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Week 1:
Market Oriented Firm and Value Creation

companies use to create value for customer

Product development & life cycle
Marketing communications
Services marketing

Marketing = the activity, set of institutions and processes for

creating, communicating, delivering and exchanging offerings that
have clue for customers, clients, partners and society.
Market-oriented = focus on customer first > employee >
(because customers gave us money)
Account receivables most interaction with customer
Customers like transparency valuable
Stages of marketing evolution:
1. Production Era
Make the product:
1. Design
2. Materials procurement
3. Manufacturing
2. Sales Era
People sales
1. Cost plus price
2. Sell/advertise
3. Distribute
4. Service
3. Marketing Department Era
Build marketing and customer service department.
1. Put external focus for value creation, choose:
i. Customer value (CV) and needs analysis
ii. Market segmentation and target markets
iii. Value positioning vs competitors
2. Put internal focus on value deliver, provide:
i. Organizational value creation
ii. Product and process design
iii. Customer-firm cocreation
3. Communicate the value:
i. Build internal and external understanding of
1. Customer value framework
2. Customer value position vs competitor

4. Marketing Organisation Era

Value creation require tradeoffs
Tools: product/people
1. New product and service development
2. Building the brand
3. The augmented product
4. Service quality
1. Selection of channels and channels partners
2. Finding complementaries between routes to market
3. Design and implementation of channel controls
4. Design of promotional plan for channels
1. Value-based pricing
2. A consumer-based view of pricing
3. Pricing strategy
1. Determination of promotion objectives
2. Development of communications content and creative
3. Selection of media
4. Design of control/evaluation methodology
5. Timing
Good profit = earnings from creating customer value which in turn
creates customers who are loyal, purchase more of your product and
recommend your firm to others
Bad profit = earned at customers expense e.g. credit card fees,
extra charges. This destroys value from customers perspective,
leading to resentment and more opportunity to spend less.
Customer value = Benefits
Goal: create superior perceived value (customer perceives higher
value of our product than any competing alternative)
Benefits = all tangible and intangible desirable attributes of the
product consumed over the life of its ownership (e.g. product
services, relationship management, brand image)
Costs = all tangible and intangible costs incurred by the customer
over the life of its ownership (e.g. search, acquisition, set-up,
maintenance, financing, exit)
Sources of Value Creation
Relative delivered value = Relative life-cycle benefit = customer

Benefits not product and service features but results delivered
1. Improved performance
2. Improved operating productivity
3. Improved asset productivity
4. Reduced risk


















Cost: not purchase cost but money, time, physic cost,

Set up
Price level
Switching cost:
1. Economic
2. Psychologic
Info availability
1. Competenc and
2. Responsive Process
3. Credibility
Customer value = Total life cycle benefit



Processing/ Product:
administrative 1. Replacem
2. Compatib
3. Upgradea



Total life cycle costs

customer loyalty = purchase/referrals = premium prices
Firm value = Margin x Volume
volume = cash flow experience = reduced costs
Characteristics of value-driven organization
1. Have value-driven strategy, understanding of context:
a. Industry structure
b. Business environment
c. Competitors
d. Customers
e. Company capabilities
f. Collaboration
2. Have leadership which encourages innovation
3. (i.e. flexibility, responsiveness)
4. Have market-oriented culture
Everyone in the organization understands their role in
delivering the organisations value proposition
Market oriented companies manage 3 interrelated processes well
1. Organisation-wide generation of intelligence (about customer
and competitor)
i. Searching secondary sources:
ii. Market research and listening centres
iii. Market observation and client visits
iv. Benchmarking and competitive intelligence
v. Grafting Hire someone from competitor and
use it for our benefit
vi. Organizational memory Tap knowledge to
solve problem
2. Dissemination of that intelligence amongst departments
i. Cross functional teams and job rotation
Decision support systems and databases
Interanal reporting and documentation
Customer engagement summits and councils
3. Organization-wide responsiveness to information
i. Use insights to alter mental models The way
we see the word around us
ii. Develop and execute strategy and pans
iii. Embrace innovation
Marketing myopia = short sightedness by business firms causing
management to define their business (and hence their competitors
and market opportunities) too narrowly.

Week 2:
Relationship marketing and customer loyalty
1. Recognition of market failure
a. Supplier:
i. Manufacturer idiosyncratic investments
b. Consumer:
i. Consumer switching costs
ii. Market is not well informed, there is high potential
for opportunistic behaviour
c. Small numbers of suppliers/manufacturer
2. Improved understanding of consumer behavior
a. Consumer are irrational never wrong, based on price
b. Consumer usually satisfice not maximize and optimize
utility only satisfy the minimum requirement to
achieve goal
c. Consumers have incompete and symmetric information
on alternatves
d. Trades are affected by external influences, not in
3. Improved understanding of the value chain
a. Understanding that other stakeholder affect the firms
ability to create value for buyers:
i. Suppliers
ii. Intermediaries
iii. Employees (internal market)
iv. Government
v. Competitors
Cooperation is usually more effective than competition
4. Economics of customer retention
5. Profitability over time due to:
a. Customer buys more of your products and services
(often at higher stuff)
b. Operating costs of servicing the customer
c. Reducing customer turnover
Recognizing the costs of customer defections

