CHAPTER 8
variable in the marketing mix
Skimming Pricing Strategy
Use of a high price relative to competitive
offerings
Commonly used as a market entry price for
distinctive goods or services with little or no
initial competition
Permits marketers to control demand but also
attracts competitors
Penetration Pricing Strategy
Use of a relatively low entry price compared
with competitive offerings
Price level may increase to match competitors,
once the product has recognition in the market
Sometimes called market-minus pricing
Penetration Pricing Strategy
Works best for goods and services that have:
Highly elastic demand
Low production and marketing costs
A high likelihood of attracting strong
competitors
Everyday Low Pricing (EDLP)
Strategy devoted to continuous low prices as
opposed to relying on short-term, price-cutting
tactics
Example - Chilis
Used by retailers selling to consumers and by
manufacturers in dealing with channel
members
Grocery stores, oppose EDLP strategies
Everyday Low Pricing (EDLP)
Disadvantages of EDLP:
Easy for competitors to match
Unless demand is elastic, reduces
revenue throughout industry
May generate image of questionable
quality
Competitive Pricing Strategy
Designed to deemphasize price as a competitive
variable by pricing a good or service at the level
of comparable offerings
Competitive Pricing Strategy
Opening price point - Setting an opening price
below that of the competition
Example - Publix
Prices can drop when competitors continually
match each other
Forces firms to compete based on nonprice
Price Quotations
List price - Established price normally quoted to
potential buyers
Reductions from list price
Market price - Price a consumer or
marketing intermediary actually pays
for a product after subtracting any
discounts, allowances, or rebates from
the list price
Reductions from List Price
Cash discount - Price reduction offered to a
consumer, business user, or marketing
intermediary in return for prompt payment of a
bill
Trade discount - Payment to a channel
member or buyer for performing marketing
functions
Reductions from List Price
Quantity discount - Price reduction granted for
a large-volume purchase
Cumulative quantity discount - Price
discount determined by amounts of
purchases over stated time periods
Noncumulative quantity discount -
Price reduction granted on a one-time-
only basis
Reductions from List Price
Allowance - Specified deduction from list price,
including a trade-in or promotional allowance
Trade-in
Promotional allowance
Minimum advertised pricing (MAP)
Rebate
Figure 19.3 Chain of Trade Discounts
Geographic Considerations
Strongly influences a firms ability to deliver
orders in a cost-effective manner at the right
time and place
Affects the marketers ability to receive
additional inventory quickly in response to
demand fluctuations
Three ways to handle transportation costs:
buyer pays, seller pays, or both share costs
FOB Pricing
Free on board plant or FOB origin - Does not
include shipping charges
 FOB origin-freight allowed, or freight absorbed
- Allows the buyer to deduct shipping expenses
from the cost of purchases
Uniform-Delivered Pricing
Firm quotes the same price, including
transportation expenses, to all buyers
Includes transportation charge averaged over
all customers
Nearby customers pay disproportionate freight
charges, so-called phantom-freight
Zone Pricing
Dividing the overall market into different zones
and establishing a single price within each zone
Example - The U.S. Postal Services
parcel rate
Basing-Point Pricing
The buyer pays the factory price plus freight
charges from the basing-point city nearest the
buyer
Loss Leaders and Leader Pricing
Loss leader - Product offered to consumers at
less than cost to attract them to stores in the
hope that they will buy other merchandise at
regular prices
Leader pricing - Variant of loss-leader pricing in
which marketers offer prices slightly above cost
To avoid violating minimum-markup
regulations and earn a minimal return
on promotional sales
Price-Quality Relationships
Price affects consumer perception of quality
Customers often associate prestige with high
prices
Many consumers are willing to pay more for
ecofriendly products
Consumers have maximum and minimum price
limits
Competitive Bidding and Negotiated prices

The basing point specifies a location from which Competitive bidding - Inviting potential
freight charges are calculated suppliers to quote prices on proposed
purchases or contracts
Psychological Pricing
Negotiating prices online
Belief that certain price ranges make a good or
service more appealing than others to buyers Online auctions are the purest form of
online bidding
Includes prestige pricing
The Transfer Pricing Dilemma
Odd pricing - Setting prices at odd numbers just
under round numbers Transfer price - The price for moving goods
between profit centers
Unit pricing - Prices stated in terms of some
recognized unit of measurement or a standard Profit centers - Any part of the organization to
numerical count which revenue and controllable costs can be
assigned
Price Flexibility
Governments monitor transfer pricing because
Pricing policy permitting variable prices for
it can be used by companies to avoid paying
goods and services
taxes on profits
One-price policies suit mass-selling marketing
Traditional Global Pricing Strategies
programs
Standard worldwide pricing - Can succeed if
Variable pricing is more likely to be applied in
foreign marketing costs remain low or if their
marketing programs based on individual
prices reflect average unit costs
bargaining
Dual pricing - Distinguishes prices for domestic
Product-Line Pricing
and export sales
Practice of setting a limited number of prices
Market-differentiated pricing - Setting prices
for a selection of merchandise and marketing
according to local market conditions
different product lines at each of these price
levels The Cannibalization Dilemma

Helps retailers differentiate product lines Cannibalization - Loss of sales of an existing

product due to competition from a new product
Retailers may have difficulty making price
in the same line
changes on individual items as necessary
Use of Shopbots
Promotional Pricing
Search programs that act as comparison
Pricing policy in which a lower-than-normal
shopping agents
price is used as a temporary ingredient in a
firms marketing strategy Also called bots
 Force online marketers to keep the prices low Wholesaler - Takes title to the goods it handles
and then distributes these goods to:
Bundle Pricing
Retailers
Offering two or more complementary products
and selling them for a single price Other distributors

