and using marketing information

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91
• To create superior customer value and satisfaction,
companies need sound information on customers,
competitors, suppliers, resellers, and other actors and
forces in the marketplace.
• Increasingly, marketers are viewing information not
only as an input for making better decisions but also as
an important strategic asset.

92
• To meet information needs and make effective and
timely decisions, companies must develop a sound
marketing information system.
• A marketing information system (MIS) consists of
people, equipment, and procedures to gather, sort,
analyze, evaluate, and distribute needed, timely and
accurate information to marketing decision makers.

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 Marketing Managers and Other Information Users

Marketing Information System

Developing and analyzing information

Internal Information
Assessing databases analysis Distributing
information and using
needs information
Marketing Marketing
intelligence research

Marketing Environment

The Marketing Information System 94

1 Assessing Marketing Information Needs
• Marketing information is needed not only by the
company’s marketing and other managers but also by
external partners.
• A good marketing information system balances the
information that users would like to have against what
they need really and what is feasible to offer.
• The company must decide whether the benefits of
obtaining additional information are worth the costs.

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2 Developing Marketing Information
Marketers can obtain the needed information from
internal data, marketing intelligence, and marketing
research.

96
2.1 Internal Data
• Many companies build extensive internal databases,
electronic collections of information obtained from
data sources within the company.
• Information in the databases can come from
accounting, operations, sales force, marketing,
customer service, research studies.
• Internal databases usually can be accessed more
quickly and cheaply than other information sources,
but they also present some problems.

97
2.2 Marketing Intelligence
• Marketing intelligence is the system collection and
analysis of publicly available information about
competitors and developments in the marketing
environment.
• The goal is marketing intelligence is to improve
strategic decision making, assess and track
competitors’ actions, and provide early warning of
opportunities and threats.

98
• Much intelligence can be collected by talking with
rivals’ people, analyzing rivals’ products, researching
the Internet, and even rooting through rivals’ trash
bins.
• Intelligence gathering should take place within the
domain of the law and ethics. Companies should take
advantage of publicly available information. It’s both
legally and ethically unwise to “stoop to snoop”.

99
 2.3 Marketing Research
Marketing research is the systematic collection,
analysis, and reporting of data relevant to a specific
marketing situation facing an organization.

Defining the Developing the Implementing the Interpreting and

problem and research plan research plan⎯ reporting
research for collecting collecting and the findings
objectives information analyzing the data

The Marketing Research Process

100
2.3.1 Defining the Problem and Research
Objectives
• The problem can be defined by observation and
exploratory research.
• A marketing research project may have one of three
types of objectives: exploratory research, descriptive
research, and causal research.
• The objective of exploratory research is to gather
preliminary information that will help define the
problem and suggest hypotheses.

101
• The objective of descriptive research is to better
describe marketing problems, situations, or markets.
• The objective of causal research is to test hypotheses
about cause-and-effect relationships.
• Managers often start with exploratory research and
later follow with descriptive or causal research.

102
2.3.2 Developing the Research Plan
The research plan outlines sources of existing data
and spells out the specific research approaches,
contact methods, sampling plans, and instruments that
researchers will use to gather new data.

103
 Planning Primary Data Collection

Research Contact Sampling Research

Approaches Methods Plan Instruments

Survey Mail Sampling unit Questionnaire

Experiment Telephone Sample size Mechanical instruments
Personal Sampling procedure
Online

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 Types of Sampling

Probability Sample
Simple random sample
Systematic random sample
Stratified random sample
Cluster (area) sample

Nonprobability Sample
Convenience sample
Judgment sample
Quota sample

105
 Types of Questions Used in Questionnaires

A. Closed-ended Questions
Dichotomous
In arranging this trip, did you personally phone China Southern Airlines?
 Yes  No
Multiple choice
With whom are you traveling on this flight?
 No one  Spouse  Spouse and children  group

106
Likert scale
Small airlines generally give better service than large ones.
Strongly Agree Neither agree Disagree Strongly
agree nor disagree disagree
1_____ 2______ 3______ 4______ 5______
Semantic differential scale
American Airlines
Large Small
Experienced Inexperienced
Modern Old-fashioned

107
Rank-order scale
The following are five brands of fabric detergent. Rank them in terms of
ability of removing stains. Place a 1 alongside the brand that you perceive is
most powerful in removing stains, a 2 alongside the brand that you perceive is
second most powerful. Continue doing this until you have ranked all the five
brands.
___ Tide ___ Omo ___ Eagle ___ Liby ___ Keon
Behavior intention scale
If an in-flight telephone were available on a long flight, I would
Definitely Probably Not Probably Definitely
buy buy sure not buy not buy
1_____ 2______ 3______ 4______ 5_____

108
 B. Open-ended Questions
Completely unstructured
What’s your opinion of China Southern Airlines?
Word association
What is the first word that comes to your mind when you hear the following?
Airline _______________
China Southern _______________
Travel _______________
Sentence completion
When I choose an airline, the most important consideration in my decision is
______________________________.

109
Story completion
“I flew American a few days ago. I noticed that the exterior and interior of the
plane had very bright colors. This aroused in me the following thoughts and
feelings” Now complete the story.
Picture
(A picture of two characters is presented, with one making a statement.
Respondents are asked to identify with the other and fill in the empty balloon.)
Thematic Apperception Test (TAT)
(A picture is presented and respondents are asked to make up a story about
what they think is happening or may happen in the picture.)

110
 Questionnaire Dos and Don’ts

1. Ensure that questions are without bias.

“Do you favor Brand X over competing brands?”
2. Make the questions as simple as possible.
“Do you feel that America should threaten a boycott of Arab goods and a
possible military invasion to keep the Arab States from shutting off the oil
supply?”
3. Make the questions specific.
“How do you shop?”
4. Avoid jargon or shorthand.
“What was your estimated opportunity cost in taking the job?”

111
5. Avoid sophisticated or uncommon words.
“Do you think honesty and generosity are concomitant traits?”
6. Avoid undefined relative words.
“Do you prefer driving fast?”
7. Avoid questions that require much memory.
“When did you buy your first mobile phone?”
8. Avoid questions with a negative in them.
“Have you never shopped online?”
9. Desensitize questions by using response bands.
“How much do you earn a year?”
10. Allow for “others” in fixed response questions.

112
2.3.3 Implementing the Research Plan
• Implementing the research plan involves collecting,
processing, and analyzing data.
• In the data collection phase, researchers must guard
against problems with respondents who give biased
answers, and with interviewers who make mistakes or
take shortcuts.

113
• In processing and analyzing the collected data,
researchers need to check data for accuracy and
completeness.
• Researchers must code the data for analysis and
tabulate the results.

114
2.3.4 Interpreting and Reporting the Findings
Interpretation should not be left only to the
researchers. Managers and researchers must work
together closely when interpreting research results.

115
3 Analyzing Marketing Information
• The collected information usually requires more
analysis, including advanced statistical analysis and
the application of analytical models.
• In recent years, marketers have paid special
attention to the analysis of individual customer data.
Many companies have now acquired or developed
special software and analysis techniques⎯called
customer relationship management⎯that integrate,
analyze, and apply the mountains of individual
customer data contained in their databases.

116
• Customer relationship management (CRM) involves
managing detailed information about individual
customers and carefully managing customer “touch
points” in order to maximize customer loyalty.
• Companies use CRM analysis to assess the value of
individual customers, identify the best ones to target,
and customize the company’s products and
interactions to each customer.

117
4 Distributing and Using Marketing
Information
• The marketing information system must make the
information available to the managers and others who
make marketing decisions or deal with customers on a
day-to-day basis.
• Companies must develop effective intranets and
extranets.

118
 Chapter 5

Analyzing Consumer Markets

• Model of consumer behavior
• Factors affecting consumer behavior
• Types of buying-decision behavior
• The buyer decision process

119
120
• Consumer market consists of all the individuals
and households who buy or acquire goods and
services for personal consumption.
• Consumer buyer behavior is the buying behavior
of final consumers⎯individuals and households who
buy goods and services for personal consumption.

121
 1 Model of Consumer Buyer Behavior

Marketing and other stimuli Buyer’s black box Buyer responses

Marketing Other Buyer characteristics Product choice

Product Economic Buyer decision process Brand choice
Price Technological Dealer choice
Place Political Purchase timing
Promotion Cultural Purchase amount

A Model of Consumer Buyer Behavior

122
2 Factors Affecting Consumer
Behavior
Consumer purchases are influenced strongly by
cultural, social, personal, and psychological
characteristics.
For the most part, marketers cannot control such
factors, but they must take them into account.

123
 Cultural Social Personal Psychological

Culture Reference groups Age and life-cycle stage Motivation

Occupation
Subculture Family Economic situation Perception
Lifestyle
Social class Roles and status Personality & Self-concept Learning

Beliefs and attitudes

Buyer

Factors Influencing Consumer Behavior

124
2.1 Cultural Factors
Cultural factors that influence consumer behavior
include culture, subculture, and social class.
2.1.1 Culture
• Culture is the set of basic values, perceptions, wants,
and behaviors learned by a member of society from
family and other important institutions.
• Marketers should try to spot cultural shifts in order
to discover new products that might be wanted.

125
2.1.2 Subculture
• Subculture is a group of people with shared value
systems based on common life experiences and
situations.
• Subcultures include nationalities, religions, racial
groups, and geographic regions.
• It is important to note that each major subculture is
made up of many smaller subcultures, each with its
own preferences and behaviors.

126
2.1.3 Social class
• Social classes are relatively permanent and ordered
divisions in a society whose members share similar
values, interests, and behaviors.
• Social class is measured by income, occupation, and
education.
• Marketers are interested in social class because
people within a given social class tend to exhibit
similar buying behavior.

127
• Social scientists have identified the seven social
classes in the US: upper uppers (less than 1%), lower
uppers (2%), upper middles (12%), middle class (32%),
working class (38%), upper lowers(9%), and lower
lowers (7%).
• Social classes show distinct product and brand
preferences in areas such as clothing, home
furnishings, leisure activity, and automobiles.

128
2.2 Social Factors
Major social factors affecting consumer behavior
include reference groups, family, and social roles and
status.
2.2.1 Reference Groups
• From a marketing perspective, reference groups are
groups that serve as frames of reference for individuals
in the their purchase or consumption decisions.
• Advertisers tend to use five major reference group
appeals: celebrities, experts, the common man,
company executives or employees, and spokes-
characters.
129
• Reference groups expose a person to new behaviors
and lifestyles, influence the person’ attitudes and self-
concept, and create pressures to conform that may
affect the person’s product and brand choices.
• Many marketers try to identify opinion leaders
⎯people within a reference group who, because of
special skills, knowledge, personality, or other
characteristics, exert influence on others⎯for their
products and direct marketing efforts toward them.

130
2.2.2 Family
• Marketers are interested in the roles and influence of
the husband, wife, and children on the purchase of
different products and services.
• Husband-wife involvement varies widely by product
category and buying roles may change over time.
• Styles of family decision-making: husband-
dominated, wife-dominated, joint, autonomous.
• Children may also have a strong on family buying
decisions.

131
2.2.3 Roles and status
• A person belongs to many groups. The person’s
position in each group can be defined in terms of both
role and status.
• People often choose products that show their status
in society.

132
2.3 Personal Factors
A buyer’s decisions also are influenced by personal
characteristics such as age and life-cycle stage,
occupation, economic situation, lifestyle, personality,
and self-concept.

133
2.3.1 Age and Life-Cycle Stage
• Tastes in food, clothes, furniture, and recreation are
often related to age.
• Buying is also shaped by the stage of the family life
cycle. Traditional family life-cycle stages include
bachelorhood, honeymoon, parenthood,
postparenthood, and dissolution.
• Marketers are increasingly catering to a growing
number of nontraditional stages such as unmarried
couples, childless couples, same-sex couples, single
parents, divorcees, and others.

134
2.3.2 Occupation
A company (e.g. a computer software company) can
specialize in making products needed by a given
occupational group.
2.3.3 Economic Situation
Marketers of income-sensitive goods must watch
trends in personal income, savings, and interest rates.