Getting new customer is 5x more expensive than

retaining existing on (e.g. setting up cost)
Winning back a lost customer is 3-5x more expensive
than to find a new one
Real costs of defection:
i. 20-30% of revenues
ii. 15-40% of operating expenses
Acquisition > Requisition
1. advertising budget and smaller sales force
2. Customer are happier do not question price pay premium
3. Leaky budget management labour
4. Pareto principle (80:20 rule)
Assessing loyalty
Repeat Patronage



Spurious loyalty
(doesnt like our
brand but cannot
change, i.e.
contract, switching
cost, lazy looking
for alternatives)

Latent loyalty (like our
brand but cannot use

No loyalty

Customer Loyaty Ladder

Prospect Customer Client Supporter Advocate Apostles
Customer Response Zones
1. Zone of outrage: customer experiences poor and
unanticipated scenario
2. Zone of dissatisfaction: customer expectation has not been
3. Zone of satisfaction: customers expectation on level of
satisfaction is met
4. Zone of delight:: result of unexpected, valuable, memorable,
positive experience
How companies delight their customers
1. Genuine courtesy and empathy (e.g. Virgin Mobile)
2. Delivering unanticipated value (e.g. Jet Blue)
3. Customer intimacy (e.g. Ritz Carlton)
4. Novelty and entertainment (e.g. Abercrombie and Fitch)
5. Focusing on moments of truth seconds to make an impact
(e.g. SAS Airlines)

1. Customers leave because attitude of indifference
2. Loyalty should be behavioural and attitudinal
3. Mere satisfaction will not lead to long-term customer loyalty

Week 3:
Purpose of Consumer Behaviour
1. Identify target markets and segments
Each individuals have different paradigm so different people
value the same product differently
2. Understand how consumers choose products
Decision-making, value other alternative, distinguish different
3. See how customers perceive brands and stores
Intangible asset/ideas, heart of loyalty
Use consumer behaviours to identify opportunities, what you
have and value and how you go for that value
4. Identify unmet (latent) needs needs below the surface that
is not met yet
5. Discover how attitudes can be changed
Using marketing strategies
Consumer Psychology
1 Products and
2 Price
3 Distribution


4 Communicatio







ng of ideas)


Info search

Product choice
Brand choice
Dealer choice

5 Explanation why customers
6 are irrational


Purchase timing

Hierarchy of effect model (buying decision-making process)

1. Need recognition
Discrepancy between a desired state and actual state that is
sufficient to activate the decision process
Motivated by purchase-usage motives
Negatively originated (informational_ motives
Purpose: to remove negative motives
Problem removal
Problem avoidance
Incomplete satisfaction
Normal depletion
Positively originated (transformational) motives
Sensory gratification
Intellectual stimulation or mastery
Social approval i.e. go to gym, buy iphone
2. Information search
Extensiveness of search depends on
i. Product attributes (search, experience (buy trust),
credence (i.e. consulting, legal, medical services)
Involvement and memory
Expertise and experience (including various experience)
Purchase situation
Involvement = perceived relevance of the product to the consumer
based on their inherent needs, values and interests
Involvement = information search
i. Functional risk
Financial risk
Social risk
Physical risk
v. Obsolescence risk (new one came out)
Expertise and switching cost
Tech service quality not much search
Functional service (I.e. investment return, friendly, search )
more expertise lower expertise
3. Alternative evaluation
a. Evoked set = mental list of acceptable brands
b. Heuristics rules consumers employee to simplify the
decision-making process (i.e. compensatory rules vs
non-compensatory (quality cannot compensate price))

4. Purchase decision = product trial exploratory phase in

consumer behavior
5. Post-purchase behavior
a. Cognitive dissonance = feelings of post-purchase
psychological tension/anxiety that results from an
imbalance among an individuals knowledge, beliefs,
and attitudes after an action or decision or taken.
b. Post purchase evaluation = consumers evaluate
products performance in the light of their own
i. After failure, peoples expectation on recovery
ii. After first service experience, peoples expectation
of service increases.
c. Repeat purchase
i. Resulting from a positive experience
ii. Brand loyalty/polygamous loyalty related to
evoked set
iii. Increasing perceived switching costs because
consumer cant imagine changing because our
benefit is greater than the competitors. (not out
cost > competitors)
iv. Inertia/habit should be because love, not lack of
alternative or lazy.
Consumer deision-making in context
1. Reference group influence and social networks
a. Family and consumer socialization
b. Reference group influence increases when influence are:
i. Credible (enduring and longlasting)
ii. Attractive (temporary)
iii. Powerful (fear of consequence)
2. Situational factors
a. Purchase reason
b. Surroundings
c. Time constraints
3. Personal traits
a. Attitudes
b. Beliefs
c. Personality
Innovators (younger, better educated, higher
income, more omvile, male, Japanese) = like risk
Early adopters = opinion leading
Early majority
Late majority
Laggards = suspicious nostalgic, frugal, risk
4. Cultural and socioeconomic factors
a. Cultural norms

b. Social class

Week 4:
Market segmentation and targeting
Customer needs analysis
1. Existing needs satisfactory solutions already exist.
Opportunity for new products is limited
2. Latent nees unmet needs. Customer can articulate needs
via in-depth market research. There is opportunity for
3. Incipient needs unmet needs but costumer cannot
articulate the need for solution. This requires technological
Market segmentation = dividing large market into smaller target
markets, or customers with similar needs and/or desires who will
respondin a similar way to product offerings and marketing
initiatives. (how? Purchase frequency, degree of loyalty, price