Prevalent in the telecommunications industry End consumers

Consumers may resist the practice of bundling Types of Marketing Channels

claiming they are being forced to pay for
Service firms market through short channels
products they dont want
because they sell intangible products and need
CHAPTER 9 to maintain personal relationships within their
channels
Introduction
Figure 14.1 Alternative Marketing Channels
Distribution - Movement of goods and services
from producers to customers Direct Selling
Marketing (distribution) channel - System of Direct channel - Moves goods directly from a
marketing institutions that enhances the: producer to the business purchaser or ultimate
user
Physical flow of goods and services
Direct selling - Strategy designed to establish
Ownership title, from producer to
direct sales contact between producer and final
consumer or business user
user
Introduction
Direct Selling
Logistics - Coordinating the flow of
Important option for goods that require
information, goods, and services among
extensive demonstrations in
members of the distribution channel
persuading customers to buy
Supply-chain management - Control of the
Plays an important role in both B2B and
activities of purchasing, processing, and delivery
B2C markets
through which:
The Internet and direct mail are
Raw materials are transformed into
important tools for direct selling
products and made available to final
consumers Channels Using Marketing
Intermediaries
Introduction
Producer to wholesaler to retailer to consumer
Physical distribution - Broad range of activities
aimed at: The traditional channel for consumer
goods
Efficient movement of finished goods
from the end of the production line to Gives small producers access to
the consumer hundreds of retailers

The Role of Marketing Channels in Marketing Gives small retailers access to

Strategy wholesalers specialized distribution
skills
Four functions of marketing channels:
Producer to wholesaler to business user
Facilitating the exchange process by
reducing the number of marketplace Industrial distributor - Intermediaries in
contacts necessary to make a sale the business market that take title to
goods
Adjusting for discrepancies in the
markets assortment of goods and Channels Using Marketing
services via sorting Intermediaries

Standardizing exchange transactions by Producer to agent to wholesaler to retailer to

