MK 323 Final Study Guide

CHAPTER 18 - INTEGRATED MARKETING COMMUNICATIONS

Integrated marketing communications (IMC) – represents the promotion aspect of the 4 P’s , encompasses
various communication forms; advertising, personal selling, PR ++
- these are not separate, seen as parts of a whole unified message
- enhance value by being clear and consistent

Communications process
3 elements: consumer, communications channel, evaluation of results
sender (firm)  transmitter encodes message  communications channel (media)  receiver (consumer) decodes message
- noise from the environment affects each stage of the process.
- Receive feedback from the consumer as to how clear the message was
Sender: must be clearly identified to the audience, this is where the message originates
Transmitter: marketing department or external agency receives information from sender and transforms it for use; flyer,
displays, banners etc.
- encoding: converting the sender’s idea into a message, either verbal, visual or both
Communication channel: the medium that carries the message. E.g. print, broadcast, internet ++
Receiver: person who reads, hears, sees and processes the information contained in the message
- decoding: process by which the receiver interprets the sender’s message
Noise- any interference stemming from lack of clarity in the message, competing messages, flaw in the medium (i.e. the target
audience doesn’t watch the selected channels/shows someone advertises on)
Feedback loop – receiver communicates with sender, informing them if the message was received correctly or not.
E.g. the purchase of the product, complaint/compliment, redemption of a coupon etc.
- receivers decode messages differently, actual process is far more complex than what’s indicated above
- message will be adjusted according to the medium used to convey as well as the intended receiver’s traits
o i.e. high tech product being sold to non-specialists, message will focus on technology part
AIDA model
Awareness  interest  desire  action
Awareness (think), Interest + Desire (feel), action (do)
- at each stage consumer evaluates whether or not to proceed to the next stage
o may not follow all the steps in the AIDA model
 ex. impulse buy: feel before think
awareness:
brand – a potential customer’s ability to recognize/recall that the brand name is a particular type of retailer or product/service
aided recall – consumer’s indicate they know the brand when the name is presented to them
top-of-mind awareness – highest level of awareness, consumer mentions a specific brand first when they are asked about a
product or service
- brand has probably entered the evoked set
- build this type of awareness by:
o having memorable names
o repeatedly exposing customers to the name through ads, locations, memorable symbols
interest: once a consumer is aware, the company has to work to increase interest level, persuade customers that it is worth
investigating
- include attributes in ad message that are interesting to the target audience
desire: once interest is there, want to move consumers from “I like it” to “I want it”
action: ultimate goal is to drive the consumer to action
lagged effect – delayed response to a marketing communications campaign
- consumers sometimes don’t act immediately due to this

Elements of IMC
Advertising – the placement of announcements and persuasive messages in time or space purchased in any of the mass media
by businesses, non-profits, government agencies etc.
- try to persuade the audience of the merits of their products/message/idea
Public relations (PR) – organizational function that manages a firm’s communications to achieve a variety of objectives including
maintaining a positive image, maintaining relationship with the media ++
Sales promotions – special incentives or excitement-building programs that encourage the purchase of a product or service
- ex. coupons, samples, contests ++
personal selling – two-way flow of communication between a buyer and a seller with the objective of persuading the consumer
to purchase. Can take place in various settings, cost is often high but integral part of B2B communications
direct marketing- marketing that communicates directly with the target customer to generate response or transaction
- aided greatly by the internet
- ex. mail and catalogs, both online and traditional ++
online marketing:
- websites: used to build brand image and educate customers about their products/services
- blogs: can communicate trends, announce special events, connect customers ++
- social media: media content distributed through social interactions

IMC success:
1) Goals: need to understand the outcome they hope to achieve
a. Should be explicitly defined and measured
2) Setting and allocating the IMC budget:
a. Objective-and-task method: budget required to undertake specific tasks to accomplish communication
objectives
i. Establish objectives  determine best media  determine costs
b. Rule-of-thumb methods: use prior sales and communications activities to determine budget
3) Measuring success using metrics:
a. Each step in the IMC can be measured to determine effectiveness
b. May take time due to lagged effect, cant expect too much too soon
c. For traditional media:
i. Frequency of exposure - how often the audience is exposed to a communication within a time period
ii. Reach - % of target population exposed to a specific marketing communication within a time period
iii. Gross Rating Points (GRP) = reach x frequency
d. For web-based media:
i. Requires web tracking software to measure clicks, amount of time spent on site ++

CHAPTER 19 - ADVERTISING
Advertising – paid form of communication, delivered through media about an organization, a product, idea etc.
- designed to persuade the reader/recipient to take some action
- source must be identifiable
- it is the most visible form of marketing communications
o huge industry, $500 billion per year
o hard to create a successful ad, people have very selective perception; they are exposed to 100s, will only
remember 3-4

Sometimes people call things that are not advertising, advertising

- political advertising is not technically advertising because its not for a commercial purpose

Planning and executing an ad campaign:

1) Identify target audience
a. Success depends on how well you do this
b. Can be done using research, will then be used to set the tone for the ad as well as select media type to use for
the campaign
c. Different segments require different ads
2) Set advertising objectives
a. Derived from overall marketing objectives, clarify specific goals meant to be accomplished by the ad
b. Objectives will appear in the advertising plan (subsection of marketing plan)
c. Pull strategy – goal is to get consumers to pull the product into the marketing channel by demanding it
d. Push strategy – designed to increase demand by focusing on wholesalers, retailers or salespeople
e. Objectives can be:
i. Informative – communication used to create and build brand awareness
1. Ultimate goal is to get consumer through buying cycle to a purchase
2. Ex. early in the product life cycle (PLC) when consumer’s know little about the product
a. Inform customers of upcoming sales or new merchandise arrival
ii. Persuasive – used to motivate consumers to take action after brand awareness has been created
1. Typically used in growth and early maturity stage of PLC due to intense competition
2. Used to reposition in later stages
iii. Reminder – communication used to remind or prompt repurchases
 1. Typically used in maturity stage of life cycle, once product has market acceptance
a. Ex. end of aisle displays
f. Focus of ads: determined by objectives
i. Product focused – inform, persuade, remind about a specific product or service.
1. Ex. a diet Coke ad
ii. Institutional – inform, persuade, remind about issues related to places, politics or an industry
1. Ex. “Got Milk” campaign, objective was to encourage consumption of milk
2. Public Service Announcements (PSAs) – focus on public welfare
a. Application of marketing principles to a social issue to bring about attitude or
behavioral change
b. Can be used to either discourage or encourage a specific behavior
c. Broadcaster’s must (by law) dedicate a certain amount of airtime to PSAs

