Long Questions Flashcards

Question

What subject areas should be discussed under the analysis of the current situation section of the annual marketing plan?

Answer 1

* manager summarizes his analysis of * market situation – total size, growth, regional or segment variations, market research info concerning customer preceptaions of brand and buying behaviour trends * competitive environment – in terms of size, market share, product qualities, marketing approach, vision of future * macro economic situation – also technology, legal, regulatory * past product performance – sales volume, margins, marketing expenditures and profit contribution for past several years. measure costs using value chain looking at everything from raw materials to delivery costs that have to be performed for a product * sales forecast and other key assumptions – estimating future sales figures

Answer 2

* Most markets are not homogenous in terms of benefits wanted, purchase rates and price and promotion elasticities, their response rates to products and marketing programs differ * markets are complex entities that can be defined (segmented) in a variety of ways * need to find an appropriate segmentation scheme that will facilitate target marketing, product positioning and the formulation of successful marketing strategies and programs

Answer 3

Skimming * Maximise short run profits by charging a very high price and follow with periodic discounts * Good for firms following prospector strategy with unique IP * Good for small market

Answer 4

For a new product the company could use the Internet to auction it off. To do so would require a description of the product, its uses, the benefits it provides, the amount involved, and competitive/substitute products and their prices. Bidders would receive some kind of incentive to enter a bid. The range of bid prices coupled with their frequency could be used as an estimate of the perceived value of the new product. For an established product consumers could be asked to estimate the per cent increase or decrease in sales resulting from each increment ‘up’ and ‘down.’ The assumption here is that in responding the consumer is actually revealing his/her demand schedule. Again, there would have to be a ‘reward’ for responding. The difficulty would be that the company would

Answer 5

It is difficult without further information to say for certain what is the cause of Barlow not reaching her quota. On her behalf, she is fairly close to reaching her quota (94 per cent). This might suggest that perhaps a little more effort would put her over the top. However, there might be other factors (more training, personal reasons, etc.) at play. It is also possible that her quota was set too high in view of competitive conditions or other uncontrollable factors.

Answer 6

users influencers gatekeepers buyers deciders

Answer 7

Among the options are to: (a) Draw on a basic social value relating to the consumer’s self-identity (e.g. the ‘Pepsi is the choice of the new generation’ advertisements). (b) Introduce important new features (e.g. Diet Pepsi, caffeine-free Pepsi). (c) Tie to a personally involving situation (e.g. caffeine-free Pepsi for an evening beverage when you do not want to lose sleep). (d) Link to some involving issue (e.g. a percentage of the price of every Pepsi purchased to go to an international famine fund).

Answer 8

* the final decision about where to position a brand should be based on both the market targeting analysis shown in module 9 and results of market positioning analysis * the position should reflect * preferences of a market segment * current positions of competing brands * current and future attractiveness of target market – expected growth, size and environment * relative strengths and weaknesses of competitors * above info plus analysis of costs required to maintain such a position allows an economic assessment of positioning options * most products are positioned based on one or, at most, two determinant attributes * me-too products have no differentiation and hence success is hard to achieve * normally its good practice to write down what is intended for the product in a positioning statement or a value proposition

Answer 9

A market consists of: • Individuals and organisations who are… * …interested and willing to buy a particular product to obtain benefits that will satisfy a specific need or want, and who… * …have the resources (time, money) to engage in such a transaction Some markets are sufficiently homogenous that a company can practice a undifferentiated marketing in them. However the target market for a particular product category is often fragmented into several distinct market segments – each containing people who are relatively homogenous in their needs, wants and product benefits they seek.

Answer 10

* Value based planning assesses the shareholder value a given strategy is likely to create * It provides a basis for comparing the economic returns to be gained from investing in different businesses pursuing different strategies

Answer 11

6 Methods: * Statistical and other qualitative methods * Observation * Surveys * Analogy * Judgement

Answer 12

I would make the following marketing decisions: Product/product line – High quality and as error free as possible. Strong service warranty designed to keep sets working for demonstration purposes by owners. Attractive appearance. Short line. Price – High skimming price sufficient to provide high margins to channel members. Channels – Direct to major dealers including those large chains who agree to provide a certain level of display and personal demonstration, installation where necessary (e.g. where special ‘hook ups’ are desired, as with satellite dishes). Advertising – National and local media – the latter linked with local dealer(s). Promotions – Special promotions designed to generate store traffic for in-store demonstrations.

Answer 13

Growth-market strategy, as the name implies, concentrates on identifying fast- growth segments of the market. A niche strategy serves one or more segments, which, while perhaps not the largest, offer the firm a substantial enough number of customers to be successful. In a niche strategy there is no requirement on the growth of a particular niche. A growth market targeting strategy often is best suited to smaller firms who wish to avoid direct confrontation with larger firms. This strategy requires strong R&D and marketing capabilities to identify and develop products. It also requires the neces- sary financial resources to finance rapid growth.

Answer 14

These institutions fit the definition of a retailer, but we discuss them separately because they don’t have a fixed brick-and-mortar physical location and most do not enable customers to personally inspect the merchandise or take immediate posses- sion. This category includes direct selling (as in the case of door-to-door sales and telemarketing), mail-order catalogues, TV shopping, vending machines, and web- sites. There are several varieties of retail websites, including start-ups (Amazon.com, CDNow) that exist solely on the Web and do not have any physical stores, websites developed by large catalogue retailers (Lands’ End, L.L. Bean) to leverage their direct-delivery operations, and websites developed by established bricks-and-mortar retailers (like Target and Tesco) to leverage their brand names and customer service skills.

Answer 15

A value-based pricing strategy emphasises the value of a brand to the consumer. It hopes to capture the consumer’s perceived value of the product. To adopt such a strategy, a manufacturer of consumer household products would have to consider how and on what basis its products differed from competing products and use the perception of these differences to set a price relative to the prices being charged by competing products. To exploit these perceived differences as translated into stable, relative price differences (as against the use of frequent promotional deals involving price), the manufacturer would need to abandon its promotional pricing. This would not only stabilise prices over time, but save money, thereby permitting a reduction in price. To ease the pain of accepting value pricing by retailers, a firm should reduce the retailer’s costs of selling the product (e.g. better control over inventories).

Answer 16

A marketing channel is the set of interdependent organizations involved in the process of making product or service available for consumption or use by consumers

Answer 17

Major US car makers probably should have pursued a flanker maintenance strategy, designing and producing cars for the segment(s) of the market seeking fuel-efficient, inexpensive, reasonably reliable transportation. There are probably several reasons this approach was not pursued. First, car plant construction, or retooling of existing plants, is expensive and requires a long lead time. US car makers may have avoided the expense until too late, and then the lead time prevented share maintenance. Second, the larger, more expensive models produced by US firms had higher margins, and US car makers were probably reluctant to divert attention from that market (or perhaps to admit it was declining). Third, Japanese production systems are a unique combination of culture and cultivation achieved over a long period. Not all US car makers demonstrated an ability to make cars of such quality.

Answer 18

See Exhibit 2.6.

Answer 19

Harvesting makes sense when the market is expected to decline at a steady rate, there are few strong competitors, low exit barriers and the firm has a leading share position. When the decline is expected to be relatively rapid, divestment makes sense. Marketing actions consistent with harvesting include: (1) eliminating R&D expendi- tures; (2) reducing marketing expenditures; (3) seeking ways to reduce production costs; and (4) raising prices as needed to maintain margins.

Answer 20

Several things lie ahead for the worldwide automobile industry, including fewer full- line producers, longer product lines, more and more production transferred to developing countries, more world models resulting in fewer basic platforms, and continued efforts to make cars safer, more economical to drive, and more in harmony with the environment. In addition, continued efforts to reduce costs, but still provide a production system which will lend itself to mass customisation.

Answer 21

The information needed to develop a copy platform for the new hurricane policy and the sources of the needed information are described below:

Answer 22

This can be an effective use of the salesperson’s time in that the secretary or office manager often functions as a gatekeeper who controls the flow of information to other people in the purchasing process. The organisation decision maker cannot choose the salesperson’s products unless she/he is aware of them and a secretary or office manager often controls access to the decision maker. Also, since secretaries are usually the primary users of such equipment, they may have some influence on the firm’s evaluation criteria and in the final purchase decision.

Answer 23

Aseptic packages are in the introductory stage of their life cycle, where there are few segments and a small number of competitors. The essential marketing objective is primary demand stimulation (building up a market for the product) rather than secondary demand stimulation (building up a market for the brand). The company should seek quality improvement, keep its product line narrow, price to penetrate the market, use its own salesforce and seek publicity in trade journals. As the market grows, the company should seek to build market share, continue to make quality improvements, widen its product line, reduce its price and build a strong sales service organisation.

Answer 24

The aim of the question is to encourage candidates to demonstrate their knowledge of the strategic marketing planning process. Competent candidates should draw on information presented in the case in order to help structure the answer. Key points to note are that: Sales and income have been flat recently due to a number of factors. Heinz is market leader in its field. The Heinz group have different positions within different markets. The market is mature in North America and Europe. Relevant modules are Module 2, which considers the strategic role of marketing, Module 3 Business Strategies and their Marketing Implications, Module 4 on Environmental Analysis, Module 5 on Industry Analysis, finally Module 17 which considers Marketing Strategies for Mature and Declining Markets. Competent answers will indicate that the new Chief Executive’s first step would be to conduct a marketing audit, including a full external analysis, including PEST, customer and competitor analysis in each principal market. Opportunities and threats should be identified and matched with the firm’s strengths and weaknesses. Secondly a gap analysis would reveal the difference between aspirations and performance. Third, the new Chief Executive can now set overall group objectives. The new Chief Executive’s fourth task is to formulate a strategy for the group which seeks to achieve these objectives. Alternative corporate growth strategies may be explored using Exhibit 2.9 from Module 2. Good candidates will seek to relate information provided in the case to this matrix. With key markets in maturity and/or decline, the key strategic issue for the new Chief Executive is to sustain Heinz’s competitive position so that if and when there is a ‘shake out’, the group will be in a position to take advantage of this. In considering strategic options the new Chief Executive may opt to pursue an analyser or defender strategy in targeting those segments of the market that are still in growth while defending mature segments. He may opt to build upon a cost or product differentiation advantage and aim to increase volume by promoting new uses for old product. A portfolio model such as that used by the Boston Consultancy Group could be used to determine resource issues. Finally the new Chief Executive would expect that detailed marketing programmes were developed that shape the marketing mix to suit the needs of different target groups.

Answer 25

Overall cost leadership Differentiation – customer perceptions of superior quality or deign Focus – focusing on a niche market Michael Porter distinguishes three strategies – or competitive positions – that businesses pursue to gain and maintain competitive advantages in their various product-markets: (1) overall cost leadership; (2) differentiation – building customer percep- tions of superior product quality, design, or service; and (3) focus, in which the business avoids direct confrontation with its major competitors by concentrating on narrowly defined market niches. Porter describes firms that lack a distinctive strategy as being ‘stuck in the middle’ and predicts that they will perform poorly.

Answer 26

Marketing oriented organisations tend to operate according to the business philosophy known as the marketing concept, from General Electric Marketing Concept holds that the planning of all company activities around the primary goal of satisfying customer needs is the most effective means to attain and sustain a competitive advantage and achieve company objectives over time Guidelines for market oriented management * Create customer focus throughout the business * Listen to the customer * Design and nurture your distinctive competence * Define marketing as market intelligence * Mange for profitability, not sales volume * Make customer value the guiding star Let the customer define quality * Measure and manage customer expectations * Build customer relationships and loyalty * Design the business as a service business * Commit to continuous improvement and innovation * Manage culture along with strategy and structure * Grow with partners and alliances * Destroy marketing bureaucracy

Answer 27

Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors. It was probably able to acquire remaining firms at a favourable rate, streamline their product lines and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.

Answer 28

* In house or sub contract or joint venture * In house – faster, competitive advantage, ioint venture * Bureaucratic is better for line extensions and product improvement * Cross functional required for innovation

Answer 29

The World Wide Web can be helpful in a variety of ways including announcing and detailing all new products, price changes, recalls, special promotions, new uses of existing products, maintenance suggestions, repairs and a place to display its catalogue containing detailed specifications on all products and services.

Answer 30

Disagreements among channel members centre on incompatible goals (margins, services and costs), unclear rights and responsibilities, poor communications, inconsistent handling by manufacturers of problems (complaints) and mispercep- tions. Firms can help minimise channel conflict by recognising and resolving potential conflicts early, involving channel members in policy decisions, increasing interaction among all levels of personnel, focusing/emphasising common goals and using mediation and arbitration.

Answer 31

The text now identifies seven possible advantages to the pioneer. The new one is possible network externalities or positive network effects. However, Minnetonka’s products are unlikely to benefit from such effects.

Answer 32

Fortress Increase satisfaction, loyalty and repeat purchase by current customers; appeal to late adopters. Continue quality control. Continue product modification/improvement. Use advertisements to stimulate selective demand. Flanker Develop a second entry (in this case, perhaps a budget topping).

Answer 33

* Market growth is a proxy for maturity and attractiveness of an industry: * market growth rate is not an adequate descriptor of overall industry attractiveness – some high growth industries are not profitable due to high barriers of entry * Relative market share is a proxy for competitive strength.- Market share is an inadequate description of overall competitive strength: * market share is related to past effort 1. It gives no guidance on how to implement investment strategy 2. Assumes all business are independent apart from flow of cash – e.g. investing in one business could have an effect on another which is not taken into account

Answer 34

Pricing would certainly be different since leasing would have to take into account the cost-of-capital, default by the customer, unplanned obsolescence resulting from new product development by the company, and the cost of service over the lifetime of the lease.

Answer 35

Environmental changes that have increased interest in market segmentation include: (1) slowing of population growth and maturing of product-markets (which increase competition among firms within the industry and markets); (2) social and economic forces that have increased the demand for product variety; and (3) segmenting of services by institutions serving consumers (in effect, derived segmentation).

Answer 36

Objectives of segmentation * Identify a homogenous segment that differs from other segments – e.g. ones that have similar wants/needs and/or likely responses to different elements of the marketing mix * Specify criteria that define the segment – segmentation criteria should clearly identify whether a given customer is part of the segment or not, so promotion can be properly targeted * Determine segment size and potential – for use in which segments to go after

Answer 37

Three factors lead to the different promotion strategies. First, the markets for the types of computers marketed by IBM are much larger than the market for super- computers; consequently, IBM can justify spending large amounts of money on advertising to reach these markets. Second, the markets which IBM targets are quite competitive and while IBM dominates many of them, it must still advertise to maintain its position in those markets. Cray, on the other hand, has so dominated the supercomputer market, especially in the USA, that there is little need to adver- tise. Finally, while all computers are complex and require some personal selling, supercomputers are among the most complex and intricate machines in existence. As a result, advertising can do little to enhance the marketing process, while personal selling is essential so that customers can explain their needs in detail and salespeople can, in turn, respond to their questions.

Answer 38

Just-in-time has to do with inventory control. It programmes the delivery of a component by a supplier to a customer at literally the moment when the last component in stock has been used. The objective of a just-in-time system is zero inventory which would imply not only a unique physical logistics system, but products with zero quality defects. In order to be able to make such a system work, a wholesaler must be able to work closely with a client, develop and constantly update a decision-support system and stock error-free products.

Answer 39

1. Customer analysis – An analysis of Barlow’s customers to determine if she is doing a good job of qualifying her customers. 2. Product analysis – What is the mix of products she is selling? Perhaps she needs to sell a different mix of product combinations. 3. Order size – How big is an average order? Perhaps she needs to work on putting together larger orders. 4. Analysis of competitive actions in Barlow’s territories.

Answer 40

* to achieve the correct positioning of the product, you need to analyse competitors costs and prices * for a low cost strategy, you need to ensure that you have lower costs than competitors and that those lower costs are reflected in the products relative price * competitors costs are harder to get – need to reverse engineer

Answer 41

* product positioning analysis as represented by the perceptual map does not tell marketer which attributes are important to customers * no way of telling if there is a space for a new brand that might locate in a positioning ‘gap’ or whether consumers in other market segments might prefer brands with different attributes and positions – this is called market positioning analysis i.e. step 5 below

Answer 42

Obtaining 30 per cent of sales from products introduced within the last four years is a particularly challenging goal for a business in a mature and stable industry, but it can be appropriate. By imposing such a goal, top management may seek to compel the business’s managers to develop product modifications in anticipation of competitor moves. While such innovations are unlikely to be radical in a ma- ture/stable industry, they may be substantive from the standpoint of users (indeed, they may be suggested by users). While pressing the management of a business in a mature industry to develop new products presents a challenge, it is the challenge used by companies like Gillette, which is also in a stable/mature industry. Yet Gillette utilises revenues from existing products in the mature shaving-products industry to fund new-product develop- ment and marketing. Thus, products like Trac II funded development of Atra. The disadvantages or dangers in this technique are that: (1) innovations will be developed that were unnecessary, due to lack of competition; (2) innovations may prove to be unsuccessful; and (3) innovations may cannibalise existing products.