setting expectations for products consumer

Facilitating searches by both buyers and Common in markets served by small

sellers companies

Types of Marketing Channels Agent performs the basic function of

bringing buyer and seller together
Marketing intermediary - Organization that
operates between producers and consumers or Agent may or may not take possession
business users of goods but does not take title
 Channels Using Marketing Intermediaries
Producer to agent to wholesaler to business
user
Manufacturers representative -
Intermediary who represents
manufacturers of related but
noncompeting products and receives a
commission on each sale
Provides an independent sales force to
contact wholesale buyers
Channels Using Marketing
Intermediaries
Manufacturers representative - Agent
wholesaling intermediary that
represents manufacturers of related
but noncompeting products and
receives a commission on each sale
Producer to agent to business user
Independently owned wholesaler takes
title to the goods
Common in transactions with large unit
sales in which transportation is a small
percentage of the total cost
Dual Distribution
Movement of products through more than one
channel to reach the firms target market
Used to maximize the firms coverage in the
marketplace
To increase the cost-effectiveness of the firms
marketing effort
Example: Nordstrom sells through
stores, catalogs, and the Internet
Reverse Channels
Channels designed to return goods to their
producers
Gained increased importance with:
Rising prices for raw materials
Increasing availability of recycling
facilities
The passage of additional antipollution
conservation laws
Used for recalls and repairs
Table 14.1 Factors Influencing Marketing
Channel Strategies
Determining Distribution Intensity
Intensive distribution - Distribution of a
product through all available channels
Selective distribution - Distribution of a product
through a limited number of channels
Exclusive Distribution - Distribution of a
product through a single wholesaler or retailer
in a specific geographic region
Legal Problems of Exclusive Distribution
Exclusive dealing agreement prohibits a
marketing intermediary from handling
competing products
Closed sales territories - Restrict their
distributors to certain geographic regions
Tying agreements - Arrangement that requires
a marketing intermediary to carry items other
than those they want to sell
Who Should Perform Channel Functions?
A member of the channel must perform certain
central marketing functions
Responsibilities of the different members may
vary
An independent intermediary earns a profit in
exchange for providing services to
manufacturers and retailers
Who Should Perform Channel Functions?
An intermediary must provide better service at
lower costs than manufacturers or retailers can
provide for themselves
Channel Management and Leadership
Keys to successful management of channel
relationships include the development of high
levels of:
Coordination
Commitment
Trust between channel members
Channel Management and Leadership
Channel captain - Dominant and controlling
member of a marketing channel
Example: Kroger is a channel captain in
the grocery industry
Channel Conflict
Horizontal conflict
Disagreements among channel
members at the same level
Vertical conflict
Occurs among members at different
levels of the channel
Channel Conflict
The gray market
Gray goods - Products manufactured
abroad under license from a U.S. firm
and then sold in:
 The U.S. market in competition
with that firms own domestic
output
Achieving Channel Cooperation
Best achieved when all members of channel see
themselves as equal components of the same
organization
Channel captain should provide this leadership
Vertical Marketing Systems
Designed to improve distribution efficiency and
cost-effectiveness by:
Integrating various functions
throughout the distribution chain
Rely on forward or backward integration
Forward integration - Firm attempts to
control downstream distribution
Backward integration - Manufacturer
attempts to gain greater control over
inputs to production process
Vertical Marketing Systems
Benefits
Improves chances for controlling and
coordinating the steps in the
distribution or production process
May lead to the development of
economies of scale that ultimately
saves money
May let a manufacturer expand into
profitable new businesses
Vertical Marketing Systems
Disadvantages
Involves some costs
Marketers lose some flexibility
Marketers have developed three categories of
VMSs
Corporate systems
Administered systems
Contractual systems
Corporate and Administered Systems
Corporate marketing system - A single owner
operates the entire marketing channel
Administered marketing system - Achieves
channel coordination when a dominant channel
member exercises its power
Contractual Marketing Systems
Coordinates channel activities through formal
agreements among participants
Wholesaler-sponsored voluntary chain
A wholesaler has formal agreement
with retailers to use a common name
and to purchase the wholesalers goods
Example: IGA Food Stores
Contractual Systems
Retail cooperative
Retailers establish a shared wholesaling
operation to help them compete with
chains
Franchise
A wholesaler or retailer agrees to meet
the operating requirements of a
manufacturer or other franchiser
Logistics and Supply Chain Management
Effective logistics requires:
Proper supply chain management
Control of the activities of purchasing,
processing, and delivery
Delivery through which raw materials
are transformed into products and
made available to final consumers
Logistics and Supply Chain Management
Supply chain - Complete sequence of suppliers
and activities that contribute to the creation
and delivery of merchandise
Begins with raw-material inputs for
production
Ends with the movement of final
product to customers
Takes place in two directions: upstream
and downstream
Figure 14.2 The Supply Chain of a
Manufacturing Company
Radio Frequency Identification (RFID)
Technology that uses a tiny chip with
identification information that can be read by a
scanner using radio waves from a distance
Enterprise Resource Planning
Software system that consolidates data from
among a firms various business units
ERP and its related software arent always
perfect
Logistical Cost Control
The distribution function accounts for half of a
firms total marketing costs
Businesses are reexamining each link of their
supply chains to identify activities that do not
add value for customers
Third-party logistics firms - Specialize in
handling logistical activity
 Physical Distribution
A physical distribution system contains these
elements:
Customer service
Transportation
Inventory control
Protective packaging and materials
handling
Order processing
Warehousing
The Problem of Suboptimization
Results when the managers of individual
physical distribution functions attempt to:
Minimize costs, but the impact of one
task on the others leads to less than
optimal results
Occurs when a firm introduces a new product
that:
May not fit easily into its current
physical distribution system
Effective management of physical distribution
requires cost trade-offs
Customer-Service Standards
State the goals and define acceptable
performance for the quality of service a firm
expects to deliver to its customers
After these standards are defined:
Designers assemble other physical
distribution components to meet these
standards at the lowest possible total
cost
Customer-Service Standards
Components of overall cost:
Transportation
Warehousing
Inventory control
Customer service/order processing
Administrative costs
Transportation
Transportation and delivery expenses add
approximately 10 percent to product costs
Key to cost control is often careful management
of relationships with shipping firms
Freight carriers use two basic rates:
Class rate
Commodity rate or special rate
Classes of Carriers
Common carriers - Provide transportation
services as for-hire carriers to the general public
Contract carriers - For-hire transporters that do
not offer their services to the general public
Private carriers - Transporters that provide
service solely for internally generated freight
Major Transportation Modes
Railroads
Most efficient way for moving bulky
commodities over long distances;
enjoying a resurgence
Intermodal operations - Combination
of transport modes, to improve
customer service and achieve cost
advantages
Major Transportation Modes
Motor carriers
Relatively fast and consistent service
Receives greater revenue per ton
shipped
Technology (satellite communication
system) has improved the efficiency of
trucking
Major Transportation Modes
Water carriers
Inland or barge lines and ocean-going,
deepwater ships
Barge lines carry bulky, low-unit-value
commodities such as grain, lumber, and
steel
Freight rates are based on the:
Size of the vessel
Cost of fuel
Security requirements
Major Transportation Modes
Pipelines
Efficiently transports natural gas and oil
Advantages
Low maintenance
Dependable
Disadvantages
Few locations
Accommodate only a small
number of products
Relatively slow
Major Transportation Modes
Air freight
 Declining in certain market sectors
Firms are adapting
UPS is offering two less-expensive,
nonguaranteed services:
UPS Air Freight Direct
UPS Air Freight Consolidated
Table 14.3 Comparison of Transport Modes
Freight Forwarders and Supplemental Carriers
Act as transportation intermediaries that
consolidate shipments to gain lower rates for
their customers
The customers gain advantages from the
services
Lower costs on small shipments
Faster delivery service than they could
achieve with their own LTL and LCL
shipments
Freight Forwarders and Supplemental Carriers
Logistics manager can ship products via a
number of auxiliary, or supplemental, carriers
that specialize in small shipments
Intermodal Coordination
Piggyback - Most widely used form of
intermodal coordination
Birdyback service - Sends motor carriers to pick
up a shipment locally and deliver that shipment
to local destinations
An air carrier takes it between airports
near those locations
Fishyback service - Intermodal coordination
system between motor carriers and water
carriers
Warehousing
Storage warehouse - Holds goods for moderate
to long periods in an attempt to balance supply
and demand for producers and purchasers
