Chapter Five

Marketing Mix Strategies

5.1 Product Strategies

What is a product?
Many people think a product is a tangible offering, but it can be more than that. Broadly,
a product is anything that can be offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need. It includes physical goods, services,
experiences, events, persons, places, properties, organizations, information, and ideas.

5.1.1 Levels of Product and Services

Product planners need to think about products and services on three levels. Each level
adds more customer value.
1. Core customer value, which addresses the question: What is the buyer really
buying? A hotel guest is buying rest and sleep,
2. Actual product. Which includes; product and service features, design, a quality
level, a brand name, and packaging. It is the product that delivers the core
customer value.
3. Augmented product, which is created around the core benefit and actual product
by offering additional consumer services and benefits.
Consumers see products as complex bundles of benefits that satisfy their needs. When
developing products, marketers first must identify the core customer value that
consumers seeks from the product. They must then design the actual product and find
ways to augment it in order to create this customer value and the most satisfying
customer experience.

5.2.1 Product Classifications

Products can be classified on the basis of: durability (tangibility), and use (consumer
or industrial). Each product type has an appropriate marketing-mix strategy.

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Classification of products on the basis of durability and tangibility
Products can be classified into three groups, according to durability and tangibility:
1. Nondurable goods are tangible goods consumed in one or a few uses, like beer
and soap. they are consumed quickly and purchased frequently, Strategy:
 Make them available in many locations,
 Charge only a small markup, and
 Advertise heavily to induce trial and build preference.
2. Durable goods are tangible & survive many uses: e.g. refrigerators, Durable
products normally require more personal selling and service, command a higher
margin, and require more seller guarantees.
3. Services are intangible, inseparable, variable, and perishable products. As a
result, they normally require more quality control, supplier credibility, and
adaptability. Examples include Dental services and repairs.

Classification of products on the basis of use

Products can be classified in to two – consumer products and industrial products.
Consumer products are products and services bought by final consumers for personal
consumption. The goods consumers buy can be classified on the basis of shopping habits.
These are: convenience, shopping, and specialty and unsought goods.

A. Convenience goods are those the customer usually purchases frequently,

immediately, and with a minimum of effort. Examples include tobacco products, soaps,
and newspapers.
B. Shopping Goods: - are goods that the customer, in the process of purchase compares
on: suitability, quality, price, and style. For example; furniture, clothing, major
appliances, hotel and airlines services. The seller of shopping goods carries a wide
assortment to satisfy individual tastes and must have well-trained salespeople to inform
and advise customers.
C. Specialty goods: have unique characteristics or brand identification for which a
sufficient number of buyers are willing to make a special purchasing effort. For example:
Cars, Jewelry, & Suits. A Mercedes is a specialty good because buyers will travel far to

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buy one. Specialty goods do not involve comparisons. Dealers do not need convenient
locations; however, they must let prospective buyers know their locations.
D. Unsought products are consumer products that the consumer either does not know
about or knows about but does not normally think of buying.

Industrial products: are those purchased for further processing or for use in conducting
a business.
The three groups of industrial products and services are:
 Materials and parts include raw materials and manufactured materials and parts.
 Capital items are industrial products that aid in the buyer’s production or
operations, including installations and accessory equipment.
 Supplies and services include maintenance, repair and operating supplies and
business services.

5.1.3 PRODUCT DECISIONS

Individual Product and Service Decisions

Product and Service Attributes

Developing a product or service involves defining the benefits that it will offer. These
benefits are communicated and delivered by product attributes such as quality, features,
and style and design.
Product Quality is creating customer value and satisfaction. Total quality management
(TQM) is an approach in which all the company’s people are involved in constantly
improving the quality of products, services, and business processes.
Product quality has two dimensions: level and consistency.
The quality level means performance quality or the ability of a product to perform its
functions. Quality conformance means quality consistency, freedom from defects, and
consistency in delivering a targeted level of performance.
Product Features are a competitive tool for differentiating the company’s product from
competitors’ products.

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The company should periodically survey buyers who have used the product and ask these
questions: How do you like the product? Which specific features of the product do you
like most? Which features could we add to improve the product?
Product Style and Design is another way to add customer value.
Style describes the appearance of a product. Design contributes to a product’s usefulness
as well as to its looks.

Branding
A brand is a name, term, sign, symbol, or design, or a combination of these, that
identifies the maker or seller of a product or service.
Branding helps buyers in many ways.
 Brand names help consumers identify products that might benefit them.
 Brands say something about product quality and consistency.
Branding gives the seller several advantages.
 The brand name becomes the basis on which a whole story can be built about a
product.
 The brand name and trademark provide legal protection for unique product
features.
 The brand name helps the seller to segment markets.

Packaging
Packaging involves designing and producing the container or wrapper for a product.
Labeling
Labels range from simple tags attached to products to complex graphics that are part of
the packaging. Labels perform several functions.
 The label identifies the product or brand.
 The label describes several things about the product.
 The label promotes the brand. Labeling also raises concerns. As a result, several
federal and state laws regulate labeling.

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Labeling has been affected in recent times by:
 Unit pricing (stating the price per unit of standard measure)
 Open dating (stating the expected shelf life of the product)
 Nutritional labeling (stating the nutritional values in the product)

Product Line Decisions

A product line is a group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through the same
types of outlets, or fall within given price ranges.
Product line length is the number of items in the product line.
Product line filling involves adding more items within the present range of the line.
Product line stretching occurs when a company lengthens its product line beyond its
current range.
 Companies located at the upper end of the market can stretch their lines
downward.
 Companies located at the lower end of the market can stretch their product lines
upward.
 Companies located in the middle range of the market can stretch their lines in
both directions.

