Chapter 6 Lecture Notes
The Marketing Program
Chapter 6: The Marketing Program
Chapter Outline
I. Introduction
A. Beyond the Pages 6.1 discusses the marketing program at Barnes & Noble and
how it compares to its chief rival, Amazon.com.
B. The marketing program refers to the strategic combination of the four basic
marketing mix elements: product, price, distribution, and promotion.
C. The outcome of the marketing program is a complete “offering” that consists of
an array of physical (tangible), service (intangible), and symbolic (perceptual)
attributes designed to satisfy customers’ needs and wants.
D. The best marketing strategy is likely to be one that combines the product, price,
distribution, and promotion elements in a way that maximizes the tangible,
intangible, and perceptual attributes of the complete offering.
E. Given the state of commoditization in many markets, the core product (the
element that satisfies the basic customer need) typically becomes incapable of
differentiating the offering from those of the competition.
II. Product Strategy
A. Product offerings in and of themselves have little value to customers. Rather, an
offering’s real value comes from its ability to deliver benefits that enhance a
customer’s situation or solve a customer’s problems.
B. Strategic Issues in the Product Portfolio
1. Products fall into two general categories: consumer products (used for
2. A product line consists of a group of closely related product items. A
3. The number of product lines to offer (the width or variety of the product
mix) is an important strategic decision.
4. The depth of each product line (the assortment) is an important marketing
tool. Firms attract a wide range of customers and market segments by
offering a deep assortment of products in a specific line.
5. Benefits of offering a large portfolio of products:
a) Economies of Scale—in production, bulk buying, and promotion.
b) Package Uniformity—all packages in a product line have the same
look and feel.
c) Standardization—product lines can use the same component parts.
d) Sales and Distribution Efficiency—sales personnel can offer a full
range of choices and options to customers.
e) Equivalent Quality Beliefs—customers expect and believe that all
products in a line are equal in terms of quality and performance.
Chapter 6 Lecture Notes
The Marketing Program
C. The Challenges of Service Products
1. Firms lying closer to the intangible end of the product spectrum face
unique challenges in developing marketing strategy.
2. Services possess many unique characteristics. [Exhibit 6.3]
3. Because of the intangibility of service, it is difficult for customers to
evaluate a service before they actually purchase and consume it.
4. Because most services are dependent upon people (employees, customers)
5. Customers typically have few problems in expressing needs for tangible
goods, buy they often have difficulty in expressing or explaining needs for
services.
D. Developing New Products
1. The development and commercialization of new products is a vital part of
a firm’s efforts to sustain growth and profits.
2. Six strategic options related to the newness of products:
a) New-to-the-World Products (Discontinuous Innovations)—These
products involve a pioneering effort by a firm that eventually leads
to the creation of an entirely new market.
b) New Product Lines—These products represent new offerings by
the firm, but the firm introduces them into established markets.
c) Product Line Extensions—These products supplement an existing
product line with new styles, models, features, or flavors.
d) Improvements or Revisions of Existing Products—These products
offer customers improved performance or greater perceived value.
e) Repositioning—This strategy involves targeting existing products
at new markets or segments.
f) Cost Reductions—This strategy involves modifying products to
offer performance similar to competing products at a lower price.
3. The key to new product success is to create a differential advantage for the
new product. This advantage can be real or based entirely on image.
4. Five typical stages of the new product development process are:
a) idea generation
b) screening and evaluation
c) development
d) test marketing
e) commercialization
III. Pricing Strategy
A. There is no other component of the marketing program that firms become more
infatuated with than pricing. There are at least four reasons for this attention:
1. There are only two ways for a firm to grow revenue: increase prices or
increase the volume of product sold.
2. Pricing is the easiest of all marketing variables to change.
3. Firms take considerable pains to discover and anticipate the pricing
Chapter 6 Lecture Notes
The Marketing Program
4. Price is considered to be one of the few ways to differentiate a product in
commoditized and mature markets.
