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130 Cards in this Set
- Front
- Back
What elements does "the product" include?
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Include more than just the good/service
- design/appearance, features and benefits, quality - Customer service, Instructions, installation, packaging, warranty, accessories, branding |
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What is a product?
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A product is a need-satisfying offering of a firm
- some combination of physical good and/or service - "total" or "augmented" product includes instructions, package, warranty, etc. - products can be good or services - more and more customers requesting goods and services for products they buy (e.g. restaurant meal, cell phone, automobile tune-up) |
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How are services unique?
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Intangible
- a performance or experience rather than an object Produced (provided) in real time - sold, then produced - produced in customer's presence/ with customer - cannot inventory - producer and service are inseparable Inconsistent (contrast iPod and Best Buy where a bad purchasing experience may not necessarily mean bad product) - manufacturing cannot easily be standardized - more variable given the role of people delivering the service |
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Product Classification Approach
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- Tangibility
- Degree of involvement in the purchase decision (draw tables) |
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The product hierarchy
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The Product Portfolio (aka assortment, mix), Product Line, Product Item, Stock Keeping Unit (has unique bar code)
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Product Portfolio
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Set of product lines offered by a company or a strategic business unit (everything black and decker produces)
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Product Line
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A group of products that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same type of outlets, or fall within a given price range (e.g. power tools)
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Product Item
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is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value
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Stock Keeping Unit (SKU)
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Is a unique version of the product item (the lowest level in the hierarchy)
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Why are products so similar? Why not just one product?
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Variants often created to avoid retail competition, create different prices, or address different needs
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Different roles of design/ "product form"
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- gain attention
- categorization - aesthetics - symbolism - functional information (e.g. TV show recorder) - Ergonomic information e.g. Aeron chair sells for $750 - design not as simple as like and dislike - taste evolve, people hated aeron initially - Function of product can influence preferences for form over time (Saab) |
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Good brands are a result of what?
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Good brands result from a consistent, intentional marketing strategy
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What is a brand?
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- A set of associations evoked by a brand identifier (name, logo, etc.)
- Brand connects products (and the marketing mix) with benefits/ experiences - Brand associations should be unique, strong and favorable/relevant |
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Brand equity
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- the value of the brand beyond the objective good/service
- the value of a brands' strength in the market |
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Branding
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The use of a name, term, symbol, or design to identify a product. Some companies use a combination of some or all of these when branding
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Brand name
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a word, letter, group of letters
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trademark
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Includes only those words, symbols, or marks thatare legally registered for use by a single company (includes brands but broader as well)
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service mark
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trademark that refers to a service offering
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Benefits of brands for consumers
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- easy to identify
- simplify decision making - lower purchase risk - enhanced (perceived) value |
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Benefits of brands for companies
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- quickly communicate benefits
- promote inclusion in consideration set - increase likelihood of purchase - increase perceived value - enable repeat purchase and extensions |
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Brands meet needs
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Brand makes shopping easier-- customers can identify levels of quality with specific products and shorten the time needed for information research
- we tend to go with what's familiar (saves time, increases confidence) |
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Branding helps marketers
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- reduce selling time and cost
- improve company's image - provide a unique identity for offerings that competitors can't copy |
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Characteristics of a good brand name
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- short and simple
- easy to recognize and remember - easy to pronounce - can be pronounced in only one way - can be pronounced in all languages - suggests product benefits - meets packaging/labeling needs (e.g. Del Monte sticker on a banana) - no undesirable imagery always timely- won't go out of date - adapts to any advertising medium - legally available - a respected name builds brand equity-- the value of the brand's overall strength in the market |
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Brand strategy options-- Brand choices
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- Family brand (BMW)
- Licensed brand (Coleman) - Generic "Brand" - Individual Brand -- In developing a product concept, a marketing manager must consider the different possible approaches for branding |
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Family brand
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- same brand name for several products
e.g. Sunkist appears on fresh fruit, juice, vitamins and soft drinks -- good approach if the individual products are of similar quality |
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Licensed brand
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Special case of family branding.