Benefits of segmentation:
1. Optimize resource allocation
2. Identify opportunities for repositioning deep/strong position
create 300 products (costly)
3. Identify opportunities for new products
Principles of effective segmentation characteristics
1. Homogenous (within segments) = different enough to be
2. Heterogeneous (between segments)
3. Profitable to serve this segment
4. Operational (measurable, actionable, accessible)
Criteria used for segmentation should be based on their ability to
identify segment that needs different strategies.
1. Benefit sought/usage behavior
2. Price sensitivity
3. Loyalty
4. In 1900s, we use: demographics, geographics, physiographics
and socio-economic variable)
Targeting = we evaluate segments for size and growth,
attractiveness and fit
Undifferentiated (mass)
Concentrated (niche)
Micro (segment of one) special order
Strategic considerations in targeting
1. stage of product life cycle where we are in product life cycle
2. segment interrelationships (compatibility) success in one
segment may provide a platform for entering another
3. competitive marketing strategies consider segmentation
approach of competitors and markets not served by
4. Degree of fit assessment of the companys understanding of
the segment and compatibility with capabilities.
Position and Branding
Positioning the perception of our brand in the market
Brand quity financial value of our brand
Brand impact can increase market capitalisation from 20% to 80%
Benefits of brand equity
1. Incremental attraction (i.e. sales growth)
a. Easier to attract new customers

b. Resist competitive activity

c. Introduce line extensions marketing new products
under an established well-known brand name
d. Global expansion
2. Cost advantages
a. Channel leverage doesnt have to bargain with
channels (distributions)
b. Lower advertising/sales ratios greater share of market
and share of voice = lower share of total advertisement
spent on a product
3. Sustainable price premium
a. Greater loyalty
b. Premium pricing/lower price elasticity
Strong brands sustain easier because small advertisement = large
market share and vice versa.
Role of branding from a consumer behavioural perspective
1. Identification to be clearly seen, to make sense of the offer,
to be quickly identify sought after products (functional)
2. Guarantee to be sure of finding the same quality no matter
where/when product is purchased. (i.e. in international
3. Optimization to be sure of buying the best in a product
category, best performer for a particular purpose (i.e., Google)
4. Characterisation to have confirmation of self-image/image
presented to others
5. Continuity satisfaction from intimacy and familiarity with a
brand one has consumed for years.
6. Hedonistic satisfaction linked to the attractiveness of the
brand, to its logo, to its communication
7. Ethical satisfaction linked to the responsible behavior of the
brand in its relationship in the society
Brand as vehicle for positioning a firms offering
Positioning =
1. A firms effort to develop a set of offering characteristics that
result in favorable and meaningful comparisons relative to
competitors (as well as the sellers other offerings)
2. Conscious effort of a seller to communicate the key elements
of this framing to customers communication,
advertisement, selling efforts, product, retail store
3. Customers perceptions of these efforts
Building brand equity
1. Brand identity = meaning, position, goals, projected by the
2. Brand image =
a. Brand awareness =

i. Depth of awareness (likelihood that the brand can

be recognized/recalled)
ii. Breadth of awareness (variety of purchase
situation for which brand came to mind)
b. Strength of association = extensiveness of brand
information processing
c. Favourability of association = associations viewed as
positive and capable of satisfying consumers needs
d. Uniqueness of associations = associations not shared
with other competitors
3. Brand equity
Brand associations
1. Product-related attributes (functional, experiential, symbolic)
2. Non-product related attributes (user & usage imagery,
personality, feelings)
Brand identity precedes image
Brand identity meaning, position, and goals for the brand agreed
upon and projected by the organization. Begin with creating a
cohesive organizational culture around the brands objective.