Product Mix Decisions

Product mix (or product portfolio) consists of all the product lines and items that a
particular seller offers for sale. E.g NEC’s (Japan) product mix consists of
communication products and computer products Medroc Ethiopia’s main product mix
consists of Mining and construction products.
A company’s product mix has four dimensions: width, length, depth, and consistency.
1. Product mix width refers to the number of different product lines the company
carries.
2. Product mix length refers to the total number of items the company carries within

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 its product lines.
3. Product mix depth: the number of versions offered of each product in the line.
4. Product mix consistency refers to how closely related the various product lines are
in end use, production requirements, distribution channels, or some other way.
The company can increase its business in four ways.
1. It can add new product lines, widening its product mix.
2. It can lengthen its existing product lines.
3. It can add more versions of each product, deepening its product mix.
4. It can pursue more product line consistency.

5.1.4 PRODUCT LIFE-CYCLE STRATEGIES

Products have life cycles that can be divided into five stages: product development,
introduction, growth, maturity, and decline. A company’s marketing success can be
affected considerably by its ability to understand and manage the life cycle of its
products. The product life cycle can be illustrated with the sales volume and profit
curves. The shape of these curves will vary from product to product. However, the basic
shape and the relationship between the two curves are usually the same.
Most product cycle curves are portrayed as a bell shape. This PLC curve is typically
divided into 5-stages.

1. Product development begins when the company finds and develops a new-product
idea. This stage will usually involve all the process involved in developing new

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 products before it is first marketed. This includes the following process; idea
generation, screening, concept development and testing, marketing strategy
development, business analysis, product development and test marketing. During
product development, sales are zero and the company’s investment costs mount.

2. Introduction Stage: starts when the new product is first launched. In this stage,
profits are negative or low, promotion spending is relatively high, only basic versions
of the product are produced.

3. Growth Stage: it is the stage where sales begin to climb quickly. New competitors
will enter the market. They will introduce new product features, and the market will
expand. The increase in competitors leads to an increase in the number of distribution
outlets. Prices remain stable or decrease slightly.Profits also may increase during the
growth stage.
4. Maturity Stage: it is characterized by slowing product growth. The slowdown in
sales growth results in many producers with many products to sell. Competitors begin
marking down prices, increasing their advertising and sales promotions, and upping
their product-development budgets to find better versions of the product. These steps
lead to a drop in profit. Product managers should consider modifying the market,
product, and marketing mix.
In modifying the market, the company tries:(1) to increase the consumption of the current
product, (2) changing characteristics such as quality, features, style, or packaging to
attract new users and to inspire more usage (3) changing one or more marketing mix
elements.
5. Decline Stage: The sales of most product forms and brands eventually dip. This is the
decline stage. In this stage management must decide whether to:
 Maintain its brand without change in the hope that competitors will leave the
industry.
 Harvest a product, which means reducing various costs (plant and equipment,
maintenance, R&D, advertising, sales force) and hoping that sales hold up.
 drop the product from the line

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5.2 PRICING STRATEGIES AND DECISIONS
What Is A Price?

In the narrowest sense, price is the amount of money charged for a product or service.
More broadly, price is the sum of all the values that customers give up in order to gain
the benefits of having or using a product or service.
Price is the only element in the marketing mix that produces revenue. It is also one of the
most flexible marketing mix elements.

5.2.1 Pricing Strategies

The firm has to consider many factors in setting its pricing policy. The factors can
broadly be classified as internal and external factors. Internal factors includes; the firms
overall marketing strategies, objectives, marketing mixes, and costs. External factors
include; demand, competition and other environmental variables.
We will describe a six-step procedure in setting a price: (1) selecting the pricing objective
(2) determining demand (3) estimating costs; (4) analyzing competitors’ costs, prices, and
offers; (5) selecting a pricing method; and (6) selecting the final price.

Step 1: Selecting the pricing objective

The company first decides where it wants to position its market offering. The clearer a
firm’s objectives, the easier it is to set price. A company can pursue any of five major
objectives through pricing: survival, maximum current profit, maximum market share,
maximum market skimming, or product- quality leadership.
Companies pursue survival as their major objective if they are plagued with
overcapacity, intense competition, or changing consumer wants. As long as prices cover
variable cost and some fixed costs, the company stays in business. Survival is a short run
objective; in the long run, the firm must learn how to add value or face extinction.

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Many companies try to set a price that will maximize current profits. They estimate the
demand and costs associated with alternative prices and choose the price that produces
maximum current profit, cash flow, or rate of return on investment. This strategy assumes
that the firm has knowledge of its demand and cost functions; in reality, these are difficult
to estimate. In emphasizing current performance, the company may sacrifice long-run
performance by ignoring the effects of other marketing-mix variables, competitors’
reactions, and legal restraints on price.
Some companies want to maximize their market share. They believe that a higher sales
volume will lead to lower unit costs and higher long-run profit. They set the lowest price,
assuming the market is price-sensitive. The following conditions favor setting a low
price: (1) The market is highly price-sensitive, and a low price stimulates market growth;
(2) Production and distribution costs fall with accumulated production experience; and
(3) a low price discourages actual and potential competition.
Companies unveiling a new technology favor setting high prices to “skim” the market.
Market skimming makes sense under the following conditions: (1) A sufficient number of
buyers have a high current demand; (2) the unit costs of producing a small volume are not
so high that they cancel the advantage of charging what the traffic will bear (3) the high
initial price does not attract more competitors to the market; (4) the high price
communicates the image of a superior product.