- a well-know brand that sellers pay to use |
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Individual brands
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- May be used for outside and inside competition
- when a company makes very unrelated products that requre separate identity to avoid confusion, developing individual brands for each can be a good idea - some companies develop several versions of a product such as toothpaste, each with a unique position in the market |
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Generic brands
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products that have no brand at all other that the identification of their contents (e.g. aspirin)
- they can be important, low-cost alternatives for customers, such as in the market for prescription drugs |
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Strategic importance of packaging
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- packaging can enhance the product
- packaging sends a message - packaging can lower distribution costs |
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Packaging
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Involves promoting and protecting the product. Good packaging makes products easier to identify and promotes the brand
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Packaging can enhance the product
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Can make the product easier to use or safer to use. Packaging can deter shoplifting and can also be designed to achieve ecological objectives
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Packaging sends a message
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Creative use of design in packaging can visually help to tie the product to other elements of the promotion mix
- Packages also convey information, such as the nutritional information on food products - Package can also promote the brand at the point of purchase or in use |
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Packaging may lower distribution costs
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Good packages save space and are easier to handle and display. In helping distributors and retailers, good packages are more welcome by these intermediaries (e.g. WalMart and concentrated detergents)
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New products are critical to survival
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- markets change
- competition changes - technology changes - and product life cycle marches on... The life of a product varies a lot-- from months to years; if a new product's life (e.g. athletic shoes) is 2 years, then a company must renew half its line every year-- so NPD is a major activity in most businesses |
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What is a new product?
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firm's perspective- a product that is new in any way
FTC's perspective- a product must be entirely new or changed in a functionally significant way - can only be called new for 6 months |
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Are product modifications really new products?
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- most new products don't create new product-markets
- The key is the product idea-- if it's dramatically different, then the modification is a new product with a new life cycle - if not, it's modification of the older product. Even if only modification, it can help extend maturity stage of the product life cycle |
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New product development
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- essential but risky
- some products do not offer a unique benefit, or competition is underestimated - design and cost problems, or poor timing-- either too quick an introduction or too slow-- may doom a product to failure |
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New Product Development process
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- organized approach for bringing for bringing new products to market
- has 5 stages 1. Idea generation 2. Screening 3. Idea Evaluation 4. Development 5. Commercialization - the process tries to kill new products, economically, by progressively weeding out products that have low likelihood of success before they are introduced to the entire target market |
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Development today
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- tends to be very cross-functional and "parallel" (as opposed to serial)
- a lot of the steps in the product development process overlaps - Parallel means faster time to market, but more difficult to manage concept-- architecture-- design and development-- testing-- production |
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Simple framework for new product success/ "gut check"
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- a good high level tool for screening, but can apply this throughout the development cycle
- need to take multiple perspectives throughout development |
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Pet projects
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Not profitable but may pursue for strategic reasons
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Science projects
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insufficient demand
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Dream projects
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not feasible/can't make it
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Marketing reasons for new product (and service) failure
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Do consumers want to buy it?
-- insensitivity to consumer needs -- insignificant advantage relative to competition Can we provide it? -- poor product quality -- poor execution of the marketing mix (4Ps) -- bad timing Will it make money? -- too little market demand to cover investment -- high product cost |
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Product life cycle
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- Describes the stages a really new product idea goes through from beginning to end
- Marketing managers can identify specific types of decisions for strategy planning that characterize each stage - sales are total sales for product market, not a single brand or company - each product- market has its own life cycle PLC length caries for different product markets (film camera vs bicycle) - stages for each life cycle can vary in length - marketing mix usually changes throughout the product life cycle, in response to customer needs or attitudes, repositioning the product, or changes in the competitive structure of the industry (think 4Cs) - total industry sales start out very low in market introduction, increase to their peak in market maturity and then decline - profits can also change during life cycle, but not in tandem with industry sales. **Industry profits decline when industry sales are still rising** |
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Market Introduction
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- sales are low as the idea is first introduced to the market
- informative promotion is needed to tell potential customers about advantages and uses of new product - because the process of informing and educating consumers take time, company resources are being spent in market introduction, but revenues are not very large. They may even be nonexistent. |
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Market growth
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- industry sales grow fast but industry profits rise then start falling
- innovator realizes big profits and attracts competition - competitors may try to copy the innovator, or to improve on what the innovator has introduced - some competitors may try to offer a product to a more narrowly defined target market - as competitors enter, monopolistic competition develops, leading to downward slope of demand curves - industry profits reach their peak in this stage, but then begin to decline with more competition and increasing consumer price sensitivity -- in this stage, better understanding of customer needs can differentiate, at some level of competition, pressure to lower prices |
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Market maturity
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- sales level off and competition continues to increase. Most of the products we use everyday are mature products
- promotion costs increase and price competition in some segments cuts into profits -- as a result, some firms that are less efficient are forced to drop out of the market -- some new firms may enter the market in the maturity phase, but competing with established strong competitors is difficult - persuasive promotion becomes more important, as competitors try to encourage consumers to buy one brand over another - as consumers view brands as being more and more similar, they become more price sensitive, and demand becomes increasingly elastic. - Maturity phase last many years, until a new product comes along - Need more advertising to maintain positioning in crowded market |
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Sales decline
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- new products replace older ones (products that are ripe for replacement by newer innovations)
- price competition is common and sales are primarily to the most loyal customers of to those who have waited longest to enter the market - strong brands may continue to be profitable, especially if marketers cut back on their expenditures and lower costs of production and marketing - characterized by little/no investment in new product development and relatively little promotion |
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Product Life cycle development changes
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Products: increasing diversity over time, and then convergence as needs become more known, competitors catch up re: capabilities, etc.