Week 5:
Product life cycle
Product = means by which value is delivered to customers.
However, value differs for each individuals, thats why we augment
The Augmented Product
1. The core meeting minimal customer requirements (right to
Focus on generic category benefits first

2. The expected ayer basic differentiation

Only then look for opportunities to differentiate
3. The augmented layer complex forms of differentiation
During product life cycle, we experience loss during development
and introduction for research and manufacturing as well as capital
borrowing purposes. However, as during introduction sales grow, we
can see profit goes through the break-even point and experience
positive growth during growth period. During the maturity period,
sales and profit growth slows down until both experience negative
growth during maturity
Strategy during product life cycle
1. Introduction
a. Product = new/innovative
b. Pricing = premium
c. Place = specialist outlets, full service
d. Promotion = inform consumers, encourage trial, focus
on innovators and early adopters
CHASM takeoff
2. Growth
a. Product = improve quality, styling, features; add
nw/flanker products
b. Pricing = pricing stability, possibly lower to increase the
market share
c. Place = increase number of outlets and routes to market
d. Promotion = shift from awareness advertising to
comparative messages
3. Maturity
a. Product = modify product usage, race to find market
niches and remaining segments (e.g., laggards)
b. Pricing = kiwer prices, markdowns, value bundles
c. Place = increase distribution effrots, promotion to
channel members
d. Promotion = concentrate on product positioning
4. Decline
a. Product = maintain a basic product, cut unprofitable
segments, possibly withdraw
b. Pricing = maintain pricing, possibly raise prices
c. Place = limit distribution efforts, perhaps low cost
d. Promotion = cut back on advertising and sales
General observations on the product life cycle:
1. This can be applied to 3 product areas:
a. Product categories
b. Product forms
c. Brands

2. Duration is determined by
a. Competition
b. Consumer behavior
Product adoption / diffusion
1. Innovators (2.5%)
2. Early adopters (13.5%)
CHASM takeoff (DIFFUSION OF INNOVATION) if cannot go through
chasm, decline sales overtime
3. Early majority (34%)
4. Late majority (34%)
5. Laggards (16%)
Factors influencing the rate of diffusion
1. Relative advantage (e.g., Groves 10x rule)
2. Compatibility (e.g., network effects)
3. Complexity
4. Divisibility
5. Communicability
1. Products are dynamic; the features that create value for
customers are constantly evolving
2. The product life cycle has implications for marketing practice
3. Consider the factors that drive diffusion of an innovation
within the market
Product Development
Minimize time to market (cycle time)
1. Amortise costs of development over life of the product
2. First over advantage
3. Increased chance of product being accepted as dominant
However, this may entail to high cost of initial R&D and high cost of
How new is a new product?
1. Derivative projects =
a. Process change = incremental change, single
department upgrade
b. Product change = product enhancements
2. Platform projects =
a. Process change single department upgrade next
generation process
b. Product change = product enhancement, addition to
product family
3. Breakthrough projects

a. Process change = new core processes

b. Product change = next generation product, new core
No.1 main sources of innovation = cooperation with suppliers and/or
Customer involvement increases:
1. Perceived switching costs
2. Tolerance of service failure
3. Perceived control and opportunity to make choices
4. Firm productivity
5. Service innovations
What it is not?
1. Simple customization of what we already provide
2. Staged involvement around a fixed offering (e.g., Disney)
3. A straight transfer of outsourcing of responsibility to clients
(e.g., IKEA)
Co-creation in service firms
Professional service firms tend to be reluctant due to ideology of
expertness in most service firms and skepticism of the customers
ability to make a meaningful contribution.
Those who engaged in co-creation activities were more loyal and
invested significantly more funds with the firm in the following year.
Customers embracing co-creation felt that the task was clear, were
motivated to get involved and tended to be more expert
Therefore, this means firms should
1. Focus on improving the skills of boundary-spanning service
2. Provide employees with greater behavioural latitude
3. A more porous organizational boundary
4. Need for operational flexibility; the ability to make small
quantities of different products without additional costs.
1. Product development is the lifeblood of every firm; continual
innovation is essential for business survival
2. Need to resolve tensions between early and ate product
development/product and process innovation
3. Firms might consider the potential of customer-firm cocreation of products for long-term survival.

Week 6
Marketing Communication
Integrated Marketing Communication (IMC)
Developing and implementing various forms of persuasive
communications programs with customers and prospects over time
Consumers are influenced by all aspects of contacts with the
organization, i.e.:
1. Exposure to the brand
2. Sales person
3. TV advertisement
4. Retail store
Key elements of process:
1. Affecting purchase behavior sets behavior so ppl will
2. Using all forms of contacts
3. Beginning with the customer or prospect
4. Achieving synergy
Eliciting a favourable brand attitude should be considered an
intermediate step in achieving the ultimate objective of purchase.
True loyal: high behavioural and high attitudinal loyalty
Ultimate goal: some action Sets behavior as ultimate objective
Consider all possible contacts a customer or prospect has with the
brand or the organizations part of vision to develop favourable
attitude and migrate it to to loyalty.
Messages have to be consistent on all four contacts
IMC process begins with the customer and works back to determine
the most effective and persuasive communications for advertising
Avoid sales orientation
What is the segment and their value, affect how we
Observe customers work back to the organization how we best
communicate with this particular customer (better than some
method works for everybody)
Wrong campaign push pressure on sales person to sell the products
Points of contact between the customer and the firm. Everything
supports one another.
IMC implies a coordinated message across various media