g. Campaign objectives must be specific and measurable

3) Set the advertising budget
a. Advertising expenditure varies in the product life cycle
b. Nature and size of market matters
c. Nature of product influences budget
d. Nature of market – less spent on B2B than B2C
4) convey the message
a. decide what to convey about the product
i. key message
ii. most effective appeal
iii. the two above must be set simultaneously
b. the message: logical starting point is key benefits of the products
i. message provides audience with reasons to respond
ii. must be conveyed clearly and compellingly
iii. Unique Selling Proposition (USP) – aka value proposition, theme or slogan of the campaign
1. Communicates the unique attributes of the product – snapshot of campaign
2. Ex. Red Bull –“ …. Gives you wings”
c. The appeal
i. Informational – offers factual information encouraging consumers to evaluate the product based on its
key benefits
ii. Emotional – aims to satisfy emotional desires rather than utilitarian needs. Create an emotional bond
between consumer and brand
5) evaluate and select media
 Medium Advantages Disadvantages
Television Wide reach High cost
Incorporates sound and vide A lot of channel and program options
May increase awareness of competitors
products
Radio Relatively inexpensive No video, limits presentation
Can be selectively targeted Consumers give less focused attention
Wide reach than TV
Exposure periods are short
Magazines Very targeted Relatively inflexible
Subscribers pass along to others Takes some time for magazine to
become available
Newspapers Flexible, timely, able to localize Can be expensive in some markets
Ads may have short life span

Internet Can be linked to detailed Becoming cluttered

content The ad may be blocked by software on
Highly flexible and interactive the computer
Allows for specific targeting
Outdoors Relatively inexpensive Is not easily targeted
Offers opportunities for repeat Has placement problems
exposure Exposure time is very short
Direct Marketing Is highly targeted Costs can vary depending on type used
Allows for personalization Traditional media will be more
expensive than newer media

a. content is tied closely to the media used to convey the message

b. media planning – process of evaluating and selecting media mix (combo of media used and frequency in each
medium)
c. media buy – actual purchase of airtime or print pages
i. generally the largest expense in the advertising budget
d. Types of media:
i. Mass – national newspapers, magazines, radio and television
1. Ideal for reaching large numbers of anonymous audience members
ii. Niche – more focused, reaches narrower segments, includes: specialty TV channel (Food Network ++),
specialty magazines (Home and Garden ++)
iii. Internet provides opportunities for both
e. the right medium depends on the product, objective etc.
i. ex. radio is good for grocery products because people listen to the radio in their cars on the way to
grocery stores, reaches them at crucial point in their decision process

ii. Exhibit 19.3 p. 187

f.effectiveness – determined using for example GRP of ad schedule (reach x frequency)
i. see how effective media mix has been in reaching their target audience
g. Advertising schedule – specifies the timing and duration of advertising
i. 3 types:
1. Continuous – runs steadily throughout the year
a. suited for products where demand doesn’t fluctuate much from month to month
2. Flighting – schedule implemented in spurts, periods of heavy advertising followed by periods
with no advertising
a. Used for products where demand fluctuates
b. Ex. suntan lotion, advertise heavily during and in the months leading up to summer
3. Pulsing – combination of flighting and continuous, has basic level of advertising throughout
the year but will increase during certain periods
a. Ex. airlines, hotels ++
6) Create ads
a. The message is translated into words, pictures, music ++
b. When using multiple media to promote the message need to make sure the different ads are consistent
c. Headline – large type in ad used to draw attention
d. Subhead – provides more info
 e. Body copy – used to build interest generated from headline and subhead, arouses desire for product
f. Brand elements – identify the owner/sponsor of the ad
i. Ex. logo, unique selling proposition
7) Assess Impact
a. Effectiveness is assessed before, after and during the execution of an ad campaign
b. Pretesting – assessments performed before campaign is implemented, used to ensure message is conveyed
properly
c. Tracking – monitoring key indicators, daily/weekly sales volume during ad campaign
i. Used to shed light on any problems with message/medium
d. Posttesting – evaluation of impact after campaign has ended
i. Assess the impact on sales
ii. Can be challenging because there are many factors influencing sales

Puffery - legal exaggeration of praise, stopping just short of becoming deception

- acceptable as long as the consumer knows the firm is stretching the truth

Public Relations (PR)

- managing communications and relationships to achieve various objectives
o maintain positive image
o handle unfavorable stories or events
o maintain positive relationship with media
- generates “free” media and goodwill
- PR has become increasingly more powerful as consumers become more skeptical of marketing claims from other media
o Is viewed as more credible

Cause-related marketing – commercial activity in which businesses and charities form a partnership to market an image,
product or service for mutual benefit
Event sponsorship – corporations support various activities, financially or otherwise

Sales promotion
- special incentives or excitement building programs that encourage purchase of a particular product
- can be used on any channel member
o push – targeting channel members
o pull – targeting consumers
- types:
o coupons – offer discount on price of product
 used to have fairly low redemption rate, has increased due to firms like Groupon
o deals – generally a short term price reduction, whether for bulk purchase, “featured price”
 can alter perception of value, not always good
o premium – offers an item for free or at low price as reward for purchase, testing etc.
 ex. toy in a cereal box, free perfume offer with purchase from Victoria’s Secret etc.
o contests – brand-sponsored competition requiring effort or skill
 leads to consumer involvement, creates buzz/excitement about product
o sweepstakes – offers prizes based on chance of drawing entrants name, does not involve any more effort than
entering your name, buying a ticket, giving email address etc.
 some states stipulate that no purchase can be required to enter a sweepstake
o samples – offers potential customers the opportunity to try the product before making a buying decision
 very costly but also very effective
o loyalty programs – designed to retain customers by offering premiums or other incentives to consumers who
make multiple purchases over time
o point-of-purchase (POP) displays – merchandise displays located at point-of-purchase, i.e. at checkout counter
o rebates – type of price reduction in which a portion of purchase price is returned to the buyer in cash form
o product placement – marketers pay to have product featured in nontraditional situations as movie/tv scenes
- sales promotions may conflict with advertising
o goal of sales promo often short term, whereas ads may be long term
o can also work well together

CHAPTER 3 – SOCIAL AND MOBILE MARKETING

Social media – content distributed through online and mobile technology to facilitate interpersonal interactions
 - change in technology has forced firms to change how they communicate with customers
o cant just rely on old marketing methods anymore, without social media presence many firms fail

4E Framework
Excite, Educate, Experience  Engage
Excite:
- social media related offers, mobile applications and games to excite people about an idea, product, brand, company
- use facebook, Twitter ++, to communicate deals
- offer must be relevant to the target customer
o through personal offers (purchase history, research ++)
Educate:
- educate customers about the value proposition and expand understanding of benefits
- all about reminding people of what they already know
o a way to develop sustainable competitive advantage
o ex. of tools: blogs, Youtube ++
Experience:
- often offer trial software period  try for 1 month for free
- listen to a few seconds of a song on iTunes
- Youtube can be used to show how products work
- Not previously available unless consumer bought and tried the product