Distribution warehouse - Assembles and
redistributes goods, keeping them moving as
much as possible
Warehousing
Automated warehouse technology
Can cut distribution costs and improve
customer service
Warehouse locations
Main influences on choice
Warehousing and materials
handling costs
Delivery costs from warehouses
to customers
Warehouse location affects customer service
Inventory Control Systems
Companies must balance maintaining enough
inventory to meet customer demand with:
Incurring unneeded costs for carrying
excess inventory
To manage cost, firms use:
Just-in-time (JIT)
RFID technology
Vendor-managed inventory (VMI)
Order Processing
Directly affects firms ability to meet customer
service standards
Includes four major activities:
Conducting a credit check
Keeping a record of the sale
Making appropriate accounting entries
Locating orders, shipping them, and
adjusting inventory records
Protective Packaging and Materials Handling
Materials handling system - Activities for
moving products within plants, warehouses,
and transportation terminals
Unitizing - Combining as many packages
as possible into each load that moves
within or outside a facility
Containerization - Combining several
unitized loads into a single, well
protected load for shipment
CHAPTER 10
Retailing
Activities involved in selling merchandise to
ultimate consumers
Large and small retailers perform the major
channel activities:
Creating time, place, and ownership
utilities
Retailers act as both customers and marketers
in their channels
Evolution of Retailing
The general store First type of retail
institution
Rise of supermarkets in the early 1930s
Discount stores in the 1950s
Convenience stores in the 1960s
Off-price retailers in the 1980s and 1990s
Evolution of Retailing
 Wheel of retailing - Hypothesis that each new
type of retailer gains a competitive foothold by
offering lower prices than current suppliers
charge, the result of reducing or eliminating
services
Retailing Strategy
Retailers base key decisions on two
fundamental steps in the marketing strategy
process
Selecting a target market
Developing a retailing mix to satisfy the
chosen market
Figure 15.1 Components of Retail Strategy
Selecting a Target Market
Size of the market
Profit potential of the market
Level of competition
Merchandising Strategy
Guides retailers decisions on the items it will
offer
While developing the merchandise mix,
retailers should consider:
Needs and preferences of its target
market
The competitive environment
Overall profitability of each product line
and category
Category Management
Seeks to improve retailers product
performance through coordinated buying,
merchandising, and pricing
Evaluates performance according to each
product category
Categories that underperform may be dropped
even if they are strong brands
The Battle for Shelf Space
Proliferation of new products and variations on
existing ones has increased the competition for
shelf space
Stock-keeping unit (SKU) - Offering within a
product line
The Battle for Shelf Space
Major retailers increasingly make demands
from manufacturers in return for shelf space
Slotting allowances - Nonrefundable
fees grocery retailers receive from
manufacturers to secure shelf space for
new products
Customer Service Strategy
Heightened customer service is one possible
retailing strategy
The goal is to attract and retain target
customers to increase sales and profits
Some services that retailers could provide:
Enhanced comfort through lounges,
complimentary coffee, convenient
restrooms
Child-care services for customers
Virtual assistance programs
Pricing Strategy
Prices reflect a retailers marketing objectives
and policies
They affect consumer perceptions
Markups and Markdowns
Markup - Amount a retailer adds to the cost of
a product to determine its selling price
Markup is influenced by two factors:
Services performed by the retailer
Inventory turnover rate
Markdown - Amount by which a retailer
reduces the original selling price of a product
Location/Distribution Strategy
Location depends on many factors
Type of merchandise
The retailers financial resources
Characteristics of the target market
Site availability
Locations in Planned Shopping Centers
Planned shopping center - Group of retail
stores planned, coordinated, and marketed as a
unit
Includes five main types:
Neighborhood shopping center
Community shopping center
Regional shopping center
Power center
Lifestyle center
1) Neighborhood shopping center: It is likely to
consist of a group of smaller stores such as a
drugstore, a drycleaner, a gift shop, and
perhaps a hair salon. It contains 5 to 15 stores,
and the product mix usually is confined to
convenience items and some limited shopping
goods.
2) Community shopping center: It serves 20,000
to 100,000 people in a trade area extending a
 few miles from its location. It contains
anywhere from 10 to 30 retail stores, with a
branch of a local department store or some
other large store as the primary tenant. In
addition to the stores found in a neighborhood
center, a community center probably
encompasses more stores featuring shopping
goods, some professional offices, a branch
bank, and perhaps a movie theater or
supermarket.
3) Regional shopping center: It is a large facility
with at least 300,000 square feet of shopping
space. Its marketing appeal usually emphasizes
major department stores with the power to
draw customers, supplemented by as many as
200 smaller stores.
4) Power center: A power center is usually
located near a regional or superregional mall
and brings together several huge specialty
stores, such as standalone stores in a single
trading area.
5) The lifestyle center: It is a retailing format
offering a combination of shopping, movie
theaters, stages for concerts and live
entertainment, decorative fountains and park
benches in greenways, and restaurants and
bistros in an attractive outdoor environment.
Promotional Strategy
Promotion informs customers about locations,
merchandise selections, hours of operation, and
prices
Helps retailers attract shoppers and build
customer loyalty
National chains purchase advertising in print
and broadcast media
Promotional Strategy
Salespeople play an important promotional role
Selling up
Suggestion selling
Poor service can influence customers attitudes
about a retailer
Store Atmospherics
Atmospherics - Combination of physical
characteristics and amenities that contribute to
a stores image
Includes exterior and interior dcor
Figure 15.2 Bases for Categorizing Retailers
Classification of Retailers by Form of Ownership
Chain stores
Groups of retail outlets that operate
under central ownership and
management and handle the same
product lines
Volume purchases allow chains to pay
lower prices than their independent
rivals must pay
Classification of Retailers by Form of Ownership
Independent retailers
Generate about $4.7 trillion in retail
sales in a recent year
Traditional advantage is friendly,
personalized service
Classification by Shopping Effort
Convenience retailer - Focuses marketing
appeals on:
Accessible locations
Extended store hours
Rapid checkout services
Adequate parking facilities
Shopping stores - Offer potential customers the
chance to compare pricing, assortment, and
quality levels
Classification by Shopping Effort
Specialty retailer - Store that combines
carefully defined product lines, services, and
reputation to:
Persuade shoppers to spend
considerable shopping effort there
Classification by Services Provided
Classification system consists of three retail
types:
Self-service
Self-selection
Full-service retailers
Classification by Product Lines
Specialty stores - Handles only part of a single
product line
Label specialty - The practice of handling a
specific, narrow line of merchandise
Classification by Product Lines
Limited-line retailers
Offer a large assortment of products
within one product line or a few related
lines
Category killer - Offers huge selections
and low prices in single product lines
General Merchandise Retailers
General merchandise retailer - Store that
carries a wide variety of product lines, stocking
all of them in some depth
Variety stores
 Offer an extensive range and
assortment of low-price merchandise
Declining in popularity
General Merchandise Retailers
Department stores
A series of limited-line and specialty
stores under one roof
Faced intense competition from
discount stores, Internet retailers, and
hypermarkets
Fought back by:
Eliminating poorly performing
lines
Opening in new locations
Modernizing their stores
Mass Merchandiser
Store that stocks a wider line of goods than a
department store, usually without the same
depth of assortment within each line
Mass Merchandisers
Four types
Discount houses - Charge low prices
and offer fewer services
Off-price retailers - Stock only designer
labels at prices equal to or below
regular wholesale prices and then
passes the cost savings along to buyers
Mass Merchandisers
Hypermarkets - Giant one-stop
shopping facilities that offer wide
selections of grocery and general
merchandise products at discount
prices
Supercenter - Large store, usually
smaller than a hypermarket, that
combines groceries with discount store
merchandise
Showroom and warehouse retailers -
Send direct mail to their customers and
sell the advertised goods from
showrooms that display samples
Classification of Retail Transactions by Location
Most retail transactions occur in stores
Nonstore retailing is used for generating orders
for both consumer and B2B marketers
Retail Convergence and Scrambled
Merchandising
Retail convergence - Situation in which similar
merchandise is available from multiple retail
outlets
Resulting in the blurring of distinctions
between type of retailer and
merchandise offered
Scrambled merchandising - Retailing practice of
combining dissimilar product lines to boost
sales volume
Wholesaling Intermediaries
Wholesaler - Channel intermediary that takes
title to goods it handles and distributes these
goods to retailers, other distributors, or B2B
customers
Wholesaling intermediary - Comprehensive
term that describes wholesalers as well as
agents and brokers
Functions of Wholesaling Intermediaries
Creating utility
Time utility - Making products available
for sale when consumers want to
purchase them
Place utility - Helping deliver goods and