B. Beyond the Pages 6.2 discusses how prices vary around the world.
C. Key Issues in Pricing Strategy
1. The Firm’s Cost Structure
a) A firm that fails to cover both its direct costs (e.g., finished
goods/components, materials, supplies, sales commission,
transportation) and its indirect costs (e.g., administrative expenses,
utilities, rent) will not make a profit. A popular way to associate
costs and prices is through breakeven pricing:
Breakeven in
Units
=
Total Fixed Costs
Unit Price – Unit Variable Costs
b) Cost-plus pricing is another strategy that is commonly used in
retailing. Here, the firm sets prices based on average unit costs and
its planned markup percentage:
Selling Price
=
Average Unit Cost
1 – Markup Percent (decimal)
c) A firm’s cost structure should not be the driving force behind
pricing strategy because different firms have different cost
structures.
2. Perceived Value
a) Value can be defined as a customer’s subjective evaluation of
benefits relative to costs to determine the worth of a firm’s product
offering relative to other product offerings. A simple formula:
Perceived Value
=
Customer Benefits
Customer Costs
b) Value is a key component in setting a viable pricing strategy. In
fact, value is intricately tied to every element in the marketing
program and is a key factor in customer satisfaction and retention.
3. The Price/Revenue Relationship
a) Virtually all firms face intense price competition from their rivals,
which tends to hold prices down.
b) Although it is natural for firms to see price-cutting as a viable
means of increasing sales, all price cuts affect the firm’s bottom
line. There are two general pricing myths:
2. Myth #2: When business is bad, a price cut will stimulate
sales.
Chapter 6 Lecture Notes
The Marketing Program
c) The reality is that any price cut must be offset by an increase in
sales volume just to maintain the same level of revenue.
=
Gross Margin %
Gross Margin % ± Price Change %
– 1
d) It is often better for a firm to find ways to build value into the
product and justify the current price, or even a higher price, rather
than cut the price.
4. Pricing Objectives [Exhibit 6.4]
a) Pricing objectives must be realistic, measurable, and attainable.
5. Price Elasticity
a) Price elasticity refers to customers’ responsiveness or sensitivity to
changes in price. A more precise definition defines elasticity as the
relative impact on the demand for a product, given specific
increases or decreases in the price charged for that product.
b) Firms cannot base prices solely on price elasticity calculations
because they will rarely know the elasticity for any product with
great precision over time.
c) Since the same product can have different elasticities in different
times, places, and situations, firms often consider price elasticity in
regard to differing customer behavior patterns or purchase
situations.
d) Situations That Increase Price Sensitivity
1) Availability of substitute products
3) Noticeable price differences
4) Easy price comparisons
e) Situations That Decrease Price Sensitivity
1) Lack of substitutes
3) Complementary products
5) Situational influences
6) Product differentiation
D. Pricing Service Products
1. Service pricing is critical because it may be the only quality cue that is
available in advance of the purchase experience. Services pricing becomes
more important—and more difficult—when:
a) service quality is hard to detect prior to purchase
b) the costs associated with providing the service are difficult to
determine
c) customers are unfamiliar with the service process
Chapter 6 Lecture Notes
The Marketing Program
d) brand names are not well established
e) the customer can perform the service themselves
f) advertising within a service category is limited
g) the total price of the service experience is difficult to state
beforehand
2. Due to limited capacity, service pricing is also a key issue with respect to
balancing supply and demand during peak and off-peak demand times.
3. Many service firms use yield management to balance pricing and revenue
considerations with their need to fill unfilled capacity. [Exhibit 6.5]
4. Yield management allows the service firm to simultaneously control
capacity and demand in order to maximize revenue and capacity
utilization.
a) The service firm controls capacity by limiting the available
capacity at certain price points.
b) The service firm controls demand through price changes over time
and by overbooking capacity.