135
2.3.4 Lifestyle
Lifestyle is a person’s pattern of living as expressed by
how he or she spends money based on his or her self-
orientation (e.g. principle orientation, status orientation,
action orientation).

136
2.3.5 Personality & Self-concept
• Personality refers to the unique psychological
characteristics that lead to relatively consistent and
lasting responses to one’s own environment.
• From a marketing perspective, major personality
types include innovativeness, dogmatism, variety-
novelty seeking, susceptibility to interpersonal
influence, need for cognition, ethnocentrism.

137
• A person’s self-concept is his or her perception of
himself or herself.
• Consumers tend to choose brands that match their
personality and self-concept.

138
2.4 Psychological Factors
A person’s buying choices are further influenced by
four major psychological factors: motivation,
perception, learning, and beliefs and attitudes.
2.4.1 Motivation
• A person has many needs at any given time. Some
are biological, and others are psychological.
• Unfulfilled needs, when rising to a pressing level,
drive people to take action. The major driving force
within an individual is the lowest level of need that
remains largely unsatisfied.

139
 Self-Actualization Needs
(self-fulfillment)

Esteem Needs
(self-esteem, recognition, status)

Social Needs
(sense of belonging, friendship, love)

Safety and Security Needs

(protection, control over life and environment, certainty)

Physiological Needs
(hunger, thirst)

Maslow’s Hierarchy of Human Needs

140
2.4.2 Perception
• Perception is the process by which people select,
organize, and interpret information to form a
meaningful picture of the world.
• People can form different perceptions of the same
stimulus because of three perceptual processes:
selective attention, selective distortion, and selective
retention.

141
2.4.3 Learning
• Learning occurs through the interplay of drives,
stimuli, cues, responses, and reinforcement.
• The practical significance of learning theory for
marketers is that they can build up demand for a
product by associating it with strong drives, using
motivating cues, and providing positive reinforcement.

142
2.4.4 Beliefs and Attitudes
• Beliefs make up product and brand images that
affect buying behavior.
• Attitudes put people into a frame of mind of liking
or disliking things, of moving toward or away from
them.
• A company should usually try to fit its products into
existing attitudes rather than attempt to change
attitudes.

143
3 Types of Buying-Decision Behavior

High involvement Low involvement

Significant brand Complex Variety-

differences buying seeking
behavior buying behavior

Few brand Dissonance- Habitual

differences reducing buying
buying behavior behavior

Four Types of Buying Behavior

144
 4 The Buyer-Decision Process

Need Information Evaluation of Purchase Postpurchase

recognition search alternatives decision behavior

Buyer Decision Process

145
4.1 Need Recognition
The need can be triggered by internal or external stimuli.

4.2 Information Search

• Sources of information: personal sources, commercial
sources, public sources, and experiential sources.
• Consumers receive the most information about a
product from commercial sources, but the most effective
sources tend to be personal.
• Companies should attach importance to word-of-mouth
sources.

146
4.3 Evaluation of Alternatives
• How consumers go about evaluating purchase
alternatives depends on the individual consumer and the
specific buying situation.
• In evaluating alternatives, consumers usually follow
one of the two types of decision rules: compensatory
decision rule and non-compensatory decision rule.

147
• In following a compensatory decision rule, a consumer
evaluates brand options in terms of each relevant
attribute and computes either a weighted score or
summated score for each brand.
• Non-compensatory decision rules are the rules that do
not allow consumers to balance a positive evaluation of
a brand on one attribute against a negative evaluation on
some other attribute.

148
(1) Conjunctive decision rules
• In following a conjunctive decision rule, the consumer
establishes a separate, minimally acceptable level as a
cutoff point for each attribute.
• If any particular brand falls below the cutoff point on
any one attribute, the option is eliminated from further
consideration.

149
(2) Lexicographic decision rules
In following a lexicographic decision rule, the
consumer first ranks the attributes in terms of perceived
importance. The consumer then compares the various
alternatives in terms of the single attribute that is
considered most important. If one option scores
sufficiently high on this top-ranked attribute (regardless
of the score on any of the other attributes), it is selected
and the process ends. When there are two or more
surviving alternatives, the process is repeated with the
second highest-ranked attribute (and so on), until
reaching the point at which one of the options is
selected because it exceeds the others on a particular
attribute. 150
4.4 Purchase Decision
• Two factors can come between the purchase intention
and the purchase decision: attitudes of others and
unexpected situational factors.
• Thus, preferences and even purchase intentions do not
always result in actual purchase choice.

151
4.5 Postpurchase Behavior
• After purchasing the product, the consumer may be
satisfied (when P=E), delighted (when P>E), and
dissatisfied (when P<E), and will act accordingly.
• Almost all major purchases result in cognitive
dissonance. To counter such dissonance, the marketer’s
after-sales communications should provide evidence and
support to help consumers feel good about their brand
choices.

152
 Chapter 6

Analyzing Business Markets

• Characteristics of business markets

• Major Industrial Marketing Techniques

153
A Question for Discussion:
Gulfstream Aerospace Corporation, a maker of
corporate jets, wants to sell a jet to GM. Who are
likely to participate in the buying decision?

⎯The CEO
⎯Board members
⎯The chief pilot
⎯The users of the jet
⎯The corporate legal staff
⎯The purchasing agent
⎯The CEO’s spouse and kid(s)

154
1 Characteristics of Business Markets
Business market consists of the organizations that buy
goods and services for use in the production of other
products and services or for the purpose of reselling or
renting them to others at a profit.

155
 Characteristics of Business Markets

Marketing Structure and Demand

Business markets contain fewer but larger buyers.
Business customers are more geographically concentrated.
Business buyer demand is derived from final consumer demand.
Demand in many business markets is more inelastic.
Demand in business markets fluctuates more, and more quickly
Nature of the Buying Unit
Business purchases involve more participants.
Business buying involves a more professional purchasing effort.
Types of Decisions and the Decision Process
Business buyers usually face more complex buying decisions.
The business buying process is more formalized.
In business buying, buyers and sellers build close long-run relationships.

156
2 Major Industrial Marketing
Techniques
1. Value-chain-based marketing
Procedures:
(1) Acquiring a full understanding of the customer’s
business procedure (i.e., uthe value chain);
(2) Identifying “weak points” in the business procedure
and starting marketing there;

157
(3) Offering to overcome the weak points and seeking
to substitute the customer on those points;
(4) Getting embedded in the customer’s value chain and
becoming an integral part of the chain.

158
 A case: KingMed Diagnostics
-Affiliated to Guangzhou Medical College and founded
in 1994 when the first batch of students majoring in
medical testing (also the first batch in China) graduated.
-Initially, the company helped distribute chemical
reagents to hospitals through alumni.
-Years later, it established an independent lab providing
medical testing services for hospitals, based on an
analysis of a typical hospital’s business procedure:
testing-diagnosing-treating.

159
-As the company’s testing services were reliable, many
hospitals decided to contract out the medical testing
business to the company.

160
2. Relationship marketing
3. Customization

161
 Chapter 7

Segmentation, Targeting, and Positioning

• Market segmentation
• Target marketing
• Positioning for competitive advantage

162
 Market Segmentation
1. Identify bases for segmenting the market
2. Develop segment profiles

Target Marketing
3. Develop measure of segment attractiveness
4. Select target segments

Market Positioning
5. Develop positioning for target segments
6. Develop a marketing mix for each segment

Steps in Market Segmentation, Targeting, and Positioning

163
1 Market Segmentation
• Market segmentation is the process of dividing a
market into distinct groups with distinct needs,
characteristics, or behavior who might require separate
products or marketing mixes.
• Effective segmentation can help identify a blue ocean
with little or no competition.
• The key to effective segmentation is to identify the
right segmentation variable.

164
1.1 Segmenting Consumer Markets
There is no single way to segment a market. A marketer
has to try different segmentation variables, alone or in
combination, to find the best way to view the market
picture.

165
Major Segmentation Variables for Consumer Markets

Geographic Variables
World region or country, country region, city or metro size, density,
climate
Demographic Variables
Age, gender, family size, family life-cycle, income, occupation,
education, religion, race, generation, nationality
Psychographic Variables
Social class, lifestyle, personality
Behavioral Variables
Occasions, benefits sought, user status, user rates, loyalty status,
readiness stage, attitude toward product

166
167
168
 Big
customers Seeking
For quality
roads
Urban Medium
housing customers
Seeking
For Small economy
Cement
housing customers

Rural
For housing
bridges

Multiple Segmentation of the Cement Market

169
1.2 Segmenting Business Markets

Major Segmentation Variables for Business Markets

Demographics: industry, company size, location

Operating variables: technology, user-nonuser status, customer
capabilities
Purchasing approaches: purchasing-function organization,
power structure, nature of existing relationships, general
purchase policies, purchasing criteria
Situational factors: urgency, specific application, size of order
Personal characteristics: buyer-seller similarity, attitudes
toward risk, loyalty

170
1.3 Requirements for Effective
Segmentation
• A general criterion for assessing the effectiveness of
segmentation is inter-segment difference maximization
and intra-segment difference minimization.

171
• Specific requirements for effective segmentation
include:
-Measurability⎯The size, purchasing power, and
profiles of the segments can be measured.
-Accessibility⎯The market segments can be effectively
reached and served.
-Substantiality⎯The market segments are large or
profitable enough to serve.

172
Differentiability⎯The segments respond differently to
different marketing mix elements and programs.
Actionability⎯Effective programs can be designed for
attracting and serving the segments.

173
2 Target Marketing
2.1 Evaluating and Selecting Market
Segments
Three factors to consider in evaluating segments:
Segment size and growth
Segment structural attractiveness
Company objectives and resources

174
 Potential entrants

Threat of new
entrants

Industry
Bargaining Bargaining
competitors
power power
Suppliers Buyers
Rivalry among
existing firms
Threat of substitute
products or services

Substitutes

Five Forces Determining Segment

Structural Attractiveness
175
 2.2 Choosing a Target-Marketing Strategy

Undifferentiated Differentiated Concentrated Micromarketing

(mass) (segmented) (niche) (local or individual
marketing marketing marketing marketing)

Targeting Targeting
broadly narrowly

Target Marketing Strategies

176
Five considerations when choosing a target-marketing
strategy:
Company resources
Product variability
Product’s life-cycle stage
Market variability
Competitors’ marketing strategies

177
3 Positioning for Competitive
Advantage
Product position is the place the product occupies in
consumers’ minds relative to competing products.
Positioning (planning a product’s position) involves
implanting a brand’s unique benefits into the minds of
target customers.
The purpose of positioning is to gain a competitive
advantage. The means of positioning is differentiation.

178
 3.1 Steps in positioning

Identifying possible Choosing the right Selecting an Developing a

competitive competitive overall positioning positioning
advantages advantages strategy statement

Steps in Positioning

179
3.1.1 Identifying Possible Competitive Advantages
• A company’s competitive advantage comes from what
differentiates itself from competitors.
• A company or marketing offer can be differentiated
along the lines of product, services, channels, people, or
image.

180
 Differentiation Variables

Product Differentiation: form, features, performance, durability,

reliability, repairability, style, design
Services Differentiation: ordering ease, delivery, installation,
customer training, customer consulting, maintenance and repair
Personnel Differentiation: competence, courtesy, credibility,
reliability, responsiveness, communication
Channel Differentiation: coverage, expertise, performance
Image Differentiation: symbols, media, atmosphere, events

181
3.1.2 Choosing the Right Competitive Advantages
• How many differences to promote?
Only one benefit? (USP by Rosser Reeves)
More than one differentiator?
• In general, a company needs to avoid three major
positioning errors:
Underpositioning⎯failing to differentiate the company
Overpositioning⎯giving too narrow a picture
Confused positioning⎯leaving a confused image

182
• Which differences to promote?
A difference is worth establishing to the extent that it
satisfies the following criteria:
Important
Distinctive
Superior
Communicable
Preemptive
Affordable
Profitable

183
3.1.3 Selecting an Overall Positioning Strategy
• Effective positioning results from highlighting the
distinctive value that the brand brings to the target
market.