Non-profit and public organizations may adopt other pricing objectives. A university
aims for partial cost recovery, knowing that it must rely on private gifts and public grants
to cover the remaining costs. A nonprofit hospital may aim for full cost recovery in its
pricing. A nonprofit theater company may price its production to fill the maximum
number of theater seats. A social service agency may set a service price geared to the
income of the client. Whatever the specific objective, businesses that use price as a
strategic tool will profit more than those who simply let costs or the market determine
their pricing.
Step 2: Determining demand
Each price will lead to different level of demand and therefore have a different impact on
a company’s marketing objectives. The relation between alternative prices and the

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resulting current demand is captured in a demand curve. In the normal case, demand and
price are inversely related: the higher the price, the lower the demand. In the case of
prestige goods, the demand curve sometimes slopes upward. A perfume company raised
its price and sold more perfume rather than less! Some consumers take the higher price to
signify a better product. However, if the price is too high, the level of demand may fall. A
company that uses demand as a basis for setting the price for its product is said to follow
value based pricing-setting price based on buyers’ perceptions of value rather than on the
seller’s cost
Price sensitivity:- is how responsive demand will be to a change in price. The demand
curve shows the market’s probable purchase quantity at alternative prices. It sums the
reactions of many individuals who have different price sensitivities. If demand hardly
changes with a small change in price, we say demand is inelastic. If demand changes
greatly with a small change in price, we say the demand is elastic.
The first step in estimating demand is to understand what affects price sensitivity.
Buyers are less price sensitive when the product they are buying is unique or when it is
high in quality, prestige, or exclusiveness; substitute products are hard to find or when
they cannot easily compare the quality of substitutes; and the total expenditure for a
product is low relative to their income or when the cost is shared by another party.
If demand is elastic rather than inelastic, sellers will consider lowering their prices. A
lower price will produce more total revenue.
Step 3: Estimating costs
While demand sets a ceiling on the price the company can charge for its product, costs set
the floor. The company wants to charge a price that covers its cost of producing,
distributing, and selling the product, including a fair return for its effort and risk. Such
pricing strategy is also called cost-based pricing.

Types of costs and levels of production: - A company’s costs take two forms, fixed and
variable. Fixed costs (also known as overhead) are costs that do not vary with production
or sales revenues. A company must pay bills each month for rent, heat, interest, salaries
and so on, regardless of output.
Variable costs vary directly with the level of production. For example, each hand
calculator produced by Texas Instruments involves a cost of plastic, micro processing

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chips, packaging, and the like. These costs tend to be constant per unit produced. They
are called variable because their total varies with the number of units produced.
Total costs consist of the sum of the fixed and variable costs for any given level of
production. Average cost is the cost per unit at that level of production; it is equal to total
costs divided by production. Management wants to charge a price that will at least cover
the total production costs at a given level of production. To price intelligently,
management needs to know how its costs vary with different levels of production.

Step 4: Analyzing competitors’ costs, prices, and offers

Within the range of possible prices determined by market demand and company costs, the
firm must take the competitors’ costs, prices, and possible price reactions into account.
The firm should first consider the nearest competitor’s price. If the firm’s offer contains
positive differentiation features not offered by the nearest competitor, their worth to the
customer should be evaluated and added to the competitor’s price. If the competitor’s
offer contains some features not offered by the firm, their worth to the customer should
be evaluated and subtracted from the firm’s price. Now the firm can decide whether it can
charge more, the same, or less than the competitor. The firm must be aware, however,
that competitors can change their prices in reaction to the price set by the firm.

Step 5: Selecting a pricing method

Given the three Cs-the customers’ demand schedule, the cost function, and competitors’
price, the company is now ready to select price. Costs set a floor to the price.
Competitors’ prices and the price of substitutes provide an orienting point. Customer’s
assessment of unique product features establishes the ceiling price. Companies select
pricing method/approaches that includes one or more of these three considerations. We
will examine the following three major pricing approaches.
 Cost based approaches (markup pricing, target-return pricing, and break even
analysis).
 Value based approaches (perceived- value pricing, value pricing, )
 Competition based approaches (going-rate pricing, auction- type pricing).

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I) Cost Based Approaches
Markup Pricing:-the most elementary pricing method is to add a standard markup to the
product’s cost. Construction companies submit job bids by estimating the total project
cost and adding a standard markup for profit. Lawyers and accountants typically price by
adding a standard markup on their time and costs. Suppose a toaster manufacturer has the
following costs and sales expectations:
Variable cost per units $10
Fixed cost 300,000
Expected unit sales 50,000
The manufacturer’s unit cost is given by:
fixed cost $ 300 , 000
Variable cost + =$ 10+ =$ 16
Unit cost = unit sales 50 ,000
Now assume the manufacturer wants to earn a 20 percent markup on to aster sales. The
manufacturer’s markup price is given by:
unit cost $ 16
Marup price = = =$ 20
( 1- desired return on sales ) 1−0 . 2