services for purchase at convenient
locations
Ownership utility - Smooth exchange of
title to the products from producers or
intermediaries to final purchasers
Table 15.1 Wholesaling Services for
Customers and Producer-Suppliers
Figure 15.3 Transaction Economies through
Wholesaling Intermediaries
Figure 15.4 - Major Types of Wholesaling
Intermediaries
Table 15.2 - Comparison of the Types of
Merchant Wholesalers and Their Services
Table 15.3 - Services Provided by Agents and
Brokers
Direct Marketing and Other
Nonstore Retailing
Direct marketing - Direct communications,
other than personal sales contacts, between
buyer and seller, designed to:
Generate sales, information requests,
or store or website visits
Direct Mail
Comes in a variety of forms, including
postcards, letters, and catalogs
Can narrowly target a market, achieve good
coverage, send messages quickly, and
personalize mailing pieces
Relatively high response rates
Direct Mail
High per-reader cost
 Effectiveness depends on quality
Considered junk mail by some consumers
Relies on database technology
Includes catalog marketing
Direct Selling
Manufacturers sell directly to consumers
Direct-Response Retailing
Customers order merchandise by mail or
telephone, by visiting a mail-order desk in a
retail store, or by computer or fax machine
Increasingly reaching buyers through the
Internet and through unique catalogs
Includes home shopping aided by television
promotion, such as infomercials
Telemarketing
Direct marketing conducted by telephone
Most frequently used form of direct marketing
Internet Retailing
Selling directly to consumers via virtual
storefronts
Internet-based retailers keep little or no
inventory
Fill customer orders directly from
vendors
Some traditional brick-and-mortar stores have
successfully extended their presence to the
Web
Automatic Merchandising
Uses vending machines to offer a wider variety
of goods
As technology advances, high-end products are
being sold in vending machines
CHAPTER 11
Introduction
Promotion - Function of informing, persuading,
and influencing the consumers purchase
decision
Marketing communications - Messages that
deal with buyer-seller relationships
Integrated marketing communications (IMC) -
Coordination of all promotional activities to
produce a unified, customer- focused
promotional message
Figure 16.1 - Integrated Marketing
Communications (IMC)
Importance of Teamwork
Teamwork involves both in-house resources
and outside vendors
IMC challenges the traditional role of the
outside advertising agency
Role of Databases in Effective IMC Programs
The Internet allows companies to gather
information faster and organize it easily
Direct sampling is a frequently used method to
obtain customer opinions
The Communication Process
Sender - Source of the message communicated
to the receiver
Message - Communication of information,
advice, or a request by the sender to the
receiver
The Communication Process
An effective message does three things
Gains the receivers attention
Achieves understanding by both sender
and receiver
Stimulates receivers needs and
suggests appropriate methods of
satisfying them
The Communication Process
AIDA - Steps through which an individual
reaches a purchase decision: attention, interest,
desire, and action
Encoding - Translating a message into
understandable terms
Decoding - Receivers interpretation of a
message
Table 16.1 - Relating Promotion to the
Communication Process
The Communication Process
Feedback - Receivers response to a message
Noise - Interference at some stage in the
communication process
Channel - Medium through which a message is
delivered
Elements of the Promotional Mix
Promotional mix - Subset of the marketing mix
in which marketers attempt to:
Achieve the optimal blending of the
elements of personal and nonpersonal
selling to achieve promotional
objectives
Personal Selling
Interpersonal influence process involving a
sellers promotional presentation conducted on
a person-to-person basis with the buyer
Oldest form of promotion
 Currently, nearly 15 million people in the U.S.
have careers in personal sales and related
occupations
Nonpersonal Selling
Advertising - Any paid, nonpersonal
communication about a business good
Product placement - Marketer pays a motion
picture owner a fee to display his or her product
prominently in the film or show
Nonpersonal Selling
Sales promotion - Marketing activities that
stimulate consumer purchasing and dealer
effectiveness
Does not include personal selling,
advertising, guerrilla marketing, and
public relations
Trade promotion - Sales promotion
geared to marketing intermediaries
Nonpersonal Selling
Direct marketing - Use of direct communication
to a consumer or business recipient designed to
generate a response in the form of:
An order
Lead generation
Traffic generation
Lead generation is the initiation of consumer
interest or inquiry into products or services of a
business. Leads can be created for purposes
such as list building, e-newsletter list
acquisition.
Traffic generation model is a stochastic model
of the traffic flows or data sources in a
communication network, for example a cellular
network or a computer network.
Nonpersonal Selling
Public relations - Firms communications and
relationships with its various publics
Publicity - Nonpersonal stimulation of demand
for a good by unpaid placement of significant
news
Guerrilla marketing - Unconventional,
innovative, and low-cost techniques to get
consumers attention
Table 16.2 - Promotional Mix Elements: A
Comparison
Sponsorships
Relationship in which an organization provides
funds to an event in exchange for a direct
association with that event
Sponsor purchases:
Access to the events audience
The image associated with the activity
How Sponsorship Differs from Advertising
Cost-effectiveness
Sponsors degree of control versus that of
advertising
Nature of the message
Types of Advertising
Product advertising - Nonpersonal selling of a
particular good or service
Institutional advertising - Promotion of a
concept, an idea, a philosophy, or the goodwill
of an industry, company, organization, person,
geographic location, or government agency
Objectives of Advertising
Informative advertising - Seeks to develop
initial demand for a good, service, organization,
person, place, idea, or cause
Persuasive advertising - Attempts to increase
demand for an existing good, service,
organization, person, place, idea, or cause
Objectives of Advertising
Reminder advertising - Reinforces previous
promotional activity by keeping the name of a
good, service, organization, person, place, idea,
or cause before the public
Figure 16.2 - Advertising Objectives in Relation
to Stage in the Product Lifecycle
Advertising Strategies
Comparative advertising - Emphasizes
messages with direct or indirect promotional
comparisons between competing brands
Used by firms whose products are not
market leaders
Advertising by market leaders seldom
acknowledge existence of competing
products
Advertising Strategies
Celebrity testimonials
Can improve product recognition
A celebrity who endorses too many
products may create marketplace
confusion
Advertising Strategies
Retail advertising - Advertising by stores that
sell goods or services directly to the consuming
public
Cooperative advertising - Retailer
shares advertising costs with a
manufacturer or wholesaler
Interactive Advertising
 Two-way promotional messages transmitted
through communication channels
Induce message recipients to
participate actively in the promotional
effort
Provides information throughout the purchase
and consumption processes
Creating an Advertisement
Must create effective ads that increase sales
and enhance the organizations image
An ad needs to accomplish:
Educating consumers about product
features
Enhancing brand loyalty
Improving consumer perception of the
brand
Figure 16.3 - Elements of the Advertising
Planning Process
Advertising Messages
Advertising campaign - Series of different but
related ads that use a single theme and appear
in different media within a specified time period
Example: Retail chain Targets Hello. . .
. Good Buy ads featuring the Beatles
music
Advertising Appeals
Fear appeals
Humor in advertising messages
Ads based on sex
Developing and Preparing Ads
Goals
Gain attention and interest
Inform or persuade
Lead to purchase or other desired
action
After conceiving an idea, ads must be refined
from rough sketch to finished layout
Figure 16.4 - Elements of a Typical Ad
Television
Mass coverage
Powerful impact on viewers, repetition
of messages
Flexibility, and prestige
Advergame a downloadable or Internet-based
computer game that advertises a brand-name
product by featuring it as part of the game.
Adware is a form of software that downloads or
displays unwanted ads when a user is online,
collects marketing data and other information
without the user's knowledge or redirects
search requests to certain advertising websites.
Keyword advertising is a form of online
advertising in which an advertiser pays to have
an advertisement appear in the results listing
when a person uses a particular phrase to
search the Web, typically by employing a search
engine. The particular phrase is composed of
one or more keyterms that is linked to one or
more advertisements. The most common form
or keyword advertising, focused on payment
methods, is pay per click (PPC), with other
forms being cost per action (CPA) or cost per
mille (CPM).
Social network advertising, also social media
targeting, is a group of terms that are used to
describe forms of online advertising that focus
on social networking services.
Narrowcasting has traditionally been
understood as the dissemination of information
(usually via Internet, radio, newspaper, or
television) to a narrow audience; not to the
broader public at-large. Also called niche
marketing or target marketing, narrowcasting
involves aiming media messages at specific
segments of the public defined by values,
preferences, demographic attributes, and/or
subscription. Narrowcasting is based on the
postmodern idea that mass audiences do not
exist.[1]
Cookie -a message given to a Web browser by a
Web server. The browser stores the message in
a text file. The message is then sent back to the
server each time the browser requests a page
from the server.