Answer 43

There are two options here. One is to ‘harvest’ the paediatric service by minimising investment to maximise return on this unit. The other is to utilise the paediatric service to build longer-term relationships with families. This ‘relationship’ strategy is similar to the approach taken by Toys ‘R’ Us, which is said to offer infant supplies (e.g. nappies) at near cost to encourage mothers with young children to shop there and to form a favourable opinion of the store (including its pricing). The hospital could utilise the paediatric unit to position itself with families in the household- formation stage, and could probably utilise the traffic that a paediatric ward draws on the part of middle-aged and elderly relatives to position itself for those in other stages of the family life cycle. It is also important to note in this case that the hospital administrator’s decision must include the overall mission of the organisation.

Answer 44

a. One approach is called FOB origin pricing: The manufacturer places the goods ‘free on board’ a transportation carrier. b. The opposite alternative is freight absorption pricing. Here the seller picks up all or part of the freight charges c. Zone pricing is another compromise approach that falls between FOB and uniform delivered pricing. Here the company divides the country into two or more pricing zones. It charges all customers within the same zone the same delivered price, but a higher price is set for distant zones than for those closer to the plant.

Answer 45

Skimming with early withdrawal is most successful when there is limited potential demand, customers are likely to adopt early and pay a premium and when there is substantial potential competition. 3M is most likely to engage in skimming and spinning off when the product technology cannot be effectively protected, when the resources to produce the product are commonly available and when production is relatively simple.

Answer 46

Good answers should address the key differences, benefits and failings of the different approaches. Excellent answers might also go further to explore adapting prices to variations in market circumstances. This area is covered in Module 12. The different approaches are: Cost-oriented methods Competition-oriented methods Customer-oriented methods Cost oriented methods are simple to apply which is the reason for their common use especially in the retail and distributive trades. The difficulty with this method is that it ignores the price sensitivity of demand and assumes a level of sales before the price is set. Difficulties can ensue if the price is set on the basis of an over-optimistic sales estimate. Competition oriented methods such as going rate and competitive parity approaches are common in oligopolistic industries where there is little product differentiation and a few large competitors. Prices tend to be quite stable in such industries until a price leader decides that an increase in industry prices is necessary to meet increased costs and maintain volumes. This approach also tends to ignore the price sensitivity of demand. In contrast to the other methods, customer oriented methods of setting a price are related to the notion of perceived value. One danger of cost-oriented pricing is that producers risk producing prices which are below perceived value. Perhaps most likely is that such approaches might also result in prices that exceed many customer perceptions of value, resulting in lost sales and competitive vulnerability. One difficulty with the idea of perceived value is that this can vary from customer to customer with the result that in practice an ‘average’ value is calculated. In considering international variations, marketers might need to consider geographic adjustments such as FOB pricing and Global adjustments such as transfer pricing and countertrade.

Answer 47

* does not provide a picture of what’s inside a customers mind * customers attitude depends on social and psychological factors not amenable to objective comparison

Answer 48

A small chain of supermarkets should consider incorporating the following subjects in its ethical manifesto: (a) Control over the level of slotting allowances so as not to inhibit the stocking of new products as well as the providing of adequate shelf facings. (b) Consider locating one or more stores in or near poor neighbourhoods. (c) Not advertising specially priced merchandise which does not have an adequate retail inventory. (d) Not using the ‘to meet competition’ argument with a seller to obtain a special concession when such is not the case. (e) Not discriminating against customers residing in poor neighbourhoods in times of product shortages.

Answer 49

Determining an appropriate price level for a product or service is complicated, and most firms do not charge the same list price to every customer all the time. Instead, they develop a price structure that establishes guidelines for adapting the price to variations in costs and demand across different markets.

Answer 50

A strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organisation with markets, competition and other environmental factors – i.e. what [objectives], where [which market segments] and how [resource and activities needed]

Answer 51

In the case of Calvin Klein jeans this is an appropriate channel design, since the jeans are considered shopping goods that customers buy infrequently and compare on price and product features. It is also appropriate since certain retailers such as mass-merchandisers (Kmart) do not fit the image set by Klein for their jeans.

Answer 52

* demographic descriptors – age, education, sex, race, geography, income, occupation – in industrial markets, macro segmentation divides the market according to characteristics of buying organisastion (e.g. firm size,type) while micro segmentation groups customers by characteristics of individual buyers (typical age of purchasing officer) * geographic descriptors – different location vary in their sales potential, growth rates, customer needs etc. – particularly important in retail and service businesses * geodemographic descriptors – many segmentation schemes involve both of the above – e.g. retailers target people within 5 miles of a store who have a particular demographic – firms can provide report that assess size and market potential of a segment in a particular area * behavioral descriptors – no limit to the amount of ways segments can be defined in behavioral terms – e.g. nike targeted long distance runners * consumer needs – benefits sought from a particular product or service – can define segments in terms of the choice criteria used in the purchase decision – organizational markets consider product performance in different use situations * product related behavioral descriptors – these are more general and more product related than behavioral descriptors – e.g. product usage, loyalty, purchase influence (e.g. wife buys cleaning stuff) * general behavioral descriptors – lifestyle: interests and opinions, social class, in orgs: the nature of buying decision * organizational or firm behaviour descriptors - purchasing structure is how centralized purchasing activity is (more=\>less user focused), buying situation includes straight rebuy, modified rebuy and new buying situation

Answer 53

Price elasticity – A small price increase leads to a relatively large drop in quantity demanded. Price inelasticity – A small price increase leads to a relatively small decline in quantity demanded. When the price is elastic the firm may wish to lower the price, while the firm may want to consider raising the price when the price is inelastic.

Answer 54

four alternative channel designs for industrial goods are * producer to industrial buyer – more common for complex high value * producer wholesaler buyer – good for standardized product and low value * producer agent buyer - small manufacturers * producer agent wholesaler buyer - small manufacturers

Answer 55

adaptiveness and innovativeness are enhanced by * decision making authority is decentralized * managerial discretion and informal co-ordination mechanisms replace rigid rules * more specialists are present

Answer 56

success in mature markets requires two sets of strategic actions * development of well implemented business strategy to sustain a competitive advantage, customer satisfaction and loyalty * flexible and creative marketing programmes geared to pursue growth or profit opportunities as conditions change in specific product-markets

Answer 57

Because taking a cruise represents a high involvement purchase, consumers search out information pertaining to the product. They seldom consider all brands; rather they focus on a limited number with which they have some familiarity. Thus, for a brand to be even considered it has to be included in the consumer’s evoked set. Next, each brand is evaluated on a limited number of attributes. They are also judged on the relative importance of these attributes (one of which is price). And finally, consumers sum their ratings of each brand across attributes taking into account their relative importance. These are compared against the consumer’s choice criteria. A cruise line, to be successful, must develop a product which best fits the choice criteria of its target market(s). Promotion must take into account the consumers’ choice criteria and their current rating of various alternatives using these criteria. This can be done using advertising or personal selling in a variety of ways. The firm should be careful not to promote too many features or attributes at the same time to avoid confusing the consumer.

Answer 58

A key factor to consider is the cross-elasticity between models (cannibalisation) which is the percentage change in sales of one product induced by a 1 per cent change in the price of another. This would enable Ford to examine how price increases in one model would affect demand for the other models in its line. In addition, the company must consider the costs and demand for replacement parts and how much of each car model should be composed of parts from other models (e.g. bumpers).

Answer 59

* Driving forces are macro-environmental trends that effect not only market but industry as well * They include: * changes in long term industry’s growth rate which directly effect investment decisions * changes in key buyer segments, which affect demand and strategic marketing programs * diffusion of proprietary knowledge which controls both the rate at which products become more alike and the entry of new firms * changes in cost and efficiency which could potentially make entry into the industry more difficult * change in govt regulations * Gathering information on trends in these areas tell a marketer whether the industry is attractive

Answer 60

The salesforce estimate may have an upward or downward bias. A downward bias is particularly likely if the sales forecast is tied to quota goals. Further, salespeople are unlikely to know about other marketing efforts (such as planned advertising campaigns) that would affect future sales. However, salesforce estimates are particularly useful for short-term forecasts during especially volatile market.

Answer 61

Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors. It was probably able to acquire remaining firms at a favourable rate, streamline their product lines, and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.

Answer 62

The major parts of the proposed plan, the data wanted and the method of obtaining that data are as follows: **Competitor’s characteristics** * Data include revenues, share growth (trends), profitability, financial resources, new-product trends, strength of R&D resources and relations to parent company (if necessary). * Sources include industry publications, industry experts, competitor’s past behaviour, own salesforce, former executives of competitor and analysis of educational qualification and job experience of key R&D personnel. **Company objectives** * Market share and revenues, product technology, history of technology successes and failures, prior response to being relegated to lower position on technology rating and weight put behind typical product launch. * Sources include most of those listed under competitor’s characteristics plus benchmarking present product(s) to determine the feasibility of modifying them to obtain product superiority. **Competitor’s strengths and weaknesses** * Can be largely deduced from information cited under first two headings. * Many of same sources already cited plus interviews from company’s major accounts.

Answer 63

three sets of factors help determine the strategic attractiveness of declining product markets * conditions of demand – rate and certainty of declines in volume – if its slow, capacity will be reduced slowly and competitors will be slower to leave - could be pockets of demand * exit barriers – ease which weaker competitors can leave the market e.g. lots of specialized assets or shared facilities – harder to leave means more price cutting * intensity of future competitive rivalry in market – price & profit pressures

Answer 64

The primary disadvantage of oversegmentation is reduced profitability. Changing the product, promotion, pricing and distribution arrangements is expensive. The change in revenue (at the margin) must equal or exceed the costs incurred by segmenting. Other disadvantages of oversegmentation (increased administrative burden, dilution of brand image, cannibalisation of existing brand sales) can be expressed as costs. A firm that believes the market has been broken into too many small segments can attempt to consolidate the market through demand function modification. That is, it can try to bring together the consumers who have drifted into small dispersed segments, by showing how its benefits are superior. For example, Ted Levitt suggests that marketing research inclines managers to be ‘mindlessly accommodat- ing’, making small-segment marketing-mix changes that consumers say they want. Instead, he suggests that they can be led to want more generally appealing features – like economy and durability – associated with market aggregation (instead of segmentation).

Answer 65

The challenges in marketing industrial robots (accessory equipment) are: (a) Identification and prioritising of potential customers. (b) Demonstrating the benefits of using industrial robots including tailoring their operation to the needs of a particular company. Servicing such equipment to minimise downtime. The most critical parts of the marketing plan are the product and its servicing (including the availability of spare parts), pricing (both product and software) and personal selling (including the installation and servicing).

Answer 66

The suggested retail price is $329.15. The retailer should pay the wholesaler $197.50. The wholesaler should pay the manufacturer $158.00.

Answer 67

Manufacturer A must: (1) be one of the most efficient producers in the industry; (2) be perceived to have good marketing expertise which will help move the product even with a price increase; or (3) have a history of making price increases stick. It is more than likely that the industry is oligopolistic with little product differentiation and a few large competitors (e.g. steel).

Answer 68

A firm wanting to maintain a high-quality image and keep production quantities down may wish to adopt a high price in order to: (1) limit demand among custom- ers; (2) reinforce the quality image of the product; and (3) attract other competitors to help build primary demand. Consequently, the company may want competitors to come in at the other end of the market to satisfy consumer demand for lower-priced products while the company continues to sell its products at the high end. Also, if the pioneer has limited marketing resources, it may want competitors to help build primary demand for the new product.

Answer 69

One of the most significant developments in strategic management during the 1970s and 1980s was the widespread adoption of portfolio models to help managers allocate corporate resources across multiple businesses. These models enable managers to classify and review their current and prospective businesses by viewing them as portfolios of investment opportunities and then evaluating each business’s competitive strength and the attractiveness of the markets it serves.

Answer 70

* orgs increasingly emphasize the managing of business processes in contrast to functional areas e.g. Roche’s order to fulfillment workflows * these make org essentially flat and lean versus vertical and hierarchical * executives will no longer be defined in terms of managing a group of functionally oriented people but in terms of a process that strongly emphasizes the importance of customer satisfaction * process management is different from function management because * its uses external objectives – customer satisfaction vs. simple revenues * work is done in parallel, not in sequence * information flows directly to where it is used, person to person rather than through bosses * self managing teams – empowerment – power to do what it takes to please the customer – need to be selected and supported correctly * collaborative networks and joint ventures

Answer 71

Market segmentation is the process by which the market is divided into distinct subsets of people with similar needs and characteristics which lead them to respond in similar ways to a particular product offering. Target marketing requires that the relative attractiveness of each segment be evaluated from which a decision would be made as to which segment(s) to target. And, finally, product positioning would be undertaken to design the specific product offerings and develop the strategic marketing programmes that collectively create an enduring competitive advantage. If the segmentation is seriously flawed, then the whole ‘system’ is jeopardised not only in terms of inept products and programmes, but in the allocation of funds between segments and elements in the marketing programme.

Answer 72

* gap between customers perception and marketers perception – need to collect information about what service attributes customers consider important * gap between management perceptions and service quality specifications – policies may be unclear or poorly communicated to employees * gap between service quality specifications and service delivery – must be backed by programmes and resources, must be measured and evaluated and rewarded * gap between service delivery and external communications – unrealistically high demands of the customers * gap between perceived service and expected service

Answer 73

As discussed in answer 5.42, jeans are a fashion. Essentially, they are a high- involvement, highly differentiated product class. As such, the product is prone to a sort of ‘social variety seeking’. They continue to grow in sales over time, and then because they have been socially visible for a prolonged period, decline in popularity (i.e. ‘go out of fashion’ ).

Answer 74

**Cultural** * this is a set of beliefs, attitudes, and behavior patterns shared by members of a society and transmitted from one generation to the next * cultural differences across countries create challenges and opportunities **Social Class** * every society has its status groupings based on similarities in income, education and * certain reactions to things like advertising can be surmised based on their social class **Reference Groups** * they include a variety of groups that affect the consumer behavior through * normative compliance – e.g. exclusive club * value-expressed influence – to gain status in one’s group * informational influence – involves the use of influential people to help assess the merits of a given product – e.g. asking doctor for advice **The family** * this is a reference group, but its very important because: * its serves as primary socialization agent – this is where consumers learn how and what to consume * it especially important for younger consumer * particular family members specialize in purchasing particular products because or expertise or role structure of family * the more traditional the society, the more men hold the power

Answer 75

Walmart’s control system has been a major reason why the company is the low-cost leader in its industry. By being able to convert information into action almost immediately, it can control and automatically replenish its inventories; track sales by stockkeeping unit, product groupings, departments, stores, district and regions; determine whether the seven-second credit card approval system is working properly, distribute messages to the entire system with but a few minutes’ notice, determine whether Walmart continues to be the lowest-priced discounter; and take advantage of new merchandise opportunities. By merging state-of-the-art computer communications technology with hands-on management, Walmart has developed a distribution system which is the envy of the industry. In Canada the company has enough stores to make it economically feasible to set up a control system similar to that of the USA – one which could be accessed by Walmart’s headquarters personnel. Much the same could be said for Mexico. There are fewer stores in South America and Asia and the distances are greater; hence, more control has to be delegated to local country managers. Obviously, the control system used will not be as sophisticated as the one used in the USA.

Answer 76

Margin Rate of return Break even

Answer 77

**Mass market penetration** * ultimate objective of this strategy is to capture and maintain a commanding share of the total market for the new product * critical marketing task is to convince as many people to try product as quickly as possible so you can drive down unit costs and build loyal customer base before competitors arrive * usually most successful when there are barriers to market entry or when pioneer has competencies or resources that competitors haven’t got * smaller pioneers can be successful if there is slow initial growth, as this wont attract competitors * good strategy when the product category is likely to experience positive network effects **Niche penetration** * even when new product market expands quickly a small firm can still be a successful pioneer by capturing and maintaining market share in a single market segment * good when * there is quick growth * there are a number different benefit segments to appeal to * few barriers to entry * pioneer has limited resources * some pioneers start with a mass market strategy but then end up in niche penetration strategy when the market ends up being more fragmented than they expected **Skimming and early withdrawal** * skimming involves setting a high price and engaging only in limited advertising and promotion to maximize profit * sometimes firm will use this profit to develop more advanced technology or new uses of existing product * when competitors enter market and margins fall, firm either moves to new segment or cannibalizes its own product with more advanced one e.g. 3M do this * for this to work * critical that company has strong R&D skills * few barriers to entry * product is expected to diffuse rapidly * pioneer lacks capacity or resources to defend share position in the long haul

Answer 78

five channel designs are commonly used to distribute consumer goods and services 1. producer to consumer 2. producers to retailers to consumers – when retailers are large enough to act as warehouses or when goods are high value low volume, like watches 3. producer to wholesaler to retailer to consumer – low cost fmcg 4. producer to agent to wholesaler to retailer to consumer – manufacturer is too small to justify sales force 5. producer agents retailer consumer – small producers sell to retailers who are large enough to act as wholesalers

Answer 79

(a) Maximise sales growth through penetration pricing – the market is in the introductory or growth stage and the firm is an early entrant to the market. There are few barriers to entry, so other competitors are likely to enter quickly. (b) Maximise current profit through skimming pricing – the market is in the introductory or growth stage and the firm is the first entrant. There are high barriers to entry, as the firm plans to withdraw after competitors enter. (c) Maximise current profit through harvesting – the market is in the late maturity or decline stage and the firm is not a dominant player in the market.