The manufacturer would charge dealers $20 per toaster and make a profit of $4 per unit.
The dealers in turn will mark up the toaster. If dealers want to earn 50 percent on their
selling price, they will mark up the toaster to $40. This is equivalent to a cost markup of
100 percent.
The use of standard markups, generally, does not make logical sense. Any pricing method
that ignores current demand, perceived value, and competition is not likely to lead to the
optimal price. Markup pricing works only if the marked-up price actually brings-in the
expected level of sales. Companies introducing a new product often price it high hoping
to recover their costs as rapidly as possible; but this strategy could be fatal if a competitor
is pricing low. Still, markup pricing remains popular for a number of reasons. First,
sellers can determine costs much more easily than they can estimate demand. By tying
the price to cost, sellers simplify the pricing task. Second, where all firms in the industry

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use this pricing method, prices tend to be similar. Price competition is therefore
minimized, which would not be the case if firms paid attention to demand variations.
Third, many people feel that cost-plus pricing is fairer to both buyers and sellers. Sellers
do not take advantage of buyers when the latter’s demand becomes acute, and sellers earn
a fair return on investment.

Targets return pricing: - In target-return pricing, the firm determines the price that
would yield its target rate of return on investment (ROI). Suppose the toaster
manufacturer has invested $1 million in the business and wants to set a price to earn 20
percent ROI, specifically $200,000. The target-return price is given by the following
formula.
desired return Xinvested capital
T arg et -return price= unit cost +
units sales
0.20 X $1,000 ,000
=$16+ =$20
50,000
The manufacturer will realize this 20 percent ROI provided its costs and estimated sales
turn out to be accurate, but what if sales don not reach 50, 000 units? The manufacturer
can prepare a break-even chart to learn what would happen at other sales levels. Fixed
costs are $300,000 regardless of sales volume. The break-even volume can be verified by
the following formula:
fixed cost $ 300 , 000
Break−even volume = = =30 , 000
( price -varibale cost ) $ 20−$ 10
The manufacturer should also search for ways to lower its fixed or variable costs, because
lower costs will decrease its required break-even volume.
II) Value Based Approaches
Perceived-Value Pricing:-An increasing number of companies base their price on the
customer’s perceived value. They must deliver the value promised by their value
proposition, and the customer must perceive this value. They use the other marketing mix
elements, such as advertising and sales force, to communicate and enhance perceived
value in buyer’s minds.

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Perceived value is made up of several elements, such as the buyers’ image of the product
performance, the channel deliverables, the warranty quality, customer support, and softer
attributer such as the supplier’s reputation, trustworthiness, and esteem. Furthermore,
each potential customer places different weights on these different elements, with the
result that some will be price buyer, others will be value buyers, and still others will be
loyal buyers. Companies need different strategies for these three groups. For price
buyers, companies need to offer stripped-down products and reduced services. For value
buyers, companies must keep innovating new value and aggressively reaffirming their
value. For loyal buyers, companies must invest in relationship building and customer
intimacy.
Value pricing: - in recent years, several companies have adopted value pricing, in which
they win loyal customers by charging a fairly low price for a high-quality offering Value
pricing is not a matter of simply setting lower prices; it is a matter of reengineering the
company’s operations to become a low-cost producer without sacrificing quality, and
lowering prices significantly to attract a large number of value- conscious customers.
III) Competition Based Approaches
Going-Rate Pricing: - In going-rate pricing, the firm bases its price largely on
competitors’ prices. The firm might charge the same, more or less than major
competitor(s). Industries that sell a commodity such as steel, paper, or fertilizer firms
normally charge the same price. The smaller firms “follow the leader,” changing their
prices when the market leader’ prices change rather than when their own demand or costs
change. Some firms may charge a slight premium or slight discount, but they preserve the
amount of difference. Thus minor gasoline retailers usually charge a few cents less per
gallon than the major oil companies, without letting the difference increase or decrease.
Going-rate pricing is quite popular. Where costs are difficult to measure or comparative
response is uncertain, firms feel that the going price is a good solution because it is
thought to reflect the industry’s collective wisdom.

Step 6: Selecting the Final Price

Pricing methods narrow the range from which the company must select its final price. In
selecting that price, the company must consider additional factors, including

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psychological pricing, gain-and risk-sharing pricing, the influence of other marketing-
mix elements on price, company pricing policies, and the impact of price on other parties.

5.3 Marketing Communication (promotion) Strategy

Modern marketing calls for more than developing a good product, pricing it attractively,
and making it accessible to target customers. Companies must also communicate with
their customers.
Marketing communications are the means by which firms attempt to inform, persuade,
and remind consumers-directly or indirectly-about the products and brands they sell. In a
sense, marketing communications represent the “voice” of the company and its brands
and are a means by which it can establish a dialogue and build relationships with
consumers. The marketing communications mix (also called the promotion mix) consists
of five major tools:
 Advertising. Any paid form of non-personal presentation and promotion of ideas,
goods, or services by identified sponsor.
 Sales promotion. Short-term incentives to encourage purchase or sale of a
product or service.
 Publicity. Non personal stimulation of demand for a product, service, or business
units by planting commercially significant news about it in a published medium
or obtaining favorable presentation of it upon radio, television, or stage that is not
paid for by the sponsor.
 Personal selling. Oral presentation in a conversation with one or more
prospective purchasers for purpose of making sales.
 Direct marketing: Direct connections with carefully targeted individual
consumers to obtain an immediate response and cultivate lasting customer
relationships—using telephone, mail, fax, e-mail, the Internet, and other tools to
communicate directly with specific customers.
5.3.1 The Need for Integrated Marketing Communications
Customers don’t distinguish between message sources the way marketers do. In the
consumer’s mind, advertising messages from different media and different promotional

