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Marketing and Distribution

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  1. Marketing and Distribution

  2. Marketing • Once, as a business, you have a good or service, what must you do? • Marketing: all activities involved in moving goods and services from the producer to the consumer • Some economists estimate that close to 50% of the price people pay is for the cost of marketing the product

  3. Marketing • Thesole purpose of marketingis to convince consumers that a certain product will add to their utility • Utility: the amount of satisfaction you receive from a good or service

  4. Marketing • Four types of utility: • Form utility: converting raw materials into products (refining crude oil into gasoline; cotton into shirts) • Place utility: having a good or service where people want to buy it; being in the right place (gas stations at a busy corner) • Time utility: having a good or service at the right time (taco bell being open late; Wal-Mart being open 24/7) • Ownership utility: satisfaction by simply owning a product (MTV cribs with celebrity houses and cars; diamond engagement rings)

  5. Market Research • Market research: finding out what consumers want, by gathering, recording, and analyzing data on consumer preferences. • Usually done before product is offered/released (helps determine production of the product—features, quality) • To get initial consumer response, research is done immediately after product release (Xbox 360)

  6. Market Research • Market survey: information on who maybe possible product users, based on characteristics such as age, gender, income, education, location (Best Buy survey, warranty cards, focus groups, individual interviews) • Before national or large distribution, most companies use test-marketing: offering a product for sale in a small area for a limited amount of time to see how successful it will be

  7. Marketing Mix • Product: • What should be produced? • What services should be offered with product? (warranties, rebates) • How should the product be packaged? (“new & improved”; size, color, design, catch phrase, coupons) • Product Identification: How should product be identified? (logos, endorsements, songs)

  8. Price: • Determined by supply and demand (companies must consider costs of production, advertising, selling & distribution, as well as profits) • Price leadership: selling products at a price of similar established products • Penetration pricing: setting price lower on a new product to attract consumers away from already established products

  9. Place: • Where the product should be sold? • Based on past experiences of similar products • Promotion: advertising to convince a consumer that a new & improved product is available and they should purchase it • Depends on 3 factors: product, target consumers, and money (budget) • Direct-mail advertising: mail informing about products and order forms (“junk mail” to most)

  10. Product Life Cycle • Product life cycle:the stages a product travels through, from introduction to withdrawal from the market • Typical life cycle: Introduction, growth, maturity, decline • Marketing and price are different in each stage of the product life cycle • Many producers try to extend the product’s life cycle by redesigning the product (looks, uses, advertising)

  11. Distribution Channels • Channels of distribution: routes which goods are moved from producers to consumers • Consumer Goods: • Manufacturer → Consumer • Manufacturer → Retailer → Consumer • Manufacturer → Wholesaler → Retailer → Consumer (most common) • Raw materials and Producer goods: • Producers → Business • Producers → Wholesaler → Business • Wholesaler: businesses that purchased large quantities of goods from producers for resale to other businesses (Sam’s club)

  12. Retailers: businesses that sell consumer goods directly to the public • Growing more and more is e-commerce: business conducted over the internet (“virtual companies”) • Storage and Transportation: producers, wholesalers, or retailers may store products • Most retailers keep some inventory: lengthy supply of products for future sales • Transportation of products depends on type of good (speed, weight, shipping costs)

  13. Distribution channels have grown in the past years: • Club warehouse stores: require membership, usually groups oriented (Sam’s club) • Direct marketing: done mainly through catalogs and the internet (avoid most state sales taxes); increases sales because of ease and convenience of ordering products on consumers own timeline; order almost anything with valid credit card

  14. Figure 11.7 Channels of Distribution