The Marketing Mix Chapter Outline Chapter 8 THE MARKETING MIX ...

The Marketing MixChapter OutlineChapter 8THE MARKETING MIXI. Introduction.II. The Product Life Cycle.III. The Product Decision.IV. Pricing.V. Promotion.VI. Illegal Marketing Activities.IntroductionFactors that must be taken into consideration1. Product.2. Competitors' products.3. Consumers.The Marketing environment consists of institutions, laws and physical constraints.Time reflects the dynamic nature of the system.Ability to initiate and/or to respond to change has never been more important than today.Technological innovations has made possible product which were inconceivable adecade ago.Product development period between the conception of an idea and the mass distributionof the product has never been shorter.Agribusiness marketing is very broad, thus it is impossible to characterize a "typical"product or market.The Four P’s of MarketingMarketing mix - marketing decisions that are classified into four areas viewed by the consumer:(called 4p's).ProductPricePlacePromotionThe Four P’s of Marketing1. Producta. Features or service.b. Warranty.c. Instructions.d. Package.e. After-the-sale service.2. Price.a. Price policy.b. Discounts and allowances.c. Credit terms.3. Place.a. Market channels.b. Location of outlets.c. Type of outlets.d. Transportation.e. Storage.4. Promotion.a. Advertising.b. Publicity.c. Personal selling.d. Sales promotions.Product Life CycleRefers to a general product, not a specific product of one firm.

Marketing activities are heavily dependent on the stage in the product life cycle.Product development - begins with an idea.Preliminary analyses should be conducted to determine the product's technical feasibility andmarket potential.Many product failures could be prevented by researching the idea prior to marketing.Sales and Profits During the Product Life CycleStage One - IntroductionProduct is first marketed.1. Marketing decisions will initially focus on getting consumers to experiment andthen adopt the product.Stage One - Introduction2. Extensive promotional campaignsand special price incentives are used to launch new products.3. Small number of competitors.4. Profits are negative due to high costs of developing new product.Stage Two Market Growth High growth in sales.1. Competitors are preparing to enter the market.2. Whether or not firm faces competition will depend on how easily the product is copiedand any relevant patents or copyrights.3. Most profitable stage since sales are strong and the number of competitorsis small.Stage Three Market MaturityLeveling off of sales as only the latest adopters have not yet purchased the product1. Sales will consists mostly of repeat or replacement sales.2. Competition is likely to be strong since the market is no long growing and more firmsare competing.3. Heavy pro-+motion expenditures and price cutting occurs as firms attempt to solidifytheir market position and weak firms are driven out.Stage Four – Decline - Sales decline stage - length of product is unpredictable.1. Some product sales do not decline.2. Most products will eventually enter the sales decline stage and be replaced by a newproduct.3. Only the strongest firms will survive.Product Life CycleStages of product life cycle will not be obvious or clear cut.Life cycle should not be viewed as unchangeable and uncontrollableProduct DecisionA. Product accessories (instructions, warranties, packaging) may be what distinguish it from acompetitor's product.B. For a product to be successful, it must satisfy the needs of consumers in the chosen targetmarket better than any other product.Products with broad appeal are vulnerable to competition.C. Product accessories may offer an opportunity to differentiate the product by better tailoring theproduct to the needs of the target market.D. Some product accessories may be offered as options.E. Package decision is one of the most visible product decision areas, and often one of the mostimportant.1. Some products have become successful because of their package.2. Convenience has become a prime consideration in package as well as product design.F. Physical appearance of the package should not be overlooked.G. Products intended for intermediate customers should emphasize functionalityPrice PolicyA. Describes the mechanism by which prices are to be determined