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approaches all become part of a single message about the company. Conflicting messages
from these different sources can result in confused company images and brand positions.
Too often, companies fail to integrate their various communications channels. The
problem is that these communications often come from different company sources.
Today, more companies are adopting the concept of integrated marketing
communications (IMC). Under this concept, the company carefully integrates and
coordinates its many communications channels to deliver a clear, consistent, and
compelling message about the organization and its brands.
IMC calls for recognizing all contact points where the customer may encounter the
company, its products, and its brands. Each brand contact will deliver a message,
whether good, bad, or indifferent. The company must strive to deliver a consistent and
positive message with each contact.IMC builds brand identity and strong customer
relationships by tying together all of the company’s messages and images. Brand
messages and positioning are coordinated across all communication activities and media.

5.3.2 Steps in Developing Effective Marketing Communication

There are several steps in developing an effective integrated communications and
promotion program. We will see each of these steps in the following discussions.

1. Identifying the Target Audience

A marketing communicator starts with a clear target audience in mind. The audience may
be potential buyers or current users, those who make the buying decision or those who
influence it. The audience may be individuals, groups, special publics, or the general
public.
The target audience will heavily affect the communicator’s decisions on what will be
said, how it will be said, when it will be said, where it will be said, and who will say it.

2. Determining the Communication Objectives

Once the target audience has been defined, the marketing communicator must decide
what response is sought. The marketing communicator needs to know where the target
audience now stands and to what stage it needs to be moved. The target audience may be

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in any of six buyer-readiness stages (awareness, knowledge, liking, preference,
conviction and purchase) the stages consumers normally pass through on their way to
making a purchase.
The communicator must first build awareness and knowledge. Assuming target
consumers know about the product, how do they feel about it? These stages include liking
(feeling favorable about the product), preference, (preferring it to other brands), and
conviction (believing that the product is best for them).Some members of the target
market might be convinced about the product, but not quite get around to making the
purchase. The communicator must lead these consumers to take the final step. Actions
might include offering special promotional prices, rebates, or premiums.

3. Designing a Message
Having defined the desired audience response, the communicator turns to developing an
effective message. The message should get Attention, hold Interest, arouse Desire, and
obtain Action (a framework known as the AIDA model).
In putting the message together, the marketing communicator must decide what to say
(message content) and how to say it (message structure and format).
Message Content: The communicator has to figure out an appeal or theme that will
produce the desired response. There are three types of appeals.
1. Rational appeals relate to the audience’s self-interest. They show that the product
will produce the desired benefits.
2. Emotional appeals attempt to stir up either negative or positive emotions that can
motivate purchase. Communicators may use positive emotional appeals such as
love, pride, joy, and humor. Communicators can also use negative emotional
appeals, such as fear, guilt, and shame that get people to do things they should or
to stop doing things they shouldn’t.
3. Moral appeals are directed to the audience’s sense of what is “right” and
“proper.” They are often used to urge people to support social causes such as a
cleaner environment, better race relations, equal rights for women, and aid to the
disadvantaged.

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Message Structure: The communicator must also decide how to handle three message
structure issues.
1. The first is whether to draw a conclusion or leave it to the audience. Recent research
suggests that in many cases, rather than drawing a conclusion, the advertiser is better
off asking questions and letting buyers come to their own conclusions.
2. The second issue is whether to present the strongest arguments first or last. Presenting
them first gets strong attention but may lead to an anticlimactic ending.
3. The third is whether to present a one-sided argument (mentioning only the product’s
strengths) or a two-sided argument (touting the product’s strengths while also
admitting its shortcomings).
Message Format: The marketing communicator also needs a strong format for the
message. In a print ad, the communicator has to decide on the headline, copy, illustration,
and color. To attract attention, advertisers use novelty and contrast; eye-catching pictures
and headlines; distinctive formats; message size and position; and color, shape, and
movement. If a message is to be carried over the radio, the communicator has to choose
words, sounds, and voices. If the message is to be carried on television or in person, then
all these elements plus body language have to be planned. Presenters plan their facial
expressions, gestures, dress, posture, and hairstyles. If the message is carried on the
product or its package, the communicator has to watch texture, scent, color, size, and
shape.

4. Choosing Media
The communicator now must select channels of communication. There are two broad
types of communication channels: personal and nonpersonal.
Personal Communication Channels: In personal communication channels, two or more
people communicate directly with each other. Some personal communication channels
are controlled directly by the company. For example, company salespeople contact
buyers in the target market. But other personal communications about the product may
reach buyers through channels not directly controlled by the company. Word-of-mouth
influence has considerable effect in many areas.

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Nonpersonal Communication Channels: are media that carry messages without
personal contact or feedback. Major media include print media (newspapers, magazines,
direct mail), broadcast media (radio, television), electronic/online media (audiotape,
videotape, CD-ROM, DVD, Web page), and display media (billboards, signs, posters).
Most non personal messages come through paid media.

5. Selecting a Message Source

The message’s impact on the target audience is also affected by how the audience views
the communicator. Messages delivered by highly credible sources are more persuasive.
Marketers often hire celebrity endorsers to deliver their message. But companies must be
careful when selecting celebrities to represent their brands.