Engage:
- customers can engage with the firms through social media sites; blogs, review sites etc.
- can be both negative and positive
o one use can have a large impact on a company

Categories of Social Media

- Social network sites
o Good for creating excitement
o People interact with friends and business acquaintances
o Widely used (1-4 hrs per day depending on user type)
o Type of users:
 Creator – cutting edge, contributors, posts their own creativity
 Bonders – use it to enhance social lives, expand relationships
 professional – want to appear efficient, put together, use social media to demonstrate how smart they
are
 sharers – want to help others, stay well informed so they can share tips
 these users use various forms of social networks
- media sharing sites
o users share content they have generated
o can be used to highlight how consumers experience their products as well as allowing them to engage with the
firm
 ex. Youtube, Flickr, Instagram ++
- though-sharing sites
o different types of blogs
o effective at educating and engaging customers
o level of control varies from blog type
 corporate – a blog created by the firm, they control content although they cant always control the
comments section
 professional – written by people who review and give recommendations of products, marketers have
less control over these than corporate blogs but the tend to send the blow owners free products to try
 more trusted by consumers than corporate blogs
 personal – written by people who do not receive any type of compensation
 least amount of control over these
o microblog – differs from regular blog in size, ex . Twitter

gamification – making patronage a game through online apps

- lets users share their location, what they are doing etc.
 o ex. FourSquare, complete for “Mayor” by checking in at the most locations
- stimulates the excitement component of the 4E framework

How firms engage customers:

3 steps
1) Listen – look at what people post about, what they like, what they search for online
a. Can evaluate the content using sentiment analysis
b. Sentiment analysis – assesses the favorableness or unfavorableness of the sentiments expressed
2) Analyze – analyze what is heard. Many firms providing social media listening also provide analytical tools to interpret it
a. Page views – number of times page gets viewed by any visitor
b. Hits – total requests for a page
c. These two help determine amount of traffic
d. Then you want to figure out who the people engaging with them are
e. Bounce rate - % of times a visitor leaves the site almost immediately
f. Click paths – show how users proceed through the information
i. Can be used to provide easier site navigation for customers
g. Conversion rates – what % of visitors or potential customers act as the marketer wants; i.e. either buying,
clicking or donating
h. Then, see how people reached your site, i.e. through a google search, Amazon etc.
i. Keyword analysis – determine what keyword people use to search for their products/services
i. Can be used to improve site
1. Calculate ROI of investment in site improvement by seeing incremental profit due to site
improvement divided by the investment
a. Can be challenging
b. Many use consultants, but Google Analytics is a popular free tool

3) Do – apply what they have learned

Developing a campaign – follows the same steps as for traditional campaign

1) identify strategy and goals
2) identify target audience
3) develop the campaign (experiment and engage)
4) develop the budget
5) monitor and change

social reach – how many people a person influences

influence – the extent to which a person influences others
extended network – influence of the person’s extended network
e.g. 100 friends, each with a 100 friends  extended network is 10,000
- many option exist to calculate social influence

IMC TUTORIAL
Diversification is key
Awareness (%) = (# of impressions within target market/4)/Size of target segment
Pull Marketing
Traditional IMC vehicles: magazines, newspapers, television, radio + any vehicle that has published circulation rates
Magazines and other traditional vehicles:
- use circulation rate not readership
- adjust for % of circulation in target market, i.e. if you estimate target market circulation to be 75% of total circulation
you multiply total circulation by 75%
- if % in target market < 50%, likely not cost effective for any magazine or other media
- adjust for impact of ad; full page color ad will receive greater attention than ½ page black and white
o full page color ad and 60 second commercial are full impact
o adjust impressions by taking price of actual ad/price of full impact
o multiply this % by targeted circulation
o total impressions is the above number x number of ads
o awareness is impressions/4/target market size
CPM – cost per thousand
- used to compare traditional media vehicles effectiveness
- CPM = total cost of an ad/targeted circulation x 4
 - Acceptable CPM range: $15-$150
- Above $150, evaluate media more carefully for cost effectiveness
- Must purchase at least 4 ads
Internet and online:
- should be 25% of total pull spending
- includes cost of labor to develop the SEO, banner ads, using Twitter, Instagram, Facebook etc. to promote the company
Nontraditional IMC vehicles: outdoor advertising, PR, event marketing, point of purchase (POP), word of mouth, product
placement
Point of Purchase (POP):
- comes as something you would put on a counter of full-size stand alone
- for Core products, should expect only small retailers to accept POP, larger retailers will give it to more powerful
manufacturers
- spend $10,000 per target market on POP, generates 1% of awareness per target market
Word of Mouth (WOM):
- impressions are based on previous year’s sales
- percent of people talking about product depends on nature of product  very public to very private
- public product: 75% of user sales, 4 people per user aware, ex. hair accessory
- semi public product: 50% of user sales generate buzz, 3 people per user aware, ex. credit card holder
- Semi private product: 25% of user sales, 2 people per user aware, ex. serving bowl
- Private product: 10% of user sales, 1 person per user aware
- Calculation: sold 50,000, public product, 50,000 x 0.75 x 4 = 150,000 aware potential customers. Divide this number by
target market to get 1% awareness
Event marketing/ Out of box ideas: festivals, expos, product demonstrations
- must attend at least 4 events across the country to effectively use this tool, at least 3 people working per event
- target market size < 10 mill, awareness = 0.08% per thousand dollars
- target market 11-20 mill, awareness = 0.06% per thousand dollars
- target market 21-30 mill, awareness = 0.04% per $1000
- target market > 30 mill, awareness = 0.02% per $1000
Outdoor/transit: subway, bus, bus stops, billboards, street stencils
- must target at least 6 cities and 4 locations within each city
- target market < 10 mill, awareness = 0.04% per $1000
- target market 11-20 mill, awareness = 0.03% per $1000
- target market 21-30 mill, awareness = 0.02% per $1000
- target market > 30 mill, awareness = 0.01% per $1000
PR:
- count on getting mentions in blogs or magazines, or write-up in either one of these, send press releases/ press kits to
those who might mention them
- spending is $5000 per target market, generating 1% awareness per target market
Product Placement: getting shows or movies to feature the product or use it in a scene
- can also be placed in video games or books
- unlikely for such a small company, but can try and send out press kits
Product sampling/giveaways:
- assume that each person given a product to sample in the target market will be made aware of the product
Push Marketing
Tactics used to help your retailers gain awareness and interest in your product as well as tactics that provide support in helping
retailers sell product to end consumers.
- spend 10-15% of marketing budget on push to begin with, expect this percentage to drop over the years
Trade Shows: attended by members of the industry + retailers
- costs include space at show, trade booth and items for it, travel and lodging
- should plan to attend at least 2-3 per year
Trade Magazines/Websites: typically read by retail buyers in most industries.
- Ads are sold in similar manner to magazine advertising and online banner ads

