Marketing Management Chapter 11: Distribution and Supply Chain Management

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Chapter 11: Summary

Distribution comprises channels and supply chain management. Channels deal with institutional linkages such as retailers and wholesalers, whereas supply chain management addresses the processes underlying these linkages, such as warehousing, transportation, and inventory management, and connects them from the supplier to the end user. The objective of both components is to provide a high level of customer service at a manageable cost.

Distribution channels take on various functions of the manufacturers because they can perform them more efficiently. Depending on the type of product and type of consumer, they can range from the zero level, where the contact between manufacturer and end user is direct, to multiple levels, from producer to wholesalers and retailers. The choice of channel is an important one because it has major strategic implications and is difficult to change. Within the channel choice, decisions also need to be made about channel compensation and control. To a large degree, effective channel management depends on close information linkages. The use of information analysis at the retail level increasingly makes other channel members dependent on these information sources. Overall, channel members need to add value to the distribution process—or be eliminated. This also applies to the purchasing process, which is an integral part of distribution, albeit an internally focused one.

Supply chain management benefits from a systems view of corporate activity and includes the development of close relationships with both suppliers and customers. Effective coordination between parties reduces cost and provides for competitive advantage through approaches such as just-in-time (JIT) delivery, electronic data interchange (EDI), and early supplier involvement (ESI). Production, transportation, facility, inventory, and communication decisions are the key areas within logistics, all of which require trade-offs and collaborative action among participants. Even though the optimizing activities of a firm provide for some benefits, competitive differentiation occurs mainly through coordination with other companies.

The firm may evaluate transportation based on transit time, reliability, and cost and achieve operational improvements, but a strategic collaborative approach with customers and suppliers can deliver even greater benefits. Such collaboration can include the use of third-party logistics providers. Logistics can also play a major role in making the firm more environmentally responsive by designing reverse distribution systems for the recycling of merchandise and by devising distribution processes that minimize risk and damage to the environment.

All channel and supply chain efforts are designed to increase customer service. The intent is to delight the customer. It is therefore important to understand the importance of customer complaints. Such complaints should be encouraged so that the firm learns early on about potential problem areas. In addition, they need to be resolved quickly so that customers are willing to return. Good customer service requires the orientation and commitment of the entire corporate culture so that the customer notices at each point of contact with the firm that customer service thinking is a part of the organization.

Marketing Management Chapter 10: Pricing Decisions

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Chapter 10: Summary

Much of pricing theory is derived from economics, especially from supply and demand theory. This information is encapsulated in the famous demand and supply curves. The price is set by the point where the curves intersect. The degree to which demand is susceptible to price changes (price elasticity of demand) is another concept borrowed from economics but very useful to marketers.

Again in theory, but rarely in practice, these curves can be obtained from statistical analysis of historical data, survey research, and experimentation. Rather less theoretically, factors affecting the pricing policies of a specific organization include organization factors, product life cycle, product portfolio, product line pricing, segmentation and positioning, and branding. Factors derived from customers are demand, benefits, value, and distribution channels. Of these, perceived value is especially important because it defines what the customer should be prepared to pay.

Pricing new products offers a different set of challenges. In general, the two main opposing strategies are

•     Skimming—High price, to skim off the short-term profit

•     Penetration—Low price, to maximize long-term market share

Practical pricing policies for existing brands may include cost-plus pricing, target pricing, historical pricing, product line pricing, competitive pricing, market-based pricing, and selective pricing. The price can also be a major factor in determining a product’s or service’s image, ranging from quality-price to budget-price.

A wide range of discounts may be offered: trade, quantity, cash, allowances, seasonal, promotional, and individual.

Prices may also be set at levels that are judged to be “psychologically” appropriate ($9.95, for instance). Other ways of achieving a price effect may lie with other parts of the offer, such as product bundling, at one extreme, and charging separately for “options,” at the other. Alternatively, price may be negotiated, as it often is in capital goods markets.

Organizations may resort to price competition for several reasons, including volume sales, other stimuli, and minor brands. On the other hand, the dangers of initiating a price war include low-quality image, temporary advantage, and profit loss.

Marketing Management Chapter 7: Market Segmentation, Positioning, and Branding

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Chapter 7: Summary

Markets can be defined in a number of ways, but for a marketer the key definition is in defining who the customer is. Even so, there are different categories: (1) customers, (2) users, and (3) prospects. This categorization leads to the concepts of penetration and brand (market) share.

Within markets, there may be segments, which a producer may target to optimize use of scarce resources. The viability of these segments depends on (1) size, (2) identity, (3) relevance, and (4) access. The identification of market segments requires a number of activities including (1) background investigation, (2) qualitative research, (3) quantitative research, (4) analysis, (5) implementation, and (6) segmentation/positioning. A major aid to positioning is usually offered by two-dimensional maps based on two most critical dimensions identified by statistical analysis.