6. Collecting Feedback
After sending the message, the communicator must research its effect on the target
audience. This involves asking the target audience members whether they remember the
message, how many times they saw it, what points they recall, how they felt about the
message, and their past and present attitudes toward the product and company.
The communicator would also like to measure behavior resulting from the message—
how many people bought a product, talked to others about it, or visited the store.
Feedback on marketing communications may suggest changes in the promotion program
or in the product offer itself.

5.3.3 Setting the Total Promotion Budget and Mix

Setting the Total Promotion Budget
One of the hardest marketing decisions facing a company is how much to spend on
promotion. We look at four common methods used to set the total budget for advertising.
Affordable Method
Some companies use the affordable method—they set the promotion budget at the level
they think the company can afford. Small businesses often use this method, reasoning

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that the company cannot spend more on advertising than it has. Unfortunately, this
method of setting budgets completely ignores the effects of promotion on sales
Percentage-of-Sales Method
Other companies use the percentage-of-sales method, setting their promotion budget at
a certain percentage of current or forecasted sales. Or they budget a percentage of the unit
sales price. This method is simple to use and helps management think about the
relationship between promotion spending, selling price, and profit per unit. However, it
wrongly views sales as the cause of promotion rather than the result.
Competitive-Parity Method
Other companies use the competitive-parity method, setting their promotion budgets to
match competitors’ outlays. They monitor competitors’ advertising or get industry
promotion spending estimates from publications or trade associations, and then set their
budgets based on the industry average.
Objective-and-Task Method
The most logical budget-setting method is the objective-and-task method, whereby the
company sets its promotion budget based on what it wants to accomplish with promotion.
This budgeting method entails:
1. Defining specific promotion objectives
2. Determining the tasks needed to achieve these objectives
3. Estimating the costs of performing these tasks
The sum of these costs is the proposed promotion budget.

Deciding on the Marketing Communications Mix

Characteristics of the marketing communications mix
Each promotion tool has unique characteristics and costs. Marketers must understand
these characteristics in selecting their mix of tools.
Advertising can reach masses of geographically dispersed buyers at a low cost per
exposure, and it enables the seller to repeat the message many times (pervasiveness).
Beyond its reach, large-scale advertising says something positive about the seller’s size,
popularity, and success. Because of advertising’s public nature, consumers tend to view
advertised products as more legitimate.

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Advertising also has some shortcomings. Although it reaches many people quickly,
advertising is impersonal and cannot be as directly persuasive as can company
salespeople. For the most part, advertising can only carry on a one-way communication
with the audience, and the audience does not feel that it has to pay attention or respond.
In addition, advertising can be very costly.
Personal selling is the most effective tool at certain stages of the buying process,
particularly in building up buyers’ preferences, convictions, and actions.
The effective salesperson keeps the customer’s interests at heart in order to build a long-
term relationship. Finally, with personal selling, the buyer usually feels a greater need to
listen and respond, even if the response is a polite “No thank you.”
These unique qualities come at a cost, however. A sales force requires a longer-term
commitment than does advertising—advertising can be turned on and off, but sales force
size is harder to change. Personal selling is also the company’s most expensive promotion
tool.
Sales promotion includes a wide assortment of tools—coupons, contests, cents-off deals,
premiums, sweepstakes and others—all of which have many unique qualities. They
attract consumer attention, offer strong incentives to purchase, and can be used to
dramatize product offers and to boost sagging sales.
Sales promotions invite and reward quick response. However, their effects are often
short-lived.
Public relations and Publicity is very believable—news stories, features, sponsorships,
and events seem more real and believable to readers than ads do.
Public relations can reach many prospects that avoid salespeople and advertisements—
the message gets to the buyers as “news” rather than as a sales-directed communication.
Marketers tend to underuse public relations or to use it as an afterthought.
Direct marketing has four distinctive characteristics:
1. Direct marketing is less public: The message is normally directed to a specific
person.
2. Direct marketing is immediate and customized: Messages can be prepared very
quickly and can be tailored to appeal to specific consumers.

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 3. Direct marketing is interactive: It allows a dialogue between the marketing team
and the consumer, and messages can be altered depending on the consumer’s
response.
Thus, direct marketing is well suited to highly targeted marketing efforts and to building
one-to-one customer relationships.

Factors to Consider In Setting the Marketing Communications Mix

Companies must consider several factors in developing the promotion mix: type of
product market, consumer readiness to make a purchase, and stage in the product life
cycle.

Type of Product Market:- Promotional allocation vary between consumer and business
markets. Consumer marketers spend: on sales promotion, advertising, personal selling,
and public relations, in that order. Business marketers spend on: personal selling, sales
promotion, advertising, and public relations, in that order.
Buyer-readiness stage:-Advertising, along with publicity, plays the most important roles
in the awareness stage, more than is played by “cold calls” from sales representatives.
Customer Comprehension is primarily affected by education, with advertising and
personal selling playing secondary roles. Customer conviction is influenced most by
personal selling followed closely by advertising. Finally, closing the sale is
predominantly a function of the sales call. Clearly personal selling, given its
expensiveness, should be focused on the later stage of the customer buying process.
Product life-cycle stage:The promotional tools vary in their effectiveness at different
stages of the product life cycle. In the introduction stage, advertising and publicity are
cost effective in producing high awareness, and sales promotion is useful in promoting
early trial. Personal selling is relatively expensive, although it must be used to get the
trade to carry the product. In the growth stage, advertising and publicity continue to be
potent, while sales promotion can be reduced because fewer incentives are needed. In the
mature stage, sales promotion resumes in importance relative to advertising. Buyers
know the brands and need only a reminder level of advertising. In the declines stage,
advertising is kept at a reminder level, publicity is eliminated, and sales people give the
product only minimal attention. Sales promotion, however, might continue strong.