Avoid duplicated effort and contradictory messages to achieve

stronger brand position & memory because we dont want to
confuse our market

Element of effective Integrated campaign

1. Effective purchase behavior
2. Understanding all role of all forms of contact and
communication with customers
3. Customer eccentric
4. Being consistent
Ex. SONY Bravia
1. Creative strategy: unique selling proposition
2. Budget
3. Best mix of media
4. Momentum: when and how much do we spend
Marketing communications decision areas
A. Media and vehicle selection, i.e.
Advertising (e.g. TV (vehicles: adv and programs), radio,
magazines, newspapers)
Sales promotion (e.g. trade & consumer promotions)
Publicity (e.g. public relations, sponsorships)
Personal communications (e.g. selling, telemarketing,
internet / e-mail, social networking, events)
1. Media selection decisions
Ability to convey creative content
Meet objectives of brand awareness and brand attitude
key element of brand equity (higher when people
know us better)
Achieve desired reach and frequency using media
2. Encoding variability
Concept demonstrates memory for a phenomenon is
enhanced when there are multiple pathways created between
the object and information to be remembered.
High relevance of advertising & publicity for early stages
of purchasing decision-making process (need
recognition, information research, alternative
High relevance of personal selling and sales promotion
(purchase decision, post-purchase decision)
Initial-consideration set (company driven marketing,
past experience) active evaluation (consumer-driven
marketing) closure (store agent dealer interactions)
B. Message content what we say in our message

C. Establishing the promotional budget how loud we shout

and how long
1. Effective marketing communications results from a consistent
message singing from the same hymn sheet
2. The use of media must also be coordinated and driven by
campaign objectives
3. Variation in the use of media can have a powerful impact on
campaign performance
Message content depends on our objectives
1. Arouse interest
2. (Re)positioning
Efforts of a firm to develop a set of offering characteristics
that are intended to result in favourable and meaningful
comparisons relative to competitors offerings, as well as the
sellers other offerings.
Brand positioning convergence toward a set of common
3. Informing and educating customers
The Elaboration Likelihood Model (ELM)
Customers process ads differently based on level of
involvement. Elaboration on message is more likely when
there is high involvement. Elaboration is the allocation of
cognitive effort (process what youre saying).
i. High involvement purchase situation
a. Consumers use more cognitive effort
b. Use a central route to persuasion (i.e., emphasis
on strong issue-relevant arguments, information,
make a case that you should buy a product)
c. Customers care about risks
Low involvement purchase situation
a. Consumer use peripheral cues in evaluating
b. Use a peripheral route to persuasion (i.e.,
emphasis on visual, symbolism, imagery,
emotions, music etc)
c. Use fearful message to stimulate elaboration
(message processing) for low involvement
4. Generate immediate buying action
5. Confirm purchase decision/remind buyers
1. What we say in advertisements should be driven by our
objectives (e.g., informing, positioning, persuading)
2. Positioning needs to be reinforced by all other aspects of the
marketing mix. (not ads alone)

3. Consumers process the messages in our advertisements

depending on their level of involvement with the product (the
message itself may stimulate involvement).

Week 7:
Marketing Communications (Message content & budget
determination) (Promotion)
Purchase motivation and the role of information
1. Negative purchase motivation - have problem
Advertisement message should be informational (i.e., central
route to persuasion) can help determine content
2. Positive purchase motivation
Advertisement message should be transformational (e.g.
peripheral route to persuasion)

Low involvement and negative purchase motivation, i.e.

pimple cream
Low involvement: cheap, no risk (if ineffective only doesnt
heal pimple) peripheral cues
Negative purchase motivation: problem to heal pimple use
informational advertisement.
High involvement and positive purchase motivation =
university degree
Campaign tends to include aspects of both,
Central: magazines, newspaper
Peripheral: TV slots, allows colour, movement, music
In-store promotion and immediate purchasing action.
Sales promotion and immediate purchasing action
Sales promotion = alters the value equation at point of sale, ie. 2for-1
1-2% coupon redeemed. 10% on-product coupon
purchase cycle low, will not communicate with customer for a long
time. However firms wanted to evoke set, stay in customers mind,
Types of advertising:
1. Reminder-style advertising (for industry with elapse time of
contact with customers)
Measuring results and budget determination
1. Effective frequency

Optimum range of exposures in an advertising cycle that

maximizes targets disposition to act.
People take sometime to remember something,
Advertisement is useless unless affect customers decisionmaking process.
Rule of 3, minimum 3 exposures for customer to know what is
it, what does it do, how to buy it.
Attention wearout, customer stopped listening once they know
the three things above, become annoying to customer, waste
of resources to firms.
Optimum range depends on:
1. Audience brand loyalty optimum range, customers are
already convinced
2. Message creativity optimum range, effective
3. Potential for interpersonal influence optimum range, you
dont have to advertise as much.
4. Newness of product (teach vs. remind) optimum range,
need more to do: increase awareness, positioning and educate
5. Advertising objectives (hierarchy of effects) optimum
Minimum effective frequency: exposures at which behavior is
activated, most cost effective.
Maximum effective frequency: once a purchase decision is made, all
further exposures to message are wasted. Over exposure to
message may build negative disposition toward brands due to
attention wear out.
1. Communications can alter the value equation close to, or at,
point of purchase to encourage action.
2. Institutional advertising reminds consumers of particular
brand attributes and maintains the brand in their evoked sets
3. Advertising budget is determined by an optimal level of
exposures to a message.
Pricing (consumer perceptions and behavior)
The overuse of price
Why are price appeals so common?
1. Appeals based on price are easier to communicate
2. Price changes are more immediate and direct
3. Short lead times for policy change
4. No initial negative cash flow (unlike product development,
Competitors can react more readily to price appeals than appeals
based on product augmentations.
1% increase in price