Place: "intensive" in this case means "broader" promotion: build primary demand, then emphasize differentiation Price: strategic options early, but then driven by competition (and value vs competition), but some competitors drop out in sales decline compatitive situation: from monopoly to monopolistic competition, to pure competition |
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Roger's factors affecting adoption rate
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Comparative advantage- how much improvement over current option
Compatibility- compatible with existing systems, values, beliefs, ideas Ease of use- how hard is it to use the innovation triability- ability of potential users to try on a limited basis Observability (easy to communicate)-- degree to which innovation and results are observable to others -- these relate to how fast the market moves through the earlier stages of the PLC (intro and growth); also relevant to specific products within the product market (some may be more compatible than others, for example) - these factors help explain the life cycle curves as well as the performance of a product within the market e.g. TiVo |
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Three somewhat overlapping ways to manage a product lifecycle
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- modify positioning (same product-market)
-- respond to competitors -- catch a rising trend -- change perceptions -- quality, performance, etc. Modify the market (move towards new product-markets) -- new users -- increasing use -- new-use situation Modify the products (move towards new product-market) - many options for product/brand managers esp. within the maturity stage - these are not entirely distinct, may do a combination - consider earlier discussion of the product-market expansion grid -- change the value offered |
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Tasks of product manager
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- Focused on New product development and approaches 4Ps from a product perspective (less focused on place, promotion and price)
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Tasks of a brand manager
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- More market oriented (vs product and technology) and emphasizes on price, promotion and place
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Promotion
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Communication information between a seller and a potantial buyer or others in the channel to influence attitudes and behavior
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Promotional tools
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Advertising, publicity, sales promotion, direct marketing, personal selling
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Promotional mix
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The combination of promotional tools. A key part of modern marketing is the use of several promotional tools that work together to achieve a company's overall promotion goals
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Integrated Marketing Communications
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The intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message
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What promotion methods are available?
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Mass marketing: Advertising, publicity, sales promotion
"personalized selling": sales promotion, direct marketing, personal selling |
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Mass marketing
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communicating with large numbers of potential customers at the same time, useful when the target market is large and geographically dispersed
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Advertising
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any paid form of nonpersonal presentation of ideas, goods or services by an identified sponsor. Media include television, radio, magazines, billboards, direct mail, and the internet
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Publicity
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any unpaid form of nonpersonal presentation of ideas, goods and services. Publicity professionals try to get stories of their company's products placed in mass media vehicles without having to pay media costs
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Sales promotion
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refers to promotion activities-- other than advertising, publicity and personal seling-- that stimulate interest, trial or purchase by final customers or others in the channel. Sales promotion may be aimed at customers, at middlemen, or even at a firm's own employees
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Personalized marketing
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communicating with individual potential customers
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direct marketing
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refers to direct communication between a seller and an individual customer using a promotion method other than face to face personal selling
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personal selling
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direct spoken communication between sellers and potential customers
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Examples of promotion
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AdvertisingL Print, radio, TV, internet
Publicity: press, events Sales promotion: discount, coupon, display, specials Direct marketing: Catalog, telemarketing, internet personal selling: trade shows, sales presentation |
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Advertising pros and cons
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Pros:
- efficient with big markets (mass research) - control over the message - control over timing - control over target (to a large degree, but not entirely) CONS: - expensive - lack of direct feedback - often ignored by intended target |
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Types of advertising
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- Advertising objectives largely determine which of two basic types of advertising to use-- product or institutional
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Institutional Advertising
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Tries to promote the organization's image, reputation, or ideas
- supports the overall objective of developing goodwill or improving an organization's relations with various important groups |