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5.4. MANAGING MARKETING CHANNELS
Most producers do not sell their goods directly to the final users; between them stands a set
of intermediaries performing a variety of functions. These intermediaries constitute a
marketing channel (also called a trade channel or distribution channel). Formally, marketing
channels are sets of interdependent organizations involved in the process of making a product
or service available for use or consumption. They are the set of pathways a product or
service follows after production, culminating in purchase and use by the final end user.
Some intermediaries—such as wholesalers and retailers—buy, take title to, and resell the
merchandise; they are called merchants. Others—brokers, manufacturers' representatives,
sales agents—search for customers and may negotiate on the producer's behalf but do not
take title to the goods; they are called agents. Still others—transportation companies,
independent warehouses, banks, advertising agencies—assist in the distribution process but
neither takes title to goods nor negotiates purchases or sales; they are called facilitators.
5.4.1 The Importance of Channels
A marketing channel system is the particular set of marketing channels employed by a firm.
Why would a producer delegate some of the selling job to intermediaries? Delegation means
relinquishing some control over how and to whom the products are sold. Producers do gain
several advantages by using intermediaries:
 Many producers lack the financial resources to carry out direct marketing. For example,
General Motors sells its cars through more than 8,000 dealer outlets in North America alone. Even
General Motors would be hard-pressed to raise the cash to buy out its dealers.
 Producers who do establish their own channels can often earn a greater return by
increasing investment in their main business. If a company earns a 20 percent rate of return on
manufacturing and a 10 percent return on retailing, it does not make sense to do its own retailing.
 In some cases direct marketing simply is not feasible. It would not be practical to establish
small retail gum shops throughout the world or to sell gum by mail order. It would have to sell gum
along with many other small products and would end up in the drugstore and grocery store
business. It is easier to work through the extensive network of privately owned distribution
organizations.

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 5.4.2 Channel Functions and Flows
A marketing channel performs the work of moving goods from producers to consumers. It
overcomes the time, place, and possession gaps that separate goods and services from those who
need or want them. Members of the marketing channel perform a number of key functions:
 They gather information about potential and current customers, competitors, and other actors
and forces in the marketing environment.
 They develop and disseminate persuasive communications to stimulate purchasing.
 They reach agreement on price and other terms so that transfer of ownership or possession can
be effected.
 They place orders with manufacturers and acquire the funds to finance inventories at different
levels in the marketing channel.
 They assume risks connected with carrying out channel work.
 They provide for the successive storage and movement of physical products.
 They provide for buyers’ payment of their bills through banks and other financial institutions.
 They oversee actual transfer of ownership from one organization or person to another

Some functions (physical, title, promotion) constitute a forward flow of activity from the company
to the customer; other functions (ordering and payment) constitute a backward flow from customers
to the company. Still others (information, negotiation, finance, and risk taking) flow in both
directions.
5.4.3 Channel Levels
The producer and the final customer are part of every channel. We will use the number of
intermediary levels to designate the length of a channel. A zero-level channel (also called a direct-
marketing channel) consists of a manufacturer selling directly to the final customer. The major
examples are door-to-door sales, home parties, mail order, telemarketing, TV selling, Internet
selling, and manufacturer-owned stores.
A one-level channel contains one selling intermediary, such as a retailer. A two-level channel
contains two intermediaries. In consumer markets, these are typically a wholesaler and a retailer. A
three-level channel contains three intermediaries. In the meatpacking industry, wholesalers sell to
jobbers, who sell to small retailers. An industrial-goods manufacturer can use its sales force to sell

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directly to industrial customers; or it can sell to industrial distributors, who sell to the industrial
customers; or it can sell through manufacturer’s representatives or its own sales branches directly to
industrial customers, or indirectly to industrial customers through industrial distributors. Zero-,
one-, and two-level marketing channels are quite common.

5.4.4 Channel-Design Decisions

Designing a marketing channel system involves analyzing customer needs, establishing channel
objectives, identifying major channel alternatives, and evaluating major channel alternatives.

1. Analyzing Customers ' Desired Service Output Levels

In designing the marketing channel, the marketer must understand the service output levels desired
by target customers. Channels produce five service outputs:
 Lot size- The number of units the channel permits a typical customer to purchase on one
occasion.
 Waiting and delivery time - The average time customers of that channel wait for receipt
of the goods. Customers increasingly prefer faster and faster delivery channels.
 Spatial convenience -The degree to which the marketing channel makes it easy for
customers to purchase the product. By making products conveniently available, companies
can help their customers save on transportation and search costs in buying products.
 Product variety -The assortment breadth provided by the marketing channel. Normally,
customers prefer a greater assortment because more choices increase the chance of finding
what they need.
 Service backup -The add-on services (credit, delivery, installation, repairs) provided by
the channel. The greater the service backup, the greater the work provided by the channel.