Answer 80

A customer’s needs refer to the gap between a person’s actual and desired state, in terms of some physical or psychological condition. Needs are not created by marketers or other social forces; they flow from the basic biological and psychological makeup of human beings. A customer’s wants refer to a person’s desires or preferences for specific ways of satisfying a basic need; that is, the particular products, brands, or services sought to fulfil an unsatisfied want. Thus, different people may have very different wants to satisfy the same need (e.g., some people may want an electric blanket while others may want a down comforter to satisfy the need for warmth). Needs or benefits that might be met by the following products include: **Toujours Moi perfume** Physical need: to smell good. Psychological need: self-esteem. Benefits: physical attractiveness, status, feel good about self. **BMW car** Physical need: transportation for self and others. Psychological need: self-esteem. Benefits: transport status, self-esteem, power. **Physical examination** Physical need: reduce fear/anxiety. Psychological need: security. Benefits: health maintenance, psychological security. **Mainframe** Psychological need: security, esteem, self-fulfilment. Benefits (for the organisation): computational ability (i.e. data processing); service. Benefits (for individual buyer): security in making correct purchasing decision, job enhancement.

Answer 81

The programme could be tested by selecting a sample of company users for the prior year and making them a special offer via a discount coupon good for a limited time period. To validate the coupon, the recipients would have to join the compa- ny’s frequent mileage club, whereby they could receive credit for the points earned by using the car rental company’s cars. The effectiveness of the intended pro- gramme would be determined largely by the difference between the usage generated by members of the sample for the previous 12 months and the following 12 months. Also, a tabulation should be make of new customers (those who had not patronised the company during the prior 12 months).

Answer 82

to maintain a competitive advantage in product quality, a firm must understand what dimensions customers perceive to underlie differences across products in a given category dimensions of product quality: * performance – e.g. german car makers * durability - Volvo * conformance with specifications – japanese cars * features – american car makers * reliability – consistency of performance * serviceability – e.g. spare parts fit and finish – visually appealing brand name – perception of quality, brand equity built up by promotion

Answer 83

* exporting – simplest and least expensive, it can be direct or indirect * contractual entry modes – are non equity arrangement that involve the transfer of technology and/or skills to another country e.g. licensing * franchising grants the right to use the company’s name, trademarks and technology * contract manufacturing * overseas direct investment – joint ventures or sole ownership

Answer 84

A cooperative chain gives the individual retailer greater power in dealing with suppliers, economies of scale in advertising, lower prices and special promotional materials. The benefits are: (1) ability to compete with national chains more effectively; (2) better, more profitable relationship with suppliers. The growth of a cooperative chain would shift power towards the retail end of the channel.

Answer 85

# Define objectives – what markets do we wish to grow, what capabilities should product have Is their a strategic fit? Lead user researcher – ideas developed by users who are ahead of market trends These decisions, which were addressed from a strategic perspective in Module 2, provide guidance for idea generation. Typically, a substantial number of new product ideas must be generated to get one successful product. Ideas for new products can come from customers; from the company’s own staff, R&D people, the salesforce, product managers, marketing researchers; from members of its distribution channels; even from competitors.

Answer 86

The life cycles of the two products – pet rocks (P) and jeans (J) – might look like this: ![]() The two curves differ in that the fad rises and falls sharply, is less spread out from side to side (i.e. comes and goes in less time) and ends as a product within a brief time period. The fashion rises and falls less sharply (i.e. comes and goes over longer periods of time) and maintains some existence throughout the time period. Among the marketing implications are those relating to profitability, product management and the portfolio mix. Because of its volatility, the fad will only be profitable if it is produced with little or no committed capital. The pet rock was profitable for this reason, but companies producing faddish clothing, toys or games can become vulnerable to commitment of capital to a product whose demand may drop precipitously. Such products must be managed for maximum initial return; thus, a skimming price might be advisable. People purchasing fads are generally price inelastic in the short run. If fads were predictable (i.e. replicable), and if they could be generated to utilise common skills, the marketing manager might assemble a portfolio of fads over time. The more likely portfolio is of fashions, balancing the cycles of one fashion item against another.

Answer 87

* Identifying exchange partners –who Are the CUStoMERS * What needs and wants do partners try to satisfy through exchange and what is the difference between the two * What is exchanged – product, SeRvice OR BOTH * How does the exchange create value? Why is a buyer better off and more satisfied following an exchange * How do potential exchange partners become a market for a good or service?

Answer 88

* consumers choose what they buy for two reasons * what they choose is better * or its cheaper * in either case, the good or service they choose is almost always different from others they could have chosen * a company can outperform its rivals only if it can establish a difference that it can preserve * Differentiation is what people buy positioning allows companies to take advantage of the specific needs of a segment and be more responsive to it differences can be physical or perceptual creating both is what positioning seeks to accomplish

Answer 89

* most crucial part of plan * specific actions necessary to implement strategy along with * who’s responsible * when will it be done * how much is spent on each action * actions requiring other functional depts. should be included, but only after the product manager had got their buy in * gannt charts used to specify milestones and timelines

Answer 90

* CRM systems * Different from internal record systems in that it contains information about individual customers preferences rather than info on product types * online cookies, personalization, vouchers * various demographic and lifestyle info can be purchased – data comes from warranty cards and the like * almost all magazine & credit card company will sell its database * questions to ask before purchasing a database; * how and where was the data acquired * compare costs of database containing names about which more is known (opt in lists) * data mining technology allows a firm to combine databases

Answer 91

Harvesting * Some product markets decline due to changing customer preferences or new technologies * If its too late to divest the product and earn a reasonable return * Harvesting strategy is about maximising short term profits before demand disappears * Typically this involves cutting costs and keeping price high

Answer 92

The changing family structure provides numerous new product opportunities for consumer companies. It’s impossible to devise an all-inclusive list, but some samples are services to save time for households with two or more working families (shop- ping, dog care, and house maintenance); early childhood development centers which provide a high level of education and care starting early in the morning to late in the evening-and even over weekends; homes specially constructed and equipped with labour-saving devices that minimise maintenance; a range of prepared foods ranging from the ‘basic’ to the ‘fancy’ with different levels of ‘fat’; and compacted literature which provides both entertainment and education with a lower time investment.

Answer 93

Recent years have witnessed a shift from using primarily financially based per- formance measures to treating them as simply part of a broader array of marketing metrics. The now widely used balanced scorecard is one such approach. While the use of nonfinancial measures is not new, giving them equal or greater status is. Thus, more and more companies are turning to metrics they feel better reflect how their managers think about what decision areas drive the firm’s success, such as customer satisfaction, product quality, market share, and new product development. Recent trend to use non financial performance indicators e.g. balanced scorecard - customer satisfaction, product quality and new product development

Answer 94

This question concerns Modules 6 and 7. For a good answer a number of the following points should be made. Consumers buy for their own use and consumption, whereas organisational buyers purchase goods and services which are transformed and passed on to final consumers. As they buy more for their own use, consumers are more likely to be more personally involved in what they purchase than industrial buyers and more susceptible to emotional and ego based advertising appeals. The market-demographic profile of organisational buyers is much more concentrated than for consumer markets. They are fewer in number, larger and more geographically concentrated. The implication that direct marketing and selling is more likely to industrial buyers. The organisational buying process tends to be more formal than the consumer process and there is also a tendency to buy on specification with the consequences that rational appeals tend to predominate in organisational purchase decisions. Organisations employ professional specialists employing specialised buying procedures. The implication is that the sales force must be competent to deal with enquiries from specialists. The stages in the organisational buying process and the consumer decision process are similar for more complex decisions. However the organisational decision process is more formal and technical. There are usually more people involved (from the Buying Centre) in organisational purchases. The implication is that much more effort is needed to consider the different requirements of different actors in the Buying Centre.

Answer 95

In lab marketing, measure process by which customer adopts a new product - awareness, trial and repeat buying * Respondents from target market are shown ads * Given option to purchase product in a simulated store * Research do follow up interviews to see measure satisfaction and repurchase intentions

Answer 96

* Innovators - 2.5% of people who eventually adopt the product, tend to be high income * early adopters – 14%, part of local scene, opinion leaders * early majority – 34%, risk averse * late majority – 34%, forced to adopt because of economic or social reasons * laggards – 16% commercial sources of information (e.g. salespeople) are important at the awareness stage but more professional sources are required later on

Answer 97

Probably the best approach would be for the manufacturer to use an agent in the USA who is familiar with the industry. In this channel there would be the following parties: manufacturer–agent–wholesaler–retailer–consumer. The agent would be familiar with the industry and would know how most efficiently to get the product into the ultimate consumers’ hands.

Answer 98

The major difference is that the government typically buys on a bid basis for goods which are described in the form of specifications. Would-be buyers are often consulted or queried concerning these specifications and may even be successful in having their brand made the basis of the specifications. The government often buys in such large quantities (but not necessarily at one time) that it expects large quantity discounts. Also, it expects to buy direct, further reducing the bid price.

Answer 99

This answer covers Modules 7 and 14. Generally answers should spend about 2/3rds of the time discussing the buying decision process and at most, 1/3rd discussing the implications for the promotional mix. The machine tool controls are being sold to goods producers for use in their production process. This new product range brings Siemens’ prices in line with those offered by Fanuc who are the market leader. Competent answers should briefly discuss the organisational decision process. They should also discuss how industrial buyers are likely to buy on specifications and how a competitive price is likely to be a key requirement. Candidates should discuss the buying situation. As machine tool controls are forms of capital equipment used in the production of other goods it is unlikely that orders would be triggered by a requirements planning program. Competent answers would probably identify this as either a modified re-buy or a new-buy. In my view at $9000, the decision will probably offer potential for a modified re-buy, particularly where potential customers are not happy with some aspect of the extended product (e.g. quality or service). However candidates should not be penalised for opting for a new-buy. The decision is therefore likely to be complex, although with the modified re-buy buyers require information about alternative products and suppliers to compare with their current product and vendor but do not require to define the need or requirements. There may be possibilities for segmenting the market according to the nature of the buying process and candidates who suggest this should be rewarded. As a modified re-buy, this type of purchase would probably involve several members of the organisational Buying Centre. Mentions of roles played by Buying Centre members should attract more marks. While the chief executive may not be involved in this level of decision making, it would certainly involve R&D, engineering, production and quality control staff in addition to those from finance. As this is a modified re-buy, it is unlikely that prospective customers will evaluate all potential sources of supply. It is much more likely that only those customers who have been somehow dissatisfied with products which they have purchased in the past or those who are convinced that the new product offers a clear advantage over the competition, will be interested. In considering possibilities for promotions those answers which realistically address this within the context of a business to business market should be rewarded while answers which suggest that Siemens use exclusive television advertising, would not. Also those answers which do refer to advertising should not be rote answers which refer to the entire advertising planning process, but should focus on issues relevant to this answer, which focuses on an industrial marketing situation. Competent answers should suggest some form of market share goal as a prelude to listing promotions objectives, for example initially raising awareness of the new product and price, followed by the stimulation of interest. Very good answers could use the template from Exhibit 14.2 here. Competent answers should discuss different vehicles for raising levels of awareness. They should also discuss the promotional message including the appeal. Here the price (which is half of Siemens’ usual price) might well form the key appeal (alongside Siemens’ powerful reputation for quality, which is referred to as ‘over-engineering’ in the question). Responses to leads generated through ads, exhibitions and direct mail could be screened and could then form the basis of a list of prospects to be followed through by the sales force. References to market research should be awarded if made appropriately through the answer; for example with respect to potential buyers’ definition of the marketing problem, requirements sought by potential customers, promotional appeals and promotional tracking research.

Answer 100

Stouffer should focus on retaining current customers by: (1) maintaining and improving satisfaction and loyalty; (2) encouraging and simplifying repeat purchases; and (3) reducing the attractiveness of switching. It should also stimulate selective demand among late adopters by: (1) head-to-head positioning against competitive offerings or potential offerings; and (2) differentiated positioning against competi- tive offerings or potential offerings.

Answer 101

benchmarking – firms performance in a given area is compared to performance of other similar companies

Answer 102

Problems with using elasticity to set price are: * Failure to consider response of competitors * May be elastic for a particular large price change but not for a small one * Doesn’t take into account profits * Cannibalisation may occur * Social benefits ignored

Answer 103

To measure customer preferences requires that respondents rate their ideal product or brand within a product category and use this as the basis for rating existing products. The results will show how the various brands are positioned versus the ideal. These ideal points can be clustered for a given market segment to determine its preferences. By comparing how (and why) the competing brands differ from one another based on their distances from one another and the cluster of ideal points, a firm can decide whether a new product concept is viable or what needs to be done to reposition an existing brand which will result in greater revenues.

Answer 104

What is our business Who are our customers What value do we provide What should our business be in the future

Answer 105

In a field test market, the marketing plan for the product is typically implement- ed in a small geographical area to ensure that it will deliver the expected results. This test seeks to obtain an estimate of the sales that will be achieved once the product is rolled out into the broader market, given the planned marketing strategy and marketing budget. In the past, the big food-, household-, and personal care-products companies typically used a sample composed of a few small cities as the test market – and did so for between 12 and 18 months. The cost of such research was often several million dollars. Increasingly such companies want faster and less-expensive ways of testing their products, and not only for cost reasons. More importantly, long test markets give competitors the opportunity to evaluate the results, even to the point of introducing their own new product.

Answer 106

Limitations of the BCG growth share matrix include: (a) The inadequacy of growth as a measure of overall industry attractiveness. (b) The inadequacy of relative share as a measure of overall competitive strength. (c) The level of aggregation may include too many products and markets. (d) The sensitivity of the growth share matrix to variations in how ‘growth’ and ‘share’ are defined. (e) The lack of guidance about how appropriate investment strategies might be implemented. Managers might avoid some of those problems by making definitions more explicit and by utilising the BCG growth share matrix as only one part of the corporate planning process. With regard to definitions, it would be useful for managers to require more explicit statements about the product-market relationship (and competitors) and their use in deriving relative share. With regard to instruments used in the planning process, the growth share matrix might be used as one among other planning tools (which might also include the use of another portfolio type and other situation-specific analyses). If multiple methods are used, the implications of the growth share matrix can be reconciled with those of other methods. Also the model should be used on a trend basis; for example, at two-year intervals. It should also be used to show the portfolios of major competitors.

Answer 107

Direct costing involves the use of contribution accounting. Those favouring the direct costing approach argue there is really no accurate way to assign indirect costs. Further, because indirect costs are mostly fixed, a product or market may make a contribution to profits even if it shows a loss. Thus, even though the company must eventually absorb its overhead costs, the contribution method clearly indicates what is gained by adding or dropping a product or a customer. Contribution analysis is helpful in determining the yield derived from the applica- tion of additional resources (for instance, to certain sales territories).

Answer 108

The major drawback is that the factors involved as well as their ratings are subjective in nature and yet give the impression of being precise. A further weakness is that the factors used may not be independent of each and hence are improperly weighted in the scoring. Ways of minimising the subjectivity cited above are (1) to generate as much objec- tive data about each of the market attractiveness sectors as well as the competitive position factors and (2) to bring the managers involved together after they have completed their ratings to discuss/debate their differences.

Answer 109

The advantages of this strategy are that it: (1) separates the upmarket Honda product from the low-priced Honda products; (2) increases the number of Honda dealerships to which consumers are exposed; (3) allows Honda to establish separate structures for dealer pricing and other activities; and (4) permits trading up within the Honda family of cars. The disadvantages of this strategy are that it: (1) encourages horizontal conflict within the dealer channels (regular Honda versus Acura Honda dealer disputes); (2) separates the Acura from the favourable general Honda image (e.g. dependability, reliability); (3) compels separate advertising and other promotional programmes.