CHAPTER 16 – SUPPLY CHAIN AND CHANNEL MANAGEMENT

Wholesalers – firms that buy products from manufacturers and resell them to retailers
Retailers – firms selling directly to consumers

Can be really tough to get wholesalers and retailers to stock your product
- at large retailers like Walmart you have to adhere to strict guidelines, often go through a test period with no guarantee
that they will actually stock it.
Some retail chains can be both wholesale and retail; i.e. Home Depot, Costco

Each participant in the channel adds value

- even though it may seem like it makes more sense (easier/cheaper) to from manufacturer to consumer
- each step means product becomes more costly, but it also adds value for the consumer; can be convenience, knowledge,
security etc.

distribution center – facility for receipt, storage, and redistribution of goods to company stores/customers
- can be operated by different channel members

direct marketing channel – no intermediaries between a buyer and seller

- ex. carpenter sells bookshelves through his own store/online, person sells homemade jewelry on Etsy
indirect marketing channel – one or more intermediaries, may or may not include a wholesaler
- common when company does not buy large enough quantities to make it cost-effective for manufacturers to deal
directly with them
- also used in less-developed economies where there are few large retailers
facilitator of exchange; often a transportation company

- each marketing channel member has a specialized role, if performing badly can be replaced
o cooperation is key

vertical channel conflict – disagreement between manufacturer and retailer, or any other party that sells to each other
horizontal channel conflict – disagreement between member at the same level of the marketing channel, i.e. two competing
retailers on manufacturers

 need common, mutually beneficial goals

less conflict in more aligned marketing channels, more if the member are independent entities

independent/conventional marketing channel – several independent members; wholesaler, retailer and manufacturer, each
trying to meet its own objectives and maximize profit
- can be at expense of other members

vertical marketing system – marketing channel where members act as a unified system
3 types:
1) administered: no common ownership/contractual relationship, dominant member controls/holds balance of power
a. power – exists when one firm has the ability to dictate the actions of another member
b. reward power – offering rewards; monetary incentives so other channel members will do what they want
c. coercive power – threats to punish or punishes other channel members for undertaking certain tasks
d. referent power – dominant has power if the other channel member really wants to be associated with them
e. expertise power – relies on its expertise in a field
f. information power – can provide or withhold important market information
g. legitimate power –getting a channel member to behave in a particular way due to contractual agreement
2) contractual: formalized agreement, independent firms at different levels of the marketing channel join to create
economies of scale and reduce conflict
a. franchising – most common type, agreement allowing franchisee to operate retail outlet using the name and
concept developed by the franchisor
i. franchisee pays lumps sum + royalties
ii. leads to moved costs and benefits
3) corporate: parent company has complete control, can dictate what happens at several levels of the marketing channel
a. ex. American Apparel, manufacturers clothing and sells through its own stores

strategic/partnering relationship – channel members are committed to maintaining the relationship over a long period of time,
mutually beneficial
- requires mutual trust, open communication, interdependence

Information flow
FIND INFORMATION FLOW DIAGRAM IN CHAPTER 16
Advance shipping notice (ASN) – electronic doc sent by supplier to retailer before shipment is sent, telling them when to expect
the shipment
Electronic Data Interchange (EDI) – computer-to-computer interchange of business documents from a retailer to a vendor and
back
- ex. sales data, purchase orders, returned merchandise data, info about inventory and sales promotions
3 main benefits:
1) reduction of cycle time – time between the decision to place and order and the receipt of merchandise
2) improvement of quality of communications
a. more accuracy, better recordkeeping and fewer errors
3) easily analyzed – computer-readable format

vendor managed inventory (VMI) – manufacturer is responsible for maintaining the retailer’s inventory in each of its stores
- approach to improve marketing channel efficiency

through EDI, manufacturer receives info when inventory levels become low and will automatically send merchandise to restock
- leads to better match between supply and demand
- can also lead to reduction in cost for both retailer and vendor

consignment – manufacturer owns the merchandise until its sold by the retailer, at which point the retailer pays for the
merchandise
- needs some human interaction as well

push marketing strategy – merchandise is allocated to stores based on previous sales forecast (collaborative effort between
manufacturer, retailer and wholesaler)
- forecast  quantities of merchandise shipped (pushed) at predetermined intervals
- manufacturer gives incentives such as slotting allowances, promotional support ++
- goal is to increase demand by focusing on wholesalers, retailers and sales personel
- good for products with steady demand
pull marketing strategy – amount of merchandise sent to stores is determined by point-of-sales (POS) data
- customers “pull” the product into marketing channel by demanding it
- marketers create IMC schedules with several types of media to create awareness and ultimately demand for the product
- Advantages:
o More responsive to changes in demand
o Less chance of overstock
o Increases inventory turnover
o If demand is uncertain, more effective than push
- Disadvantages:
o More costly
o Many retailers done have the flexibility

Distribution center vs. direct store delivery

- usually up to the retailer
- consider total cost of each alternative
- Advantages of distribution center:
o More accurate sales forecast by combining sales forecasts from stores being served by the same distribution
center
o Allows retailer to carry less inventory in store
o Easy to avoid running out of stock/having too much as it is ordered when needed from distribution center
o May be more cost-effective due to higher priced retail store space than space at a distribution center
- not useful for retailers with only a few outlets, too expensive
- Direct store delivery
o Used for perishable goods
o High demand products
o Used when manufacturer has vested interest in how product is displayed
Distribution center
Planners – responsible for financial planning and analysis of merchandise + allocation to stores
Dispatcher- person coordinating deliveries to the distribution centers
Receiving – process of recording receipt of merchandise as it arrives at distribution center
Checking – process of checking goods upon arrival for correctness and damage
- technology has made these processes easier, no longer requires a ton of labor
Radio Frequency Identification (RFID) tags – tiny computer chips that automatically transmit to a special scanner all info about
a container’s contents/individual products
Cross-docked – cartons pre-packaged by vendor for specific store
- is not stores at distribution center, immediately moved to other truck for transport to store and used for in-demand and
perishable goods
floor-ready merchandise – merchandise ready to be placed on selling floor
- requires ticketing and marketing, affixing price and ID labels to goods
- more efficient at distribution center than at stores
pick ticket – document indicating to forklift how much of each item to get from each storage area

Just-In-Time inventory system – jnventory management systems that deliver less on a more frequent basis than traditional ones
- aka quick response (QR)
- reduces inventory
- increases # of orders
- ability to satisfy demand may increase
- less likelihood of stockout due to lead times
Costs:
- distribution becomes more complicated higher transportation costs
- more difficult to coordinate

CHAPTER 17 – RETAILING AND MULTICHANNEL MARKETING

Retailing – set of business activities that add value to products and services sold to consumers
Multichannel strategy – selling in more than one type of channel, i.e. store, catalog & internet