Branding is the most powerful marketing device for differentiation, which may, in effect, create a near monopoly. Once established, a brand name has a strong brand equity. Branding policies may be based on (1) company name, (2) family branding, and (3) individual branding. These policies may be developed further by brand extensions and multibrands, but this approach may be limited by cannibalism. Co-branding by companies that market complementary products helps fill market segments not met by them individually. Private brands and generic brands are also becoming increasingly important in price-sensitive markets.

Marketing Management Chapter 6: Estimating the Market Demand

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Chapter 6: Summary

Forecasts predict what may happen, all other things being equal. Budgets go beyond these forecasts to incorporate the effects of an organization’s planned actions. Both may be

•     Short term—For capacity loading, information transmission, and control

•     Medium term—For the traditional annual planning process

•     Long term—For strategic planning, resource planning, and communication

Forecasts need to be dynamic. In other words, changes in the environment require modification of forecasts. From them, budgets may be derived at the sales, production, and profit levels.

Forecasting is based on, and derived from, some other data sources; and it is conducted at three different levels. Macroforecasts look at total markets and may be derived from national or global data available from the OECD or the U.S. government. However, the most important aggregate forecast for business is at the market or industry level. Microforecasts build on the predictions of individual or group (customer) behavior. Product forecasts may then be split into forecasts by product type and over time.

There are both qualitative and quantitative forecasting methods. Qualitative forecasting is normally employed for long-term forecasts. Techniques include expert opinion, expert panel method, technological forecasting, Delphi technique, decision tree, and scenario.

Quantitative forecasting techniques for short- and medium-term typically try to isolate the trend, cyclical, seasonal, and random fluctuations. The specific techniques used may be period actuals and percent changes, exponential smoothing, time-series analyses, multiple regression analysis, and more complex econometric modeling. Various leading indicators are also readily available from government sources to forecast the short- to medium-term conditions of the market. Although most forecasting techniques ignore the competitors’ possible reaction to one company’s competitive move, game theory is gaining popularity in recent years to address the likely impact of the competitors’ moves in forecasting.

With the widespread use of personal computers, spreadsheets have become a useful forecasting tool to model many hypothetical “what if” scenarios. By developing many scenarios, you can determine which factors are sensitive to changes in the conditions under investigation.

The primary role of forecasting is risk reduction. You should note that risk can also be reduced by purchasing insurance against unfavorable events, diversifying into a portfolio of different products and markets, or adopting flexible manufacturing to better cope with unexpected changes in the market. Finally, thanks to Internet use, many companies, emphasizing the needs of the customers with an ability to satisfy and serve them quickly and efficiently, have begun to adopt the “build to order” model of sales fulfillment with no forecasting error rather than the traditional “build to forecast” model.

Marketing Management Chapter 5: Marketing Research and Information

Chapter 5: Summary

This chapter explored the search for information about the customer and the market. This constitutes the listening part of the marketing dialogue. Marketing research is also needed to assist managers in the decision-making process and to analyze organizational performance. To be viable, however, the benefits derived from marketing research need to exceed the cost of conducting such research.

A systematic research approach will lead to the development of a Market Information System (MIS) that contains information both internal and external to the firm. Important internal data sources are performance analyses, sales reports and employees’ ongoing experience. The more data the intelligence system receives and the more precisely the system can process the available data, the better it can serve the manager. It is therefore important to develop ways of entering nonnumerical reports, such as accounts from a sales conversation or information about customer interests. New technology can enable an MIS to alter communication and decision structures within a firm but also requires careful planning of information distribution and retention.

External information can be derived from either secondary or primary data. Secondary data, collected in response to someone else’s questions, are obtained through desk research and are available quickly and at a low cost. Main sources of secondary data are internal databases, libraries, directories, newsletters, commercial information providers, trade associations, and electronic information services. To ensure their usefulness, the researcher must determine the quality of the data source, the quality of the actual data, and the compatibility of the data with information requirements. Primary data are collected directly on behalf of a specific research project. Typical ways of obtaining such data are through syndicated research—such as retail audits, panel research, or omnibus surveys—and custom research.

The first step of primary marketing research is to clearly define the objectives to ensure the usefulness of the research. Next, the research level needs to be decided. Exploratory research helps mainly in identifying problems, descriptive research provides information about existing market phenomena, and causal research sheds light on the relationships between market factors. The research approach then determines whether qualitative or quantitative data will be collected. Observation, in-depth interviews, and focus groups are primary techniques to yield qualitative data, which may be very insightful but are not fully generalizable and cannot be analyzed statistically. Quantitative data overcome these problems but require the systematic collection of large numbers of data. Experimentation and survey research are the primary research tools. Good survey research must concentrate on question design and structure to elicit useful responses. Data can then be collected by mail (postal mail or e-mail), by using online applications e.g. SurveryMonkey, by telephone, or in-person after an appropriate sample frame is constructed. The data need to be analyzed with appropriate techniques to make the data set comprehensible, insightful, and useful for management. This usefulness is at the heart of the research report, which in essence is a communication process persuading recipients to use the information.