Creating Interactive Ads Media Selection and Scheduling

Advergames Radio

Missiles Advantages

Keyword ads Ability to reach people while

they drive because they are a
Adware captive audience
Social network advertising Benefits include low cost,
Narrowcasting flexibility, and mobility

Disadvantages
Media Selection and Scheduling
 Highly segmented audiences,
The temporary nature of
messages
A minimum of research
information compared with
television
Outdoor advertising
Traditional - Billboards and painted
displays
Transit advertising - Ads placed inside
and outside buses, subway trains,
commuter trains, and stations

Media Selection and Scheduling Media Selection and Scheduling

Newspapers Interactive Media

Advantages Internet and social media sites
Flexible Augmented reality - Virtual imaging can
be incorporated into real-time video on
Intensive coverage for ads
a mobile phone
Can refer back to newspaper
Other Advertising Media
ads
Total Immersions DFusion system
Disadvantages
Ads appear on T-shirts, on store
Hasty reading
flooring, in printed programs of live
Relatively poor reproduction theater productions, and as previews
quality on movie DVDs

Media Selection and Scheduling Media Scheduling

Magazines Setting the timing and sequence for a series of

advertisements
Consumer magazines and business
magazines Influenced by a variety of factors

Advantages Seasonal sales patterns

The ability to reach precise Repurchase cycles

target markets
Competitors activities
Quality reproduction
Marketing and Nonmarketing Public Relations
Long life
Nonmarketing public relations - A companys
Prestige associated with some messages about general management issues
magazines
Marketing public relations (MPR) - Focused
Disadvantage public relations activities that directly support
marketing goals
Lack flexibility
Publicity
Media Selection and Scheduling
Nonpersonal stimulation of demand for a good
Direct mail
by unpaid placement of significant news
Advantages
Many consumers consider news stories more
Ability to segment large credible than advertisements
numbers of prospective
customers Cross-Promotion