Answer 110

At the corporate level, the marketing manager can be: (1) a key participant (along with the SBU general manager) in determining the SBU’s objectives and scope (both in terms of products and markets); (2) a strong contributor to environmental, competitive, and situation assessments; (3) a key participant in defining objectives and goals; and (4) a major contributor to development of strategies. Useful planning information includes that about the environment, focusing on customers, and economic, political, and regulatory trends; competition, both actual and potential; and specific information about industry and market attractiveness, including profitability and segment growth rates. At the business level, the marketing manager should have a primary role in discus- sions pertaining to product-market development, product quality, and product line, and may have an additional role (depending on specific circumstances) in technology, human resources, business development, and manufacturing facilities.

Answer 111

This is an analyser strategy. The strengths of this strategy are that: (1) by operating from a core product-market base, the organisation is able to realise production efficiencies; and (2) by monitoring the success of new products in the external environment, the organisation is able to adapt to market change. A fundamental weakness of this strategy is evident when a dramatic change occurs that affects the core business. Thus, GM’s large-car core market was dramatically affected by a radical increase in petrol prices. Because of the time required to retool a car manu- facturing plant, GM was not able to shift the core business from large to small cars. Several Japanese firms, which had already been producing quality small cars in an environment with high petrol prices were ready to capitalise on the market oppor- tunity.

Answer 112

**Buyers perceptions and preferences** * Unique value effect – less price sensitive if there are no acceptable substitutes * Price quality effect – for luxury goods **Buyers awareness of and attitude towards alternatives** * Substitute awareness – less price sensitive is unaware * Difficult comparison effect * Sunk investment effect **Buyers ability to pay** * Total expenditure effect – how big a proportion of total spend is the product? * End benefit effect – customers like big business are less price sensitive if expenditure is small percentage of overall cost of end product * Shared cost – less price sensitive when cost is born by another party e.g. Health insurance * Inventory effect – less sensitive when they cannot store large quantities as a hedge against future price increases

Answer 113

* analyzer and defender strategies may be appropriate for market share leaders * analysers may develop the product further to avoid being leapfrogged – most appropriate to developed industries that are still experience technology change * defenders may extend the product line or introduce product modifications – but spend little on new r&d – good when basic technology is not complex e.g. food industry * ability to differentiate either through price, quality or service remains critical * market leaders tend to pursue one of the following strategies * stress operation excellence which results in low costs * differentiate through product leadership * differentiate through customer intimacy or superior service * usually firms pursue either low cost or differentiation strategy but not both – however firms cannot chose to ignore either

Answer 114

* The worlds population has grown 300% in the last 50 years * Most of the increase is in poorer regions * Age structure is also changing – more old people * Movement from rural to urban

Answer 115

selecting a sample of participants for observational, survey or experimental research required that three questions be answered: * who is the population from which the sample of respondents will be drawn – typically it’s the target market, defined in demographic or behavioral forms * what sample size is required to provide an acceptable level of confidence * by which method (probability sampling - random, non probability sampling – convenience and hence biased) will sample be selected

Answer 116

If the cereal manufacturer is the market leader and its other products hold strong market shares, the manufacturer has a better opportunity to make a pull strategy work successfully. Specifically, the manufacturer should: (1) have substantial resources to devote to the product’s marketing programme; (2) be perceived to have a great deal of marketing expertise; and (3) have an extensive track record of past new-product successes.

Answer 117

Hallmark actually has few options for salvaging relations with its stores. It could try to develop another line or brand of cards with high margins – but they would not have the same acceptance, given the power of the Hallmark brand name. Another possibility would be to develop ‘niche’ cards under the Hallmark name – a limited line for certain holidays as well as for anniversaries, birthdays, etc. These could be high-quality cards sold at a competitive price with good margins. Further, they would not be sold to the large chains. An early warning system would have discovered the actions of competitors in selling to discount chains and the decision by discount chains to sell items similar to cards, such as stationery as well as boxes of seasonal cards (e.g. Christmas cards). But even if Hallmark executives had received an early alert, there was no way the tide could be reversed. But with advance notice, the company would have had more time to develop its strategy as well as its action plans. Further, the company could have started an orderly downsizing.

Answer 118

following objectives: (1) increase the availability of the good or service to potential customers, (2) satisfy customer requirements by providing high levels of service, (3) ensure promotional effort, (4) obtain timely and detailed market information, (5) increase cost-effectiveness, and (6) maintain flexibility.

Answer 119

advantages of pioneer strategy are * first choice of market segments and positions – develop product offering with attributes most appealing to largest segment of customers i.e. brand becomes standard of reference, competitors may have to target a niche * pioneer define the rules of the game – if pioneer sets standards high enough, it can raise the cost of entry * distribution advantages – can design the channel, particularly important for industrial goods where pioneer could create a network of distributors * economies of scale and experience – especially if product is technically sophisticated or life cycle is short with sales increasing rapidly during early stages * high switching costs for early adopters – especially for industrial goods, although pioneers could do the hard work of getting consumer to switch only for competition to then enter e.g. CD players * possibility of positive network effects – some goods increase in value to customer when more people adopt them e.g. email, web sites like eBay * possibility of preempting scarce resources and suppliers – pioneer may be able to negotiate favorable deal from suppliers eager for new business or who don’t realize the size of the opportunity

Answer 120

There are three major groups of factors that affect a consumer’s sensitivity to price – the buyer’s perceptions and preferences, the buyer’s awareness of and attitude towards alternatives and the buyer’s ability to pay. There are many ways in which firms can attempt to estimate demand curves for their products. These include laboratory or test-market experiments. Another way to estimate the price/quantity relationship is via a regression analysis of historical sales using consumer panel data, in-store experiments where a product’s price is systematically varied or multiple test markets.

Answer 121

Marketers targeting emerging markets in the developing world must pay particular attention to market segmentation within the geographic regions they target. Virtually every developing country contains a small segment of extremely wealthy people, a rapidly growing but sometimes relatively small middle class, and large numbers of people who are poor by Western standards. The first two of these demographic groups are most often found in the cities, while many poor live in either rural areas or in urban slums. Treating the people of any developing country as a single market segment is not likely to bring success. In emerging and developed markets alike, many segmentation schemes involve both demographic and geographic factors. Thus, retailers usually want to know something about the people who live within, say, a two-mile or five-mile radius of their proposed new store. Neiman Marcus, the upscale department store, might target one demographic group within a given trade area, and Walmart, a discounter, might target another. Nielsen and other sources offer low-cost reports based on census data that show the demographic profile of the population residing within any given radius of a particular street corner or shopping centre location in the United States. These reports are useful in assessing the size and market potential of a market segment defined by a particular trade area. Geodemographics also attempts to predict consumer behaviour by making demographic, psychographic, and consumer information available at the block and zip code levels. Nielsen’s PRIZM service classifies all US households into 66 demographically and behaviourally distinct clusters, each of which, in turn, is assigned to one of 14 social groups and 11 life stage groups.11 Nielsen offers similar datasets for other countries as well.

Answer 122

* when pursuing this strategy, a manufacturer focuses primarily on building selective demand and brand loyalty amongst customers thus triggering large sales volumes to be shared with channel partners * used by large companies with plenty of money that can be invested in pull strategy when launching new products

Answer 123

number of ways to pretest message effectiveness including the following recall tests – remember ads that were put in simulated magazines, unfortunately often it’s the brand rather than the message that gets through sales tests – measure the effect of fake tv commericals by analysising what products get bought after ad has been placed

Answer 124

* consumer promotion – targeted at consumers as part of a pull strategy * trade promotion – targeted at channel members, push strategy

Answer 125

As we saw in the previous module, customers in one market segment have wants and needs that differ in some way from those of customers in other segments. Brand positioning allows the marketer to take advantage of and be responsive to such differences and position particular goods and services so as to better meet the needs of consumers in one or more of these segments. These differences are often physical. Nike’s original waffle sole was such a difference, as we saw in Module 9. But differences can also be perceptual, as with Nike’s later products that benefited from endorsements by John McEnroe, Michael Jordan, and other famous athletes. Creating both physical and perceptual differences, using all the elements of the marketing mix – product, pricing, promotion, and distribution decisions – is what effective positioning seeks to accomplish.

Answer 126

Research indicates that followers succeed through a combination of large-scale entry, broad product line, high product quality and heavy promotional expenditures. This suggests Minnetonka should concentrate on introducing high-quality products

Answer 127

the questions a strategic control system should answer * what changes in the environment have negatively affected the current strategy * what changes have major competitors made in the objectives and strategies * what changes have occurred in the industry – capacity, entry barriers * what new opportunities or threats have occurred * what changes have occurred in the industry’s key success factors * to what extent in the firms current strategy consistent with the preceding changes

Answer 128

**Increasing customers awareness and willingness to buy** * heavy spending on promotional activities can increase awareness * personal selling more suited to complex products, media ads and sales promotions more suited to consumer products * firms may also try to reduce risk attached to purchase e.g. money back guarantees * may broaden its product offering to appeal to as many segments as possible – E.G. line extensions, additional package sizes or modifications targeted at segment **Increasing customers ability to buy** * customers must be aware of the product and motivated to buy, but they also must have the wherewithal to purchase it * therefore it makes sense to keep prices low (penetration pricing) and perhaps offer low cost finance deals * pioneers introducing new communications or information technologies tend to be especially aggressive in pricing Because * such products can often benefit from positive network effects * the variable costs are usually quite low * low price (or free trials) tend to build a large installed base capturing more value from large customers with high prices and maximizing value of customers by upselling them * lack of product availability is overcome by extensive personal selling and trade promotions * high switching costs can be avoided by planning compatibility into the product

Answer 129

* Scope – the breath of its strategic domain e.g. number and type of industries, product lines, This should reflect managements mission [the essential nature of what its business is and what is should be] * Goals and objectives - measurements of performance over specified time period * Resource deployments – deciding how scarce resources should be obtained and allocated across the business * Identification of a sustainable competitive advantage – how the organisation will compete in each business and product-market in its domain and how it will position itself * Synergy – the firm’s business, product-markets, resource deployments, and competencies complement each other so that the whole business is greater than the sum of its parts

Answer 130

* Statistical methods use past history and various statistical techniques to forecast future based on an extrapolation of the past * Not useful for startups * Limitations include: * generally assumes future will look like the past – e.g. technical innovations may make past figures unsound * if product or market characteristics change , statistical may not be able to keep up

Answer 131

The major difference between physical and perceptual product positioning is that the former is based on some set of objective physical characteristics. Such position- ing can provide useful information, particularly in the early stages of designing a new product. This is especially so with industrial goods. It also helps marketing in interfacing with R&D. But a comparison of alternative offerings based only on the physical dimensions of alternative offerings does not provide a complete picture of relative positions since positioning ultimately takes place in the consumers’ minds – i.e. it depends on how the product/brand is perceived. The evaluation of many products is subjective since it is determined by factors other than physical proper- ties. Undertaking a perceptual product positioning is therefore critical.

Answer 132

In many parts of Africa, the manufacturer would find no channels suitable for the sale and servicing of a line of small electrical appliances – or, at best, inadequate ones. If the latter, the manufacturer could try to augment the channel’s effort – e.g. by providing inventory items on a consignment basis, providing credit at the retail level and helping retailers to open new accounts with company salespersons. If no channels are available, the manufacturer can either set up its own channel or locate a wholesaler who is willing to work with the manufacturer in selling and servicing retail accounts.

Answer 133

* Advertising – Any paid form of nonpersonal (i.e. through some medium, such as radio, print, direct mail, or email) presentation and promotion of ideas, goods, or services by an identified sponsor. * Personal selling – A process of helping and persuading one or more prospects to purchase a good or service or to act on any idea through the use of an oral presentation (person-to-person communication). * Sales promotion – Incentives designed to stimulate the purchase or sale of a product, usually in the short term. * Public relations – Nonpaid, nonpersonal stimulation of demand for a product, service, or business unit by planting significant news about it or a favourable presentation of it in the media

Answer 134

A PEST analysis indicates that the economic outlook in Japan is poor. Another threat to the SK Group is provided by the new competition which has arisen as the result of de-regulation in Japan. No information is provided about the social or technological environments. What was once seen as the strength of the SK Group is revealed as a weakness in this new climate, as the size and scope of the group operations leave it vulnerable to attack in a number of its businesses. An even more difficult weakness is the financial situation which the group is in. As the banks will demand to be paid first, there is no room for investment. The situation is perilous. Mr Nami and Mr Wada must set a realistic objective and then seek to develop strategies which work to achieve this objective. (20 marks) Given the urgent need to generate cash and that some businesses appear to be in decline, the Boston Consultancy Group (BCG) matrix could be used to screen existing businesses. This would provide decision makers with the information required to re-balance the business portfolio by harvesting and divesting businesses which are not contributing adequate returns. For those businesses which remain, it would be appropriate to consider strategies for mature/declining markets, discussed in Module 17. For those businesses which remain, the primary objective would be to retain all existing customers. The SK Group could adopt analyser or defender strategies as the basis for achieving this objective. Both analysers and differentiated defenders can attempt to sustain competitive advantage either through differentiation or through developing a low-cost position. It is difficult for any single business to do both. In developing a differentiated position the SK Group would seek to improve customer perceptions of quality. On the other hand through developing a low-cost approach the group could consider: no frills products innovative product design cheaper raw materials low cost distribution reductions in overhead

Answer 135

(a) How will the money be spent – how will it be divided among various advertis-ing media? (b) Over what time frame are the additional funds to be spent? (c) What is the time frame for the projected sales increase – how long will it take to achieve the $2 million sales increase? (d) What percentage increase in total sales does this $2 million represent and what is the percentage increase in the advertising budget if the $500 000 is appropriated? (e) What is the amount of the marginal contribution generated by this expenditure? (f) Could a better return be achieved by spending the $500 000 on other promotional tools, such as hiring more salespeople?

Answer 136

Strategic Marketing Management involves a seller trying to determine the following points in an effort to define the target market: * Which customer needs and wants are not being satisfied by competitive marketing offerings * How desired benefits and choice criteria vary amongst potential customers and how to identify the resulting segments by demographic variables such as sex. lifestyle or some other criteria * Which segments to target, and which product offerings and marketing programmes appeal most to customers in those segments * How to position the product to differentiate it from competitor’s offerings and give the firm a sustainable advantage

Answer 137

Whether Walmart – or any large discounter – should adopt a family branding strategy is a moot question. Much depends on the extent to which the company engages in private branding. If the items are related, then the company’s use of a family brand is more apt to be successful. If the family brand covers products that vary in quality, consumers can become confused about what quality to expect in the other products using the same name. Also, extending a brand name to an inadequate product is likely to hurt the quality reputation of the entire line.

Answer 138

Demographic descriptors are also important in the segmentation of industrial markets, which are segmented in two stages. The first, macrosegmentation, divides the market according to the characteristics of the buying organisation using such descriptors as age of firm, firm size, and industry affiliation (SIC code in the US). The international counterpart of SIC is the trade-category code. The second stage, microsegmentation, groups customers by the characteristics of the individuals who influence the purchasing decision – for instance, age, sex, and position within the organisation. International markets are segmented in a similar hierarchical fashion, starting with countries, followed by groups of individuals or buying organisations.

Answer 139

**Four main types** * merchant wholesalers – take title to the goods they handle * agent middlemen – manufacturers representatives and brokers, do not take title to goods and are usually specialists e.g. manufacturers agents (carry several manufactures), sales agents (one manufacturer), brokers (independent), ehubs (flight websites) * retailer – low margin/high turnover or high margin/low turnover, also jml and amazon.com * facilitating agents – ad agencies, fee for service to help clients perform functions more effectively and efficiently

Answer 140

preliminary assessments of the idea’s technical and market feasibility. First, can the product be developed and delivered? For a high-technology product, will the technology pan out? Second, how large is the market, and what is the estimated market potential for the proposed product? Will customers like it? This screening is typically based largely or entirely on secondary data and on the market and technical know-how resident in the company. The tools presented in Module 8 for estimating market potential are useful at this stage. A ‘classic’ qualitative scoring model used by some companies at Gate 2 is shown in Exhibit 11.13.

Answer 141

the sources of power include * economic power – giving economic rewards * coercive power – withholding economic rewards * expert power * referent power – the belief that benefits generated historically are likely to continue * legitimate power flows from the belief that one channel member has the right to make certain decisions or demands and to expect compliance from other members – contractual or moral authority

Answer 142

Price elasticity of demand = % Change in Qty demanded/ % Change in price

Answer 143

McDonald’s followed a home market, developed markets and developing markets expansion strategy route. Note that it first exploited its home market and then proximate North American markets before moving to Europe, even though Mexico would not – at that time – be considered an industrialised nation. Even so, the synergy of expanding into Canada and Mexico was substantial – especially Canada. European consumers are more similar to American consumers than are those in the developing countries. And it would be easier to establish and manage franchisees in Europe. Even so, McDonald’s longer-term future growth may well lie in the developing countries where disposable incomes and discretionary expenditures are expected to grow substantially over the years.