5. Yield management systems are also useful in their ability to segment
markets based on price elasticity. That is, yield management allows a firm
to offer the same basic service to different market segments at different
price points.
E. Base Pricing Strategies
1. A firm’s base pricing strategy establishes the initial price and sets the
range of possible price movements throughout the product’s life cycle.
2. Base pricing approaches:
a) Price Skimming—occurs when a firm intentionally sets a high
price relative to the competition.
b) Price Penetration—occurs when a firm sets a relatively low initial
price to maximize sales, gain widespread market acceptance, and
capture a large market share quickly.
c) Prestige Pricing—setting prices at the top end of all competing
products in a category to promote an image of exclusivity and
superior quality.
d) Value-based Pricing (EDLP)—setting reasonably low prices, but
still offering high quality products and adequate customer services.
e) Competitive Matching—focuses on matching competitors’ prices
and price changes.
f) Non-Price Strategies—building a marketing program around
factors other than price.
F. Adjusting the Base Price
1. Adjusting base prices in consumer markets:
a) Discounting—using sales or other temporary price reductions to
attract customers and create excitement.
b) Reference Pricing—comparing the actual selling price to an
Chapter 6 Lecture Notes
The Marketing Program
c) Price Lining—occurs when a firm creates lines of products that are
similar in appearance and functionality, but are offered with
different features and at different price points.
d) Odd Pricing—prices are rarely set at whole, round numbers.
e) Price Bundling—bringing together two or more complementary
products for a single price.
2. Adjusting base prices in business markets:
a) Trade Discounts—Manufacturers will reduce prices for certain
intermediaries in the supply chain based on the functions that the
intermediary performs.
b) Discounts and Allowances—Business buyers can take advantage
of sales and other price breaks including discounts for cash,
quantity or bulk discounts, seasonal discounts, or trade allowances
for participation in advertising or sales support programs.
c) Geographic Pricing—Selling firms often quote prices in terms of
reductions or increases based on transportation costs or the actual
physical distance between the seller and the buyer.
d) Transfer Pricing—Transfer pricing occurs when one unit in an
organization sells products to another unit.
e) Barter and Countertrade—In business exchanges across national
boundaries, companies sometimes use products, rather than cash,
for payments.
IV. Supply Chain Strategy
A. Supply chain management is essentially invisible to customers because the
process occurs behind the scenes. Customers take these processes for granted and
only notice interruptions of the supply chain.
B. The picture is drastically different from the firm’s perspective. Supply chain
concerns now rank at the top of the list for achieving a sustainable advantage and
true differentiation in the marketplace.
C. Supply chain management consists of two interrelated components:
1. Marketing channels—an organized system of marketing institutions,
2. Physical distribution—coordinating the flow of information and products
among members of the channel to ensure the availability of products in the
right places, in the right quantities, at the right times, and in a cost-
efficient manner.
D. The term supply chain expresses the connection and integration of all members of
the marketing channel. Creating an extended enterprise requires investments in
and commitment to three key factors: connectivity, community, and collaboration.
E. The goal of channel integration is to create a seamless network of collaborating
suppliers, vendors, buyers, and customers. [Exhibit 6.6]
F. Strategic Supply Chain Issues
1. The importance of the supply chain ultimately comes down to providing
time, place, and possession utility for consumer and business buyers.
Chapter 6 Lecture Notes
The Marketing Program
However, the expense of distribution requires that firms balance
customers’ needs with their own need to minimize costs. [Exhibit 6.7]
2. Marketing Channel Functions
a) Sorting—Manufacturers make one or a few products while
customers need a wide variety and deep assortment of different
products. Intermediaries overcome this discrepancy of assortment.
b) Breaking Bulk—Manufacturers produce large quantities of a
product; however, customers typically want only one of a
particular item. Intermediaries—particularly retailers—overcome
this discrepancy of quantity.
c) Maintaining Inventories—Manufacturers cannot make products on
demand, so the channel must store products for future purchase
and use. Intermediaries overcome this temporal (time) discrepancy.