184
 Uniqueness

(In what way is the brand

different from
the competition?)

Effective
positioning

Value-laddenness

(Is the differentiation

perceived to be valuable
by the target market?)

Contributing Factors of Effective Positioning

185
186
The key to positioning is
to establish points of differentiation that can bring value to
customers.

187
• A product or brand can be positioned on:
→ Attributes
→ Benefits
→ Attributes and benefits
→ Beliefs and values
→Performance-to-price ratio

188
 Haagen Dazs Mi Dell Computer

Price
More Same Less

More More for More for More

more the same for less

The same Wal-Mart

Performance Same
for less

Less for
Less much less Southwest A.

Positioning on Performance-to-Price Ratio

189
3.1.4 Developing a Positioning Statement
Company and brand positioning should be summed up
in a positioning statement. The statement should follow
this form: To (target segment and need), our (brand)
is (concept) that (point of difference).
e.g. To young, active soft-drink consumers who have little time for
sleep, Mountain Dew is the soft drink that gives you more energy
than any other brand because it has the highest level of caffeine.

190
3.2 Communicating and Delivering the
Chosen Position
Once it has chosen a position, the company must
communicate and deliver the desired position to target
consumers.

191
 Chapter 8

Products, Services,
and Branding Strategies

• What is a product?
• Product and service decisions
• Branding strategy
• Services marketing

192
1 What Is a Product?
• Broadly defined, a product is anything that can be
offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need.
• The term “product”, when used in its broadest sense, is
synonymous with the term “marketing offer”.
• In a narrow sense, a product refers to a tangible good.

193
1.1 Products, Services, and Experiences
• Although some marketing offers are purely tangible
and others are purely intangible, the majority include
both tangible goods and services.
• As products and services become more and more
commoditized, many companies are moving toward
developing and delivering total customer experiences
to differentiate their offers.
• Experiences are memorable, personal, and take place
in the minds of individual consumers.

194
“An experience occurs when a company intentionally
uses services as the stage, and goods as props, to
engage individual customers in a way that creates a
memorable event…”
⎯Joseph Pine and James Gillmore, authors of
the book The Experience Economy

195
1.2 Levels of Products and Services
• Each product or service can be viewed on three
levels: the core product, the actual product, and the
augmented product.
• Consumers see products as bundles of benefits that
satisfy their needs. Marketers must ensure that all three
levels of their products combine to offer a superior
mix of benefits.

196
 Augmented product

Actual product
Delivery Maintenance
and and repair
credit Brand Features
name
Core
Quality Product
Design
level

Packaging
Installation Warranty

Three Levels of Product

197
1.3 Product and Service Classifications
Products and services fall into two broad classes based
on the types of customers that use them: consumer
products and industrial products.

198
1.3.1 Consumer Products
There are four types of consumer products:
Convenience products⎯consumer products and
services that the customer usually buys frequently,
immediately, and with a minimum of comparison and
buying effort.
Shopping products⎯less-frequently-purchased
consumer products and services that customers
compare carefully on suitability, quality, price, and
style.

199
Specialty products⎯consumer products and services
with unique characteristics or brand identification for
which a significant group of buyers is willing to make
a special purchase effort.
Unsought products⎯consumer products and services
that the consumer either does not know about or
knows about but does not normally think of buying.

200
1.3.1 Industrial Products
There are three groups of industrial products:
Materials and parts
Capital items⎯industrial products that aid in the
buyer’s production or operations, including
installations and accessory equipment.
Supplies and services

201
2 Product and Service Decisions
Marketers make product and service decisions at three
levels: individual product decisions, product line
decisions, and product mix decisions.

202
 2.1 Individual Product Decisions

Product
Product
Branding Packaging Labeling support
attributes
services

Individual Product Decisions

203
2.1.1 Product Attributes
Major product attributes include quality, features, and
style and design.
Product Quality
• The American Society for Quality defines quality as
the characteristics of a product or service that bear on
its ability to satisfy stated or implied customer needs.
• Total quality management (TQM) is an organization-
wide approach to continuously improving the quality of
products, services, and business processes.

204
• Product quality consists of performance quality
(ability to perform its functions) and conformance
quality (freedom from defects and consistency in
delivering a targeted level of performance).
• Companies rarely try to offer the highest possible
performance quality level. Instead, they choose a
quality level that matches target market needs and the
quality levels of competing products.

205
Product Features
• Being the first producer to introduce a needed and
valued new feature is one of the most effective ways to
compete.
• A company can identify new features by asking
buyers these questions: How do you like the product?
Which specific features of the product do you like most?
Which features could we add to improve the product?
• The company must assess each feature’s value to
customers versus its cost to the company.

206
Product Style and Design
• Style describes the appearance of a product. Design is
the totality of features that affect how a product looks
and functions in terms of customer requirements.
• Good style and design can attract attention, improve
product performance, cut production costs, and give the
product a strong competitive advantage in the target
market.

207
2.1.2 Branding
• Consumers view a brand as an important part of a
product, and branding can add value to a product.
• Branding has become so strong that today hardly
anything goes unbranded.
• Branding benefits both the buyer and the seller.

208
2.1.3 Packaging
• Traditionally, the primary function of packaging was
to contain and protect the product. Today, packaging has
become an important marketing tool.
• Good packaging can create instant consumer
recognition of the company or brand. It becomes a “five
second commercial”.
2.1.4 Labeling
Sellers must ensure that their labels contain all the
required information.

209
2.1.5 Product Support Services
• To offer effective product support services, the first
step is to survey customers periodically to assess the
value of current services and to obtain ideas for new
ones. Once the assessment has been made, the company
must assess the costs of providing these services.
• Many companies are now using the Internet and other
modern technologies to provide support services.

210
2.2 Product Line Decisions
• A product line is a group of products that are closely
related in function, customer-purchase needs, or
distribution channels.
• Product line decisions include line stretching and line
filling.

211
2.3 Product Mix Decisions
• A product mix consists of all the product lines and
items that a particular seller offers for sale.
• A company’s product mix has four important
dimensions: width, length, depth, and consistency.
• Product mix width refers to the number of different
product lines that the company carries.
• Product mix length refers to the total number of items
the company carries within its product lines.

212
• Product mix depth refers to the number of versions
offered of each product in the line.
• Product mix consistency refers to how closely related
the various product lines are in end use, production
requirements, distribution channels, or some other way.
• A company can increase its business in four ways:
⎯by widening its product mix;
⎯by lengthening its existing product lines;
⎯by deepening its product mix;
⎯by pursuing more product line consistency.

213
3 Branding Strategy
Brands are viewed as the most enduring asset of a
company.

“If this business were split up, I would give you the land and
bricks and mortar, and I would keep the brands and trademarks,
and I would fare better than you.”
⎯John Stewart, co-founder of Quaker Oats

214
“If every asset we own, every building, and every piece of
equipment were destroyed in a terrible natural disaster, we would
be able to borrow all the money to replace it very quickly because
of the value of our brand.”
⎯A McDonald’s board member

215
5 Chinese Global Firms that have Acquired
“Considerable Acceptance”
(Source: BusinessWeek/China, Issue 10, 2007)

216
 7 Chinese Global Firms that are Expected to
Emerge as “Challengers”
(Source: BusinessWeek/China, Issue 10, 2007)

217
3.1 Brand Equity
• Brands are more than just names and symbols⎯they
embody everything that the product or service means to
consumers.
• A powerful brand has high brand equity⎯the value
associated with the differential effect that a brand has
on customer response.
• A brand’s equity stems from the customer’s perception
of the brand’s superiority, the social esteem associated
with the use of the brand, the customer’s trust of and
identification with the brand, and the customer’s loyalty
to the brand.
218
• High brand equity provides a company with many
competitive advantages:
⎯A high level of consumer brand awareness and
loyalty;
⎯More leverage in bargaining with resellers;
⎯More ease with which to launch line and brand
extensions;
⎯Defense against price competition.

219
3.2 Brand Strategy Decisions

Brand positioning Brand name selection

Attributes Selection
Benefits Protection
Beliefs and values
Performance-to-price ratio

Brand development Brand sponsorship

Line extensions Manufacturer’s brand
Brand extensions Private brand
Multibrands Licensing
New brands Co-branding

Major Brand Strategy Decisions

220
 Product Category
Existing New

Line Brand
Existing extension extension
Brand Name

New Multibrands New brands

Product Development Strategies

221
3.3 Managing Brands
• The brand’s positioning must be continuously
communicated to consumers.
• The company must carefully manage customer
touch points.
• It would be wise to set up a brand asset
management team to manage major brands.
• The company must periodically audit their brands’
strengths and weaknesses.

222
4 Services Marketing
4.1 Characteristics of a Service

Intangibility Inseparability

Services

Variability Perishability

Service Characteristics
223
4.2 The Service-Profit Chain

Satisfied and
Internal service
productive
quality
service employees

Healthy service Satisfied and Greater service

profits and growth loyal customers value

Service-Profit Chain

224
4.3 Types of Marketing in Service
Industries
Company

Internal External
marketing marketing

Employees Interactive Customers

marketing

Types of Marketing in Services

225
• Internal marketing is the marketing by a service firm
to train and effectively motivate its customer-contact
employees and all the supporting service people to
work as a team to provide customer satisfaction.
• Internal marketing must precede external marketing.
• Interactive marketing is the marketing by a service
firm that recognizes that perceived service quality
depends heavily on the quality of buyer-seller
interaction.

226
4.4 Service Marketing Mix
The service marketing mix consists of 7 Ps⎯product,
price, place, promotion, people, process, and physical
evidence.

227
Service people must be good at recovering from
mistakes to create secondary satisfaction. They must
be empowered to make on-the-spot decisions.

228
 Chapter 9

Pricing Considerations
and Approaches

• What is a price?
• Factors to consider when setting prices
• General pricing approaches

229
Caterpillar’s Pricing Power:
The Value of Value Added

230
⎯Caterpillar typically reaps a 20% to 30% price
premium over competitors.
⎯Caterpillar equipment is designed with modular
componentry.
⎯Caterpillar dealers carry an extensive parts inventory
and guarantee delivery within 48 hours anywhere in the
world.
⎯Cat’s products are designed to be rebuilt, providing a
“second life” that competitors cannot match.

231
1 Impact of Price on Buyer Choice
• Historically, price has been a major factor affecting
buyer choice.
Case: Ancient Phoenix City in Hunan province charging an
entrance fee of RMB148 in 2013, angering the business owners in
the city.

• But the impact varies across consumers and products.

232
• Common pricing problems:
⎯Companies being too quick to reduce prices;
⎯Pricing being too cost-oriented;
⎯Price changes not reflecting market changes;
⎯Pricing not taking account of the rest of the
marketing mix;
⎯Prices not being varied enough for different products,
market segments, and purchase occasions.

233
 2 Factors to Consider When Setting
Prices

Internal factors External factors

Marketing objectives Nature of the market

Marketing mix strategy Pricing and demand
Costs decisions Competition
Organizational Other environmental
considerations factors (economy,
resellers, government)

Factors Affecting Price Decisions

234
2.1 Internal Factors Affecting Pricing
Decisions
2.1.1 Marketing Objectives
A company’s pricing decisions must mesh with its
marketing objective, which may be survival, current
profit maximization, market share leadership, or product
quality leadership.

235
2.1.2 Marketing Mix Strategy
• A company’s pricing decisions must be coordinated
with product design, distribution, and promotion
decisions to form a consistent and effective marketing
program.
• Companies that position their products on price often
adopt a technique called target costing⎯pricing that
starts with an ideal selling price, then targets costs that
will ensure that the price is met.

236
2.1.3 Costs
• Costs set the floor for the price that the company can
charge.
• In estimating costs, the company should consider types
of costs, costs at different levels of production, and costs
as a function of production experience.

237
2.1.4 Organizational Considerations
Pricing decisions vary with company size, and type of
industry (where pricing is a key factor versus where
decisions are based on nonprice factors).