B. States how price adjustments (discounts and allowances) are to be used.C. Firm's objective is to achieve a reasonable level of profits.D. Consider target market and prices of other competing products.E. Pricing is a dynamic process which must be responsive to consumers needs and wantsas well as the actions of competitors.Introductory Price PoliciesA. Price skimming is used to take advantage of the fact that some people are willing to paya very high price for some new products.1. Price is set high initially and gradually is lowered to attract new customers.2. Used to recapture the cost of developing a new product.3. Most effective when the producer is the sole producer of a product.4. Seldom used for agribusiness products.a. Products are easily imitated.b. Strategy would only attract competition.B. Penetration pricing establishes prices as low as possible with the intention of capturing aslarge a market share as possible.I1. Used when a firm expects to have strong competition.2. Discourages competitors from entering the market.C. Introductory price cuts means low prices.1. Low prices are only temporary.2. Used to introduce a new product into the market knowing that once the product isestablished the price cuts can be eliminated.3. New food products are introduced with this strategy in an attempt to get consumers totry the product.4. Used by firms trying to enter an established market.5. A disadvantage of this method is that even a temporary price cut may be received bycompetitors as a sign of hostility.Competitive or strategic pricingUsed when competition is fierce and products are similarMost firm’s set their price at the competitionBest way to compete is todifferentiate your productCommon Pricing MethodsMarkup pricing - commonly used by wholesalers and retailersRetailer’s cost + % markup = selling priceUseful when pricing a large number of itemsGross margin pricingRetailer’s cost / (1 - % gross margin)Used in supermarkets because gross margin reflects differences in demand and cost ineach departmentHow Markup is Calculated (cont’d)To figure SELLING PRICE given a MARKUP PERCENT:Common Pricing MethodsLoss leader pricingSetting price of a item below costs to generate enough sales on other products to compensatePsychological pricing - setting price at a level appealing to consumersDiscountsDiscounts: used to influencing customer behavior.A. Increase sales or encourage customers to pay cash.B. Used to make minor adjustments to be responsive to competitors.QuantityReducing per unit price for large ordersEncourage cumulative ordersSeasonal - Pre- or post-season

Estimate production needsShift storage costsTrade - given to participants in marketing channelCash - reflects credit costsAllowancesReductions in price given because something is due the consumerPrice discount for defect or damageTrade-in allowance given to trade on a new purchaseAdvertising allowance - encourage advertising by firm’s in the marketing channelRights of ConsumersBASIC RIGHTS OF CONSUMERSDanger Signals Indicating Marketing ProblemsINDICATOR INDICATIONSales ? Down from previous periodCustomers ? Walking out without buying? No longer visiting store? Returning more merchandise? Expressing more complaintsEmployees and ? Being slow to greet customerssalespeople ? Being indifferent to or delaying customerDanger Signals Indicating Marketing Problems (continued)INDICATOR INDICATIONEmployees and ? Not urging added or upgraded salessalespeople ? Having poor personal appearance? Lacking knowledge of store? Making more errors? Good ones leaving the companyStore image ? Of greed through unreasonable prices? Inappropriate for market area? Unclear, sending mixed signalsCredit1. Credit card companies.a. Very convenient.b. Major cost is a percent of purchase price.c. Risk free if rules are followed2. Business itself provides credit.a. Small businesses who know their customers.b. Larger businesses than can afford to have their own credit department or own creditcard.Costs involved in offering credit.1. Major cost is interest paid for use of borrowed funds or foregone earnings.2. Opportunity cost since cash which would have been collected could have beeninvested.3. Most difficult part of offering credit lies in the other costs which are not easily seen ormeasured.a. Bad debt loss.b. Restrict credit to those with the best credit records, requiring sizable downpayments or running credit checks.4. Credit person or department costly in terms of labor, records,and collecting past dueaccounts.Decision to offer credit not easy.1. Firms prefer cash purchases because its costs them less and is risk free.