Answer 144

* Strategic Business Unit (SBU) sales and marketing managers bear the primary responsibility for collecting and analyzing relevant information and generating appropriate strategies for the business * Larger firms break into semi-autonomous SBUs so that strategic decision making is moved closer to the customer * First decision is to decide how to divide itself into SBUs * Then the managers in each SBU must make decisions about * the units objectives * the scope of its target customers and offerings * which broad competitive strategy should be used to build competitive advantage * how resources should be allocated across its product-market entries and functional departments

Answer 145

* not all actions are complementary and hence they are divided into five groups of mutual complementary actions * fortress or positive defense strategy * flanker strategy * confrontation strategy * market expansion strategy * contraction or strategic withdrawal strategy * they are not purely defensive - can be used offensively to preempt expected future competition or to capture larger share of market * the suitability of each of the five strategies depends on * the markets size and customer characteristics * number and relative strengths of the competitors * leaders own resources and competencies

Answer 146

A firm is most likely to consider the use of multiple distribution channels when it is trying to reach several markets simultaneously and each market has unique charac- teristics which require different levels of performance from channel members. IBM has its own direct salesforce and also sells via retailers.

Answer 147

* service firms often need additional functional competencies – especially for those with high customer contact * because sales, production and delivery is simultaneous, close coordination between marketing, sales and operations is crucial * production planning and standardization is required to reduce variations in quality from one transaction to the next * also, standardize how you deal with customers – employee selection, training, motivating and evaluation * human resource development is critical for prospector and even for defender which differentiates on service quality

Answer 148

This was an exchange – money for recognition and a feeling of having done a good deed for some worthwhile cause. Charitable organisations typically build up the need for your support by explaining what it will accomplish, providing recognition and status, and using volunteers to encourage others to support the charity. For an exchange to occur, the following must happen: (1) there must be at least two parties involved; (2) both parties must offer something of value; (3) both parties must be aware of the existence of the other, and be capable of communication and delivery; (4) both parties must be free to accept or reject the other’s offer; and (5) both parties must be willing and able to negotiate terms of exchange that they find acceptable (i.e., both must believe that the exchange creates benefits or values).

Answer 149

At this stage in the company’s development an international division would probably be best; thus, the company’s present organisation stays the same. As a medium-sized pharmaceutical company, it is not likely that it can afford a global structure of any significance. One of the major tasks of the new division should be to look into the possibility of alliances to help in the marketing of the company’s products in major countries.

Answer 150

**Strategic implications of the product life cycle** * generalizing typical responses to stages is risky * the product life cycle model makes assumptions about features and characteristics of each stage – it doesn’t take into account that the product life cycle is actually driven by market forces: the market, technical and competition

Answer 151

1. Marketing environment – What opportunities and/or threats derive from the firm’s present and future environment: that is, what technological, political and social trends are significant? Sources – news magazines, government publications. 2. Objectives and strategy – How logical are the company’s objectives, given the more significant opportunities/threats and its relative resources? How valid is the firm’s strategy, given the anticipated environment? Sources – internal company strategic documents. 3. Planning and control system – Does the firm have adequate and timely information about consumers’ satisfaction with the products? With the actions of competi- tors? Sources – internal marketing information system. 4. Organisation – Does the organisation structure fit the evolving needs of the marketplace? 5. Marketing productivity – How profitable are each of the firm’s products/ brands? How effective are each of the firm’s marketing activities? Sources – internal company cost and marketing documents (invoices). 6. Marketing functions – How well does the product line meet the unit’s objectives? How well do the other marketing-mix elements fit corporate objectives? Sources – internal company documents.

Answer 152

Noncompensatory Attitude Models As suggested by Exhibit 6.9, the mental processes involved in forming an attitude are quite complex because consumers must evaluate each alternative brand on every attribute. In some purchase situations, particularly with low-involvement products, consumers may adopt a simpler approach and evaluate alternative brands on only one attribute at a time. Such an approach is noncompensatory because a poor evaluation of a brand on one attribute cannot be offset by a strong evaluation on another. For instance, one noncompensatory model, the lexicographic model, suggests that consumers evaluate brands on the most important attribute first. If one brand appears clearly superior on that dimension, the consumer selects it as the best possible choice. If no brand stands out on the most important attribute, the consumer evaluates the alternative brands on the second most important attribute, and so forth.12

Answer 153

Saturn was expected to pursue a prospector business strategy. This strategy should have helped Saturn avoid preconceptions about the market (i.e. that a large-car approach is needed). The strategic emphasis and sometimes the creation of a new division is necessary because strategic preconceptions can become institutionalised. In the other divisions, the commitment to large cars was reinforced by the execu- tives in power who had made initial decisions in that direction, who had committed resources to those decisions and who held power based on the production of large- car divisions. This problem is not unique to one company, and a change in strategy (and the creation of a new division) is sometimes a useful approach to the problem.

Answer 154

One important dimension on which goods or services are physically differentiated is on the basis of quality – seeking to be better, in some sense, in the customers’ eyes than competing products.

Answer 155

Consumers typically use a relatively small number of attributes to evaluate products and brands. Consumers first consider only those attributes they are aware of, but the importance attached to those often varies. Even an important attribute may not be a strong influence on a consumer’s preference if the alternative brands are perceived as being about equal on that dimension. A determinant attribute is one which plays a major role in helping consumers differentiate among the alternatives and determine which brand they prefer. Possible determinant attributes for the following are: (a) A cruise line – number of ports visited. (b) A laptop computer – memory capacity. (c) French wine – availability in large bottles. (d) A sportswear – loose fitting. (e) A hospital – cleanliness. (f) A liberal arts college – business courses. (g) A tractor – operator comfort.

Answer 156

Candidates should explain the role of brand advertising which is to create selective demand. The relevant advertising objectives will be to influence awareness and attitude. However much depends on the level of consumer involvement in the purchase. Given that grocery products are relatively inexpensive and carry low social or economic risk; one might assume that they would tend to be low involvement products and that the decision process would be characterised by ‘inertia’ or ‘variety seeking’. However candidates may express alternative views which should be accepted by the examiner if supported by argument. Much advertising for low involvement goods is via television. As TV viewers are often not involved either with the advertising or the subject area TV ads may not change attitudes. They may simply facilitate consumer learning about a brand so that the name is recalled in the purchase situation and the brand is purchased. Evaluation and attitude change then occur because of product experience. How to make traditional advertising more effective? Candidates may make a range of points here such as – ensure that the media audience contains a high proportion of target customers; ensure that the advertisement itself is involving, by linking this to an involving person or situation; block book media for all products rather than purchasing for just one brand at a time; attach a corporate (umbrella) signature to all ads to raise corporate awareness and retention of brand; pre-test all ads for adequacy of appeal and message structure; ensure that the media vehicle has the desired reach and frequency to achieve advertising objectives. The second part of the question asks candidates to consider the effectiveness of traditional advertising against other forms of promotion. The task is to consider the other components of the communications mix in order to determine whether they can fill the gap left by advertising. Alternative approaches include personal selling, sales promotions and public relations and direct marketing. Answers should include reference to the ability of each promotional tool to satisfy promotional objectives. Sales promotions, including sampling, couponing, rebates, contests and price-off promotions work best in the purchase situation. They do not substitute for the prior learning offered by traditional advertising. In contrast to advertising, personal selling can be expensive when taken on a per capita basis. While personal selling is very useful in converting prospects, it is prohibitively expensive to use as a tool for awareness raising in consumer markets. Public relations ensures that the company and its products receive a favourable share of voice in the media and can be instrumental in creating awareness and favourable opinions; however publicity is outside the control of the organisation and may be negative. Some candidates may refer to direct marketing as a potential alternative to advertising. (In Module 14 this is covered in the section on advertising). Direct marketing is specific targeted information to known consumers of a brand which can, if managed on a suitable scale possibly substitute for advertising. Candidates should be rewarded not for their conclusion but for the quality of the discussion in leading to a conclusion to this question.

Answer 157

Nabisco may wish to pre-empt a strong move by the competition by introducing a second, similar brand positioned to appeal to the same market segment. Advantages – it is better in the long run for a firm to compete with itself than to lose customers to other firms. Disadvantages – this move cannibalises the market of the established brand and results in higher investments and lower economies of scale.

Answer 158

_Harvesting strategy_ - Maximise short-term cash flow; maintain or increase margins even at the expense of market-share decline. * Eliminate R&D expenditures and capital investments related to the business. * Reduce marketing and sales budgets. * Greatly reduce or eliminate advertising and sales promotion expenditures, with the possible exception of periodic reminder advertising targeted at current customers. * Reduce trade promotions to minimum level necessary to prevent rapid loss of distribution coverage. * Focus salesforce efforts on attaining repeat purchases from current customers. * Seek ways to reduce production costs, even at the expense of slow erosion in product quality. * Raise price if necessary to maintain margins. _Maintenance strategy_ - Maintain market share for the short term, even at the expense of margins. * Continue product and process R&D expenditures in short term aimed at maintaining or improving product quality. * Continue maintenance levels of advertising and sales promotion targeted at current users. * Continue trade promotion at levels sufficient to avoid any reduction in distribution coverage. * Focus salesforce efforts on attaining repeat purchases from current users. * Lower prices if necessary to maintain share, even at the expense of reduced margins. _Profitable survivor strategy_ - Increase share of the declining market; encourage weaker competitors to leave. * Signal competitors that firm intends to remain in industry and pursue an increased share. * Maintain or increase advertising and sales promotion budgets. * Maintain or increase distribution coverage through aggressive trade promotion. * Focus some salesforce effort on winning away competitors customers * Continue product and process R&D to seek product improvements or cost reductions * Consider introducing line extensions to appeal to remaining demand segments. * Lower prices if necessary to increase share, even at the expense of short-term margins. * Consider agreements to produce replacement parts or private labels for smaller competitors considering getting out of production. _Niche strategy_ - Strengthen share position in one or a few segments with potential for continued profit. * Continue product and process R&D aimed at product improvements or modifications that will appeal to target segment(s). * Consider producing for private labels in order to maintain volume and hold down unit costs. * Focus advertising, sales promotion and personal selling campaigns on customers in target segment(s); stress appeals of greatest importance to those customers. * Maintain distribution channels appropriate for reaching target segment; seek unique channel arrangements to more effectively reach customers in target segment(s). * Design service programmes that address unique concerns/problems of customers in the target segment(s).

Answer 159

control processes consists of the following steps * setting standards of performance * specifying the necessary feedback data * obtaining the needed data * evaluating feedback data – explaining gap between actual and given standards of performance * taking corrective action

Answer 160

To induce wholesalers and/or retailers to carry a product and perform their usual marketing activities in its support, manufacturers offer trade (or functional) discounts from the suggested retail list price. Such discounts vary, depending on the intermediary’s wholesale or retail level in the channel and the specific activities they are expected to perform. The quantity discount often increases as order size increases. For example, a firm might offer no additional discount on orders of 50 units or less, a 2 per cent discount off list on orders of 51 to 100 units, 4 per cent off on orders of 101 to 500 units, and 5 per cent off on orders of more than 500 units. To avoid charges of illegal price discrimination against smaller purchasers, the size of such discounts should be justified by the cost savings that manufacturers gain by filling larger orders. Rebates reduce the price of the product through a money refund offer. Such offers typically require the consumer to mail some proof of purchase to the manufacturer to receive the refund. In recent years rebates have been used extensively by producers of durable goods, including automobiles, major appliances, and cameras because they can move excess inventories quickly. Premiums are attempts to attract buyers by offering a product or service free or at a substantially reduced price to encourage the purchase of another product. Premiums can be included in a package, sent by mail, or via another product (a free soft drink with the purchase of a pizza). Premiums can even be to some extent selfliquidating – as when the consumer sends in a package and 50 cents for a premium.

Answer 161

Retail stores can be categorised in many different ways, such as by the type of merchandise carried (supermarkets, drugstores), breadth of product assortments (speciality or department stores), pricing policies (discount or speciality stores), or nature of the business’s premises (e-tailers, mail-order retailers, vending-machine operators, traditional stores). One useful classification scheme groups stores according to their method of operation – low margin/high turnover versus high margin/low turnover.

Answer 162

1. Marketing environment. 2. Objectives and strategy. 3. Planning and control system. 4. Organisation. 5. Marketing productivity. 6. Marketing functions.

Answer 163

For a new product the company could use the Internet to auction it off. To do so would require a description of the product, its uses, the benefits it provides, the amount involved, and competitive/substitute products and their prices. Bidders would receive some kind of incentive to enter a bid. The range of bid prices coupled with their frequency could be used as an estimate of the perceived value of the new product. For an established product consumers could be asked to estimate the percent increase or decrease in sales resulting from each increment ‘up’ and ‘down.’ The assumption here is that in responding the consumer is actually revealing his/her demand schedule. Again, there would have to be a ‘reward’ for responding. The difficulty would be that the company would not know whether those answering were representative of the firm’s customers.

Answer 164

An unsatisfied need is a gap between a person’s actual and desired state on some physical or psychological dimension. Wants reflect a person’s desires or preferences for specific ways of satisfying a basic need. Marketers cannot create needs deriving from biological and emotional imperatives of human nature. Instead, marketers influence wants

Answer 165

An approximation of the BCG growth-share matrix in this situation is shown below. Note that relative market share is determined by dividing company SBU market share by average of top three competitors. The implication is that funds from the ‘cash cows’ D and C might be used to fund the ‘question mark’ business A, and the borderline ‘question mark’/‘star’ business B. Because the remaining business (E) is a ‘dog,’ it might be considered for divestment or harvesting. However, this analysis should be supplemented with additional analyses, including perhaps another portfolio and other analyses specific to the situations inherent in each business.

Answer 166

In developing products for industrial customers, it is usually desirable to bring them into the developmental process in order to elicit their ideas and suggestions in making the product better. In this case Tennant should seek current customers across industries to ask what they think of such a product and if they would purchase the product if it could accomplish the stated product claims. A critical element of this process would be to determine what the customer would be willing to pay for the product. In addition, the company might want to provide some customers with demonstrator models to test the product in actual conditions and to generate interest in it. Since Tennant is already a major player in the industrial cleaner market it is well aware of the market for such a product. Moreover, it would be familiar with competitors. Consequently, it would not be difficult to conduct sales potential analyses based on industry sales information available to the company.

Answer 167

The unstable environment would probably lead to: (a) More decentralised decision making, accompanied by relatively greater use of technical expertise and specialisation of purchasing managers. (b) Fewer formal purchasing procedures. (c) More professional purchasing personnel. The marketing implications of this include a corresponding need for product-related expertise in the supplying firm. This may involve assembling a technical team associated with each product (or product group) to meet with corresponding purchasing personnel. Periodic briefings of purchasing personnel from the buying firm about advances or modifications of product may be useful to maintain the firm-to-firm relationship.

Answer 168

This difference in profits results from the fact that cost cutting has a largely short- term affect whereas revenue growth – particularly that derived from innovative new products – has a much longer-term impact. This is especially true if the company’s initial product generates a product line of considerable consequence and the company develops and holds the largest market share.

Answer 169

The kinds and sources of information for the purchase of a new colour printer would be: * *Kinds of information:** Different types of colour printers, features available in each type, recent technology developments and potential impact on types of printers and their features, leading national and private label (if any) brands by type of printer desired and features of each, reputation of brand and company involved, price of each model of brands of interest, warranties and local stores selling line of printers. * *Sources of information:** Consumers’ union, credible specialised magazines and newspapers catering to business community and computer users in general, owners and/or users of colour printers, retail store personnel and company lit- erature available at local outlets and websites. * *Marketing programme implications:** Competitive price but based in good part on features offered; distribution in large retail computer stores which sell to households and local businesses; use of own salesforce to sell to large business- es and to not-for-profit organisations such as government, hospitals and educational institutions; and extensive advertising in specialised magazines, newspapers focusing on business (Wall Street Journal), special brochures for use by retail sales persons, articulate website and special price deal promotions.

Answer 170

A performance dimension A measure or index for evaluating progress A target to be achieved A time frame

Answer 171

One realistic (and potentially profitable) argument would be to augment the new product goal with a new-uses goal, given the maturity of the industry. This is comparable to the situation that confronted the marketing management of Arm & Hammer baking soda, which faced a stable industry (which it dominated) with a mature product-market. Rather than develop new products, management developed new uses (such as use in refrigerators to absorb odours) for the existing product. The strategy was highly successful and did not require substantial new-product development costs.