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Product/Brand advertising
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Tries to sell a product and can be targeted to channel members or final consumers
-- prodyct ads are designed to get consumers to know, like, and remember an org's products and services -- key types of product advert include pioneering, competitive and reminder advertising |
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Pioneer advertising
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tries to develop primary demand for a product category rather than demand for a specific product
- it is appropriate for the early stages in a product's life cycle when consumers still need to understand what the product category is all about |
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Competitive advertising
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Tries to develop selective demand for specific product or brand. Competitive ads become more important as competition increase and as a product moves into maturity
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Reminder advertising
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Tries to keep the product's name before the public. It is useful for supporting products well into the market maturity and sales decline stages of the product life cycle
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Comparative advertising
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Goes head-to-head with competitive products by making specific brand comparisons. Even though comparative ads are common in the U.S., they are still banned in some other countries
- when planning comparative ads, claims made about products should be supported by research - There may be drawbacks to comparative ads if they are confusing to consumers, or if they focus on small, insignificant differences between products |
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Pros and Cons of publicity
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PROS:
-- high credibility -- low cost CONS: -- lack of control of message content -- lack of control of message delivery/reach |
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pros and cons of sales promotion
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Pros
-- immediately stimulates sales Cons -- benefits may be temporary -- easy to duplicate -- may degrade image -- can lose effectiveness over time |
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Sales promotion targets and examples
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-- tries to spark immediate interest
final consumers: contests, coupons, aisle displays, samples, trade shows, point of purchase materials, banners and streamers, frequent buyer program, sponsored events Middlemen: price deals, promotion allowances, sales contests, calendars, gifts, trade shows, meetings, catalog, merchandising aids, videos Company's own sales force: contests, bonuses, meetings, portfolios, displays, sales aids, training materials |
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3 effects of sales promotion
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-- sales promotions can be launched quickly and lead to immediate results.
-- sales promotion objectives and particular situation should influence the decision about which type of promotion to use First pattern: a firm issues coupons to help clear excess inventory. Some consumers might buy in advance "stockpile" to take advantage of the coupon, but unless they use more of the product, their next purchase will be delayed Second pattern: Consumption increases during limited-time promotion, but when promotion ends, sales go back to normal Third pattern: free samples of a product pull in new customers who like the product and keep coming back. This pattern is the kind of long-tern result that is the aim of effective sales promotion. -- more companies are using a greater percentage of their promotion dollars on sales promotion. Sales promotion spending has grown in mature markets where tough competition requires extra incentives to sell. |
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Direct marketing pros and cons
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pros:
-- personalized/customized (more relevant) -- can be interactive Cons: -- expensive databases -- concerns about privacy -- the more it is used, the more it is ignored |
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Personal selling pros and cons
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Pros:
-- two way interaction with prospect -- message can be tailored to recipient -- prospect isn't likely to be distracted -- seller involved in purchase decision -- source of research information Cons: -- messages may be inconsistent -- possible management- sales force conflict -- cost is often extremely high per prospect -- the reach may be very limited -- there may be ethical problems |
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When is personal selling most important?
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Product:
- complex goods or services - major purchase decisions - personal demonstration required Place: - selling needed to push product through - intermediaries can provide personal selling Price - final price negotiable - price provides adequate margin Promotion - information can't be provided by media - sparse market makes ads uneconomical |
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Factors to consider when developing the promotional mix
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- The target audience
-- consumer or industrial consumer? -- mass or micro target? -- where does the target work, read, play? - The product life cycle - product characteristics - channel strategy |
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Adoption curve
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- shows when different groups accepts ideas
- marketers have long observed that rate of adoption of a new product-idea varies across these different groups. Promotion must vary for different adopter groups |
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Innovators
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First to buy and don't mind taking some risks. innovators search out product information and rely on impersonal and scientific sources (or other innovators) when making decisions
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Early adopters
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- well respected by their peers and often serve as opinion leaders for others.