238
2.2 External Factors Affecting Pricing
Decisions
2.2.1 Nature of the Market and Demand
The market and demand set the ceiling for the price
that a company can charge.
Pricing in Different Types of Markets
• In the market with pure competition, a seller cannot
charge more than the going rate.

239
• In the market with monopolistic competition, a range
of prices occurs because sellers can differentiate their
offers to buyers.
• In the market with oligopolistic competition, sellers
are highly sensitive to each other’s pricing strategies.
• In the market of pure monopoly, a regulated
monopoly is permitted by the government to set rates
that will yield a fair return, whereas a nonregulated
monopoly is free to price at what the market will bear.

240
Consumer Perceptions of Price and Value
Effective, buyer-oriented pricing involves
understanding how much value consumers place on the
benefits they receive from the product and setting a
price that fits this value.
Analyzing the Price-Demand Relationship
• In the normal case, demand and price are inversely
related. But in the case of prestige goods, the demand
curve sometimes slopes upward.
• A product’s pricing should take into account the price
elasticity of demand for the product.

241
2.2.2 Competitors’ Offers and Prices
A company needs to learn about the quality and price
of each competitor’s offer. Once it is aware of
competitors’ prices and offers, it can use them as a
starting point for its own pricing.
2.2.3 Other External Factors
When setting prices, the company also must consider
other factors in its external environment, such as
economic conditions, resellers, government, and social
concerns.

242
 2 General Pricing Approaches
Three general pricing approaches are available to a
company: cost-based approach, buyer-based (also
known as value-based) approach, and competition-
based approach.

Consumer
Product Competitors’ prices and other
perceptions
costs internal and external factors
of value

Price floor Price ceiling

No profits below No demand above
this price this price

Major Considerations in Setting Price

243
2.1 Cost-Based Pricing
• Cost-Plus Pricing
Unit Price = Unit Cost  (1− Desired Return on Sales)
• Target Profit Pricing
Unit Price = (Total Cost + Projected Profit) 
Expected Sales

244
 2.2 Value-Based Pricing

Cost-based pricing

Product Cost Price Value Customers

Value-based pricing

Customers Value Price Cost Product

Cost-Based versus Value-Based Pricing

245
• Direct rating
The company sets the price by asking consumers to
assess directly how much a product is worth.
• Relative rating
The company sets the price by letting consumers assess
its product’s worth relative to competing products.
• Diagnosing
The company sets the price by delving into the process
of how consumers perceive the value of a product.

246
 Diagnosing

Weight Attributes Brand A Brand B Brand C

.25 Quality 40 40 20
.30 Style 33 33 33
.30 Price 50 25 25
.15 Services 45 35 20

1 Perceived
41.65 * 32.65 * 24.90 *
value

Notes:
1. The value with * is the weighted sum total for each brand.
2. To set a price for your brand (say Brand C), you can use the prices of
Brand A and Brand B as bases. Brand C’s price should be somewhere
between (24.9/41.65  Brand A’s price) and (24.9/32.65  Brand B’s price).

247
2.3 Competition-Based Pricing
• Going-rate pricing
The company sets prices based on what competitors
are charging for similar products.
• Sealed-bid pricing
The company sets prices based on what they think
competitors will charge rather than on its own costs or
on the demand.

248
 Chapter 10

Pricing Strategies

• New-product pricing strategies

• Product mix pricing strategies
• Price adjustment strategies

249
1 New-Product Pricing Strategies
Companies bringing out a new product can choose
between two broad strategies: market-skimming pricing
and market-penetration pricing.

250
1.1 Market-Skimming Pricing
• Many companies that invent new products often use
market-skimming pricing⎯setting a high price for a
new product to skim maximum revenues layer by layer
from the segments willing to pay the high price.
e.g. Sony⎯a frequent user of market-skimming pricing
-When Sony introduced the world’s first HDTV to the Japanese
market in 1990, the hi-tech sets cost $43,000.
-By 1993, a 28-inch HDTV cost just over $6,000.
-In 2001, a Japanese consumer could buy a 40-inch HDTV for
about $2,000.

251
• Market skimming makes sense only under these
conditions:
(1) The product’s quality and image must support its
higher price, and enough buyers must want the product
at that price.
(2) The costs of producing a smaller volume cannot be
so high that they offset the advantage of charging more.
(3) Competitors should not be able to enter the market
easily and undercut the high price.

252
1.2 Market-Penetration Pricing
• Market-penetration pricing involves setting a low
price for a new product in order to attract a large
number of buyers and a large market share.
• Several conditions must be met for market-
penetration pricing to work:
(1) The market must be highly price sensitive so that a
low price produces more market growth.
(2) Production and distribution costs must fall as sales
volume increases.

253
(3) The low price must help keep out the competition,
and the penetration pricer must maintain its low-price
position⎯otherwise, the price advantage may be only
temporary.

254
2 Product Mix Pricing Strategies
• When a product is part of a product mix, the firm
looks for a set of prices that maximizes the profits on
the total product mix.
• There are five major situations of product mix pricing:
product line pricing, optional-product pricing, captive-
product pricing, by-product pricing, and product
bundle pricing.

255
 Product Mix Pricing Strategies
Strategy Description
Product line pricing Setting price steps between product items
Optional-product pricing Pricing optional or accessory products sold
with the main product
Captive-product pricing Pricing products that must be used with the
main product
By-product pricing Pricing low-value by-products to get rid of
them
Product bundle pricing Pricing bundles of products sold together

256
3 Price Adjustment Strategies
• Companies usually adjust their basic prices to
account for various customer differences and changing
situations.
• There are six major price adjustment strategies:
discount and allowance pricing, segmented pricing,
psychological pricing, promotional pricing,
geographical pricing, and international pricing.

257
 Price Adjustment Strategies
Strategy Description
Discount and allowance pricing Reducing prices to reward customer responses
such as paying early or promoting the product
Segmented pricing Adjusting prices to allow for differences in
customers, products, or locations
Psychological pricing Adjusting prices for psychological effect
Promotional pricing Temporarily reducing prices to increase short-
run sales
Geographical pricing Adjusting prices to account for the geographic
location of customers
International pricing Adjusting prices for international markets

258
3.1 Discount and Allowance Pricing
• The forms of discount include cash discount (e.g. 2/10,
net 30), quantity discount, seasonal discount, and
functional discount (also called trade discount).
• Allowance is promotional money paid by
manufacturers to retailers in return for an agreement to
feature the manufacturer’s products in some way.
Examples of allowances include trade-in allowances
and promotional allowances.

259
3.2 Segmented Pricing
• The forms of segmented pricing include customer-
segment pricing, product-form pricing, location pricing,
and time pricing.
• For segmented pricing to be an effective strategy,
certain conditions must be met:
(1) The market must be segmentable, and the segments
must show different degrees of demand.
(2) Members of the segment paying the lower price
should not be able to turn around and resell the product
to the segment paying the higher price.

260
(3) Competitors should not be able to undersell the firm
in the segment being charged the higher price.
(4) The costs of segmenting and watching the market
should not exceed the extra revenue obtained from the
price difference.
(5) The segmented pricing must be legal.
(6) Segmented prices should reflect real differences in
customers’ perceived value.

261
3.3 Psychological Pricing
• Consumers usually perceive higher-priced products as
having higher quality.
e.g. Heublein produces Smirnoff, America’s leading vodka brand.
Some years ago, a competing brand Wolfschmidt, priced at one
dollar less per bottle, claimed to have the same quality as Smirnoff.
Heublein didn’t lower Smirnoff’s price nor increased advertising
and promotion expenditures. Instead, it raised the price of Smirnoff
by one dollar! Heublein then introduced a new brand, Relska, to
compete with Wolfschmidt. Moreover, it introduced yet another
brand, Popov, priced even lower than Wolfschmidt. This clever
strategy positioned Smirnoff as the elite brand and Wolfschmidt as
an ordinary brand, producing a large increase in Heublein’s overall
profits. The irony is that Heublein’s three brands are pretty much
the same in taste and manufacturing costs.
262
• Another aspect of psychological pricing is reference
prices⎯prices that buyers carry in their minds and
refer to when looking at a given product.
• Studies show that a product priced at $199.5 appears
much cheaper than one priced at $200 and that a
smaller even number (say, 94) looks bigger than an
odd number following it (say, 95).
• Some psychologists argue that each digit has
symbolic and visual qualities that should be considered
in pricing. For example, 8 is round and even and
creates a soothing effect, whereas 7 is angular and
creates a jarring effect.

263
3.4 Promotional Pricing
• Promotional pricing means temporarily pricing
products below list price, and sometimes even below
cost to increase short-run sales.
• Forms of promotional pricing include loss leaders,
special-even pricing, cash rebates, low-interest
financing, longer warranties, and free maintenance.

264
• Promotional pricing can have adverse effects:
(1) Used too frequently and copied by competitors,
price promotions can create “deal-prone” customers
who wait until brands go on sale before buying them.
(2) Constantly reduced prices can erode a brand’s value
in the eyes of customers
(3) Frequent use of promotional pricing can lead to
industry price wars.
Promotional pricing can be an effective means of
generating sales in certain circumstances but can be
damaging if taken as a steady diet.

265
Pricing cues
What are pricing cues?
• Pricing cues are price incentives that retailers use to
increase sales.
• Common pricing cues are sale signs, prices ending in
9, signpost items/loss leaders, and price-matching
guarantees.

266
(1) Sale signs
• Sale signs are signs of price reduction. They are
normally placed beside the discounted items.

267
• Several studies have found that using the word “sale”
beside a price (without actually varying the price) can
increase demand by more than 50%.
• There is a limit to the use of sale signs. Over-use of
them can reduce the credibility of discounted items.
Generally, the more sale signs are used in a product
category, the less effective those signs are in increasing
demand.

268
• One study of purchases of frozen fruit juice at a
Chicago supermarket chain found that putting sale signs
on more than 30% of the items diminished the
effectiveness of the pricing cue.
• Another study on a publisher revealed that overall
demand fell when more than 25% of the items in the
category were on sale.

269
• Sale signs must be used truthfully. Deceptive use of
sale signs can reduce customer trust with the retailer.
Also, it can give rise to lawsuits.

270
(2) Prices ending in 9
• Just like a sale sign, a 9 at the end of a price often
signals a bargain.

271
• Responses to this pricing cue can be surprising. In one
study involving women’s clothing, raising the price of a
dress from $34 to $39 dollars increased the demand by
a third.

272
(3) Signpost items/Loss leaders
• Signpost items/loss leaders are products that are
offered at or below cost to attract customers. They are
usually placed at the entrance to the store.
• Retailers lose money on these items in order to make
money on other high-margin items.

273
• Research suggests that customers use the prices of
signpost items to form an overall impression of a store’s
prices.
• The key to signpost pricing is to select items for
which consumers’ price knowledge is accurate.

274
(4) Price-matching guarantees
• Price-matching guarantees are promises that retailers
make to meet or beat any competitor’s price.

275
Example
Best Buy says, “We’ll meet or beat any local
competitor’s price, guaranteed!”. If you find a better
price within 30 days on something you bought at Best
Buy, the retailer will refund the difference plus 10
percent of the difference.

276
• Evidence suggests that customers perceive that stores
offering price-matching guarantees have overall lower
prices than competing stores, especially in markets
when they perceive price comparisons to be relatively
easy.
• Some pricing experts argue that price-matching
guarantees are not really targeted at customers. Rather,
they may serve as a warning to competitors: “If you cut
your prices, we will, too.” If this is true, price-matching
policies might actually reduce price competition,
leading to higher overall prices.

277
3.5 Geographical Pricing
FOB-origin pricing
A geographical pricing strategy in which the customer
pays the freight from the factory to the destination.
Uniform-delivered pricing
A geographical pricing strategy in which the company
charges the same price plus freight to all customers,
regardless of their location.