This issue does not apply to services.
d) Maintaining Convenient Locations—Since manufacturers and
customers have a geographic separation, the channel must
overcome this spatial discrepancy.
e) Provide Services—Channels add value to products by offering
facilitating services and standardizing the exchange process.
3. Marketing Channel Structure
a) Exclusive distribution, the most restrictive type of market
coverage, occurs when a firm gives one merchant or outlet the sole
right to sell a product within a defined geographic region.
b) Selective distribution, a somewhat restrictive type of market
coverage, occurs when a firm gives several merchants or outlets
the right to sell a product in a defined geographic region.
c) Intensive distribution, the least restrictive type of market coverage,
occurs when a firm makes a product available in the maximum
number of merchants or outlets in each area to gain as much
exposure and as many sales opportunities as possible.
4. Power in the Supply Chain
a) True supply chain integration requires a fundamental change in
how channel members work together, including moving from a
“win-lose” competitive attitude to a “win-win” collaborative
approach.
b) Each firm in a supply chain has its own mission, goals, objectives,
and strategies. It is not surprising that firms often assess their own
interests before considering others in the supply chain.
c) Power can be defined as the influence one channel member has
over others in the supply chain.
1) Legitimate power deals with the firm’s position in the
2) Reward power involves the ability to help other parties
reach their goals and objectives.
Chapter 6 Lecture Notes
The Marketing Program
3) Coercive power stems from the ability to take positive
outcomes away from other channel members, or the ability
to inflict punishment on other channel members.
5) Referent power is based in personal relationships and the
fact that one party likes another party.
G. Trends in Supply Chain Strategy
1. Technological Improvements
a) Significant advancements in information processing and digital
communication have created new methods for placing and filling
orders for both business buyers and consumers.
b) E-commerce now accounts for 46 percent of transactions in
manufacturing, 25 percent of transactions in wholesaling, and 4.4
percent of retail transactions.
c) Radio frequency identification (RFID) involves the use of tiny
computer chips with radio transmitters that can be attached to a
product or its packaging.
d) Beyond the Pages 6.3 discusses Walmart’s use of distribution
technology to create supply chain advantages.
2. Outsourcing Channel Functions [Exhibit 6.8]
a) Outsourcing has traditionally been used as a way of cutting
expenses associated with labor, transportation, or other overhead
costs.
b) Today, the desire of many firms to focus on core competencies
drives outsourcing decisions.
c) Many firms have shifted to offshoring their own activities (rather
than outsourcing) to maintain some control over operations.
3. The Growth of Nontraditional Channels
a) Customers’ demands for lower prices and greater convenience have
put pressure on all channel intermediaries to justify their existence.
b) When margins get squeezed, the channel typically evolves into a
more direct form. The most obvious example of this evolution is
the growth of e-commerce.
c) Other forms of nontraditional channels:
1) Catalog and direct marketing
3) Home shopping networks
5) Direct response advertising
d) Dual distribution (the use of multiple channels to offer two or more
lines of the same merchandise) is a direct outgrowth of the
increased use of nontraditional channels. However, it often creates
Chapter 6 Lecture Notes
The Marketing Program
V. Integrated Marketing Communications
A. Integrated marketing communications (IMC) refers to the strategic, coordinated
use of promotion to create one consistent message across multiple channels to
ensure maximum persuasive impact on the firm’s current and potential customers.
B. IMC takes a 360-degree view of the customer that considers each and every
contact that a customer or potential customer may have in their relationship with
the firm. [Exhibit 6.9]
C. Beyond the Pages 6.4 describes how marketers are being forced to adopt new
marketing strategies as advancing technology and customer preferences are
threatening to make traditional forms of promotion obsolete.