2. Some firms avoid this problem by increasing the price of their goods by the amountneeded to cover the credit card company's charges and then giving discounts of equalamounts to cash customers.G. Benefits of offering credit are difficult to measurePlaceDistribution system should market product available to consumers in a manner consistent with theproduct, price and promotionIncludes all decisions that affect how, how much, where and whenImportant factorsLocationSize and timing of production relative to consumptionMarket ChannelsPath by which a firm’s products will travel to ultimate consumerDirect system - firm handles the distribution of it’s productsContracted system - dealer networkAdministered channel - no formal agreement between producer and distributorFirm through persistence insures it’s products are prominently displayed, promoted & pricedDominant firms have market powerMarket IntermediariesWholesalers - firms that sell to retailersMerchant wholesalers - own the productsWarehouse inventoriesProvide services including credit, delivery, pricing, accounting, store location, etc.Rack jobbers - place products on retailers shelvesBrokers (Agents) - do not own the productsRepresent seller’s product to buyersReceive sales commissionsPromotionA. Informs potential buyers of firm's products.B. Type of promotion used depends on three factors.1. Intended audience.2. Type of product.3. Kind of information conveyed.AdvertisingAdvertising - paid form of promotion.A. Most effective at delivering a common message to a large group of people.B. Cheapest form of promotion when cost is calculated on a per person basis.C. Largest users of advertising are the sellers of consumer products.1. Used to introduce new products or product changes.2. Encourage sales.3. Compare a product to other products.4. Inform consumers of special promotions.5. Keep product's name in consumer's mind.D. Effective advertising program must clearly define the audience.1. Choice of media will depend on intended audience.2. Even within a media, placement of advertising will depend on the intendedreceiver.E. Mailing lists of people with a high likelihood of being interested in a specific product areavailable.F. Generic advertising is used in commodities such as milk, beef, pork, and fruits.1. Groups of producers share the costs and benefits of advertising.2. Participation in the program is often mandatory.Sales PromotionGoalsConvince people to try new productsEncourage current customers to use product more frequently

Moving potential buyers from interest in product to purchaseExamplesCouponsSweepstakesContestsSales eventsRebatesPublic RelationsFree form of promotion.Publicity - public relations that focuses on news about a company or its products.Should be exploited whenever possible.Media firms often give preferential treatment to companies which are regular purchasers ofadvertising.Preparation of a news release will help ensure that information is reported as accurately andcompletely as possible.Bad publicity should be handled quickly and fairly.Personal SellingDirect, in-person communication between a sales person and potential customer.Personal selling is expensive in terms of expense per customer.Market products to intermediate customers.Market high priced items to consumers.Agribusinesses use personal selling to reach wholesalers, retailers, farmers and ranchers.Need a product that will sell well.For new products, buyer must be convinced that product will be a success.PublicityPublicity - free form of promotion.A. Should be exploited whenever possible.B. Media firms often give preferential treatment to companies which are regular purchasers ofadvertising.C. Preparation of a news release will help ensure that information is reported as accurately andcompletely as possible.D. Bad publicity should be handled quickly and fairly.Personal SellingPersonal selling – direct communication between a sales person and potential customer.Personal SellingA. Personal selling is expensive in terms of expense per customer.1. Market products to intermediate customers.2. Market high priced items to consumers.B. Agribusinesses use personal selling to reach wholesalers retailers, farmers and ranchers.1. Need a product that will sell well.2. For new products, buyer must be convinced that product will be a success.C. For established products salesperson has several tasks.1. Take orders.2. Make sure product is delivered.3. Handle complaints.4. Ensure wholesalers and retailers give product attention in terms of shelf space,advertising, and special sales.5. Supporting materials such as displays.Personal SellingD. Preparation.1. Majority of salesperson's work is done before she sets foot incustomer's door.a. Potential customers must be located.b. Presentation must be planned.c. Materials prepared.Personal Selling

2. Prospecting or locating potential customers.a. Established territory or new territory.b. Directories and mailing lists, and referrals.Personal Sellingc. During peak season only highest potential customers are contacted while in offseason initial contacts are made.Personal Selling3. Planning.a. Personal information about the prospect including age, sex,marital status, hobbies.b. Company information including its products, structure,problems, and competition.Personal Sellingc. Sales plan should be put in writing specifically listing specificobjectives of each presentation.d. Sales plan is used to monitor progress toward ultimateobjective of completing the sale.Personal Selling4. Make an appointment and for appointments made in advanceconfirm the appointment before the visit.Personal SellingE. Presentation1. It is important in the first few minutes to make a goodimpression.2. Cue as to how to start the sales call should be takenfromthe prospect.Personal Sellinga. Conversation should be encouragedbecause it allowsboth parties to establish arelationship.b. Conversation is one of best means of learning aboutaprospect.Personal Selling3. Good salespeople listen with their ears and their eyes.a. What is important to the prospect.b. How does she make decisions.c. What are the goals of her company and its problems.Personal Selling4. An effective way to start the presentation is to show theprospect what the product will do.a. Demonstration.b. Show how product will increase profits or cutcosts.Personal Selling5. Emphasize the product's benefits or how it solves a problem the clienthas.6. Salespeople are often faced with objections from the potentialbuyers.a. Objections should be handled immediately.Personal Sellingb. It is important to understand why an objection was raised.c. Objections which are not true should be tactfully denied.d. Objections should be put in perspective.e. Product as a whole should be emphasized.