2. Establishing Objectives and Constraints

Channel objectives should be stated in terms of targeted service output levels. Under competitive
conditions, channel institutions should arrange their functional tasks to minimize total channel costs
and still provide desired levels of service outputs. Usually, planners can identify several market
segments that want different service levels. Channel objectives vary with product characteristics.
Perishable products require more direct marketing. Bulky products, such as building materials,

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require channels that minimize the shipping distance and the amount of handling. Nonstandard
products, such as custom-built machinery and specialized business forms, are sold directly by
company sales representatives. Products requiring installation or maintenance services, such as
heating and cooling systems, are usually sold and maintained by the company or by franchised
dealers. High-unit-value products such as generators and turbines are often sold through a company
sales force rather than intermediaries.
Channel design is also influenced by competitors' channels. Channel design must adapt to the larger
environment. When economic conditions are depressed, producers want to move their goods to
market using shorter channels and with-out services that add to the final price of the goods.

3. Identifying Major Channel Alternatives

Companies can choose from a wide variety of channels for reaching customers—from sales forces
to agents, distributors, dealers, direct mail, telemarketing, and the Internet. Each channel has unique
strengths as well as weaknesses. Sales forces can handle complex products and transactions, but
they are expensive. The Internet is much less expensive, but it cannot handle complex products.
Distributors can create sales, but the company loses direct contact with customers. The problem is
further complicated by the fact that most companies now use a mix of channels. Each channel
hopefully reaches a different segment of buyers and delivers the right products to each at the least
cost. When this does not happen, there is usually channel conflict and excessive cost.
A channel alternative is described by three elements: the types of available business intermediaries,
the number of intermediaries needed, and the terms and responsibilities of each channel member.
Types of Intermediaries: A firm needs to identify the types of intermediaries available to carry on
its channel work. This can be realized through expanding the company's direct sales force, hiring
manufacturers’ agents in different regions or end-use industries to sell the product and finding
distributors in the different regions or end-use industries that will buy and carry the device
Number of Intermediaries: Companies have to decide on the number of intermediaries to use at
each channel level. Three strategies are available: exclusive distribution, selective distribution, and
intensive distribution
Exclusive distribution means severely limiting the number of intermediaries. It is used when the
producer wants to maintain control over the service level and outputs offered by the resellers. Often
it involves exclusive dealing arrangements, in which the resellers agree not to carry competing

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brands. By granting exclusive distribution, the producer hopes to obtain more dedicated and
knowledgeable selling. Exclusive distribution is often found in the distribution of luxury products
(e.g., Lexus) and clothes and etc.
Selective distribution involves the use of more than a few but less than all of the intermediaries
who are willing to carry a particular product. It is used by established companies and by new
companies seeking distributors. The company does not have to worry about too many outlets; it can
gain adequate market coverage with more control and less cost than intensive distribution
Intensive distribution consists of the manufacturer placing the goods or services in as many outlets
as possible. This strategy is generally used for items such as tobacco products, soap, snack foods,
and gum, products for which the consumer requires a great deal of location convenience. Intensive
distribution increases product and service availability, but may also result in retailers competing
aggressively. If price wars ensue, retailer profitability may also decline, potentially dampening
retailer interest in supporting the product.
4. Evaluating the Major Alternatives
Each channel alternative needs to be evaluated against economic, control, and adaptive criteria:
Economic criteria. Each channel alternative will produce a different level of sales and costs, so
producers must estimate the fixed and variable costs of selling different volumes through each
channel. For example, in comparing a company sales force to a manufacturer’s sales agency, the
producer would estimate the variable cost of commissions paid to representatives and the fixed cost
of rent payments for a sales office so as to determine which alternative appears to be the most
profitable.
Control criteria. Producers must consider how much channel control they require, since they will
have less control over members they do not own, such as outside sales agencies. In seeking to
maximize profits, outside agents may concentrate on customers who buy the most, but not
necessarily of the producer’s goods. Furthermore, agents might not master the details of every
product they carry.
Adaptive criteria. To develop a channel, the members must make some mutual commitments for a
specified period of time. Yet these commitments invariably lead to a decrease in the producer’s
ability to respond to a changing marketplace. In a volatile or uncertain environment, smart
producers seek out channel structures and policies that provide high adaptability

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5.4.5 Channel Management Decisions
Marketing channel management calls for selecting, managing, and motivating individual channel
members and evaluating their performance over time.
Selecting Channel Members
When selecting intermediaries, the company should determine what characteristics distinguish
the better ones. It will want to evaluate each channel member’s years in business, other lines
carried, location, growth and profit record, cooperativeness, and reputation.
Managing and Motivating Channel Members
Once selected, channel members must be continuously managed and motivated to do their
best. The company must sell not only through the intermediaries but to and with them.
Most companies see their intermediaries as first-line customers and partners. They practice
strong partner relationship management (PRM) to forge long-term partnerships with channel
members. This creates a value delivery system that meets the needs of both the company and
its marketing partners. In managing its channels, a company must convince suppliers and
distributors that they can succeed better by working together as a part of a cohesive value
delivery system.
Many companies are now installing integrated high-tech partnership relationship management
(PRM) systems to coordinate their whole-channel marketing efforts.
Evaluating Channel Members
The company must regularly check channel member performance against standards such as
sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost
goods, cooperation in company promotion and training programs, and services to the
customer. The company should recognize and reward intermediaries who are performing well
and adding good value for consumers. Those who are performing poorly should be assisted or,
as a last resort, replaced. Finally, manufacturers must be sensitive to their dealers.

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