Considerations of manufacturer when choosing retail strategy:

- look at channel structure
- where does the target customer expect to find the product
- channel member characteristics, distribution intensity
Channel structure
- level of difficulty in getting a product into stores depends on how vertically integrated the channel is
o ex. a brand that operates its own stores (highly vertically integrated) would not have much of a problem it
would be automatic
o ex. a brand trying to get into CVS would have a bigger problem as they are not vertically integrated with CVS
- different considerations apply depending on structure
Customer expectations
- manufacturers need to know where consumers expect to find their product and adjust their plan accordingly
o ex. you wouldn’t expect to find high-end makeup like Dior at CVS, so the manufacturer should not try to put its
products in CVS
Channel member characteristics
- the larger and more sophisticated, the less likely to use supply chain intermediaries
- larger companies gain more control and may save costs by doing channel functions themselves
o depends on sale, i.e. Walmart would only buy directly from manufacturer, but a small grocery store might buy
from a wholesaler
Distribution intensity – number of channel members used at each level of the marketing channel
- intensive distribution: place products in as many outlets as possible – the more exposure, the more they sell
o ex. Coca Cola or Pepsi
- exclusive distribution: granting exclusive geographic rights to distribute to a few retailers
o used by luxury product companies; i.e. only certain stores are allowed to carry Prada bags
o selling it in more places would weaken image
o can also be done when supply is limited, limiting to a few ensures that inventory levels are kept up
- selective distribution: similar to exclusive, relies on a few selected retailers in each area
o used in particular for “shopping” products
 i.e. goods that consumers are willing to spend time before deciding on
Types of retailers
- food retailers: landscape has changed dramatically, supermarkets no longer carry just food but offer many other
services as well
o supermarket – self-service retail food store offering groceries, meat, produce ++
o stock keeping units (SKUs) – number of individual items carried by store
o limited assortments carry far fewer SKUs than conventional supermarkets (30,000 vs. 2,000)
 o pressure on conventional by low cost, limited assortment stores
o differentiate by offering fresh locally sourced perishables, offering private labels, targeting health conscious ++
o super center – large stores (185,000 sq ft <) combining supermarkets with full-line discount store
 ex. walmart
o warehouse clubs – large retailers (100,000 – 150,000 sq ft)
 limited service, low price and mix of items
 people pay annual membership fee
 ex. Costco
o convenience store – limited variety and assortment of merchandize (3000-5000 sq ft)
 charge higher prices than supermarkets (due to “convenient” location)
- General merchandise retailers
o Deparment stores - retailers carrying a broad assortment, organized into distinct departments
 Ex. Macy’s, Nordstroms etc.
o Full line discount store – broad variety of products, limited service and low prices
 Ex. Walmart, Kmart, Target
o Specialty stores – limited number of merchandise categories targeted to a specific market. Offer expertise and
deep but narrow assortment
 Ex. Sephora, leather goods store, shoe store
o Drug store – speciality store focusing on pharmaceuticals and health
 Ex. CVS, Walgreens
o Category specialists – big box retailers/category killers offer narrow but deep assortment
 Offers complete assortment in their category at lower price than competition  “kill” category of
merchandise for competitors
 Ex. Staples
o Extreme value retailer – small, full line discount store offering limited merchandise at very low prices
 Ex. dollar store
o Off-price retailers – stores selling items marked down from suggested manufacturer’s retail price
 Ex. outlet malls, TJ Maxx, Marshalls
o Service retailers – firms that primarily sell services to consumers
 Considerable growth in this segment

Retail Strategy with the 4 P’s

1) Product
a. Providing the right product mix that satisfies target customer is fundamental
b. Retailers have a storage function as neither the manufacturer nor the consumer wants to store more than what
they need/what is being used
c. Exclusive co-brand – brand developed by national brand vendor and sold exclusively by a retailer
i. Ex. Lagerfeld collection at Macy’s, H&M designer collections
ii. One way to differentiate from other competitors
2) Promotion
a. Can make or break sales for both retailer and manufacturer
b. The way things are promoted has changed, much more focus on mobile commerce due to increasing technology
i. Developing special sites to be viewed on mobile devices
c. Coordinated message from retailer and manufacturer ensure that the consumer receives a cohesive message
i. Manufacturer may pay in part for advertising – cooperative advertising
d. Store credit cards and gift cards are promotions
e. So are discount, coupons, rebates etc.
f. Displays at point of purchase (POP) or at end of aisles (stimulate sales)
g. Retailers devote more time to the overall retail environment (what the experience of the store is like for the
customer)
h. Share of wallet – percentage of customer’s purchases made from a retailer
i. Goal is to increase this share
3) Place
a. Convenience of location  competitive advantage
b. Many customers choose stores based on location

Benefits of physical stores for CONSUMERS

- browsing: consumers often only have a general sense of what they want, not a specific idea, browsing allows people to
see what is available
 - touching and feeling products – customers can try the product, subject it to all 5 senses
- personal service: personnel can provide meaningful info
- cash and credit payment: only place that accepts cash payment
- entertainment and social experience: can be a stimulating experience
- immediate gratification
- risk reduction: physical presence reduces perceived risk of buying

Benefits of Internet
1) deeper and broader selection – not affected/limited by sq.footage size of store
2) personalization
a. provide online chats to answer customer’s questions in real time as they are trying to purchase the product
b. personalized offering – can personalize the customer’s offering by tracking behavior
3) expand market presence – not limited to those that live close to the store, can target people all over the world

Effective multichannel retailing

- multichannel retailers need to see to what degree they are able to integrate the operations of the channels, as they are
each slightly different it may or may not be possible  goal is to offer customer a seamless experience regardless of
which channel they go through
- integrated CRM: customer relationship management, centralized customer data warehouse housing complete history
regardless of which channel the customer went through
- brand image: need to provide consistent brand image across channels
- pricing: customers expect pricing consistency for same items (excluding tax and shipping)
o may have to adjust price due to different levels of competition in each channel
- supply chain: difficult to manage supply chains for different channels in the same way because they require different
things