278
Zone pricing
A geographical pricing strategy in which the company
sets up two or more zones. All customers within a zone
pay the same total price; the more distant the zone, the
higher the price.
Basing-point pricing
A geographical pricing strategy in which the company
designates some city as a basing point and charges all
customers the freight cost from that city to the customer.

279
Freight-absorption pricing
A geographical pricing strategy in which the company
absorbs all or part of the freight charges in order to get
the desired business.

280
3.6 International Pricing
• Most companies adjust their prices to reflect local
market conditions and cost considerations.
• The price that a company should charge in a specific
country depends on many factors, including economic
conditions, competitive situations, laws and regulations,
consumer perceptions, and marketing objectives.

281
 Chapter 11

Marketing Channels and

Supply Chain Management
• Supply chain and value delivery network
• The nature and importance of marketing channels
• Channel behavior and organization
• Channel design decisions
• Channel management decisions
• Marketing logistics and supply chain management
• Major retailer types
282
Caterpillar’s Dealer Relationship

283
⎯Caterpillar sells more than 300 products worldwide,
generating sales of more than $23 billion annually.
⎯It captures 27 percent of the worldwide construction-
equipment market, more than double that of number
two Komatsu.
⎯Caterpillar’s former CEO Donald Fites claims that
the company’s dominance results from the strong and
caring partnerships it has built with independent
Caterpillar dealers.

284
⎯Caterpillar’s close relationship with its dealers rests
on a handful of basic principles and practices:
(1) Dealer profitability
Cat’s rule: “Share the gain as well as the pain.” In
the mid-1980s, the company lost almost $1 billion in
just three years but didn’t lose a single dealer.
(2) Extraordinary dealer support
Caterpillar maintains 36 distribution centers and
1,500 service facilities around the world, which allow
Cat and its dealers to guarantee parts delivery within 48
hours anywhere in the world.

285
(3) Communications
All of its dealers have real-time access to Cat’s
continually updated databases. Almost no secrets are
kept.
(4) Dealer performance
It closely monitors each dealership’s sales, market
position, service capability, financial situation, and
other performance measures. When it sees a problem, it
jumps in to help.
(5) Personal relationships

286
1 Supply Chain and Value Delivery
Network
• A firm rarely works alone in bringing value to
customers. Instead, it works closely with both its
upstream partners (suppliers) and downstream partners
(distributors) of the firm’s supply chain.
• A company’s supply chain members partner with each
other to form a value-delivery network.

287
2 Nature and Importance of
Marketing Channels
Few producers sell their goods directly to final users.
Instead, most use intermediaries to bring their products
to market. They try to forge a marketing channel (or
distribution channel)⎯a set of interdependent
organizations involved in the process of making a
product or service available for use or consumption by
the consumer or business user.

288
 2.1 How Channel Members Add Value
First, the use of intermediaries can provide economies.

M1 C1 M1 C1

M2 C2 M2 D C2

M3 C3 M3 C3

A. Number of contacts B. Number of contacts

without a distributor with a distributor
289
Second, marketing intermediaries match supply and
demand by transforming the narrow assortments of
products made by producers into the broad assortments
wanted by consumers.
Third, channel members add value by bridging the major
time, place, and possession gaps that separate goods and
services from those who would use them.

290
 2.2 Number of Channel Levels

Zero M C
level

One M Retailer C
level

Two M Wholesaler Retailer C

levels

Three M Wholesaler Jobber Retailer C

levels

A. Consumer marketing channels

291
Zero M C
level

One M
Business
C
level distributor

One Manufacturer’s representatives

M or sales branch C
level

Two Manufacturer’s representatives Business

M or sales branch distributor C
levels

B. Business marketing channels

292
From the producer’s point of view, a greater number of
levels means less control and greater channel complexity.
Moreover, all of the institutions in the channel are
connected by several types of flows, which include the
physical flow of products, the flow of ownership, the
payment flow, the information flow, and the promotion
flow. These flows can make even channels with only one
or a few levels very complex.

293
3 Channel Behavior and Organization
3.1 Channel Behavior
• Although channel members depend on one another,
they often act alone in their own short-run best interests.
They often disagree on who should do what and for
what rewards. Such disagreements over goals, roles,
and rewards generate channel conflict.
• Channel conflict is classified into horizontal conflict
(which occurs among firms at the same level of the
channel) and vertical conflict (which occurs between
different levels of the channel).

294
For the channel as a whole to perform well, each channel
member’s role must be specified and channel conflict must
be managed.

295
3.2 Vertical Distribution Systems
• The key to avoid and manage channel conflict is to
develop a system that provides leadership and has the
power to assign roles and manage conflict.
• In conventional distribution systems, channel
members are independent entities, each seeking to
maximize its own profits. No channel member has
much control over the other members, and no formal
means exists for assigning roles and resolving channel
conflict.

296
 Corporate
VDS

Manufacturer-sponsored
retailer franchise

Contractual Franchise Manufacturer-sponsored

VDS VDS organization wholesaler franchise

Service-firm-sponsored
retailer franchise
Administered
VDS

297
• A vertical distribution system (VDS) consists of
producers, wholesalers, and retailers acting as a unified
system. One channel member owns the others, has
contracts with them, or has so much power that they all
cooperate.
• There are three major types of VDS: corporate VDS,
contractual VDS, and administered VDS.

298
• A corporate VDS integrates successive stages of
production and distribution under single ownership (e.g.
the Spanish clothing retailer Zara).
• A contractual VDS consists of independent firms at
different levels of production and distribution who join
together through contracts to obtain more economies or
sales impact than each could achieve alone.

299
• The franchise organization is the most common type
of contractual relationship. There are three types of
franchises: manufacturer-sponsored retailer franchise
system (e.g. Ford and its network of independent
franchised dealers), manufacturer-sponsored wholesaler
franchise system (e.g. Coca-Cola and its licensed
bottlers), and service-firm-sponsored retailer franchise
system (e.g. McDonald’s, Holiday Inn).

300
• In an administered VDS, leadership is assumed not
through common ownership or contractual ties but
through the size and power of one or a few dominant
channel members (e.g. GE, Wal-Mart).

301
3.3 Horizontal Distribution Systems
The horizontal distribution system is a channel
arrangement in which two or more companies at one
level join together to follow a new marketing
opportunity (e.g. the placing of McDonald’s “express”
versions of its restaurants in Wal-Mart stores, the joint
venture formed by Coca-Cola and Nestle to market
ready-to-drink coffee and tea worldwide).

302
3.4 Multichannel Distribution Systems

Catalogs, telephone, Internet Consumer

segment 1

Consumer
Retailers segment 2
Producer
Business
Distributors Dealers segment 1

Sales force Business

segment 2

Multichannel Distribution System

303
3.5 Changing Channel Organization
• One major trend of channel organization is toward
disintermediation⎯the elimination of channel levels
through direct marketing or the displacement of
traditional resellers by radically new types of
intermediaries.
• Disintermediation presents both benefits and problems
for producers.

304
4 Channel Design Decisions
Designing a channel system calls for setting the channel
structure, defining the rights and responsibilities of both
the producer and its channel members, and evaluating
channel alternatives.

305
4.1 Setting the Channel Structure
Setting the channel structure involves determining the
length and width of the channel.
4.1.1 Length and Width of the Channel
• The channel length is measured by the number of
channel levels. The greater the number of channel levels,
the greater the channel length.
• The channel width is measured by the number of
intermediaries within a single channel level.

306
• In terms of width, the channel takes three forms:
Intensive distribution⎯using as many outlets as
possible
Selective distribution⎯using more than one, but fewer
than all, of the intermediaries who are willing to carry a
company’s products
Exclusive distribution⎯giving only a limited number of
dealers the exclusive right to distribute the company’s
products in their territories.

307
4.1.2 Influences of Channel Structure Selection
Product Characteristics
Price, size and weight, attributes, technical and service
requirements, life-cycle stages
Market Characteristics
Number of buyers, geographic distribution of buyers,
purchase volume and frequency

308
Dealer Characteristics
Size and number of retailers
Competitor Characteristics
Types of channel used by competitors
Company Characteristics
Product mix, financial strength and reputation,
capability to control and manage the channel
Environmental Characteristics
Legal restrictions, economic conditions

309
4.2 Defining the Rights and Responsibilities
of Both the Producer and Channel Members
The producer and its intermediaries should agree on
price policies, conditions of sale, territorial rights, and
specific services to be performed by each party.

310
4.3 Evaluating Channel Alternatives
• Each alternative should be evaluated against economic,
control, and adaptive criteria.
• Using economic criteria, a company compares the
likely sales, costs, and profitability of different channel
alternatives.
• Other things being equal, a company prefers to keep
as much as control as possible.

311
• A company wants to keep the channel flexible so that
it can adapt to environmental changes. Thus, to be
considered, a channel involving long-term
commitments should be greatly superior on economic
and control grounds.

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5 Channel Management Decisions
Channel management calls for selecting, motivating,
managing, and evaluating individual channel members.

313
5.1 Selecting Channel Members
When selecting intermediaries, the company should
evaluate each channel member’s years in business,
growth and profit record, resources and capabilities,
market coverage, location, cooperativeness, and
reputation.

314
5.2 Motivating Channel Members
Motivational measures include raising rebates, relaxing
terms of credit, providing allowances for advertising
and product displaying, and offering sales awards.

315
5.3 Managing Channel Members
A company must sell not only through the
intermediaries but to and with them. Most companies
see their intermediaries as first-line customers and
partners. They practice strong partner relationship
management to forge long-term partnerships with
channel members.
(e.g. GE Appliances’ CustomerNet)

316
5.4 Evaluating Channel Members
• The producer must regularly check channel member
performance against standards such as completion of
sales quotas, average inventory levels, customer
delivery time, treatment of damaged and lost goods,
cooperation in company promotion and training
programs, and customer services.
• The company should recognize and reward
intermediaries who are performing well. Those who are
performing poorly should be assisted or, as a last resort,
replaced.

317
6 Marketing Logistics and Supply
Chain Management
Logistics effectiveness has a major impact on both
customer satisfaction and company costs.

318
6.1 Nature and Importance of Marketing
Logistics
• Marketing logistics (also called physical distribution)
involves planning, implementing, and controlling the
physical flow of goods, services, and related
information from points of origin to points of
consumption to meet customer requirements at a profit.
In short, it involves getting the product to the right
customer in the right place at the right time.

319
• Marketing logistics consists of outbound logistics,
inbound logistics, and reverse logistics. That is, it
involves the entire supply chain management⎯
managing upstream and downstream value-added flows
of materials, final goods, and related information among
suppliers, the company, resellers, and final consumers.

320
 Inbound Outbound
logistics logistics
Suppliers Company Resellers Customers

Reverse logistics

Supply Chain Management

321
• Companies today are placing greater emphasis on
logistics for several reasons:
(1)Companies can gain a competitive advantage by using
improved logistics to give customers better service or
lower prices.
(2) Improved logistics can yield tremendous cost savings
to both the company and its customers.
(3) The explosion of product variety has created a need for
improved logistics management.
(4) Improvements in IT technology have created
opportunities for major gains in distribution efficiency.

322
6.2 Goals of the Logistics System
• The goal of marketing logistics is to provide a
targeted level of customer service at the least cost.
• Since a company’s objective is to maximize profits
rather than sales, it must weigh the benefits of providing
higher levels of service against the costs.

323
6.3 Major Logistics Functions
Warehousing
• A company must decide on how many and what types
of warehouses it needs and where they will be located.
• The company can use either storage warehouses or
distribution centers⎯large and highly automated
warehouse designed to receive goods from various
plants and suppliers, take orders, fill them efficiently,
and deliver goods to customer as quickly as possible.

324
Inventory Management
• Managers must maintain the delicate balance between
carrying too little inventory and carrying too much.
• Many companies have greatly reduced their
inventories and related costs through just-in-time
logistics systems.
• New technologies have continuously improved the
efficiency of inventory management (e.g. “smart tag”
technology).

325
Transportation
• The company can choose among five main
transportation modes: truck, rail, water, pipeline, and
air, along with an alternative mode for digital products:
the Internet.
• Shippers increasingly are using intermodal
transportation⎯combining two or more modes of
transportation.