Answer 172

* Individual branding – each product has a distinctive name, if one product is bad does not tarnish the overall name * Family branding - same brand covers a number of products – reduced costs and transfer of customer satisfaction from one to the other - if one product is bad may tarnish the overall brand * Co-branding – haagen daz baileys ice cream * Global brands – very expensive

Answer 173

sales promotion is those activities other than personal selling, advertising and publicity that stimulate consumer purchases and dealer effectiveness e.g. incentives to consumer to stimulate short term demand * two kinds * consumer promotion – targeted at consumers as part of a pull strategy * trade promotion – targeted at channel members, push strategy

Answer 174

Mass market strategy * serving one or more segments that while not the largest consist of substantial numbers of customers seeking somewhat specialized benefits from a product or service * this avoids going up against the big boys e.g. gourmet coffee Mass market strategy * a business can pursue this strategy in two ways * ignore segment differences and design a single product and marketing program that will appeal to the largest number of customers – aim is to capture enough of the market to gain economies of scale and a cost advantage. takes lots of resources * design separate products and marketing programs for the differing segments (differentiation marketing) e.g. Holiday Inn and Holiday inn select. again this is expensive Growth market strategy * target one or more fast growing segments, even though they may not be large * often used by smaller companies to avoid competitors while growing market share * usually requires strong r&d and marketing capabilities * however, fast growth attracts competitors

Answer 175

This question invites candidates to impart their knowledge of segmentation, targeting and positioning. The relevant modules are Module 9 on Market Segmentation and Target Marketing and Module 10 on Positioning. 1. Good answers should indicate that each segment should be substantial, measurable, accessible and respond differently to marketing variables. 2. Targeting. The Following steps are involved in analysing and prioritising potential target markets. 1. Selection of market attractiveness and business strength factors. This involves identifying the relevant variables for evaluating market segments and the firm’s competitive position regarding these and to weight these in order of importance. Each segment could then be evaluated in terms of market factors, economic and technological factors and environmental factors (size, growth rate and the level of competition for example). One useful tool could be the market attractiveness/business potential matrix. 2. These factors can then be weighted. 3. Segments should then be rated as to market attractiveness and in relation to company strengths. 4. Managers should take into account the effects of the possible future market position. 5. Finally desirable segments should be chosen and resources allocated. The bank may adopt a mass market strategy; a niche market strategy, focusing on one or more segments, or a growth market strategy focusing on the fastest growing segments. Very good answers may discuss product strength versus geographic expansion. 3. Good answers will stress the links between targeting and positioning. The positioning decision occurs once a decision has been reached with respect to which market to target. For example Credit Bank may decide to focus on the pre-retired market as the result of the targeting decision process. Positioning is covered in detail in Module 10; a positioning process chart indicated in Exhibit 10.4 . This would include: 1. identifying the relevant set of competing products with respect to the target market (pre-retired segment); 2. identifying the set of determinant attributes that define the product space; 3. collecting and analysing data on customer perceptions; 4. determinig the product current location in the product space against competitive offerings and the ideal.

Answer 176

Initially the Japanese auto makers pursued a flank attack, providing automobiles for a segment of the US market seeking fuel-efficient, inexpensive, reasonably reliable transportation. Important marketing variables were product (reliability, as measured by such indicators as frequency of repairs) and price (relatively low).

Answer 177

**Functional Type** * good for companies operating in stable and slow growth industries i.e. low cost defender * also used in startups, they remain nimble because * the company remains small enough that the entrepreneur can personally supervise and coordinate various activities * the firm is focused on a single product targeted at one customer segment * the entrepreneurs personal vision is an adequate source of innovation * as start ups grow, its better to adopt a more decentralized and specialized org form **Product Management Type** * good for differentiated defender and analyzer strategies in complex and unstable environments * with large number of brands or products, there’s often a group or category product manager

Answer 178

(a) Packaged food company’s acquisition of a fast-food company which features hamburgers and French fries. (b) A large retailer’s purchase of an interest in a company producing small appliances. (c) A tobacco company’s acquisition of a beer company. (d) An oil company’s acquisition of an insurance company. The packaged food company’s acquisition could be considered forward integration in that the company produces ingredients used by the fast-food company. Benefits would involve cost reductions. The second case illustrates backward integration. Benefits would derive from scale economies and control over quality. The third case illustrates a related (concentric) diversification. Thus, its marketing skills – primarily in the areas of promotion and development of new products – should benefit the acquisition as well as its economic resources. The last case illustrates unrelated (conglomerate) diversification with few, if any, synergies or benefits deriving from such an acquisition. At the corporate level such diversification is sometimes instituted to level revenue flows and investment risks.

Answer 179

An estimate of market potential often serves as the starting point for preparing a sales forecast

Answer 180

* Several sources of bias should be recognized * anchoring bias – where forecasts are ‘anchored’ to recent historical figures, even if market conditions have changes * capacity constraints are confused with forecasts – producing x cars per hour does not mean you will sell x cars per hour * incentive pay – bonus plans can encourage managers to exaggerate or underestimate forecasts e.g. setting an artificially low forecasts * unstated but implicit assumptions e.g. assumptions on awareness and distribution coverage

Answer 181

* the % of people adopting a new product is an S curve, with the length of time required differing between products * the time dimension is function of the rate a person moves through the five stages of the adoption curve * the speed of rate of adoption depends on * the risk - e.g. breakfast cereals have a fast rate of adoption compared to GlobeOffshore * the relative advantage over other products * the relative simplicity of the new product * its compatibility with previously adopted ideas * the extent to which its trial can be accomplished on a small scale basis * the ease with which the central idea of the new product can be communicated

Answer 182

Demographics: Demographics influence * the nature of consumer wants and needs * Their ability to buy products to satisfy their wants and needs * The perceived importance of various attributes or choice criteria * Consumers attitudes toward and preferences for different products and brands Lifestyle * People in the same demographic don’t necessary live their lives in the same way * The patterns of activities, interests and opinions and the behaviors that results are referred to as lifestyle * To obtain lifestyle data consumers are asked whether they agree or disagree with a series of statements * Some people say that there are five lifestyle segments * Adapters – older but keep open mind * Traditionalists – older, resist change * Pressured – mainly women who face family and financial pressure * Achievers – they have achieved some of the success strivers want, status conscious * Strivers – hectic 30 something’s, materialistic, strive for success

Answer 183

data collection contributes more error than any other part of the process if the company collects the data themselves, the data could be biased errors come from * non-response o selection errors – not part of population * the way questions are asked * interviewers interpretation and recording of results * interviewing cheating * web one’s are anyomous and open to fraud

Answer 184

for firms with dominance in mature domestic markets, less developed foreign markets are often the best bet expansion paths can be: * move from domestic market to developing countries to more developed countries - this is what the Japanese do, learning as they go * with high tech products, go from domestic to developed countries

Answer 185

* attaining a position imposes constraints on future strategies * if shift in the marketing environment reduces the importance customers attach to a current determinant attribute, it may be difficult to reposition a brand which has an embedded position * another concern is the dilution of an existing intense position as a result of consolidation – British Leyland * overexploiting of a intensely positioned brand may also be a danger e.g. Holiday Inn

Answer 186

The differences between marketing the new toothpaste as a convenience good and marketing it as a speciality good are: (a) The line, in terms of the size of the container, would be longer – in part to gain greater shelf space. (b) The package would be designed more as a promotional item, whereas, as a speciality good, the emphasis would be on developing a ‘medical’ image. (c) The price would be competitive with other brands whereas, as a speciality good, the price would be considerably above that of ‘popular’ brands. (d) Emphasis would be placed on mass outlet stores to gain widespread distribution, as against a speciality good’s limited distribution, for which the selected stores would provide in-store displays, personal selling and local advertising. (e) Mass advertising coupled with coupons and perhaps free samples, as against local cooperative advertising and perhaps some advertising in a limited number of magazines. Efforts would be made to influence dentists to recommend the brand. Free samples would be given to dentists to pass on to their patients. (These promotions to dentists would be undertaken whether it was to be mar- keted as a convenience or a speciality good.)

Answer 187

**Marketing mix decisions in the introductory stages** * The length of the product line in the introductory stage typically should be relatively short to reduce production costs and hold down inventories * efforts to establish competitive advantage are typically focused on differentiating * pricing is affected by * products value to user * how quickly it can be copied * close substitutes * how volume effects cost * Strategy choices are skimming (obtain as much margin per unit as possible) and penetration (low pricing resulting in large initial market share) * Distribution decisions depend on whether its B2B or B2C * Promotion costs are usually high in introductory stages **The Marketing Mix in the Growth stage** * product line expands to attract new market segments * prices tend to decline, price difference between brands increases * producers set up channels or direct sales systems * promotion costs are concerned more with branding than demand for the product class or type (primary demand) **Marketing mix decisions in the shakeout stage** * Drop in overall growth and substantial price cuts * rationalize the product line by eliminating weaker items **Marketing mix decisions in the mature stage** * as the product life cycle evolves, the various brands become more similar * R&D can help differentiate the product during this stage * extra functionality (e.g. ease of use) may be added to differentiate further * service becomes more important * promotion spending remains stable – in-store promotions increase **Marketing mix in decline stage** * this stage occurs because of technical innovation, shift in consumer tastes * promotion decreases * prices remain stable if rate of decline is slow * prices can drop if rate of decline is fast * marketing activity concentrates on distribution – persuading intermediates to stock goods * harvesting occurs when a product is milked – no unnecessary spending or perhaps selling business unit **Strategic implications of the product life cycle** * generalizing typical responses to stages is risky * the product life cycle model makes assumptions about features and characteristics of each stage – it doesn’t take into account that the product life cycle is actually driven by market forces: the market, technical and competition

Answer 188

Business regulations reflect a country’s economic maturity and political philosophy * Political risks include seizure of assets * Other risks include import restrictions and price controls * Over-regulation produces inefficiencies, restricts entry by new competitors and creates inflationary pressures

Answer 189

positioning is based on a variety of attributes: * features – physical attribute * benefits – linked to features - e.g. Volvo and safety * parentage – who makes it, prior products * manufacturing process – time dedicated to you * ingredients – German beer * endorsements -experts and celebs * comparison – Pepsi challenge * pro-environment – portrays itself as green * price/quality – dunnes stores * the more attributes are used to position a product, the more confusion is caused * must be aware of the importance attached to attributes If all products are deemed to be the same in terms of a particular attribute, the that attribute is not a determinant attribute to find determinant attribute, use market research

Answer 190

* A service is any activity or benefit that one party can offer to another that is essentially intangible and that does not results in the ownership of anything. Its production may or may not be tied to a physical product * The same competitive strategies that apply to product companies also apply to service companies * Cable and Wireless could be described as a differentiated analyzer as they differentiate themselves by service rather than price in a cut throat telecoms market * They focused on small to mid sized businesses and acted as telecom specialists to those firms – advising them on the best strategies and solutions * They also pitched specialized services at new customers in their target segment – like developing functions specifically for lawyers

Answer 191

* The product life cycle is concerned within the sales history of a product or product class * The concept is that a product’s sales change over time in a predictable way

Answer 192

Water contamination creates a variety of business opportunities, examples of which are the sale of bottled water to households and businesses for drinking, water purification systems to businesses using water as a raw material and water purifica- tion systems to municipalities. The above uses would require a variety of containers, chemicals and machinery.

Answer 193

There are several levels of segmentation involved. First, there is segmentation by country; second, by area within the country; and third, by consumer demographic characteristics. The limitations are that this segmentation scheme fails to take into account the relative importance of various consumer groups across countries, thereby biasing the selection of countries. Further, it does not provide for any behavioural factors except those which can be inferred from the demographic descriptors used.

Answer 194

This problem lends itself to a telephone survey, because this method is quick and low cost. Further, unlike personal interviews in the mall, the method can be based on a probability sample – so the results can be examined for statistical reliability. The primary limitation (compared to other methods) is that visual materials cannot be readily displayed in a telephone survey (this could only be done with technology in place by mailing out visual materials and calling in conjunction with them). Also, some interpersonal feedback that depends on body language is lost in this approach. Another problem is that refusal rates are high and increasing due to an overload on consumers from a variety of companies.

Answer 195

Candidates are told that St. Lucia producers wish to continue to market their bananas to Europe and so answers which suggest that they should pull out should be discounted. This question seeks to address that most fundamental of all marketing issues which is in adding value to products to stop the slide to commodity status. In this case we are presented with a slide towards commodity status which is precipitated by US MNC’s. Competent answers will focus on different means for creating added value by means of segmentation and/or differentiation. Relevant Modules are 1–5 which focus on strategic marketing issues; Modules 6, 9 and 10 which discuss consumer involvement, market segmentation and positioning issues, Module 11which discusses branding and Module 17 which discusses strategies for mature and declining markets. Given the scope of reading a range of equally ‘good’ answers is possible and so markers should have some scope for discretion. In particular markers should reward answers which: Good answers might use the alternative corporate growth matrix in Exhibit 2.9 to discuss potential avenues for growth. However candidates should stick to the question here. This means that market penetration and product development strategies are acceptable but that market development and diversification strategies are not asked for. Seek to relate the core of this problem to the creation of differential marketing advantage. Really competent answers might refer to Porter (reference modules 2–3 ) which might suggest that differentiation and focus strategies are available. Extra marks should be awarded to those who actually define these. Alternatively some may wish to refer to Miles & Snow typology which is discussed in Module 3, and in particular the possibilities for differentiated defenders. Those who point out that bananas are probably in the ‘mature’ phase of the industry life cycle. Those who discuss the role of involvement with respect to bananas (generally this is a low involvement item and so a relevant question would be how to increase the level of involvement in this product? Suggested answers might be to link bananas to an involving issue (e.g. organic – lack of chemicals) or perhaps an involving person or lifestyle. Those who suggest that characteristics (smaller, sweeter, more curved) should be researched to determine whether they are important choice characteristics. Those who discuss options for segmenting the market. There may well be a ‘low-cost’ segment, but there may be other segments related to ‘taste’ or lifestyle characteristics such as ‘healthy eating’, ‘organic’ or life-cycle characteristics ‘children’s bananas’. Those answers which discuss targeting and positioning issues and in particular which associate these with branding strategies which are discussed in Module 11.

Answer 196

One good starting point for developing CRM capabilities in companies having limited resources is to put in place salesforce automation software. Such software helps companies disseminate real-time product information to salespeople to enable them to be more productive and more able to satisfy customer needs. Such software also allows companies to effectively capture customer intelligence from salespeople, keep track of it for use on later sales calls, and even transfer it to other salespeople in the event of a salesperson leaving the company. Several low-cost software applications that run on PCs are available to keep track of client lists and the various kinds of contacts that are made with each client. ACT and Goldmine are two of the best-known programmes in this arena. These programmes keep track of clients’ names, addresses, phone and fax numbers, and so on – along with all kinds of personal tidbits, such as their spouse’s and children’s names and the kind of wine the client likes to drink – and they also provide an organised way to make notes about each contact with the customer.

Answer 197

The main precaution a prospective hospital patient should take is to try to segment the population which experienced a certain kind of treatment in each hospital. The segments should be based on risk which obviously would be difficult to obtain. It may be possible to get some indication of the age of the various patients which for certain treatments may be an important indicator of success. Hospitals that treat a large number of emergency cases may have lower success rates for certain kinds of treatment. One way of going around the hospital and the needed information is to do the kind of analysis suggested above with doctors who specialise in the kind of treatment you are interested in. More word-of-mouth information should be available and from a variety of sources including former patients and doctors from related fields – or your general practitioner or internist.

Answer 198

Compared to the other business strategy types, prospector firms such as this one are likely to spend more on trade promotion and advertising in general. This trade promotion can occur as advertising and sales (‘to the trade’), and may also include trade discounts or outright ‘renting’ of shelf space, a practice that is increasing.

Answer 199

* The problem with the generic category level is that it typically includes an array of non competing products e.g. motor vehicle market, is a truck competing with BMW? * Product class has similar issue to generic category – products may server diverse markets or segments e.g. cars vs. convertibles * Product types are subsets of product class and contain items that are technically similar, e.g. cereals is a product class, with hot or cold as product types, and subtypes of hot include porridge

Answer 200

* Its not a replacement for strategic planning, just one tool for evaluating alternatives * Good forecasts are critical * It can evaluate alternatives, but not create them * Assesses the shareholder value a particular strategy is likely to create. * They Assess the economic value by examining cash flows it will generate * Estimate shareholder value by discounting cash flows by the businesses risk adjusted cost of capital * Evaluate strategies based on the likelihood that the investment required by a strategy will deliver returns greater than cost of capital * This is referred to as Economic Value Added * Could potentially over-estimate forecasts

Answer 201

_Two directions for growth:_ Expansion of current business or activities * Making product improvements, cutting costs and prices, increased advertisin * same products new markets Diversification into new businesses * forward vertical integration – moves downstream e.g. buy a wholesaler * backward: moves upstream * related or concentric diversification : acquires another firm that has doesn’t have products in common but has synergy with (e.g. R&D) * Unrelated diversification is usually financial – no commonalities between them: this is the riskiest Close relationships between companies can give the benefits of diverisification e.g. colalitions in Japanese industries

Answer 202

types of audit * marketing environment * objectives and strategy audit * planning and control systems audit * organization audit * marketing productivity audit * marketing functions – how does firm handle elements of marketing mix * ethical audit – extent that company the engages in ethical and socially responsible marketing * product manager audit – especially in fmcg – are they do the right things right

Answer 203

Among the factors that affect the rate of adoption are risk, simplicity, availability for trial and ease with which the core concept can be communicated. The rubbish compactor replaces the garbage can, and yet is higher in (financial) risk, is somewhat more complex to operate and typically is not displayed in a situation where trial is convenient. The core concept (the convenience and time savings of reducing the frequency of rubbish-to-garbage-can trips) is somewhat difficult to communicate. Because it replaces one product with another, substantially different, product, it is likely to gain slow acceptance. The most important communications mode is likely to be word of mouth, as people see rubbish compactors in use in daily life in the homes of opinion leaders. Yet this effect is likely to be subdued by the fact that this is not a visible, prestigious item. Thus, the product life cycle is likely to be slow growth, stable maturity, slow decline.