- of all groups, this one has most contact with salesperson - high satisfaction among early adopters can aid word-of-mouth information about a product, which is highly credible |
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Early Majority group
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- wants to avoid risk and waits to consider a new idea until many adopters have tried a product and liked it.
- Group of deliberate decision makers. Have extensive contact with salespeople, mass media, and early adopter opinion leaders. |
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Late majority group
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- downright cautious in their decision making
- often older than the early majority group, more set in their ways - makes little use of marketing sources and information |
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Laggards or nonadopters
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- hang on to tradition
- very suspicious of new ideas - older and less educated of other groups - laggards often tend to listen most to other laggards, making them very difficult to reach |
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Product life cycle-- primary objectives
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INTRODUCTION
inform: - all elements can be used - PR is more common at this stage (more "news worthy" - sales promotion, when used, is focused on trial GROWTH persuade: - advertising - personal selling - direct marketing MATURITY RemindL - Advertising - Increased use of sales promotions |
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Product characteristics and promotions
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Complexity
- need for more direct methods (e.g. personal selling) Risk of purchase for consumer/buyer - more risk: more personal selling |
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Channel Strategy
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Push vs pull
- there's no one right promotion blend for all situations. Accordingly, marketing managers must constantly examine each situation and adapt promotion tools to best address the needs of target consumers in each particular situation |
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Pushing
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- pushing a product through a distribution channel means using normal promotion tools to help sell the whole marketing mix to possible channel members
-- this helps build channel commitment and cooperation and can take several forms -- a producer can get a puch in the channel with promotion to intermediaries -- this form of promotion emphasizes personal selling. The direct contact of this approach helps emphasize the importance of the promotion of the company -- the challenge for the producer's sales rep is to show wholesalers and retailers that there is sufficient demand for the product and that it will be profitable |
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Pulling
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- getting customers to ask middlemen for the product
- Typically involves use of mass selling tools to stimulate demand for a particular brand -- customers who are aware of and interested in the product look for it at retail stores. Ads may even encourage consumers to ask the retailer to carry the product if the store doesn't have it in stock -- resulting sales of the product encourage the middlemen to order more or give the product attention - a manager may use either pushing or pulling exclusively, but a combination of the methods are more common. |
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PUSH VS PULL
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push makes sense when marketing channel is willing and able to promote for you
pull is a good idea if marketing channel is not supportive or able to promote for you |
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Price
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The money or other considerations (including goods and services) exchanged for the ownership of use of a good and/or service
- price is just a means to an end (e.g. profits to sellers, cost vs benefit for buyers) |
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Price equation
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= List Price- (Discounts and allowances) + (transportation and taxes)
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Value
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Value = perceived benefits/price
- Value increases when perceived benefits increases or price decreases - Value decreases when perceived benefits decreases and/or price increases - "value pricing" could mean lower price for the same product (vs. competition)-- or more benefits at the same price |
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Profit
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Profit= total revenue- total cost
= (unit price*quantity sold)- total cost |
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PRICE AFFECTS DEMAND
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Demand curves can shift (left or right) based on consumer tastes (and expectations), changes in consumer income, the price and availability of substitutes
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Price elasticity of demand
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E= [% change in quantity demanded]/ [% change in price]
"elasticity"= "sensitivity" to change in price |
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Elastic demand
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1% decrease in price --> >1% increase in quantity demanded
E>1 |
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Inelastic demand
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1% decrease in price --> <1% increase in quantity demanded
E<1 |
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Unitary demand
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1% decrease in price --> =1% increase in quantity demanded
E=1 |
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Factors that influence price elasticity of demand
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- Who pays (e.g. company)? -- more willing to spend more if outside party is paying
- Total expenditure (or % of income) - End- benefit (importance) Switching costs (e.g. already using a given storage media format for your electronics, so it is more expensive to buy a product that uses a different format) |
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Total fixed cost (FC)
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Sum of those costs that are fixed (i.e. do not depend on quantity produced/sold), e.g. rent, salaries, depreciation, etc.)