Flexible Marketing partners share the cost of a

Detailed information
Personalization
Disadvantages
High cost per reader
Reliance on the quality of
mailing lists
Consumers resistance
Media Selection and Scheduling
promotional campaign that meets their mutual
needs
Ethics and Promotional Strategies
Advertising to children
Insertion of product messages in media
programs without full disclosure
Use of cookies in online advertising
Puffery and Deception
Puffery
 Exaggerated claims of a products
superiority
Use of subjective or vague statements
that may not be literally true
The Uniform Commercial Code standardizes
sales and business practices throughout the
United States
Ethics in Public Relations
Issues include performing services for
companies that produce unsafe products
The Public Relations Society of Americas Code
of Professional Standards prohibits:
Promoting products or causes widely
known to be harmful
Promotional Mix Effectiveness
Marketers create a promotional mix by:
Blending advertising
Personal selling
Sales promotion
Public relations
Several factors can influence the effectiveness
of promotional mix
Nature of the Market
Markets target audience
Personal selling can be highly effective if the
market has a limited number of buyers
Type of customer
Nature of the Product
Consumer products rely more on advertising
than business products
Personal selling is important for shopping
products
Personal and nonpersonal selling are important
in the promotion of specialty items
Stage in the Product Lifecycle
Introduction - Nonpersonal and personal selling
Growth and maturity - Advertising and personal
selling
Maturity and early - Reduction in advertising
and sales promotion
Price
Advertising dominates for low-unit-value
products
Personal selling involves high per-contact costs
A real barrier in implementing any promotional
strategy is the size of the promotional budget
Funds Available for Promotion
Percentage-of-sales method
Fixed-sum-per-unit method
Meeting competition method
Task-objective method
Evaluating Promotional Effectiveness
Direct sales results test
Indirect evaluation
Measuring Advertising Effectiveness
Cost per thousand impressions (CPM)
By measuring promotional effectiveness:
Organizations can evaluate different
strategies
Prevent mistakes before spending
money on specific programs
Improve their promotional programs
Media and Message Research
Media research - Assesses how well a particular
medium delivers a message
Message research - Tests consumer reactions to
an advertisements creative message
Media and Message Research
Pretesting
Posttesting
Readership tests
Unaided recall tests
Inquiry tests
Split runs - Allow advertisers to test two
or more ads at the same time
Measuring Public Relations Effectiveness
The simplest and least costly method
Whether the target audience received
messages directed to them
Count the number of media placements
and gauge the extent of media
coverage
Conduct focus groups, interview opinion leaders
Evaluating Interactive Media
Hits - User requests for a file
Impressions - Number of times a viewer sees an
ad
Click-throughs - User clicks ad for more
information
View-through - Measures response over time
Evaluating Interactive Media
 Cost per impression - Relates the cost of an ad
to every thousand people who view it
Cost per response (click-through) - Relates the
cost of an ad to the number of people who click
it
Conversion rate - Percentage of visitors to a
Web site who make a purchase
CHAPTER 12
Introduction
Personal selling - Interpersonal influence
process involving a sellers promotional
presentation conducted on a person-to-person
basis with the buyer
Table 17.1 - Factors Affecting the Importance of
Personal Selling in the Promotional Mix
The Evolution of Personal Selling
Selling has been a standard business activity for
thousands of years
Salespeople are problem solvers
Personal selling is a vital, vibrant, dynamic
process
The Evolution of Personal Selling
Salespeople must be able to:
Focus on a customers situation and
needs and create solutions that meet
those needs
Follow through and stay in touch
before, during, and after a sale
Know the industry and have a firm
grasp of their firms and their
competitors abilities
Work hard to exceed their customers
expectations
Over-the-Counter Selling
Personal selling in which customers come to the
sellers place of business
Field Selling
Sales presentations made at prospective
customers locations on a face-to-face basis
Expensive form of selling, particularly because
of travel expenses
In routine cases, the salesperson processes
regular customers orders
In more complex cases, the salesperson
prepares for weeks, makes presentations, and
follows up
Field Selling
Network marketing - Personal selling that relies
on lists of family members and friends of the
salesperson, who organizes a gathering of
potential customers for a demonstration of
products
Examples: Avon, Pampered Chef, Tupperware
Telemarketing
Selling process conducted by phone
Serves two purposes
Sales
Service
Serves two markets
B2B
B2C
Telemarketing
Outbound telemarketing - Sales method in
which sales personnel place phone calls to
prospects and try to conclude the sale over the
phone
Technologies used
Predictive dialers
Autodialing
Random-digit dialing
A predictive dialer is an outbound calling
system that automatically dials from a list of
telephone numbers. Like other types of
autodialers (also called robodialers), predictive
dialers call numbers automatically and can help
agents screen for busy signals, voicemail, no-
answers and disconnected numbers.
An automatic dialer (auto dialer, auto-dialer,
autodialler) is an electronic device or software
that automatically dials telephone numbers.
Once the call has been answered, the autodialer
either plays a recorded message or connects
the call to a live person.
Random digit dialing (RDD) is a method for
selecting people for involvement in telephone
statistical surveys by generating telephone
numbers at random. Random digit dialing has
the advantage that it includes unlisted numbers
that would be missed if the numbers were
selected from a phone book.
Telemarketing
Drawback
Most consumers dislike the practice
and have signed up for the national Do
Not Call Registry
Some firms still use telemarketing because:
The average call cost is low
Firms point to a significant rate of
success
 Telemarketing
Inbound telemarketing - Sales method in which
prospects call a seller to obtain information,
make reservations, and purchase goods and
services
Inside Selling
Selling by phone, mail, and electronic
commerce
Turns opportunities into actual sales
Support technicians and purchasers with
current solutions
Figure 17.1 - Alternative Sales Channels for
Serving Customers
Relationship Selling
Regular contacts between sales representatives
and customers over an extended period to
establish a sustained buyer-seller relationship
Important to both, B2B and B2C sales
Table 17.2 - What Buyers Expect from
Salespeople
Consultative Selling
Meeting customer needs by listening to them,
understanding their problems, paying attention
to details, and following through after the sale
Cross-selling - Offering multiple goods or
services to the same customer
Team Selling
Several sales associates are employed to help
the lead sales representative reach all those
who influence the purchase decision
Customers often feel better served by a team
approach
Relationships form between companies rather
than between individuals
Team Selling
Virtual sales teams - A network of strategic
partners, suppliers, and others who are
qualified and willing to recommend a firms
goods or services
Virtual sales teams have become a common
way of doing business. Thanks to technology
that lets salespeople work productively from
home offices or anywhere else in the world, a
good virtual sales team is a win-win situation.
Your salespeople get the flexibility and
convenience of working where they wish, and
you get to build a geographically diverse sales
team without needing to sink capital into
building official offices all over the country
or the world.
Order Processing
Selling that involves identifying customer needs,
pointing them out to customers, and
completing orders
Identify customer needs
Point out the need to the customer
Complete (write up) the order
Creative Selling
Salespeople use well-planned strategies to seek
new customers by proposing innovative
solutions to customers needs
Used to develop new business with either new
customers or new products
Generates buzz for a product
Missionary Selling
Promoting goodwill for the firm by educating
customers and providing technical or
operational assistance
Sales incentives - Programs that reward
salespeople for superior performance
Trips, gas cards, or free product
upgrades
May involve both field selling and telemarketing
Missionary selling is a form of personal sales in
which the salesperson provides information to
an individual who will influence the purchase
decision. This is an indirect sales technique; the
goal is not to close a sale, but merely to get
information into the hands of a key decision-
maker.
Figure 17.2 - The AIDA Concept and the
Personal Selling Process
Prospecting and Qualifying
Prospecting - Personal selling function of
identifying potential customers
Qualifying - Determining a prospects needs,
income, and purchase authority as a potential
customer
Handling Objections
Objections - Expressions of resistance by the
prospect
May take the form of stalling or indecisiveness
Use objections as an opportunity to reassure
the buyers
Approach
Initial contact with prospective customer
Precall planning
Presentation
 Describing a products major features and
relating them to a customers problems or
needs
Technology must be used efficiently to be
effective
Cold calling - Contacting a prospect without a
prior appointment
Demonstration
Customer has the opportunity to try out how a
good works before purchase
Multimedia interactive demonstrations are now
common
Example: Demonstration videos Black & Decker
posts on its website
Closing
the salesperson asks the customer to make a
purchase decision
Possible strategies
Addressing the prospects major
concern about a purchase and then
offering a convincing argument
Posing choices for the prospect in which
either alternative represents a sale
Independence and variety
Training
Primary methods are on-the-job training,
individual instruction, how-to classes, and
external seminars
Use videos, simulations, and executive
development programs
Ongoing training is important for experienced
salespeople
Organization
May be based on geography, products, types of
customers, or some combination of these
factors
National accounts organization - A dedicated
sales team is assigned to a firms major
customers to provide sales and service needs
Figure 17.3 - Basic Approaches to Organizing
the Sales Force
Supervision
Span of control - Number of sales
representatives who report to first-level sales
managers
Optimal span of control is affected by:

Closing Complexity of work activities

Advising the buyer that a product is Ability of the individual sales manager
about to be discontinued or will go up
Degree of interdependence among
in price soon
individual salespeople
Remaining silent so the buyer can make
Extent of training each salesperson
a decision on his or her own
receives
Offering an extra inducement designed
Motivation
to motivate a favorable buyer response
Motivational tools include information sharing,
Follow-Up
recognition, bonuses, incentives, and benefits
Postsale activities that often determine
Expectancy theory Motivation depends on an
whether an:
individuals expectations of:
Individual who has made a recent
His or her ability to perform a job and
purchase will become a repeat
how that performance relates to
customer
attaining a desired reward
Managing the Sales Effort
Compensation
Sales managers handle the overall direction and
Commission - Incentive compensation directly
control of the personal selling effort
related to the sales or profits achieved by a
Requires an appropriate mix of sales and salesperson
management skills
Salary - Fixed payment made periodically to an
Recruitment and Selection employee

Successful sales careers offer: Compensation packages vary according to

industry
Opportunity for advancement
Figure 17.4 - Median Pay for Account Managers
Potential for high earnings
by Years of Experience
Personal satisfaction
Evaluation and Control
Job security
 Managers must set standards and choose the
best methods for measuring sales performance
Sales quotas - Level of expected sales for a
territory, product, customer, or salesperson
against which actual results are compared
Evaluation and Control
Other measures include:
Customer satisfaction
Profit contribution
Share of product-category sales
Customer retention
Ethical Issues in Sales
Honesty and ethical behavior is encouraged
when:
Employees understand what is
expected of them
Open communication is encouraged
Managers lead by example
Sales Promotion
Marketing activities other than personal selling,
advertising, and publicity that enhance
consumer purchasing and dealer effectiveness
Integrated into overall marketing plan
Promotions are likely to stress price advantages,
giveaways, or special offers
Sales Promotion
Goal is speeding the sales process and
increasing sales volume
Cannot overcome poor brand images, product
deficiencies, or poor training for salespeople
Consumer-Oriented Sales Promotions
Encourage repurchases by rewarding current
users
Boost sales of complementary products
Increase impulse purchases
Coupons and Refunds
Coupons - Offers a discount on the purchase
price of goods or services
Refunds or rebates - Cash given back to
consumers who send in proof of purchase for
one or more products
Samples, Bonus Packs, and Premiums
Sampling - Free distribution of a product to
obtain future sales
Higher response rate than other forms
of promotion
Good for promoting new or unusual
products
Relatively expensive form of promotion
Samples, Bonus Packs, and Premiums
Bonus pack - Specially packaged item that gives
the purchaser a larger quantity at the regular
price
Premiums - Items given free or at reduced cost
with purchases of other products
Contests and Sweepstakes
Contest - Sales promotion technique that
requires entrants to complete a task for the
chance to win a prize
Sweepstakes - Sales promotion technique in
which prize winners are selected by chance
Specialty Advertising
Places the advertisers name, address, and
advertising message on useful articles that are
then distributed to target consumers
Trade-Oriented Promotions
Trade promotion - Sales promotion that
appeals to marketing intermediaries rather than
to consumers
Trade allowances - Special financial incentives
offered to wholesalers and retailers that
purchase or promote specific products
May give a discount on goods or include
off-invoice allowances
Trade-Oriented Promotions
Point-of-purchase (POP) advertising - Display
or other promotion located near the site of the
actual buying decision
Trade shows - Product exhibition organized by
industry trade associations to showcase goods
and services
Trade-Oriented Promotions
Dealer incentives and contests reward retailers
who increase sales
Push money - Cash reward paid to retail
salespeople for every unit of a product they sell
Hubway Video
A sales manager performs seven basic
managerial functions:
1) recruitment and selection,
2) training,
3) organization,
4) supervision,
5) motivation,
 6) compensation, and

7) evaluation and control.

Expectancy theory states that motivation

depends on the expectations an individual has
of his/her ability to perform the job and on how
that performance relates to attaining rewards
the individual values.

Sales managers can apply the expectancy

theory of motivation by following a five-step
process:

1) Letting each salesperson know in detail what

is expected in terms of selling goals, service
standards, and other areas of performance.
Rather than setting goals just once a year, many
firms do so on a semiannual, quarterly, or even
monthly basis.

2) Making the work valuable by assessing the

needs, values, and abilities of each salesperson
and then assigning appropriate tasks.

3) Making the work achievable. As leaders, sales

managers must inspire self-confidence in their
salespeople and offer training and coaching to
reassure them.

4) Provide immediate and specific feedback,

guiding those who need improvement and
giving positive feedback to those who do well.

5) Offering rewards each salesperson values,

whether it is an incentive, opportunity for
advancement, or a bonus.