Answer 204

Two key issues would need to be addressed, given the delineation of evaluation already identified. One involves the autonomy which the new unit will have relative to other units in the organisation. The manager should be promised a relatively high level of autonomy in order to make the decisions necessary to develop new prod- ucts. The second issue is the amount of shared programmes and synergy which will exist between the new unit and other SBUs in the company. The manager should insist on there being relatively little required synergy between units in order to have the ability to develop the SBU’s marketing and R&D programmes.

Answer 205

A product can be defined as anything that satisfies a want or need through use, consumption, or acquisition. Thus, products include goods (TVs, radios, cars), services (medical, educational), places (New York, Moscow), people (David Camer- on and other politicians everywhere), activities (entering a contest or visiting a weight-loss clinic), and ideas (have you hugged your kids today?).

Answer 206

A measure of customer loyalty (repeat patronage) could be obtained by surveying a sample of the airline’s passengers (while en route) asking for information concerning the last five or so flights – month, cities involved (from/to), day of week, time of day and airline. This would provide an overall measure of loyalty as well as loyalty by geographical area and demographics and loyalty to other carriers. A measure of customer satisfaction is derived from an expectancy measure based on the weight (relative importance) given to all airlines, coupled with customers’ rating of the image of the airlines, as mentioned in the loyalty answer above. These questions would be included in the survey of customer loyalty. Thus, the satisfac- tions measured/obtained can be tied directly into the loyalty data.

Answer 207

It appears that the company is marking up certain items for a short period of time to legitimise their being a sale item. Much depends on the size of the initial mark-up and the extent of the mark-down. If, for example, the original mark-up on retail prices for such items is substantially in excess of the company’s normal retail mark-up and if the item is then featured as a sale item but carries the normal mark-up, then the firm is guilty of misleading the customer. The company should only use the term ‘sale price’ when the items involved are selling below their ‘normal’ price – i.e. when the mark-up is below the company’s standard one. The company should go out of its way to determine whether the product in question – including its equal – is being sold for a price lower than the company’s price. By this is meant that the company should accept ‘proof’ in the form of an advertisement, it should not ask for such details as the model number and it should take the initiative in confirming the competitor’s price. If the challenge is correct, then the company should immediately drop its price to that of the competitor.

Answer 208

Exhibit 18.9

Answer 209

A push strategy would be most appropriate in the situation described. Specifically, the company should: (1) offer higher margins on some of its products than its competitors; (2) provide sales training programmes to the sales staff of each of the wholesalers; (3) develop a cooperative advertising programme with the wholesaler to subsidise its advertising programme; (4) provide in-store display racks or demonstrations; and (5) enhance product return and replacement policies to make the product more attractive.

Answer 210

See exhibit 15.5

Answer 211

possible advantages of being a follower are * ability to take advantage of the pioneers early mistakes – e.g. misjudging the purchase criteria of the mass market segment * ability to take advantage of the pioneers product mistakes e.g. a technical limitation * ability to take advantage of the pioneers marketing mistakes e.g. distribution not adequate * ability to take advantage of the latest technology e.g. vhs vs. beta * ability to take advantage of pioneers limited resources

Answer 212

Trends in electronics/telecoms * Revolutionized how businesses operate, how goods and services and ideas – how individuals interact with each other * Cost of communicating has dropped considerably * Convergence of computing, telecoms and entertainment Implications of technology trends * Changes in technology have always created attractive new markets e.g. ford’s model T made travel easier * Impact on marketing communications, distribution, packaging and market research

Answer 213

The company may have achieved this position by: (1) producing a no-frills copier; (2) designing its product in an innovative, low-cost way; (3) obtaining less-expensive sources of component parts; (4) developing an innovative, lower-cost production process; (5) developing low-cost distribution channels; and (6) reducing overhead.

Answer 214

* Earth’s overall health is declining * Development of green products as a response to problems * Problems could be opportunities to respond to consumer fears and govt regulations * Implications of trends in physical environment for market attractiveness * Attractive opportunities for green goods and services * Global warming will effect products and services dependant upon weather

Answer 215

Full costing – Analysts assign both direct or variable and indirect costs to the unit of analysis. Direct costs are directly associated with the unit of analysis (production costs, direct marketing costs). Indirect costs involve certain fixed joint costs that cannot be linked directly to a single unit of analysis (general management, costs of occupying a facility). Contribution margin – This approach argues that there is really no accurate way to assign indirect costs. In addition, because indirect costs are mostly fixed costs, a product or market may make a contribution to profits even if it shows a loss. Thus, even though overhead must eventually be absorbed, the contribution method clearly indicates what is gained by adding or dropping a product or customer. Large, multi-SBU corporations would most probably use a contribution margin approach, since it enables the firm to better assess the way a product adds or subtracts from overall profitability.

Answer 216

A store brand (or private label) is one developed by either a wholesaler or a retailer who is responsible for their naming, pricing, promotion and quality control. Such brands have increased in importance in recent years mainly because national brands have regularly increased their prices along with the massive use of coupons, thereby training consumers to shop for price. They also undertook a large number of line extensions and, in general, focused less and less on brand quality. Such powerful discounters as Walmart and Target have moved aggressively with their own brands to take advantage of the price vulnerability of many national brands. The latter have responded by reducing the price gap between their brands and private brands and by promoting value pricing which features fewer coupons (and price promotions in general) and stressing the higher quality (including the greater number of features) of their products.

Answer 217

Since many consumer goods brands are similar in their physical characteristics, it is important to undertake a perceptual product positioning study to determine if consumers perceive them as being similar or being different because of different histories, names, and consumer attitudes. It is also important to note how compet- ing brands differ, not only from each other but against the consumer’s ideal brand. For industrial groups a perceptual positioning study will reveal how various customer groups perceive a given product on the basis of both its physical and nonphysical . In some cases the latter can be extremely important (e.g., service dimensions).

Answer 218

**Individual consumers** focus on advertising media which reach consumers such as print media (local newspapers, national news magazines such as Time). Develop incentive (frequent flyer) promotions. Target certain segments in order to increase the load factor. Also develop package vacations. **Corporate travellers** focus on media designed to reach decision makers in the travel department; for example, trade publications within the travel industry. Also, if the company maintains a salesforce, it should have them call on large corporations to explain in detail what exactly each airline is offering and at what price.

Answer 219

This is obviously a difficult question to answer – one which poses a dilemma for the company. While most countries have laws which forbid bribery, there is considera- ble difference in the way anti-bribery laws are enforced across countries. One problem is the way bribery is defined since it can range from the payment of a few dollars to a minor government official or business manager to facilitate the processing of papers or the unloading of a truck, to the payment of thousands – even millions – of dollars to obtain a lucrative contract. In the case at hand, the company policy forbidding ‘gifts, loans, favours, or other services’ needs further definition. In the US it is legal to entertain business clients (sporting events), give relatively inexpensive gifts, and pay for meals (including tips). Surely, such forms of ‘bribery’ are acceptable in other countries provided modera- tion is practised. But bribery in the form of payments for preferential treatment in securing a contract of substance should, of course, be prohibited. Still, the answer to the question of bribery is not a straightforward one. Given the variety of ethical standards existing in different countries as well as the varying morality level, the dilemma of ethics versus practicality will not be resolved any time in the near future.

Answer 220

It is appropriate when, in addition to a large market, 1. Target customers are relatively sensitive to price. 2. The firm’s costs are low compared to competitors’ and the SBU is pursuing a low-cost strategy. 3. Production and distribution costs per unit are likely to fall substantially with increasing volume. 4. Low prices may discourage potential competitors from entering the market. However, there is major risk in using low prices to achieve maximum sales growth in the short term as a base for future profits. If market, competitive, or technological conditions change, those future profits may never be realised.

Answer 221

Kelly might expand its revenues via each of the following expansion strategies: (a) Market penetration in present markets – increasing market share by taking share from competitors, increasing product usage among present customers (increasing home inventories). (b) Market development by expanding into new markets with the same product line – entering proximate metropolitan areas, selling essentially the same product under private label (store brand), selling concentrate to bottlers in other areas. (c) Product development via becoming the franchisee for an existing soft drink brand (Dr. Pepper, 7UP, Canada Dry Ginger Ale), mixer (Sweppes), or bottled water; adding new beverage products under own name; improve the taste of present products and/or reduce calories; and add new package types and size(s). (d) Diversification in the form of forward integration (vending machines), backward integration (flavour company), purchase of a competitor, and investment in real estate.

Answer 222

* Physical terms – focusing on products or technology e.g. we’re in railroad business * What Customer needs to be satisfied and what functions to be preformed to do so * Can be broad or specific

Answer 223

Sellers must ensure a steady, reliable supply of materials and parts since the system’s objective is to eliminate inventories at the customer’s manufacturing site, which requires the delivery of 100 per cent quality (zero defects) products. This relieves the customer of any incoming inspection. Buyers have to work closely with suppliers to develop and continuously update the just-in-time system with regard to the product, changes in the manufacturing processes which include the product and information pertaining to the volume and pattern of usage. Both parties must strive to develop a close relationship based on trust.

Answer 224

customers also judge quality of the service they receive on multiple dimensions: * tangibles – appearance of physical facilities * reliability – this is the most important one * responsiveness * assurance – ability of employees to convey trust and confidence * empathy – caring, individualized attention the firm provides its customers firm needs to communicate what level of service they deliver

Answer 225

The primary argument for switching from a company salesforce to the use of manufacturers’ representatives would lie in the economics of the situation. Representatives work on a commission basis and, therefore, they are a variable cost. In a period of declining sales, the sales cost would decline. Such would not be the case with the use of a company salesforce. It may also be that company salespersons cannot provide the same coverage and contact frequency as representatives – for the same costs. The danger is that representatives will not spend as much time on in-store activities to support the product line of a single seller as would a dedicated salesforce.

Answer 226

The problems which will be encountered in doing such research across a variety of countries include the difficulties associated with sample design (inadequate popula- tion data), questionnaire design, hiring/training/control over interviewers, data- collection methods (phone versus personal interviewing) and actual data collecting (asking questions and recording answers). It will be difficult to compare the results across countries given the variation in the sample designs, the response rates of different groups, the calibre of the interviewers and the meaning of key words in the questionnaire.

Answer 227

The degree of responsiveness of demand to a price change is referred to as the price elasticity of demand.

Answer 228

This question focuses on Module 6 and specifically on The Psychological Importance of the Purchase Affects the Decision-Making Process. In particular Exhibit 6.2 is useful for organising the answer as it readily identifies the four decision making styles which comprise complex decision making; limited decision making, brand loyalty and inertia. The differences between high and low involvement consumer behaviour are given in Exhibit 6.6. Good answers will first of all define the concept of involvement and will discuss the key differences between high and low involvement behaviours. If candidates offer more than three examples of these differences (that consumers are information processors versus information catchers; constitute an active versus a passive audience; evaluate brands before buying rather than afterwards) then this should be counted as a good answer. To pass a candidate must know that with high involvement purchases, represented by complex decision making, products are evaluated prior to purchase and that with low involvement purchases brand evaluations are made after an initial purchase has been made, which is the opposite of complex decision making. Very good answers might then explore the different decision making styles associated with complex decision making, limited decision making, brand loyalty and inertia and may even discuss impulse buying and variety seeking under limited decision making. The marketing mix implications that price is more important for low involvement decisions; that advertising is weaker for high involvement decisions; that wide distribution is necessary for low involvement decisions should be supported by relevant arguments. Good answers will contain a drawn version of this matrix and will discuss complex decision making, brand loyalty, limited decision making and inertia and the different decision making processes associated with these. Competent answers will describe the high involvement purchase situation in some reasonable depth, but should not become engrossed in this discussion. The key task is to distinguish between the different types of buying process and to discuss the marketing mix implications.

Answer 229

* present competitors * potential competitors * bargaining power of suppliers * bargaining power of buyers * threat of substitute products

Answer 230

* need to decide what org structure is best for developing and implementing worldwide strategies while simultaneously maintaining flexibility with regard to individual markets * innovation is key to success – cannot treat its foreign subsidiaries as dumb production colonies * technology is making world smaller * different org structures include * little or no formal org - early on may consist of an export dept attached to the marketing division * International division – mainly consists of marketing with all other functions in their previous form. good for basic commodities like chemicals * global structures – basic form replicates firms functional depts. – global vp’s of functional areas reporting to president. most common form is giving sbu’s worldwide control over their product lines, marketing being localized. also area structure when there is variance across market regarding product acceptance and marketing activities or hybrids of all of above * global orgs can be centralized (when there is strong global competition) or decentralized

Answer 231

The place to start would be with the R&D department. This must be good in order to generate product ideas using the technology within the other organisational SBUs. This would require the hiring of good medical technicians and perhaps a few doctors to help in the R&D process. In addition, the manager should hire some experienced salespeople to test the market for ideas.

Answer 232

Perhaps most important, the positioning intensity of a brand depends on how strongly customers associate it with one or more determinant attributes when deciding which to buy. In addition, another factor is how strongly customers associate the brand with the product category. Establish an intense position by focusing on one or two key determinant attributes, as P&G did with Crest when it focused on decay prevention and received the endorsement of the American Dental Association. A better option for a firm holding a small market share, however, may be to concentrate on an attribute not strongly associated with the dominant brand, and to position itself as a feasible substitute for bigger brands under certain situa- tions, or for targeting a peripheral segment of the market.

Answer 233

Market segementation is becoming increasingly important in the development of marketing strategies because: * population growth has slowed and more product-markets are maturing * social/economic forces like expanding disposable incomes & higher levels of education are producing more sophisticated consumers * trend towards micro-segmentation, like dell offering to customize individual computers to consumers wants * marketing organizations have made it easier to implement sharply focused marketing programs by more narrowly targeting their own services – e.g. specialist magazines/tv channels

Answer 234

* the market research task is the design, collection, analysis and reporting of research intended to gather data pertinent to a particular marketing challenge or situation * very important to define objectives of research e.g. tracking customer satisfaction, customer responses to ads

Answer 235

* Most new products fail * Biggest cause is introduction of me-too product * Drivers of new product development: * Change in market * Changes in technology * Govt regulations * Change in raw materials * Introduction of new products by competitors

Answer 236

strategies that could be used to squeeze additional volume out of mature market are: * increased penetration strategy * extended use strategy * market expansion strategy

Answer 237

Nordstrom already has an enviable position in terms of value and fashion ability. It could improve this position slightly by moving closer to segment 4.

Answer 238

Businesses also have seen opportunities in developing thousands of green products **(those that are environmentally friendly)** such as phosphate-free detergents, tuna caught without netting dolphins, organic fertilisers, high-efficiency LED lighting, recycled paper, and clothes made from 100 per cent organic cotton and coloured with nontoxic dyes.

Answer 239

Branding helps to differentiate one product from another **Comprises of:** Brand name Brand mark Perceived quality Brand association **Branding helps by enhancing:** Effectiveness of marketing promotions programs Brand loyalty Opportunities for brand extensions Prices and margins from competitive advantage Channel relationships

Answer 240

The key is that this segment does not emphasise the product feature requirements of the major segments of the car market (which presumably seek features like economy, durability and so on). Rather, this ‘peripheral’ segment emphasises sportiness, expressiveness and perhaps ‘performance’. Thus, rather than seek product-line breadth (i.e. a variety of cars emphasising different features), the company should seek product-line depth (i.e. a variation on the themes of sporti- ness, expressiveness and performance).