326
Logistics Information Management
• From a logistics perspective, information flows such
as customer orders, billing, inventory levels, and even
customer data are closely linked to channel performance.
• Information can be shared and managed in many ways
⎯by mail or telephone, through sales people, via the
Internet, or through electronic data interchange (EDI),
the computerized exchange of data between
organizations.

327
6.4 Integrated Logistics Management
• The integrated logistics management concept
recognizes that improved logistics requires teamwork in
the form of close working relationships across
functional areas inside the company and across various
organizations in the supply chain.
• Today, some companies are outsourcing their logistics
functions to third-party logistics providers to save costs,
increase efficiency, and gain faster and more effective
access to global markets.

328
7 Major Retailer Types
Major types of retailers include:
Specialty stores
Department stores
Supermarkets
Convenience stores
Discount stores
Off-price retailers
Superstores
E-tailers
329
Reassessment of Traditional Channel
Management Theories in the E-Commerce
Era
1. Highlights of Traditional Channel Management
Theories
(1) A company’s distribution channel is one of the
company’s most valuable assets.
(2) The key to channel management is grip of power
over distributors.

330
(3) The key to grip of power over distributors is to
develop their reliance.
(4) An important job of channel management is to
minimize channel conflict, which includes vertical
conflict and horizontal conflict.
(5) One company’s distribution channel can be shared
by another company (a practice called horizontal
marketing) (e.g., Bird).
(6) One product’s distribution channel can be shared by
another product (e.g., Lifan).
(7) For a strong brand, the distribution channel can play
the role of financing (e.g., Wahaha).
331
2. Destructive Impact of E-Commerce on
Traditional Channels
(1) We are gradually ushering in an era of
disintermediation (zero channel) in the
manufacturing sector.
(2) All companies must operate on an O2O basis.
(3) What a manufacturer will have to do is to rent or
build an electronic platform, and to rent or build a
logistics system.
(4) Physical stores may continue to exist, but their
functions may shrink into a platform of customer
experience and commodity exhibition.
332
 Chapter 12

Integrated Marketing
Communication Strategy

• The marketing communications mix

• Integrated Marketing Communications
• A view of the communications process
• Steps in developing effective communication
• Setting the total promotion budget and mix

333
1 The Marketing Communications
Mix
A company’s total marketing communications mix⎯
also called its promotion mix⎯consists of the specific
blend of advertising, sales promotion, public relations,
personal selling, and direct marketing tools that the
company uses to pursue its advertising and marketing
objectives.

334
2 Integrated Marketing
Communications
• Integrated marketing communications (IMC) is the
concept under which a company carefully integrates and
coordinates its many communications channels to
deliver a clear, consistent, and compelling message
about the organization and its products.

335
 Personal
Advertising
selling
Consistent, clear,
and compelling
company and
Public product messages
Sales
promotion relations

Direct
marketing

Integrated Marketing Communications

336
• The rationale for the development of IMC:

Market Targeted Narrowcasting

fragmentation marketing

Integrated marketing Communication

communications hodgepodge

Vast improvements
in IT

337
“IMC builds a strong brand identity in the marketplace
by tying together and reinforcing all your images and
messages. IMC means that all your corporate messages,
positioning and images, and identity are coordinated
across all (marketing communications) venues. It means
that your PR materials say the same thing as your direct-
mail campaign, and your advertising has the same ‘look
and feel’ as your Web site.”
⎯A marketing executive

338
• To effectively implement its IMC strategy, a company
must appoint a marketing communications manager
who has overall responsibility for the company’s IMC
efforts.

339
3 A View of the Communication
Process

Message
Sender Encoding Decoding Receiver
Media

Noise

Feedback Response

A Model of Communication
340
This model points out several key points in good
communication:
(1) Senders need to know what audiences they wish to
reach and what responses they want.
(2) They must encode messages in a way that enables the
target audience to decode them in the intended way.
(3) They must send messages through media that can
reach and affect target audiences effectively.
(4) They must develop feedback channels so that they can
assess the audience’s response to the message.

341
(5) Marketers must work out various strategies (e.g.
effective positioning, repetition, contrast, teasers, placing
ads in specialized media) to overcome psychological
noise.

342
4 Steps in Developing Effective
Communication
Defining the target audience

Determining the communication objectives

Designing a message

Choosing the media

Selecting the message source

Collecting feedback
343
4.1 Defining the Target Audience
• The company must decide whom to communicate to:
potential buyers or current users; individuals or groups;
special publics or the general public.
• The target audience will heavily affect the
communicator’s decisions on what will be said, how it
will be said, when it will be said, where it will be said,
and who will say it.

344
4.2 Determining the Communication
Objectives
• Communication objectives are the specific responses
that are sought.
• As the final response, purchase is the result of a long
process of consumer decision making. The marketing
communicator needs to know where the target audience
now stands and to what stage it needs to be moved. The
target audience may be in any of six buyer-readiness
stages⎯the stages consumers normally pass through on
their way to making a purchase.

345
Awareness Knowledge Liking

Purchase Conviction Preference

Buyer-Readiness Stages

346
4.3 Designing a Message
• Overall, message design should follow the AIDA
principle⎯the message should attract Attention, arouse
Interest, create Desire, and generate Action.
• In designing the message, the marketing
communicator must decide what to say (message
content) and how to say it (message presentation).

347
4.3.1 Message Content
The communicator has to figure out an appeal or theme
that will produce the desired response. There are three
types of appeals:
Rational appeals
Emotional appeals
Moral appeals

348
4.3.2 Message Presentation
The communicator must decide on several important
methods of message presentation:
To follow the central or peripheral route to persuasion?
To draw a conclusion or leave it to the audience?
To present a one-sided argument or a two-sided
argument?
To present the strongest arguments first or last?
What decision to make on message format variables
(e.g., size, position, color, voice, body language)?

349
4.4 Choosing Media
There are two broad types of communication channels
⎯personal and nonpersonal.
4.4.1 Personal Communication Channels
• Personal communication channels are channels
through which two or more people communicate
directly with each other, including face to face
communications, and communications over the phone,
through the mail, or through an Internet “chat”.

350
• In carrying out personal communications, companies
must be good at employing word-of-mouth influence
and buzz marketing⎯cultivating opinion leaders and
getting them to spread information about a product or
service to others in their community.

351
4.4.2 Nonpersonal Communication Channels
Nonpersonal communication channels are media that
carry messages without personal contact or feedback,
including major media (print, broadcast, display, and
online media), atmospheres, and events.

352
4.5 Selecting the Message Source
• Message sources include commercial sources, public
sources, and personal sources.
• Credibility varies among sources.
• Spokespersons or endorsers are an important source
of message. In selecting celebrity endorsers, marketers
should consider such as factors as the match between
the endorser and the target audience, product and brand,
the endorser’s trustworthiness, familiarity, expertise,
profession, physical attractiveness, prior endorsements,
and whether the endorser is a brand endorser.

353
4.6 Collecting Feedback
Feedback collection methods include:
(1) Asking the target audience members whether they
remember the message, how many times they saw it,
what points they recall, how they felt about the message,
and their past and present attitudes toward the product
and company;
(2) Measuring behavior resulting from the message⎯
how many people bought a product, talked to others
about it, or visited the store.

354
5 Setting the Total Promotion Budget
and Mix
5.1 Setting the Total Promotion Budget
There are four common methods used to set the total
budget for advertising:
Affordable method⎯setting the promotion budget at the
level management thinks the company can afford.
Percentage-of-sales method⎯setting the promotion
budget at a certain percentage of current or forecasted
sales or as a percentage of the unit sales price.

355
Competitive-parity method⎯setting the promotion
budget to match competitors’ outlays.
Objective-and-task method⎯developing the promotion
budget by (1) defining specific objectives; (2)
determining the tasks that must be performed to achieve
these objectives; (3) estimating the costs of performing
these tasks. The sum of these costs is the proposed
promotion budget.

356
5.2 Setting the Overall Promotion Mix
• Although B2C firms tend to rely more on advertising
and B2B companies more on personal selling, it’s hard
to generalize about what mix of promotion tools is most
effective. Companies within the same industry differ
greatly in the design of their promotion mix (Avon vs
Revlon, HP vs Dell).
• In setting the overall promotion mix, it will be wise for
a company to take full account of the nature of specific
promotion tools, type of product/market, product life-
cycle stage, among other things.

357
5.2.1 Nature of Each Promotion Tool
Advertising
(1)Advertising can reach masses of geographically
dispersed buyers at a low cost per exposure, and it
enables the seller to repeat a message many times.
(2)Large-scale advertising says something positive about
the seller’s size, popularity, and success.
(3)Advertising is impersonal and cannot be as directly
persuasive as can company salespeople.
(4)Advertising can be very costly.

358
Personal Selling
(1)Personal selling is the most effective tool at certain
stages of the buying process, particularly in building
up buyers’ preferences, convictions, and actions.
(2)Personal selling involves personal interaction,
allowing sales people to respond directly and to build
personal relationships.
(3)A sales force requires a longer-term commitment than
advertising.
(4)Personal selling is the company’s most expensive
promotion tool.

359
Sales Promotion
(1)Sales promotions can attract consumer attention, offer
strong incentives to purchase, and be used to boost
sagging sales.
(2)Sales promotion effects are often short-lived, and
often are not as effective as advertising or personal
selling in building long-run brand preference.
(3)If used too frequently, sales promotions can risk
damaging brand images.

360
Public Relations
(1)Public relations is very believable⎯news stories,
features, sponsorships, and events seem more real and
believable to readers than ads do.
(2)Public relations can reach many prospects who avoid
salespeople and advertisements⎯the message gets
the buyers as “news” rather than a sales-directed
communication.

361
Direct Marketing
(1)Direct marketing is nonpublic.
(2)Direct marketing is immediate and customized.
(3)Direct marketing is interactive.

362
5.2.2 Promotion Mix Strategies
• Marketers can choose from two basic promotion mix
strategies⎯push strategy and pull strategy.

363
 Retailer marketing
Producer marketing activities (personal
activities (personal selling, advertising,
selling, trade sales promotion,
promotion, others) others)
Wholesalers
Producer Consumers
and retailers

Push strategy

Demand Wholesalers Demand

Producer Consumers
and retailers

Producer marketing activities (consumer advertising, sales promotion,

others)

Pull strategy

364
• When designing their promotion mix strategies,
companies must consider such factors as type of
product/market and the product life-cycle stage.

365
 Chapter 13

Advertising, Sales Promotion, and

Public Relations

• Major advertising decisions

• Major sales promotion tools
• Major public relations tools

366
367
368
369
370
371
1 Advertising
• Advertising is any paid form of nonpersonal
presentation and promotion of ideas, goods, or services
by an identified sponsor.
• Advertising is used by both organizations and
individuals, by both for-profit and not-for-profit
organizations.
• Advertising plays a major role in communicating the
organization and its offerings.
• Marketing management must make four important
decisions when developing an advertising program.

372
 Objectives setting Budget decisions

Informing Affordable approach

Persuading Percentage of sales
Reminding Competitive parity
Objective and task

Message decisions

Message content
Message execution
Campaign evaluation

Communication impact
Sales impact
Media decisions

Reach, frequency, impact

Major media types
Specific media vehicles
Major Advertising Decisions Media timing

373
1.1 Setting Advertising Objectives
Advertising objectives can be classified as being:
Informative⎯used heavily when introducing a new
product category and designed to build primary demand.
Persuasive⎯used when competition increased and
designed to build selective demand.
Reminding⎯used for mature products and designed to
keep consumers thinking about the brand.

374
1.2 Setting the Advertising Budget
• Commonly used methods for setting the advertising
budget include affordable, percentage-of-sales,
competitive-parity, and objective-and-task approaches.
• When setting the advertising budget, the company
should consider factors like product life-cycle stage,
market share, competition, and nature of the brand.