Personal SellingF. Close.1. It is time to close when it is obvious that the prospect wantsto purchase the product.2. A trial close is useful when you are uncertain as towhether the prospect is willing to buy.XIV. Managing the sales forceA. Sales manager or one of the salespersons taking over somemanagement functions is important.Managing the sales forceB. Hiring is the most important function.1. Will influence the makeup of the sales force for years to come.2. New recruits must be committed to selling.Managing the sales forceC. Training and education.1. Communication, ability to listen, and make effectivepresentations.2. Effective salespeople understand their clients' problems andconvince them that the products will aid their solution.Managing the sales force3. No one is looking over their shoulder and they don't punch a time clock.4. Honesty, technical ability, personality, experience, andeducation.5. Training provided to new employees varies from almost none to veryextensive programs.Managing the sales force6. Periodic training and education are needed.a. To inform employees of major changes in the firm's orcompetitor's products.b. Technological advances.c. New regulations.Managing the sales forceD. Motivating and directing salespeople.1. Day-to-day motivation of salespeople depends on theirown self-motivation.2. Rewards take the form of a friendly word, gifts, trips,awards, or money.Managing the sales force3. Pay includes a straight commission, a straight salary, or a combination ofboth.4. Sometimes a bonus is paid depending on the total sales ofallsalespeople.5. Salary and commission must be based on productivity.Managing the sales forceE. Coordinating selling functions with the rest of firm.1. Sales and production managers must see to it that product isproduced to meet needs ofcustomers.2. Adequate inventory must be maintained.Managing the sales force3. Sales manager coordinates selling program with other marketingprograms by keeping marketing manager informed of customer'sneeds, competitor's products andother developments.XIX. Illegal Marketing ActivitiesA. Laws prohibiting price discrimination make it illegal to sell goods of likegrade and quality at different prices except under certain circumstances.

1. When costs of production differ.2. When it is necessary to meet a competitor's price.Illegal Marketing3. Because of local market conditions.4. Because of difference in marketability of goods.Illegal MarketingB. Price discrimination laws in general do not apply to consumer goods.Illegal MarketingC. By ensuring that all customers are treated on an equal basis withrespect to price, customers are prevented from using their volume ofbusiness as leverage in securinglower prices and thereby gaining anadvantage over its competitors.Illegal MarketingD. Other laws have extended this principle to include the equaltreatment of customers with respect to the provision of facilities, services orfunds.Illegal MarketingE. Trying agreements which require additional purchases of the customeras a condition of the sale areprohibited.Illegal MarketingF. Conspiring to restrain trade by price fixing or the assignment of territories isprohibited.G. Any discussion of price between competitors is strictly forbidden bylaw.Illegal MarketingH. Unfair methods or competition such as setting prices below costs or lying about acompetitor are illegal.Illegal MarketingI. Consumer legislation.1. It is illegal to deceive consumers.2. Bait and switch tactics whereby a firm lures in customers with lowprices and then convinces them to trade up to more expensive goods areillegal.Illegal Marketing3. Some types of warranties are guaranteed by law.4. "Truth in lending" legislation ensures disclosure of loan terms.The Marketing ConceptThe MARKETING CONCEPTcomprises three basic elements:A customer orientationA goal orientationUsing the systemsapproachConsumers Talking BackAreas Where Marketing Research is EffectiveIdentifying customers for the firm's products.Determining their needs.Evaluating sales potential for the firm and its industry.Selecting the most appropriate channel of distribution.Evaluating advertising and promotional effectiveness.