PROFILE OF THE RETAIL ENVIRONMENT (ACV AND DISTRIBUTION) TUTORIAL

All Commodity Volume (ACV) – measure of distribution reach
Steps to calculate ACV:
1) Identify product’s category
2) Estimate category’s sales and break down category sales by type of retailer groups
a. Need to find data to estimate the size of the category in sales dollars
b. Must include all retailer groups where the product is sold
c. Indicate what percentage of sales comes from which retailer group
d. Online rule of thumb for Core projects: 12% ACV
3) Identify major players for each type of retailer group and their category sales
a. Indicate the share of sales each of the major players take (%)
b. Has to be done for each retailer group
4) Determine which retailers you will target
a. Target by either having company salespeople call on retailers or contract this task out to a third party
5) Estimate retailer acceptance and store penetration for chains and mass merchants
a. Retailer acceptance – how many retailers who you target will actually carry the product
i. For project: assume only 30% of independent stores targeted will accept, and assume that
manufacturer’s reps will call on 80% of all independent stores. In the next year you would target 80%
of the remaining independent stores and with a 30% acceptance. The product will still be carried by all
those in year 1, so add the addition to get the 2 nd year’s ACV for independent stores.
ii. Chain stores: if there are 3 chain stores, only 1 of them is likely to carry the product, should assume the
chain with the middle market share will accept you
b. Store penetration – of those retailers who elect to carry your product, how many of their stores will they carry
it in
i. Larger retailers will not place the product in all stores
1. For more than 10 stores: year 1 50% of stores, year 2 70% of stores
c. Chain store ACV calculation = market share of chain x penetration %
d. Mass merchants, same as for chain stores; if there are 3, carried in 1, 50% penetration etc.
6) Calculate ACV
a. Based on sales NOT number of stores
b. ACV = sales of the product category in stores in which your product will be sold/total product category sales
7) Assessing channel conflict
a. Once product is carried by national stores, i.e. chain stores and mass merchandisers, there should be a
reduction in the proportion of sales coming from independents
 8) Understanding units sold by type of retailer
a. Multiply total units sold by corresponding ACV % to get units sold by each retail group

CHAPTER 14 – PRICING CONCEPTS FOR ESTABLISHING VALUE

Price – overall sacrifice (including time and effort, not just money) consumer is willing to make to acquire a specific product and
service
Value – relationship between the product’s benefits and its cost to the consumer
Key to successful pricing is to match the product with the consumer’s value perceptions
- setting price too low may indicate poor performance, goes both ways
- consumers want high value
- price is generally perceived as an indicator of quality

5 C’s of Pricing
1) Company objectives: goals should spill down to the pricing strategy
a. Primary goal of high sales growth vs. goal of being quality leader would lead to very different pricing strategies
b. Profit orientation:
i. Implement target profit pricing – particular profit goal as overriding concern
1. Stimulate sales at a certain profit per unit
ii. Maximizing profits – based on economic theory, difficult to make an accurate estimate due to difficulty
in gathering data on all relevant factors
iii. Target return pricing – pricing strategy designed to produce a specific return on investment (usually
expressed as percentage of sales)
c. Sales orientation – believe that increasing sales will help the firm more than increasing profits
i. Can be adopted selectively, i.e. when launching a new product
ii. Premium pricing – deliberately pricing a product above competing products to capture those who
always shop for the best or for those that the price doesn’t matter
iii. Trying to get a larger market share doesn’t necessarily imply lowering sales price
d. Competitor orientation: strategize according to premise that they should primarily measure themselves against
competition
i. Competitive parity – set prices that are equal to those of their major competitors
ii. Status quo pricing – changing price only to meet those of the competition
e. Customer orientation – firm sets pricing strategy based on how it can add value to its products
i. Set prices with a close eye on how customer’s develop perceptions of value
2) Customers: understanding customer’s reactions to different prices
a. Demand curve – shows how many units of a product or service consumers will demand during a specific period
of time at different prices
b. Prestige product –product purchased by consumer for the status rather than functionality
i. Higher price may lead to higher sales up to a certain point
c. Price elasticity of demand (PED) = % of change in quantity demanded / % of change in price
i. Measures how changes in price affect the quantity of the product demanded
ii. Marketers need to know how consumer’s will respond to a change in price to determine if they should
lower or raise prices
1. Elastic if PED < -1  1 % decrease in price produces more than a 1% increase in quantity sold
2. Inelastic if PED > -1  1% decrease in price leads to less than 1% increase in quantity sold
a. Should raise prices of inelastic products
3. Consumers are generally more sensitive to price increases than price decreases
iii. Factors influencing PED
1. Income effect – change in quantity demanded in response to a change in income, if economy is
good, elasticity may drop and vice versa
2. Substitution effect – consumer’s ability to substitute products, the greater the availability of
close substitutes the higher the price elasticity of the demand and vice versa
a. Getting consumers to believe in the uniqueness of a particular brand makes it seem
less substitutable
i. Increases brand loyalty and decreases the price elasticity of demand
3. Cross price elasticity of demand (XED) = % change in quantity of A/% change in price of B
a. Complementary products – products whose demands are positively correlated, if the
price of one goes up demand for both is likely to fall
b. Substitute products – demand is negatively correlated
3) Costs: firms must understand their cost structure to determine the degree to which their products or services will be
profitable at different prices
 a. Caveat: pricing should not be based on costs, as consumers care little for the firm’s costs – make decision based
on perceived value
b. Variable costs – costs that vary with production volume, primarily labor and materials
c. Fixed cost – costs that remain at essentially the same level regardless of changes in volume of production
i. Ex. rent, utilities, insurance, administrative salaries
d. Total cost = FC + VC
e. Break even analysis – examine the relationship between cost, price, revenue and profit over different levels of
production
i. Find breakeven point – the # of units sold generating just enough revenue to equal total cost, profit = 0
1. Contribution per unit = price – variable cost per unit
2. Break even point (units) = FC/contribution per unit
ii. Cant help set prices, but helps assess pricing strategy
iii. Limitations as costs and prices often change as volume changes
f. Target return price = (VC + (FC/expected unit sales)) x (1 + target return %)
4) Competition
a. 4 levels of competition
i. monopoly – one firm controls the market provides the product, not a lot of price competition  price
giver not taker
1. ex. energy providers in different regions
2. often regulated by government to avoid extremely high prices
ii. Oligopolistic competition – a few firms dominate the market, prices are charged in response to
competition to avoid upsetting the stables environment
1. Ex. airlines, soft drink market
2. Can lead to price wars – two or more firms compete primarily by lowering prices
3. Predatory pricing – a firm sets a very low price with the intent of driving competitors out of
business
iii. Monopolistic competition – many firms competing in a market, but products are differentiated
1. Most common form of competition
2. Firms compete in very different markets for the same product type depending on the
product’s features, style and quality
a. Ex. watches, cars
iv. Pure competition – large number of sellers of standardized products of commodities perceived as
substitutable, price generally set according to laws of supply and demand
1. Finding a way to differentiate a commodity will allow a firm to partially remove its products
from pure competition and may be able to price differently than the rest of the market
2. Ex. grains, gold, meat, other commodities ++
5) Channel members – may have different ideas on pricing strategies
a. Conflicts will arise if strategies weren’t communicated clearly
b. Gray market – employs irregular but not illegal methods
i. Legally circumvents authorized channels of distribution to sell goods at prices lower than those
indicated by the manufacturer