D. Strategic Issues in Integrated Marketing Communications
1. The classic model for outlining promotional goals is the AIDA model:
a) Attention—the first major goal of any promotional campaign is to
attract the attention of potential customers.
b) Interest—the firm must spark interest in the product by
demonstrating its features, uses, and benefits.
c) Desire—good promotion will stimulate desire by convincing
potential customers of the product’s superiority and its ability to
satisfy needs.
d) Action—promotion must push customers toward the actual
purchase.
2. The firm must also consider its promotional goals with respect to the
supply chain.
a) Firms use a pull strategy when they focus their promotional efforts
toward stimulating demand among final customers, who then exert
pressure on the supply chain to carry the product.
b) Firms use a push strategy when they focus their promotional
efforts on members of the supply chain to motivate them to spend
extra time and effort on selling the product.
E. Advertising
1. Advertising is paid, nonpersonal communication transmitted through mass
media such as television, radio, magazines, newspapers, direct mail,
outdoor displays, the Internet, and mobile devices. [Exhibit 6.10]
2. Online advertising is growing rapidly due to its ability to reach highly
specialized markets at a relatively low cost. [Exhibit 6.11]
3. Though the initial expense for advertising can be quite high, it can be a
cost efficient means of reaching a large number of people.
4. Setting the advertising budget too high will obviously result in
overspending, waste, and lower profits. However, setting the budget too
low may be even worse. Firms that do not spend enough on advertising
find it very difficult to stand out in an extremely crowded market for
customer attention.
5. Evaluating the effectiveness of advertising is one of the most challenging
tasks facing marketers.
Chapter 6 Lecture Notes
The Marketing Program
b) The effect of advertising on sales is lagged in some cases, with the
effect occurring long after the campaign has ended.
6. Most marketers struggle with the fine line between what is permissible
and not permissible in advertising.
F. Public Relations
1. Public relations, an element of a firm’s corporate affairs activities, tracks
public attitudes, identifies issues that may elicit public concern, and
develops programs to create and maintain positive relationships between a
firm and its stakeholders.
2. Public relations can be used to promote the firm, its people, its ideas, and
3. Public Relations Methods
a) Firms use a number of public relations methods to convey
messages and to create the right attitudes, images, and opinions:
news (or press) releases, feature articles, white papers, press
conferences, event sponsorship, and employee relations.
b) Public relations often becomes confused with publicity. Publicity
is more narrowly defined to include the firm’s activities designed
to gain media attention through articles, editorials, or news stories.
4. Although public relations activities are often seen as being more credible,
they are often difficult for the firm to control.
G. Personal Selling and Sales Management
1. Personal selling is paid personal communication that attempts to inform
customers about products and persuade them to purchase those products.
2. Compared to other types of promotion, personal selling is the most precise
form of communication because it assures companies that they are in
direct contact with an excellent prospect.
4. Because firms depend on repeat sales and ongoing customer relationships,
personal selling activities must include elements of customer service and
marketing research.
5. The Sales Management Process
a) Developing Sales Force Objectives—objectives must be fully
integrated with the objectives and activities of other promotional
elements.
b) Determining Sales Force Size—size is a function of many
variables, including the type of salespeople used, specific sales
objectives, and the importance of personal selling within the IMC
program.
c) Recruiting and Training Salespeople—should be a continuous
activity as firms must ensure that new salespeople are consistently
available to sustain the sales program.
d) Controlling and Evaluating the Sales Force—requires a
comparison of sales objectives with actual sales performance.
[Exhibit 6.12]
Chapter 6 Lecture Notes
The Marketing Program
6. Many sales activities are now done through sales automation systems and
CRM systems to push integrated customer, competitive, and product
information to the sales force.
H. Sales Promotion
1. Sales promotion involves activities that create buyer incentives to
purchase a product, or that add value for the buyer or the trade.