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Total variable cost (VC)
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Sum of expenses that depend on quantity produced/sold (parts freight, sales commissions)
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Total cost (TC)
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Sum of total fixed and total variable costs
TC = FC + VC |
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Break-even point
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The quantity at which total revenue and total costs are equal (at a given price)
BEP= Fixed costs/ (unit price- unit variable costs) |
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Sensitivity analysis
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Investigation into how performance (e.g. sales of profit) varies along with changes in the key assumptions on which the projections are based
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Break-even analysis
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Evaluates whether the firm will be able to cover all its costs at a particular price level
- break even charts help find the break-even point - break-even analysis is a cost-oriented tool, not a demand oriented one. Managers usually face downward sloping demand curves, and break-even analysis does not factor in the effect of price on demand |
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Framework for pricing
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- Pricing objectives
- Pricing Constraints - Pricing Approaches - Setting List price - Adjustments to list |
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Pricing Objectives
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- objectives should guide strategy planning for price
- depends on strategy and objectives e.g. expand market share, maximize profit - For firms content with the way things are, two status quo objectives can often be used. They might be termed "don't rock the boat" objectives - Meeting competition and Nonprice competition |
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Pricing constraints
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Customer specific
- demand for the product class/product/brand - newness of the product Company specific - single product vs product line - production and marketing costs Competitor specific - competitors' prices - type of competitive market Context specific - Laws and regulations |
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Pricing approaches
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Demand oriented
- considers factors underlying customer tastes and preferences Cost oriented - emphasizes costs including production, marketing, direct expenses, overhead Profit oriented - attempts to balance both revenues and costs to achieve profit targets Competition oriented - considers what competitors or "the market" is doing |
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Demand oriented pricing
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- skimming, penetration, prestige, demand backward, odd-even, psychological (aka price points), sequential reductions, loyalty, reference, (loss) leader, baiting, value-in-use, price lining, bundle, complementary
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Odd-even pricing
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sets prices to end in certain numbers
49 (not 50) 24.95 (not 25) 99 (not 100) |
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Price lining
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Sets a few price levels for a product line and then marks all items at these prices, so few prices cover the fiels.
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Demand- backward pricing
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Setting an acceptable final consumer price and working backward to what a producer can charge.
- Keys to successful pricing are an accurate estimate of what constitutes an acceptable price and making sure that the firm can still cover its costs |
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Prestige pricing
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Sets rather high price to indicate high quality or high status. Common for luxury products such as furs, jewelry and perfume
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Cost oriented pricing
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- Standard markup pricing
- Cost-plus pricing - Experience curve pricing |
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Standard markup pricing
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Adding a fixed percentage to the cost of all items in a specific product class
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Cost-plus pricing
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Summing the total unit cost and adding a specific amount to that cost
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Experience curve pricing
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Lowering prices (based on lower costs) as production and selling volume increases
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Markup
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A markup is a dollar amount added to the cost of products to get the selling price
- markups guide pricing by middlemen-- necessary to cover the costs of distribution and allow middlemen to make profit PRICE= cost/ (1-markup%) [markup based on selling price] PRICE= cost* (1+markup %) [markup based on cost] Markup percent= the percentage of the selling price that is added to the cost to get the selling price - many middlemen use a standard markup percentage - percentages often are the same within an industry, thus encouraging all players to increase efficiency and cut costs - markups are often related to the company's desired or expected gross margin (net sales- cost of goods sold) |
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markup chain
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The sequence of markups firms use in channel pricing
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Profit oriented pricing approaches
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Target profit pricing (absolute $ amount)
- setting prices that will give a target annual dollar volume of profit Target return-on-sales pricing (profit/sales(%)) - setting prices that will give a target annual return on sales Target return-on-investment pricing (profit/investment (%)) - setting prices that will give a target annual return on investment |
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Competition oriented pricing approaches
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Customary pricing
- setting price based on tradition, a standardized distribution channel or other competitive factor Above/at/below market pricing Setting price based on a benchmark or the manager's feel for that benchmark |
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One-price policy
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- the same for everyone
-- common with frequently purchased, inexpensive items -- can be more convenient, entail lower transaction costs, and maintain goodwill with customers |
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Flexible-price policy
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- offering different prices for different customers
-- pricing databases make flexible pricing easier, less costly, and less time consuming, because they obtain information about different customers -- salespeople can also adjusts prices to take into account the competition, the firm's relationship with a customer, and the customer's bargaining ability -- too much price cutting may erode profit - a flexible-price policy may prompt resentment by customers who do not get the lowest price - channel conflict may result, or an unauthorized gray channel may evolve ifcustomers buy in large quantities, say, to get a price break, and then resell what they don't need |