Macro influences on pricing

- internet: allowed consumers to gain access to wider range of products, consumers now demand more from local stores
as well
o have become more price sensitive due to availability of substitutes
o showrooming – customer’s visit a store to touch, feel, etc. the product and then they purchase it online from a
different retailer at a lower price
- economic factors: increase in consumers disposable income and status consciousness (people are willing to spend much
more for products conveying status)*
o cross-shopping – pattern of buying both premium and low-priced products
o contradictory trend between * and desire to shop cheap
o net effect: some prestige items have become more expensive and others have become cheaper

CHAPTER 15 – STRATEGIC PRICING METHODS

- Cost based: determine final price by starting with the cost
o Fixed, variable and overhead are added along with required profit; this amount divided by total demand to
arrive at the cost-plus price
o (costs/demand) x (1+%markup)
 o ignores consumers role and competitors price play in the market
- competitor based: set prices to reflect the way they want consumers to interpret their own prices relative to
competitor’s
o e.g. setting it close to competitor indicates similar product, setting it much higher indicates higher quality,
greater features etc.
- value based: setting prices that focus on overall value of the product offering as perceived by customer
o improvement value method
 estimate the improvement value of new product, tells you how much more or less a consumer is
willing to pay for it relative to comparable products
 can be done through surveys or other research methods
 based one the improvement value, markup the price accordingly (percentage increase relative to what
the competitors are priced at)
o cost of ownership method: consumers may be willing to pay more for a product because it will cost less to own
eventually over the course of it lifetime than a cheaper alternative
o value based requires a great deal of consumer research

Pricing strategies
Everyday Low Pricing (EDLP) – stress continuity of retail prices somewhere between regular non-sale price and deep-discount
sale prices of competitors
- for an average purchase, the price will tend to be lower overall. Does not mean every item purchased will be cheaper
than somewhere else
High/Low Pricing – relies on promotion of sales, prices are temporarily reduced to encourage purchases
- attracts two segments; both price sensitive and those who aren’t
- use reference price, price against which buyers compare actual selling price of the product  refer to this as regular
price

EDLP vs. High/Low

- depends on how consumers evaluate price and quality
- some don’t want to spend time trying to find the lowest prices and prefer EDLP for low, but maybe not the lowest prices
- some associate EDLP with lower quality goods
o see the high of the high/low as the reference price

New product pricing strategies

- challenging when product is innovative or “new to the world”
- made easier if product is similar to what’s already on the market
- Market penetration pricing: set the initial price low upon introduction. Objective is to build sales, market share and
profits fast.
o Often used by security software
o Experience curve effect – unit cost drops as the accumulated volume sold increases
o Strategy discourages others to enter the market due to low pricing
o Drawbacks:
 Firms must be capable of satisfying rapid growth in demand
 Low price doesn’t signal high quality
 Should not do this if certain segments would be willing to pay more
- Price skimming: targeted at innovators and early adopters, those willing to pay a high price to get innovation first. Once
the market becomes saturates and sales sow, company drops price to capture (“skim”) the next price sensitive market
segment who would only purchase at a lower price
o Only works if product is perceived as innovative, offering new benefits not available in alternative products
o May do it to limit initial demand in order to build up production capacity
o Can always lower price, harder to raise it
o In order for it to be successful it cant be easy for others to enter the market
o Tradeoff between earning a higher price and higher production costs associated with small volumes

Pricing Tactics
Pricing strategy – long term approach to setting prices broadly in an integrated effort across all of the firm’s products using 5 C’s
vs.
Pricing tactic – short term methods to focus on select components of the 5 C’s
- ex. lowering price temporarily to meet competitor’s price reduction
Tactics aimed at consumers
- markdowns: reductions retailers take on the initial selling price of the product or service
o allows retailers to get rid of slow-moving merchandise/seasonal merchandise
 ex. Halloween candy the week after Halloween
o also used to promote traffic to store/website
- quantity discounts
o most common is size discount; offer same product in 3 sizes, largest one has a lower per ounce
o goal is to encourage people to buy larger quantities
o makes people less likely to switch brands, makes them consume more
- seasonal discounts: price reductions offered on product/service to stimulate demand in off-peak season
- coupons: discount on specific item upon purchase
o offered directly from either manufacturer or retailer
o can induce people to try new products
o may steal sales from a future period without any increase in net sales
 impact is neglible if its used by regular users and not new ones
- rebates – manufacturer issues a refund as a portion of the purchase price returned to the buyer in the form of cash
o ~90% of customers never redeem them
- leasing: consumers pay a fee to purchase the right to use a product/service for a specific period of time
- price bundling: selling more than one product for a single, lower price
o encourage customers to stock up so they wont purchase competing brands, encourage trial of new product,
provide incentive to purchase less desirable product/service to obtain the more desirable one in the same
bundle
- leader pricing: attempt to build store traffic by aggressively pricing and advertising regularly purchased item, price at
or just above the store’s cost
- price lining: establish a price floor and ceiling for a line of similar products and the set a few price points in between to
signify difference in quality
o consumer is likely to buy the middle one, not the lowest price point

B2B tactics
- seasonal discount: additional reduction offered as incentive to retailer to purchase in advance of normal buying
- cash discounts: reduction in invoice cost if buyer pays before end of discount period  firm benefits from time value of
money
- allowances:
o advertising allowance - offer price reduction to channel members in exchange for featuring product in their
advertising
o slotting allowance – fees paid to retailers to get product into store or better shelf space
- quantity discounts: reduced price according to amount purchased
o cumulative quantity discount – uses amount purchased over a specified time period, generally involving
multiple transactions
 encourages resellers to stick with current supplier
o noncumulative quantity discount – based on amount purchased in a single order
 provides incentive to buyer to buy more immediately
- uniformed delivered vs. zone pricing: specific to shipping
o uniform delivered pricing – shipper charges one rate, no matter where buyer is located
o zone pricing – different prices depending on geographical delivery area
 often reflects actual shipping charges more closely than uniform delivered pricing can

Legal and ethical aspects of pricing

Deceptive or illegal price advertising

- price ads should never deceive customers to the point of causing harm, puffery is allowed

deceptive reference prices

- if reference price is inflated or flat-out fictitious, the ad is deceptive and may be harmful
- hard to determine if reference price is okay or not
- Better Business Bureau suggest at least 50% of sales have to have occurred at reference price for it to be okay