Answer 241

**A.** One set of marketing policies defines the nature of the products the business will concentrate on offering to its target markets. These policies concern the breadth or diversity of product lines, their level of technical sophistication and the target level of product quality relative to competitors. **B.** Success in offering low prices relative to those of competitors should be positively related to the performance of low-cost defender businesses – for low price is the primary competitive weapon of such a strategy. However, such a policy is incon- sistent with both differentiated defender and prospector strategies. The higher costs involved in differentiating a business’s products on either a quality or service basis require higher prices to maintain profitability. Differentiation also provides custom- ers with additional value for which higher prices can be charged. Similarly, the costs and benefits of new product and market development by prospector businesses require and justify relatively high prices. Thus, differentiated defenders and prospec- tors seldom adhere to a policy of low competitive prices. **C.** Some observers argue that prospector businesses should show a greater degree of forward vertical integration than defender businesses.23 The rationale for this view is that the prospector’s focus on new product and market development requires superior market intelligence and frequent re-education and motivation of distribution channel members. This can best be accomplished through tight control of compa- ny-owned channels. However, these arguments seem inconsistent with the prospector’s need for flexibility in constructing new channels to distribute new products and reach new markets. Attempting to maintain tight control over the behaviour of channel members is a more appropriate policy for defenders who are trying to maintain strong positions in established markets. This is particularly true for defenders who rely on good customer service to differentiate themselves from competitors. Thus, it seems more likely that a relatively high degree of forward vertical integration is found among defender businesses, particularly differentiated defenders, while prospectors rely more heavily on independent channel members – such as manufacturer’s represent- atives or wholesale distributors – to distribute their products.24 Because prospectors focus on new products where success is uncertain and sales volumes are small in the short run, they are likely to devote a larger percentage of sales to trade promotions than are defender businesses. Prospectors rely on trade promotion tools such as quantity discounts, liberal credit terms and other incentives to induce cooperation and support from their independent channel members **D.** Extensive marketing communications also play an important role in the successful implementation of both prospector and differentiated defender strategies. The form of that communication, however, may differ under the two strategies. Because prospectors must constantly work to generate awareness, stimulate trial and build primary demand for new and unfamiliar products, high advertising and sales promotion expenditures are likely to bear a positive relationship to the new product and share-growth success of such businesses. The drug delivery SBU at 3M, for instance, devotes substantial resources to advertising in professional journals and distributing samples of new products, as well as to maintaining an extensive salesforce. Differentiated defenders, on the other hand, are primarily concerned with main- taining the loyalty of established customers by adapting to their needs and providing good service. These tasks can best be accomplished – particularly in industrial goods and services industries – by an extensive, well-trained, well-supported salesforce.25 Therefore, differentiated defenders are likely to have higher salesforce expenditures than are competitors. Finally, low-cost defenders appeal to their customers primarily on price. Thus, high expenditures on advertising, sales promotion, or the salesforce would detract from their basic strategy and may have a negative impact on their ROI. Consequent- ly, such businesses are likely to make relatively low expenditures as a percentage of sales on those promotional activities.

Answer 242

Some forecasts are made based purely on experience but are very difficult to defend judgment calls

Answer 243

The objective of a retention programme for a car rental company should be to offer a direct incentive to customers for heavy usage which will encourage repeat busi- ness. Probably the most successful type of programme would be similar to the airlines’ frequent flyer programmes – indeed, one can use them by transferring car rental revenues into mileage awards with a given airline. In a similar fashion, the car rental firm could set up its own programme and award points which could be transferred into monetary credits to be used to rent the company’s cars. The company could also identify its heavy users by geographical location or season of the year, and then use direct mail to offer discount or trade-up coupons which are good for use during a restricted time period on certain types of company cars. The value of the discounted coupon would depend on the extent of usage.

Answer 244

This involves the attitudinal changes experienced by individuals from the time they first hear about new product and the time they adopt: * awareness * interest * evaluation * trial * adoption

Answer 245

* pioneer has the best change of success when * the new product market is insulated from the entry of competitors (at least for a while) by patents, IP, investment requirements or positive network effects or * the firm has sufficient size, resources and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries * a follower will most likely succeed when there are few legal, technical or financial barriers to inhibit entry and when it has more resources than pioneers * pioneers that maintain their lead well into market growth stage had the following market entry strategies * large entry scale – had sufficient capacity or could expand quickly enough to peruse mass market strategy * broad product line – could quickly add line extensions to initial product to tailor offerings to specific segments * high product quality – * heavy promotional expenditure – initially to stimulate awareness and later to reinforce loyalty * successful fast followers * had larger entry scale than pioneers * leapfrog pioneers by better product technology, quality or service * late entrants can succeed by focusing on peripheral target markets or niches

Answer 246

Assuming the new plastic take-out food container is safe to use (e.g., does not contaminate package contents, does not ‘leak’, minimises ‘spilling’, and protects against excessive moisture and heat for a reasonable time), the area of concern is the extent to which it can be safely and efficiently disposed of. To determine this, the company would need to know the system used in the developed countries it serves in order to collect, transport, and dispose of such containers. It would probably make a difference, for example, if disposal was by landfill versus incineration. If the former, does the package comprise sufficient biodegradable materials so that complete disposal could be effected in a desirable amount of time.

Answer 247

Given the complexity of the products and the apparent scope of the SBU’s product offerings, a product management structure would probably be most appropriate. The reason for this is that it would allow managers to concentrate their efforts on developing a broad range of products at the same time as each manager is responsi- ble for his/her own product development and marketing approaches. A possible alternative would be a matrix or team structure for product development, switching to product managers as those products become established. The structure should include moderate levels of formalisation, centralisation and specialisation. According to the text, the most appropriate organisational design would be one involving both product managers (to stay abreast of product im- provements), and/or market managers (to keep up with new market opportunities) or possibly both in a matrix structure.

Answer 248

Recent developments in types of organisational structures have generated a renewed interest in matrix organisations similar to the one used by Hewlett-Packard. This is the least bureaucratic or centralised and the most specialised type of organisation. Matrix organisations are making increased use of product teams which are given substantial empowerment to develop, for example, and make operational a business plan for a given product or product line. Companies are struggling to develop an entrepreneurial culture centred on custom- ers. Other important changes include managing business processes rather than functional areas and developing collaborative networks that include joint ventures.

Answer 249

**Pricing to Capture the Value Perceived by the Customer** * potential customers usually have an idea of what constitutes good and bad value * marketing manager should try to set the price that captures the value of the product as perceived by in the mind of the customer * cost based may pitch price too low and leave money on the table and reduce perceived value * value can be perceived by the following methods * industrial engineering – internal engineering assessment, field value in use assessments and indirect survey\ * overall estimates of customer value – focus group value assessment , direct survey * decomposition approaches – conjoint analysis (estimating customer trade off of product attributes), benchmarks (what’s customer willing to pay for extra attributes that a competitor has) * compositional approach – direct customer questions about value of product attributes * importance ratings – customer rank ordering or rating or product attributes **Estimating customer value by assessing value in use** * this begins with selection of a reference product - one the customer is using * manager then measures the incremental value in monetary terms of using their product * benefits may include increased efficiency or reduced costs * the monetary value plus the cost of reference product is the economic value of the managers product = maximum price customer will pay, assuming they know about the product and the offerings of competitors * knowledge of customer is rarely complete – hence need to leave room for discounting * the difference between marginal cost and the economic value defines the range of prices available **Other perceptual pricing issues** * customary price – a price which a customer expects e.g. people expect a chocolate bar to be less then $1 – manufacturers will usually make bar smaller rather than more expensive * price lining – selling all products in a category at one of several pre defined price points e.g. shirts at $10, $20 and $50 – helps customers make quality comparisons * psychological pricing – using price as an indication of quality * odd pricing – e.g. $9.99 rather than $10 * promotional pricing –e.g. sales

Answer 250

For a marketing manager, this move will probably be seen as positive. The differentiated defender will emphasise production efficiencies; the prospector will emphasise marketing skills. Thus, you are likely to be involved in making more (and more important) decisions about advertising, sales and other marketing-related issues in the new prospector job.

Answer 251

the contingency planning process * identifying critical assumptions about the future * assigning probability of each critical assumption’s being right * rank ordering of critical assumptions * tracking and monitoring of action plan * setting triggers to activate contingency * specifying alternative response options

Answer 252

* Market growth is a proxy for maturity and attractiveness of an industry: * market growth rate is not an adequate descriptor of overall industry attractiveness – some high growth industries are not profitable due to high barriers of entry * Relative market share is a proxy for competitive strength.- Market share is an inadequate description of overall competitive strength: * market share is related to past effort 1. It gives no guidance on how to implement investment strategy 2. Assumes all business are independent apart from flow of cash – e.g. investing in one business could have an effect on another which is not taken into account

Answer 253

* marketer develops an integrated marketing communicated plan (imc) * the imc plan is developed by : segmenting , targeting and positioning , which would provide choice criteria for the target audience

Answer 254

As a low-cost defender, this firm will seek to minimise the cost of each of the marketing functions, including product development, distribution, and promotion. There will probably be a more limited product line, and little if any product R&D to augment that line. Promotion will be minimised, both to the trade and to the public. The marketing manager’s primary emphasis, aside from cost cutting, will probably be a strong orientation toward watching – and matching – competitive price moves.

Answer 255

General Mills is likely to have a strong market orientation. This orientation would be characterised by: (1) the emphasis placed on high-quality, new products; (2) using consumer research in new-product development; (3) adapting its marketing mix to specific market segments; (4) cross-functional involvement in marketing. A small entrepreneurial start-up in a fast-growing high-tech industry is likely to have a production orientation. This orientation would result from threats posed by production problems.

Answer 256

firms attempt to develop and manage integrated distribution systems in one of four ways * a corporate vms – involving a vertical integrated system. Forward or backward integration can provide tight control but are expensive * a contractual vms – wholesaler-sponsored voluntary chains, franchise systems such as * manufacturer retailer e.g. car dealers * manufacturer wholesaler e.g. coke * wholesaler retailers - supervalue * service sponsor retailer - mcdonalds * an administered vms – one firm uses its economic position or expertise to provide inducement to other members for cooperation * Relational vms – rely on economic rewards and often contractual agreements as well. – dynamic relationships – requires trust

Answer 257

a. These usually work for several manufacturers, carry noncompetitive, complementary merchandise in an exclusive territory, and concentrate only on the selling function. They are important where a manufacturer’s sales are not sufficient to support a company salesperson in a particular territory. Manufacturer’s reps are common in the industrial equipment, automotive supply, footwear, and toy industries. b. These are independent firms whose purpose is to bring buyers and sellers together for an exchange. Unlike agents, brokers usually have no continuing relationship with a particular buyer or seller. The producers of seasonal products such as fruits and vegetables and the real estate industry use brokers extensively.

Answer 258

Advantages: (1) simple to calculate; (2) risk adverse – since spending is tied to sales it keeps the company from getting too far out of line with the rest of the industry. Disadvantages: (1) provides little direction in setting promotional budgets; (2) does not work well with new brands or in situations where sales volume is unstable or declining.

Answer 259

**Some common differential pricing adjustments targeted at particular customer segments include:** * Time pricing. Prices might be adjusted seasonally, across days of the week, or across hours of the day to capitalise on predictable fluctuations in demand over time. Movie theatres, for instance, often charge higher prices for evening shows than for early matinees, and hotels charge less for weekend occupancy. * Location pricing. The same product or service might be priced differently at various retail locations to capitalise on local demand or the intensity of competition. Even within a single theatre, seats in some locations are typically more expensive because many theatre-goers are willing to pay more to sit near the stage. * Customer segment pricing. Perhaps the most common differential pricing practice is to charge different prices to customer segments that vary in their willingness or ability to buy. Many arts organisations, for example, offer lower prices to senior citizens whose fixed incomes might otherwise prohibit their attendance. **For differential pricing to work:** * must be identifiable customer segments with different price sensitivities * customer segments must be physically separated or that segments paying lower price cannot resell to other segments * costs of segmenting must be smaller than benefits accrued * firm should ensure that resentment of segments doesn’t leave it open to competition in high price segments

Answer 260

There were probably two motives: experience and margin. Many firms (including particularly internationally oriented Japanese firms like Honda) attempt to gain as much production volume as possible. Volume is sought as an explicit goal because it increases the experience base, which drives down unit production costs in a predictable fashion. Also, Honda may have substantially saturated its low-price model market, and thus sought additional markets to increase its car volume. And the high-price model market carries a higher profit margin.

Answer 261

* this is often found in more mature markets where there’s little product differentiation * competitive parity is sometimes used, where they try to keep price equal and avoid a price war * price leader tend to be the most efficient firms in the market * sealed bids are used by government _Internet auction sites make accurate cost estimates more critica_l * some b to b sites focus on sellers auction – suppliers offering product * others are buyers auctions where suppliers invited to bid

Answer 262

**Raw materials** * most raw natural materials are marketed directly to processors and manufacturers * distribution channels for agricultural products usually involve many middlemen * branding is not important in agricultural goods – little promotional activity **Component materials and parts** * component materials are processed in some way before they are sold * component parts are manufactured items assembled as part of another product without further changes in form * component materials are usually sold direct * Use JIT and involve close relationships between buyers and sellers **Installations** * buildings and major capital equipment * few potential customers and high value * post sale service usually involved * distribution is usually direct * promotion is usual personal selling rather than advertising **Accessory equipment** * industrial machines and tools that manufacturers, service producers and govts use to carry out their operations e.g. pc’s, desks, hand tools * if the dollar value is high enough, direct selling is appropriate * if the market is geographically spread and dollar amount low, distributors are used * personal selling is important, but advertising and web is also used **Operating supplies** * these do not become part of the buyers product or service, nor are they used in producing it * examples: paper clips, typing paper * wholesale middlemen – price is critical with little brand loyalty **Business services** * businesses that have special areas of expertise used and paid for by other organizations e.g. security, ad agencies * suppliers qualifications, past performance, and reputation become critical determinants of the success of the marketing effort * personal selling and negotiation * relationships can last a long time

Answer 263

The key issue is selling effort. There is a trade-off between control, which the company would have with its own salesforce, and costs, which would be higher with a salesforce. Salespeople are not necessarily more productive than wholesalers and are almost guaranteed to generate higher costs, so the company needs to study the benefits of additional control over the channel as against higher costs. Information which would be helpful in making a decision include: (1) costs; (2) estimated sales under new plan; (3) profit margins under current and proposed plans; (4) estimated overhead for new plan; and (5) commission proposal for new plan as well as current structure.

Answer 264

Microsegmentation which sets the stage for direct marketing can be accomplished by using huge geodemographic databases which possess demographic and behav- ioural data down to the household level including addresses. For consumer goods manufacturers that sell via mail order, their customer lists can be enhanced and enlarged by buying lists which contain individuals/households similar in characteris- tics to their own heavy buyers. Industrial companies that sell direct can build their own data banks based on sales data coupled with call reports from their salesper- sons or agents. These lists can be augmented by data on lost customers, enquiries from trade shows and requests from catalogues.

Answer 265

These three decision processes – market segmentation, target marketing, and positioning – are closely linked and have strong interdependence. All must be well considered and implemented if the firm is to be successful in managing a given product-market relationship.

Answer 266

measure the effect of the total advertising effort (including pr) problems – does not reflect repeated behaviour, measurements depend on how soon after the ad you make the measurement types include recognition tests – interview people to see what they noted and read recall tests – show respondent a range of brands and ask them which they have seen recently you can also include increased traffic or sales to ascertain success – but they may not be linked to adverstising

Answer 267

For discussion of this issue, consider a new colour printer. (a) Problem identification Problem identification is initiated when the consumer perceives a difference between his ideal and actual state. In the case of the introduction of a new col- our printer, the actual state (i.e. old printer) probably did not change. However, the performance promised by the new printer raises the ideal state – creating a gap that represents a problem. (b) Information search Because this is a relatively high-involvement purchase, information may be sought from several sources, including personal, public and commercial sources. (c) Evaluation of alternatives After all this, an evoked set of branded colour printers may be in your mind. These will, in turn, be evaluated by a set of evaluative criteria formed from your different information sources. These criteria, in terms of their importance to you and your rating of each brand of colour printer on each criterion, will form your attitude towards each brand. (d) Purchase You purchase the colour printer, based on the evaluation described above. Terms of payment may be discussed at this time, if not previously. (e) Postpurchase evaluation Although the purchase is made, you probably considered several printers to be of approximately equal quality, so you now wonder whether you made the cor- rect purchase. However, ten days after you bring your new colour printer home: (1) the seller contacts you to see if everything is working properly; or (2) the manufacturer sends you a special booklet on the printer you purchased and your cognitive dissonance is reduced.

Answer 268

A participative approach would be the best way to handle potential conflicts. A general manager would be given the responsibility of co-ordinating all the functional activities one level above each of the product groups.

Answer 269

Deregulation typically makes an industry more competitive, with an increase in the number of firms. At the outset, emphasis is placed on improved pricing practices, cost reductions, product/service differentiation including new-product development and increased emphasis on customer satisfaction. A few years later, strategies centre on pricing, strategic alliances and the development of market power. All of the marketing-mix elements are affected by deregulation – product, place (distribution), price and promotion (advertising, personal selling promotion and publicity).