375
1.3 Developing Advertising Strategy
Advertising strategy consists of two major elements:
creating advertising messages and selecting advertising
media.
1.3.1 Creating the Advertising Message
We are now living in an era of advertising clutter. Just to
gain and hold attention, today’s advertising messages
must be well planned, imaginative, entertaining, and
rewarding to consumers.

376
Message Content
• To be effective, an advertising message must
communicate the brand’s positioning points⎯distinctive
benefits that the brand can bring to customers.
• The brand’s positioning points must be presented
artistically in the form of a visualization, a phrase, or a
combination of both.

377
Message Execution
In executing the message, the creative people must find
the best style, tone, words, and format.
• Commonly used execution styles include:
Slice of life
Lifestyle
Fantasy
Mood or image
Musical

378
Technical expertise
Scientific evidence
Testimonial evidence or endorsement

379
• The advertiser must choose a tone (e.g. positive or
humorous) for the ad.
• The advertiser must use memorable and attention-
getting words. Examples:
M&M melts in your mouth, not in your hand. （只溶在口 不溶在手）
Good to the last drop. （滴滴香浓 意犹未尽）(Maxwell House)
“三千烦恼丝 健康新开始” (Pantene)

• Format elements (such as illustrations, headlines, and

copy) make a difference in an ad’s impact.

380
1.3.2 Selecting the Advertising Media
The major steps in media selection are (1) deciding on
reach, frequency, and impact; (2) choosing among major
media types; (3) selecting specific media vehicles; and (4)
deciding on media timing.

381
Deciding on Reach, Frequency, and Impact
• Reach is a measure of the percentage of people in the
target market who are exposed to the ad campaign during
a given period of time.
• Frequency is a measure of how many times the average
person in the target market is exposed to the ad message.
• Impact is the qualitative value of a message exposure
through a given medium.

382
Choosing Among Major Media Types
• Major types of media include newspapers, magazines,
television, radio, direct mail, outdoor, and the Internet.
• Media planners must know the reach, frequency, and
impact of each of the major media types.

383
Selecting Specific Media Vehicles
When selecting among specific media vehicles, media
planners must consider the media habits of target
customers, the nature of the product, types of messages,
and cost (both the total cost of using a medium and the
cost per thousand exposures).

384
Deciding on Media Timing
• The advertiser must decide on how to schedule the
advertising over the course of the year. It can vary its
advertising to follow the seasonal pattern, to oppose the
seasonal pattern, or to be the same all year.
• In scheduling the advertising, the advertiser also has to
choose between continuity (scheduling ads evenly within
a given period) and pulsing (scheduling ads unevenly
over a given period).

385
1.4 Evaluating Advertising
Advertising evaluation involves measuring the
communication effects and the sales effects of advertising.
1.4.1 Measuring the Communication Effects
• Measuring the communication effects of an ad⎯copy
testing⎯tells whether the ad is communicating well.
• Copy testing can be done before or after an ad is placed.
The purpose is to measure recall or attitude changes
resulting from exposure to the ad.

386
1.4.2 Measuring the Sales Effects
• The sales effects of advertising are often harder to
measure than the communication effects, because sales
can be affected by other factors such as product features,
price, and availability.
• One way to measure the sales effects of advertising is to
measure the percentage change in sales in response to the
percentage change in advertising spending. Another way
is through experiments.

387
2 Sales Promotion
• Sales promotion consists of short-term incentives to
encourage purchase or sales of a product or service.
• Sales promotion can be targeted toward final buyers
(consumer promotion), retailers and wholesalers (trade
promotion), business customers (business promotion),
and members of the sales force (sales force promotion).

388
2.1 Major Sales Promotion Tools
• Major consumer promotion tools include samples,
coupons, cash refunds (rebates), price packs (cents-off
deals), premiums, advertising specialties, patronage
rewards, point-of-purchase (POP) displays and
demonstrations, contests, sweepstakes, and games.
• Major trade promotion tools include discounts,
allowances, buy-back guarantees, free goods, and free
training.

389
• Business promotion includes many of the same tools
used for consumer or trade promotions. Here are two
additional major tools: conventions and trade shows, and
sales contests.

390
2.2 Developing the Sales Promotion Program
Marketers must make several decisions in developing the
sales promotion program:
(1) Deciding on the size of the incentive.
(2) Setting conditions for participation.
(3) Deciding on how to distribute the promotion tools.
(4) Setting the length of the promotion.
(5) Deciding on the timing of the promotion.
(6) Evaluating the results.

391
3 Public Relations
• Public relations (PR) consists of building good relations
with the company’s various publics by obtaining
favorable publicity, building up a good corporate image,
and handling or heading off unfavorable rumors, stories,
and events.
• PR can help build strong brands, and save the company
from risks or crises.

392
“The birth of a brand is usually accomplished with
public relations, not advertising. Our general rule is PR
first, advertising second. Public relations is the nail,
advertising the hammer. PR creates the credentials that
provide the credibility for advertising”
⎯Al Ries and Laura Ries

393
• Major PR tools include:
(1) Publications (annual reports, brochures, articles,
company newsletters and magazines, and audiovisual
materials)
(2) Events (news conferences, seminars, outings, exhibits,
contests and competitions, anniversaries, and sport and
cultural sponsorships)
(3) News (finding or creating favorable news about the
company, its products, and its people)
(4) Speeches
(5) Donations

394
 Chapter 14

Personal Selling
and Direct Marketing

• Managing the sales force

• The personal selling process
• Directing marketing

395
1 Personal Selling
• Personal selling is personal presentation by the firm’s
salespeople for the purpose of making sales and building
customer relationships.
• Today, most salespeople are well-educated, well-trained
professionals who work to build and maintain long-term
customer relationships by listening to their customers,
assessing customer needs, and organizing the company’s
efforts to solve customer problems.

396
1.1 Managing the Sales Force

Designing sales Recruiting and

Training
force strategy selecting
salespeople
and structure salespeople

Evaluating Supervising Compensating

salespeople salespeople salespeople

Major Steps in Sales Force Management

397
1.1.1 Designing Sales Force Strategy and Structure
1.1.1.1 Sales Force Structure
A company can divide up sales responsibilities along
lines of territory, product, customer, or a combination of
them.
Territorial Sales Force Structure
In this structure, each salesperson is assigned to an
exclusive geographic area and sells the company’s full
line of products or services to all customers in that
territory.

398
Product Sales Force Structure
In this structure, salespeople specialize in selling only a
proportion of the company’s products or lines.
Customer Sales Force Structure
In this structure, separate sales forces may be set up for
different industries, for serving current customers versus
finding new ones, and for major accounts versus regular
accounts.

399
Complex Sales Force Structures
• In this structure, salespeople may be placed by
customer and territory, by product and territory, by
product and customer, or by territory, product, and
customer.
• This organization is suitable for a company that sells a
wide variety of products to many types of customers over
a broad geographic area.

400
1.1.1.2 Sales Force Size
• Salespeople constitute one of the company’s most
productive and most expensive assets. Therefore,
increasing their number will increase both sales and costs.
• Many companies use the workload approach to set
sales force size.

401
• In using the workload approach to set sales force size, a
company can follow these steps:
(1) Dividing customers into different classes according to
size, status, or other factors, and identifying the number
of customers in each class.
(2) Identifying the average number of calls required for
each class during one year.
(3) Calculating the total number of calls required for all
customers⎯the sales force’s total workload.
(4) Estimating the number of calls the average
salesperson can make per year.
(5) Dividing (3) by (4) .
402
1.1.2 Recruiting and Selecting Salespeople
• When recruiting, companies should analyze the sales
job itself, and the characteristics of its most successful
salespeople to identify the traits needed by a successful
salesperson in their industry.
• Generally, great salespeople have intrinsic motivation,
disciplined work style, ability to build relationships, and
ability to close a sale.

403
1.1.3 Training Salespeople
Salespeople must be trained in:
(1) the knowledge of the company, its products and
markets;
(2) the knowledge of its major competitors;
(3) the principle and art of selling;
(4) understanding field procedures and responsibilities.

404
• Today, many companies are adding Web-based training
to their sales training programs. Such training may range
from simple text-based product information to Internet-
based sales exercises that build sales skills to
sophisticated simulations that re-create the dynamics of
real-life sales calls.

405
1.1.4 Compensating Salespeople
• To attract salespeople, a company must have an
appealing compensation plan. Compensation is made up
of a fixed amount, a variable amount, expense allowances,
and fringe benefits.
• Management must decide what mix of these
compensation elements makes the most sense for each
sales job. Different combinations of fixed and variable
compensation give rise to four basic types of
compensation plans⎯straight salary, straight
commission, salary plus bonus, and salary plus
commission.

406
1.1.5 Supervising Salespeople
• Supervision of salespeople includes directing and
motivating the sales force to do a better job.
• Companies usually use two major tools to direct
salespeople: the annual call plan (that shows which
customers and prospects to call on in which months and
which activities to carry out), and time-and-duty analysis
(which examines what percentage of their time
salespeople spend traveling, waiting, eating, taking
breaks, and doing administrative chores).

407
• Management can motivate sales force through its
organizational climate, sales quotas, and positive
incentives (e.g. sales meetings, sales contests).

408
1.1.6 Evaluating Salespeople
Management can evaluate salespeople’s performance
through sales reports, call reports, expense reports,
personal observation, customer surveys, and talks with
other salespeople.

409
 1.2 The Personal Selling Process

Prospecting Presentation &

Preapproach Approach
& qualifying demonstration

Handling
Follow-up Closing
objections

Major Steps in Effective Selling

410
2 Direct Marketing
• Today, with the trend toward more narrowly focused or
one-to-one marketing, many companies are adopting
direct marketing, either as a primary marketing approach
or as a supplement to other approaches.
• In its broad sense, direct marketing consists of direct
distribution and direct communications with consumers.

411
• Used in a narrow sense, direct marketing refers to
direct communications⎯direct connections with
carefully targeted individual consumers to both obtain an
immediate response and cultivate lasting customer
relationships.

412
2.1 Benefits of Direct Marketing
Direct marketing brings many benefits to both buyers
and sellers.
Benefits of Direct Marketing for Buyers
(1) It is convenient, easy to use, and private.
(2) It gives buyers ready access to a wealth of products
and information, at home and around the globe.
(3) It is immediate and interactive.

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Benefits of Direct Marketing for Sellers
(1) It is a powerful tool for building customer
relationships.
(2) It can be timed to reach prospects at the right moment.
(3) It gives sellers access to buyers that could not be
reached through other channels.
(4) It can offer sellers a low-cost, efficient alternative for
reaching their markets.

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2.2 Customer Databases and Direct
Marketing
Effective direct marketing begins with a good customer
database.
• A customer database is an organized collection of
comprehensive data about individual customers or
prospects, including geographic, demographic,
psychographic, and behavioral data.

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• The customer data can be used to locate good potential
customers, tailor products and services to the special
needs of targeted customers, and maintain long-term
customer relationships.
• Database marketing requires a special investment.
Companies must invest in computer hardware, database
software, analytical programs, communication links, and
skilled personnel.

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2.3 Forms of Direct Marketing
Major forms of direct marketing include personal selling
(face-to-face selling), telephone marketing, direct-mail
marketing, catalog marketing, direct-response television
marketing, kiosk marketing, and online marketing.

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 Face-to-face
selling

Online Telemarketing
marketing

Customers and
prospects Direct-mail
Kiosk marketing
marketing

Catalog
Direct-response marketing
TV marketing

Forms of Direct Marketing

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 Chapter 15

Dealing with Competition

• Identifying competitors
• Analyzing competitors
• Designing competitive strategies
• Strategic insights of Sun Tzu’s Art of Warfare
• Coopetition: using game theory to shape strategy

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1 Identifying Competitors
• There are four levels of competition based on product
substitutability: brand competition, industry competition,
form competition, and generic competition.
• A company’s competitors should be defined from both
the industry’s and the market’s points of view.
Companies must avoid “competitor myopia”⎯a mere
focus on current competitors.