coca- cola = increase revenue $300 million

profit formula
Profit = (price-cost) x unit sales
Unit sales = strong emphasis through sales efforts, advertising, new
product development etc.
Cost = strong emphasis within most organisations (especially those
run by accountants!)
Price = most firms have no clue and leave price to the market
Price to consumer = money, time, behavioural effort, cognitive
Price is the cost of getting the benefit of a product throughout its
ownership lifetime
Customers manage cognitive activity
1. Applying heuristics (decision rules)
2. Brand loyalty
3. Evoked sets
4. Reference groups and family
How do consumers process price information?
1. High involvement products
a. Comprehension interpretation/assignment of meaning
b. Integration (comparison and integration with other
c. Attitude formation
Assigning meaning to price
Quality assurance pricing
Price communicates the extra effort expended to produce a superior
product that will perform to the customers satisfaction; particularly
effective where
2. Product performance varies
3. Credence goods
4. Costs of product failure/poor performance are high
Price as signal
Prestige pricing: ownership of high priced products signals group
Prospect theory
Consumers do not make decision in terms of absolute wealth but of
losses or gains relative to a reference point (framing effects")
Price Framing
Reference pricing
isolation effect a choice looks more attractive next to a costly
alternative than it does in isolation.

Pricing may not always be a key consideration

1. Low involvement products
Provided a products price falls with an implicit range, it will
not be evaluated as a purchase criteria
2. Brand loyal consumers
Purchase on the basis of one attribute only the brand name
1. Price is a powerful tool yet it is so poorly understood and
therefore often managed badly
2. Consider all aspects of cost to a consumer in managing price
3. Often there is a great deal of meaning embodied within price;
consumers never evaluate a products price in isolation.

Week 8:
Pricing (strategies and objectives)
Some pricing objectives
1. Gain market share
2. Short-term profitability
3. Respond to competition
4. Entry deterrence
5. Product positioning
6. Exit strategy
Determining prices:
1. Cost-based approach (break even, cost-plus)
For when a firm has no blue
Perversely leads to over-pricing when demand is low and
underpricing when demand is high (due to scale economies)
2. Competition-based approach competitors pricing
Fro when a frim has no clue
Assumes there are no desperate competitors (but there
always are)
3. Customer-based approach customer willingness to pay
A firms costs are irrelevant to consumers, consumers pay for
If firms cannot make profit at customers value
Break business fundamental rules, to provide value for

Cynic knows the price of everything and the value of nothing

Pricing is a zero sum game
Profit is inversely proportional to customers benefit from lower
Price is only one aspect of value: BUT people have an unusual
relationship with money
Value-based pricing, need to understand
1. Customers perception of value (i.e., their willingness to pay)
2. Customers price sensitivity (i.e., elasticity)
Perceptions of value are contextual
Strategic considerations in pricing
1. Penetration sales oriented
Price set below the competitive market level to gain market
With little competitive retaliation and elastic demand
growth in market share should result
Long-term profits often follow dominant market share
Anticipation of economies of scale, as firm gets bigger, it
gets more efficient because stronger position in the
suppliers perspective, consumers, etc.
May discourage new entrants
Penetration pricing used to enter a mature market may
deter competitive entry. Different business model cant
be copied.
Aggressive penetration pricing can become predatory
Deliberate price cutting or offer of free gifts/products to
force rivals out of business or prevent new entrants. This
is anti-competitive and illegal.
2. Skimming,,, profit oriented
Setting a price level above the going market price
Used for new or unique products and early stages of
product life cycle
Serves to maximize short-run profits by selling to those
customers with highly inelastic demand for the product
After this group has purchased, price may be lowered to
capture the next level of demand
Consistent with quality/prestige positioning
Price discrimination
Charging a different price for the same good/service In
different markets
i. Requires each market to be impenetrable


Requires different price elasticity of demand in

each market
Ethical/legal issues
Often in seasonality, different events.
However customers doesnt like uncertainty and risks.
Consumer behavior prefers risk avoidance rather than
maximizing satisfaction.
3. Stability maintain status quo
Price relativities between competitors are maintained to
preserve stability in the market
Avoids retaliation from competitors and price wars
Competitive activity is focused on product improvement,
distribution efforts, and promotional programs.
Communication and execution are important
Strategic considerations in pricing
When decrease price momentarily give clear logical reason. If not
occurs problem.
People are often irrational in choosing products relative to their price
but we can influence the way people perceive price.
Marketing channel
Network of organisations (e.g., manufacturer, wholesales, agents,
retailers) that create time, place and possession value for
Channel characteristics
Distribution channels are most often described according to:
1. Channel length
a. Number of intermediaries
Manufacturer agent wholesaler retailer
Franchise holder, short term goal sell to agent.
2. Intensity of distribution at various level
a. Stocking a product in as many outlets as possible
b. Used for convenience goods, shopping products.
c. Exclusive distribution
i. Few stores granted rights to distribute products in
specific territories.
ii. Prestige or specialty goods, infrequently
purchased, require significant after-sales service.
d. Selective distribution positioning
The use of more than one but less than all the
intermediaries who are willing to carry a particular
Heterogeneous shopping products, or those that
consumers seek out.