Loss leader pricing – lowering the pricing below the store’s cost
- taking leader pricing one step further
 - is illegal in some states

bait and switch – sellers advertise items at very low price without the intent to sell any
- lures customers to store with low price (bait), only to aggressively pressure consumers to purchase more expensive
option (switch)
- hard to enforce the laws against this, many argue that the salespeople are just doing their job

predatory pricing – setting price low with intent to drive competition out of business
- illegal under Sherman Antitrust Act and Federal Trade Commission Act for constraining free trade
- difficult to prove that they don’t simply have lower costs than competitors, also hard to prove that there was intent to
drive out competition
price discrimination – firms sell the same product to different resellers at different prices
- only some forms are considered illegal
- doesn’t apply to prices of sales to end consumers where legal price discrimination occurs frequently
o ex. charging lower price for seniors and students
price fixing – the practice of colluding with other firms to control prices
- horizontal price fixing: competitors producing and selling competitive products/services collude to control prices,
taking the price out of the decision process for consumers
o is illegal
o cant ask competitors about their prices/terms and conditions of sales
- vertical price fixing: parties at different levels of the same marketing channel (e.g. manufacturer and retailer) agree to
control prices passed on to consumers
o manufacturer’s will often encourage retailers to sell at MSRP (manufacturer’s suggested retail price)
o this is not illegal, gray area

MARGINS AND MARKUPS TUTORIAL

Mark-up on cost - % applied to the price at which the retailer purchases the product
- ex. bought from manufacturer for $100 and plan to sell it for $140, mark-up = ($140-$100)/$100 = 40%
- mark-up (%) = (retail price – manufacturers price)/manufacturer’s price
Mark-up on selling price (margin) – mark-up is based on selling price rather than the cost
- ex. selling at $140 and bought it for $100, mark-up = ($140-$100)/$140 =28.6%
- mark-up on selling price = (retail price – manufacturer’s price)/retail price
Conversions:
May be provided with mark-up on cost and want to determine margin or vice versa
- Markup on selling price (%)/MARGIN = Markup on cost (%)/(100% + Markup on cost (%)) x 100
- Markup on cost (%) = markup on selling price(MARGIN) (%)/(100% +MARGIN) X 100

CHAPTER 20 - PERSONAL SELLING

Personal selling – two-way flow of communication between buyer and seller, designed to influence buyers purchase decision
- takes place face-to-face, over the phone, via chat ++

sales people are expensive

- average cost of a sales call: $400
- many think it’s worth more than its cost
sales people provide information and advice
- many customers are willing to pay for this, they see the value in it
salespeople save time and simplify buying
- they sometimes save retailers time by setting up displays, straightening stock etc.
- shouldn’t turn too much over to the supplier’s salespeople; they may position competitors products disadvantageously
- cant be allowed to take over the decision, it must lie with the consumer
salespeople build relationships
- relationship selling: sales philosophy focusing on a commitment to maintaining relationships over the long term,
investing in mutually beneficial opportunities

Personal Selling Process

1) Generate and qualify leads
a. Leads – list of potential customers
b. Qualify – assess their (the leads) potential
c. Salespeople with already established will skip this step
 d. Can discover leads by talking to current customers, doing research or networking at events
e. Internet has made this a lot easier
f. Trade shows are very helpful for this
g. Cold calls – salespeople go or telephone potential customers without appointments
h. Telemarketing – similar to cold call, but always occurs over the phone
i. Cold calls and telemarketing are less popular due to low success rate
i. must qualify people because it is costly to prepare a presentation, want to make sure that pursuing the lead will
be worthwhile
2) Pre-approach and use of CRM systems
a. Occurs prior to meeting the customer for the first time
b. Extension of qualification of Step 1
c. Conduction additional research about the customer and develop a plan for meeting
d. Establish goals for meeting
3) Sales presentations and overcoming reservations
a. The presentation: beginning is most important to generate interest/attention
i. Takes cues from the audience and let them ask questions
b. Reservations: can arise at each stage of the selling process, but likely to occur during the sales presentation
i. Effective sales people anticipate and are ready to handle most reservations
4) Closing the sale – obtaining a commitment from the customer to make a purchase
5) Follow-up
a. Attitudes developed after the sale become the basis of how they purchase in the future
b. Reliability – the salesperson and supporting org. must deliver the right product on time
c. Responsiveness – the salespersons and support group must be ready to deal quickly with any issue, question or
problem
d. Assurance – customers must be assured that the product will perform as expected
e. Empathy – salesperson must have a good understanding of problems and issues faced by customers
f. Tangibles – physical characteristics of seller’s business need to reflect the level of quality by customer

Managing the sales force

Sales management – planning, direction and control of personal selling activities; recruiting, selecting, training, motivating,
compensating, and educating

Sales force structure

Company sales force – people who are employees of the selling company
Independent agents/manufacturer’s reps – salespeople who sell a manufacturer’s products on a contract basis, not employees of
the manufacturer
- compensated by commission, don’t take physical ownership of merchandise
- useful for smaller firms
- facilitates flexibility; much easier to replace a rep than an employee

Duties:
Order getter – salesperson whose primary responsibility is identifying potential customers and engaging these to get a sale
Order taker – salesperson who processes routine orders, reorders or rebuys
Sales support personnel – enhance and help with overall selling effort
- can be tech experts at Best Buy, personal stylist at Saks etc.
selling teams – combine sales specialists with different primary duties, work together on important accounts

Motivation:
- Financial rewards
o Salary – fixed sum of money paid at regular intervals
o Commission – money paid as a percentage of sales volume
o Bonus – payment made at managements discretion when salespeople reach a certain goal
o Sales contest – short term incentive designed to elicit a specific response from the sales force
 Price could be cash, a trip ++
o Reward often made up of a combination of salary and a commission
o Under pure commission, salespeople only have one incentive which is to make the sales
o Under fixed salary, they don’t have any incentive to put in high effort to increase sales because they will be paid
regardless
 Combo of the two is therefore better
- Nonfinancial rewards
 o Recognition by management and peers
o Should have high symbolic value
o Should be published

Evaluation of salespeople
- should be rewarded and evaluated only for activities that fall within their control
- evaluation process must be tied to reward structure
- many ways to evaluate, complex
o should use multiple measures
o ex. sales, profits, and number of orders  objective measures
o use ratios like profit/customer, orders/call, sales/hr ++
o subjective measures like what they do and how they do it should be used cautiously

SALES PROJECTION TUTORIAL

Determine how many units sold through each retailer:
ACV: if year 1 ACV is 18%, of which 12% is online and 6% is independent, the percentage from online is 12%/18% = 67% of
units are sold online

Awareness and ACV are usually correlated – it doesn’t make sense to spend money to generate an awareness of 40% when ACV
is only 15%. Consumers would know about the product but wouldn’t be able to find it at stores.

Initial Rollout (Limited vs. wide)

- wide: nationwide
o makes sense if you are able to use intermediaries who can get you into more stores and the costs of reaching
those locations doesn’t exceed the revenue potential
- limited: set of cities or geographical area
o makes sense if the retailers are fragmented or an unevenly distributed target market (i.e. rainboots are not in
high demand in areas affected by drought)
Market share forecast:
1) Identify your product category
2) Estimate category sales in $ and units
3) What category share can you expect in different years?