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2 Analyzing Competitors
Once a company identifies its primary competitors, it
must ascertain their characteristics. Specifically,
strategies
(Overall-cost leadership? Differentiation? Concentration?)

objectives
(Current profitability? Market-share growth? Technological
leadership? Service leadership?)

strengths and weaknesses

reaction patterns

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 Checklist for Analyzing Competitors’ Marketing
Strengths and Weaknesses

• Company reputation
• Market share
• Customer satisfaction
• Customer retention
• Product quality
• Service quality
• Pricing effectiveness
• Distribution effectiveness
• Promotion effectiveness
• Sales force effectiveness
• Innovation effectiveness
• Geographical coverage

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3 Designing Competitive Strategies
A firm can be classified by its market position as a
leader, a challenger, a follower, or a nicher.

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3.1 Market-Leader Strategies
A market leader can pursue three strategies:
(1) Expanding the total market by developing new users,
new uses, and more usage
(2) Defending market share by developing defense
strategies
(3) Expanding market share
(One study suggests that share-gaining companies typically
outperform competitors in three areas: new-product activity,
relative product quality, and marketing expenditures.)

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 Defense Strategies Available to Market Leaders

Strategies Description

Position defense Building superior brand power

Flank defense Erecting outposts to protect a weak front
Preemptive defense Sending out aggressive market signals
Counteroffensive defense Invading the attacker’s main territory or flank
Mobile defense Broadening or diversifying its market
Contraction defense Giving up weaker territories

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3.2 Market-Challenger Strategies
A market challenger’s strategy includes three steps:
(1) Defining the strategic objective and opponent(s)
(To wrest a certain share from the market leader or peer? To
drive a small firm out of business?)

(2) Choosing a general attack strategy

(3) Choosing a specific attack strategy
(Price discount, lower price goods, prestige good, product
proliferation, product innovation, improved services, distribution
innovation, manufacturing-cost reduction, intensive advertising
promotion)

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 Attack Strategies Available to Market Challengers

Strategies Description

Frontal attack Matching the opponent’s 4Ps

Flank attack Concentrating strength against weakness along
geographical or segmental dimension
Encirclement attack Launching a grand offensive on several fronts
Bypass attack Avoiding the enemy by diversifying into
unrelated products or new geographical markets
or leapfrogging into new technologies
Guerrilla attack Waging small, intermittent attacks to harass and
demoralize the opponent
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3.3 Market-Follower Strategies
• Theodore Levitt wrote an article entitled “Innovative
Imitation”, in which he argued that strategy of product
imitation might be as profitable as a strategy of product
innovation.

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• A market-follower can pursue four broad strategies:
(1)Being a counterfeiter⎯duplicating the leader’s
product and packaging and sells it on the black
market or through disreputable dealers.
(2)Being a cloner⎯emulating the leader’s products,
name, and packaging, with slight variations.
(3)Being an imitator⎯copying some things from the
leader but maintaining differentiation in terms of
packaging, advertising, pricing, or location.
(4)Being an adapter⎯taking the leader’s products and
adapting or improving them.

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3.4 Market-Nicher Strategies
• Sometimes being a leader in a small market is
preferable to being a follower in a large market.
• The key idea in nichemanship is specialization. The
following specialist roles are open to nichers: end-user
specialist, vertical-level specialist, customer-size
specialist, specific-customer specialist, geographic
specialist, quality-price specialist, service specialist, etc.

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4 Strategic Insights of Sun Tzu’s Art of
Warfare
• The 6,000-plus-word Sun Tzu’s Art of Warfare has
been acclaimed as one of the most legendary books ever
written in the world on military strategy. Corporate
strategists and entrepreneurs across the globe have been
studying the book in the hope of applying the strategic
philosophies to the marketplace competition.
• It must be pointed out that the insights presented in the
book are more strategic than tactical.

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• Core strategic concepts that may be applicable to the
contemporary marketplace competition:

（1）全胜 (Complete victory)

《孙子兵法·谋攻》云：“夫用兵之法，全国为上，
破国次之。” “是故百战百胜，非善之善也；不战
而屈人之兵，善之善者也。”
The concept of complete victory stresses seeking
opportunities of “winning without fighting” ⎯making
an enemy retreat without firing a bullet or turning an
enemy into a friend.

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（2）全争 (All-round competition)
《孙子兵法·谋攻》云：“必以全争于天下，故兵不
顿而利可全。”
The concept of all-round competition has a two-
pronged meaning: (1) using multiple methods for
winning, and (2) taking a broad view of competition
⎯both the industry’s and the market’s points of view.
Case 1: Slek grabed P&G’s share of the shampoo
market through aggressive advertising and channel
incentives
Case 2: What is Coca-cola?

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（3）先胜 (Advance victory)
《孙子兵法·军形》云：“是故胜兵先胜而后求战，
败兵先战而后求胜。”
The concept of advance victory suggests that a troop
should not be involved in a war unless it ensures it will
be able to win.

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（4）我专而敌分 (Focusing vs scattering)
《孙子兵法·军形》云：“故胜兵若以镒称铢，败兵
若以铢称镒。”
《孙子兵法·虚实》云：“故形人而我无形，则我专
而敌分。”
This concept emphasizes building partial advantages on
a disadvantaged overall position.
Case: Tian Ji’s strategy for horse-racing

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（5）势 (Momentum)
《孙子兵法·兵势》云：“激水之疾，至于漂石者，
势也。” “鸷鸟之疾，至于毁折者，节也。” “故
善战人之势，如转圆石于千仞之山者，势也。”
Zhang Ruimin, Haier’s founder and CEO, thinks that
customers are rocks. The key to winning customers is to
speed up customer responsiveness.
Hu Xueyan, a government offical and merchant, said
that momentum results from a high position.

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（6）以迂为直 (Bypassing)
《孙子兵法·军争》云：“以迂为直，以患为利。”
“先知迂直之计者胜。”
A business-strategy textbook argues that whereas the
shortest line connecting A to B is a straight line in terms
of physics, it is usually a curved line without obstacles
from the viewpoint of business.
Based on his studies, a British strategist found that over
90% of battles in the world were won through
circumvention.
Case: Volvo’s promotion strategy

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（7）柔 (Suppleness)
《孙子兵法·虚实》云：“夫兵形像水，水之行避高
而趋下，兵之形避实而击虚。”
《孙子兵法·九地》云：“是故始如处女，敌人开户；
后如脱兔，敌不及拒。”

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5 Coopetition: Using Game Theory to
Shape Business Strategy
5.1 Disasters Associated with Playing the
Wrong Game
• The wrong game is characterized by egocentrism.

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 Prisoner B

Confession Denial

Confession -8, -8 0, -10

Prisoner A
Denial -10, 0 -1, -1

Prisoner’s Dilemma

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• The prisoner’s dilemma suggests:
(1) Non-cooperative games will end up with both
players losing!
(2) Non-cooperation arises from egocentrism.
(3) Zero sum is not a major feature of games. Players
can succeed spectacularly without requiring others to
fail!
(4) Success comes from playing the right game.

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5.2 Business as Both War and Peace
• Firms should cooperate in creating the market and
compete in dividing up the market.
• Even if competition generally takes place in dividing
the pie, there can be opportunities for cooperation. So
war and peace can exist simultaneously.
• Firms should look for opportunities for coopetition:
win-win situations.

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5.3 Game Theory as a Tool of Looking for
Coopetition Opportunities
• Game theory mainly analyzes the interplay between
competition and cooperation under conditions of
duopolistic competition.
• Founders: John von Neumann and Oskar Morgenstern
(Theory of Games and Economic Behavior, 1944)
• The field has been gaining increasing attention.
⎯1994, 2005 Nobel Prize
⎯Applications by management consultants

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• Game theory reveals two principles of games:
(1) To every action, there is a reaction.
(2) You cannot take away from the game more than
you bring to it.
• The primary insight of game theory is the importance
of focusing on other players⎯namely, allocentrism.

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5.4 Changing the Game
A game is made up of five components :
Players
Added value
Rules PARTS
Tactics
Scope

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5.4.1 Changing the Game by Changing the Players
• Who are the players in the game of business?
→The company
→Suppliers
→Customers Value Net
→Substitutors
→Complementors

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 Suppliers

Substitutors Company Complementors

Customers

The Value Net

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• Traditionally, substitutors are the only type of players
that are seen as enemies.
• Viewed from the demand side, substitutors are mostly
competitors. Even if this is the case, there can be
elements of cooperation between the company and its
substitutors.
• When viewed from the supply side, substitutors can be
partners.

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Case 1: The Coca-cola Company brought in a new
supplier⎯the Holland Sweetener Company (HSC)
⎯Coke and Pepsi relied solely on Monsanto to provide
a low-calorie sweetener (with the brand name
NutraSweet) used in Diet Coke and Diet Pepsi. And
NutraSweet was a household name, which added to
Coke’s and Pepsi’s brand value.
⎯With Coke’s blessing, HSC built an aspartame plant
in Europe in 1985.
⎯As HSC attacked the European market, Monsanto
fought back aggressively by using deep price cuts and
contractual relationships with Coke and Pepsi.

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⎯Instead of buying from HSC, both Coke and Pepsi
signed new long-term contracts with Monsanto.
⎯The new contracts led to combined savings of $200
million annually for Coke and Pepsi.

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5.4.2 Changing the Game by Changing the Added
Values
• In changing the added values, you have two options:
Raise your own added value or lower that of others.

Added value =
total value with you
minus
total value without you

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A card game
⎯Adam and his MBA students are playing a card game.
Adam has 26 black cards and each of the students has
one red card.
⎯Any red card coupled with a black card gets a $100
prize (paid by the dean).
⎯Adam’s added value: $2,600
⎯Each student has an added value of $100.
⎯The sum of the added values is $5,200. But there’s
only $2,600 to be divided.

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⎯Adam gets $1,300 and each student gets $50.
⎯In a public display, Adam burns 3 black cards.
⎯Now Adam’s added value: $2,300
⎯No student has any added value.
⎯Based on his advantageous position, Adam offers a
90:10 split. Adam gets $2,070 ($2,300  0.9 = $2,070).

By changing the game through reducing his students’

added value, Adam earns $770 more.

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Case 2: Nintendo changed the game by manipulating
the added values
⎯Reducing the added value of its retail customers by
underfilling their orders
⎯Reducing the added value of its complementors by
building a security chip in the hardware and introducing
a licensing program for outside software developers.
The number of licenses was restricted, and licensees
were allowed to develop only a limited number of
games.

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⎯Reducing the added value of suppliers by using old-
generation chip technology
⎯Increasing its own added value through low-cost
production

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5.4.3 Changing the Game by Changing the Rules
• Rules are concerned with how the game is played.
Rules arise from law, custom, practicality, or contracts.
• In the United States, a prevailing rule is one price to
all.
• The most commonly used methods of changing the
rules include incorporating a most-favored-customer
clause or meet-the-competition clause into contracts.

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5.4.4 Changing the Game by Changing the Tactics
• Changing the tactics mainly refers to changing the
way players perceive the game. Since business is mired
in uncertainty, players do not always see the game of
business clearly.
e.g. Are consumers highly price-sensitive to newspapers?

• A common strategy for changing perceptions is to

reduce misperceptions⎯namely, to lift the fog.

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Case 3: New York Post lifted the fog for Daily News
⎯Based on its observation and analysis, New York Post
had understood that in its target market in New York
City a small price increase would not reduce total sales
and a price cut would not increase total sales.
⎯In early 1994, New York Post raised its price from 40
cents to 50 cents, but Daily News, which targeted the
same segment, held at 40 cents because of failure to see
through the “fog”. As a result, Post was losing
subscribers to Daily.

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⎯Post test-marketed a price cut to 25 cents on Staten
Island, which had similar market conditions to New
York City, and discovered that its sales remained at the
old level.
⎯Seeing this situation, Daily finally saw through the
“fog” and raised its price to 50 cents in New York.

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5.4.5 Changing the Game by Changing the Scope
Changing the scope of game means changing the
boundaries of game.

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Thanks for joining us!
Progress and good luck!

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