Channel structure
Determinants of channel structure include:
1. Distribution functions
2. Economics of distribution function
3. Managements desire for distribution control
The shorter the channel structure, the higher the control
Opportunity to maintain brand image
When service component of offering is high (and is
important to customer perception of value)
Functions of the distribution channel
1. Research from retail stores, most contact with customers
2. Promotion
3. Contact physical and financing distribution
4. Negotiation
5. Physical distribution
6. Financing
7. Risk taking
8. Matching
Resolve discrepancies between consumers and producers
i. Quantity (buffer mass produced goods, breaking down
bulk to individual items)
Assortment (allow producers to focus while providing
customers selection)
Time (hold goods until ready)
Place (connect producers and consumers)
Economics of distribution functions
Specialization or division of labour
Transaction efficiency
A new multi-channel world
Consumers who shop across a number of channels physical stores,
the internet, and catalogs spend about 4x more annually than
those who shop in just one.
Multi-channel models drive firm performance
i. Low-cost access to new markets
Increased customer satisfaction and loyalty
Creation of a strategic (knowledge) advantage
Multichannel shopping process
Need recognition, pre-purchase search, alternative evaluation,
purchase decision, post-purchase
Major manufacturer system integrator using distribution strategy,
increase cost-effective and productive-effectiveness of firm. Getting
things according to schedule.

Amazon lower price, greater variety of goods, higher customer

experience rating.
Pricing meets distribution, new application of old method. Profit from
here, deficit from there to obtain overall profit.
1. Channels create value; they are a source of efficiency and can
deliver benefits to customers
2. Channel members perform a range of important functions in
addition to moving the product from manufacturer to
3. Firms often have to trade-off efficiency for control in designing
4. A multi-channel structure is increasingly important as
customers begin to expect multiple ways to interact with the

Week 9:
Distribution channels (conflict and context)
Channel behavior
1. Horizontal conflict = conflict between firms at the same level
of channel

2. Vertical conflict = conflict between different levels of the same

channel (i.e., wholesaler, retailer, supplier). Problem: who get
the most value for different levels of channels.
Channel organization
1. Conventional marketing channels
Channel members acting independently
Maximize own profits even at the expense of the profits for the
system as a whole.
2. Vertical marketing systems
Channel members acting as a unified system; manage
collaboratively various function of a channel.
i. Supplier buys the retailer, forward integration.
Retailers make stuff for themselves, backward integration.
a. Makes supply cheaper
b. Sells to other companies for additional revenue
c. Less conflict
d. Control the channel
1. Corporate Vertical marketing system: combines successive
stages of production and distribution under single ownership.
2. Contractual vertical marketing system (weaker VMS)
Independent firms at different levels of production and
distribution integrating their programs on a contractual basis
Wholesaler-sponsored voluntary chains (e.g., IGA
Retailer cooperatives (e.g., Mitre 10)
3. Franchise organisations (e.g., Ford, McDonalds, H&R Block)
4. Administrative VMS
Coordinates successive stages of production and distribution
through the size and power of one of the parties
Coordination might also be achieved through relational (i.e.,
trust forms, reciprocity) means
Customer characteristics and channel design
Long channels for widely dispersed customer population
Small amount, purchased frequently
Shorter channels
High involvement/specialty goods
High service component
Multiple routes to market
Product characteristics
Bulky products (shorter channel, bulky difficult to move)
Non-standardized product (shorter, more service component)
Products requiring installation or maintenance services (short)
High unit value products (high involvement, short)
Perishable products (short, get them quickly to market,
handling them less)

Channel modifications and product life cycle

1. Introduction = limited distribution through exclusive or
selective channels
a. Channels bear a larger share of the costs of buyer
2. Growth
a. High volume channels are introduced
3. Maturity
a. Increase number of outlets
b. Lower price, lower service outlets
c. Building direct channels
4. Decline
a. Limited outlets or direct only
Intermediary characteristics
Channel design reflects the strengths and weaknesses of different
types of intermediaries in handling key tasks
Key issue of channel member:
1. Selection
2. Monitoring
Competitive characteristics
Tension between distributing near competitors and avoiding
Company characteristics
Company size
Financial resources = assume more channel functions with greater
Product mix: firms favour exclusive or selective dealers with greater
depth of the product mix
Companys value proposition e.g., efficient delivery, high levels of
customer service shorter channel
1. Conflict is inevitable when we introduce agents (whose
motivations may be different from the firms) but there are
ways of managing this.
2. Consider the context in which the firm is developing its
channel strategy; one size does not fit all!
Services marketing (Differences and solutions)
Reasons for growing interest in services marketing
1. Absolute and relative growth of service industries compared to
other sectors of the economy