3. Consumer Sales Promotion
a) Coupons are used to reduce the price of a product and encourage
customers to try new or established brands. [Exhibit 6.13]
b) Rebates are similar to coupons except that they require much more
effort on the consumer’s part to obtain the price reduction. Most
firms prefer rebates to coupons.
c) Samples stimulate trial of a product, increase volume in the early
stages of the product’s life cycle, and encourage consumers to
actively search for a product.
d) Loyalty programs reward loyal customers who engage in repeat
purchases.
e) Point-of-purchase (POP) promotion includes displays, counter
pieces, display racks, or self-service cartons that are designed to
build traffic, advertise a product, or induce impulse purchases.
f) Premiums are items offered free or at a minimum cost as a bonus
for purchasing a product.
g) Contests and sweepstakes encourage potential consumers to
compete for prizes or try their luck by submitting their names in a
drawing for prizes.
h) Direct mail, which includes catalog marketing and other printed
material mailed to individual consumers, is a unique category
because it incorporates elements of advertising, sales promotion,
and distribution into a coordinated effort to induce customers to
buy.
4. Business (Trade) Sales Promotion
a) Trade allowances include both merchandise and price allowances
for bulk buying or for special promotional considerations.
b) Free merchandise is sometimes offered to intermediaries instead of
quantity discounts.
c) Cooperative advertising is an arrangement where a manufacturer
agrees to pay a certain amount of an intermediary’s media cost for
advertising the manufacturer’s products.
d) Training assistance and sales incentives are sometimes offered to
intermediaries. Sales incentives come in two general forms: push
money and sales contests.
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1. Consider the number of product choices available in the U.S. consumer market. In
virtually every product category, consumers have many options to fulfill their needs. Are
all of these options really necessary? Is having this many choices a good thing for
consumers? Why or why not? Is it a good thing for marketers and retailers that have to
support and carry all of these product choices? Why or why not?
Students should immediately see that this situation is not necessarily a good thing for
2. Pricing strategy associated with services is typically more complex than the pricing of
tangible goods. As a consumer, what pricing issues do you consider when purchasing
services? How difficult is it to compare prices among competing services, or to determine
the complete price of the service before purchase? What could service providers do to
solve these issues?
Most customers have few, if any, reference prices for what services should cost. As a
3. Some manufacturers and retailers advertise that customers should buy from them because
they “eliminate the middleman.” Evaluate this comment in light of the functions that
must be performed in a marketing channel. Does a channel with fewer members always
deliver products to customers at lower prices? Defend your position.
4. Review the steps in the AIDA model. In what ways has promotion affected you in
various stages of this model? Does promotion affect you differently based on the type of
Chapter 6 Lecture Notes
The Marketing Program
product in question? Does the price of the product (low versus high) make a difference in
how promotion can affect your choices? Explain.
Exercises
1. You are in the process of planning a hypothetical airline flight from New York to St.
Louis. Visit the websites of three different airlines and compare prices for this trip. Try
travel dates that include a Saturday night layover and those that do not. Try dates less
than seven days away, and compare those prices with flights that are more than twenty-
one days out. How do you explain the similarities and differences you see in these prices?
2. Locate a product offered by a manufacturer using a dual distribution approach. Are there
differences between the customers targeted by each channel? How do the purchase
experiences differ? In the end, why would a customer buy directly from a manufacturer if
the prices are higher?
3. Shadow a salesperson for a day and talk about how his or her activities integrate with
other promotional elements used by their firm. How does the salesperson set objectives?
How is he or she made aware of the firm’s overall IMC strategy? Does the sales force
participate in planning marketing or promotional activities?
This is a great exercise for any marketing student. Experiences will vary dramatically.
4. Visit the Cents Off website (www.centsoff.com) and browse the available coupons and
read the FAQs. What are the benefits of the Cents Off service for advertisers and
consumers? If you were a manufacturer that issues coupons, what factors would favor
Chapter 6 Lecture Notes
The Marketing Program
using the Cents Off website for distribution rather than the traditional Sunday newspaper
insert?