2. Deregulation of many service industries (e.g., banking,

airlines, telecommunications)
3. Professional services changing to a marketing orientation.
4. Intensification of competition in existing service industries
5. Changing demographic and socio-economic profile of
Australian society
6. Increased use of a co-creation business model.
Problems faced by services marketers
1. Intangibility = although there are tangible objects associated
with almost any service, the core offerings of a service
company are performances, not objects.
We cannot see, feel, taste, or touch services. Goods evaluated
objectively prior to purchase, services evaluated subjectively
prior to purchase.
2. Inseparability of production and consumption
Service goods are sold firs, produced and consumed at the
same time
3. Variability
High degree of human interaction and intangibility leads to
increased variability
i. From one service employee to another
From the same service employee
From one customer to another
4. Perishability
Services cannot be saved and inventoried
Fluctuations in demand but almost no fluctuations in supply
Additional elements of marketing mix
1. Physical evidence
a. Environment in which the service is assembled and
where the firm and the customer interact
b. Tangible elements of the service offering
To remind customers what they are having, increasing
customer value
2. Participants (or people)
Includes all human factors (employees and other customers) who
play a role in services delivery
Traditional mindset for the service organization
Managers control employee.
Lower employee satisfaction low customer satisfaction
Market focused mind-set for service quality and recovery,
responsible to customer satisfaction. Managers become more
3. Process = actual procedures, mechanism and flow of activities
by which the service is delivered can reduce variability

a. Make service map blueprint, use boundary front line and

Line of interaction = customer and front-line employee
direct interaction
Line of visibility = customer can see whats happening
between onstage and backstage contact employee
Line of internal interaction = what support processes
and people. They make sure onstage and backstage are
managed or are working effectively and efficiently
1. Most of you will end up working in services industries or in
industries with a service component; so a services marketing
mindset is essential!
2. Services present a number of new problems that physical
good doesnt have, but we have an augmented toolkit to
handle these; the challenge is to know how best they should
be applied.

Week 10: Services Marketing (quality)

Bringing employee to the picture
1. Company customer = external marketing setting the
2. Company employees = internal marketing enabling the
3. Customers employees = interactive marketing delivering
the promise
Service quality = is judged relative to customer expectations.
Consumers judge the quality of service on their perceptions of
1. Technical outcome (quality) (i.e., what is delivered) for service
sometimes difficult to be assessed due to subjectivity and
a. Reliability = ability to perform the promised service
dependably and accurately
b. Responsiveness = willingness to help customers and
provide prompt service
2. Functional outcome (quality) (i.e., how it is delivered) e.g.
intimacy, flexibility, empathy, communication. become
motivation for loyalty
a. Assurance = employees knowledge courtesy and ability
to inspire trust and confidence.
b. Empathy = caring individualized attention given to
c. Tangibles = appearance of physical facilities, equipment
personnel and written materials.
Organizational and individual attributes contribute
Technical quality
Functional quality
1. Company size
1. Perceived ideology
2. Resources
2. Perceived goals
3. Range of services
3. Service mindedness
4. Admin systems
4. Perceived image
5. Technical systems
5. Service scape
1. Qualifications
1. Empathy
2. Experience
2. Communication
3. Company
3. Negotiation skill
4. Industry
4. Service mindedness

5. Consistency

5. Emotional

Relative importance depends on the customer

We value things differently to different degree, based on one of the
contingent factors: investment expertise
Customer expertise increase put higher importance on technical
service quality.
1. Services firms rely more than physical goods manufacturers,
on employees to deliver on their promise
2. Service quality, and how it is perceived, is a moving target; at
the very least we must consider both the technical outcome
and means by which this is delivered.
Service marketing (service failure and recovery)
What are firms immediate action (what and when) to service
Failure is emotional
Failure goes wrong, 40% do nothing, staff wrong, customer angry,
company doing nothing
Cost of service failure
Not even 28% do nothing
Decrease value of product I purchased spending decrease
Velocity of transaction goes down
Unresolved failure undermines growth
Persistent failure detractors limits growth
1. Find ways to get even
2. Drive up costs by reporting problems
3. Demoralize employees with complaints
4. Spread negative word of mouth
Limits growth:
1. Firms brand is tarnished
2. Ability to find new profitable customers is affected
3. Difficult to increase spending among existing customers
4. Ability to recruit best employees is diminished.
Because employees are pro-customers, we know what it feels
like to be treated badly.
Service failure: the bad news
1. The average business does not hear from 96% of its unhappy

2. Over 65% of those who do not complain, will not go back to

that business again
3. On average, customers with a complaint tell 8-9 other people,
13% tell 20+ other people.
Upside of service recovery
1. 70% of complaining customers will be retained if the
complaint is resolved.
2. 95% of complaining customers will be retained if the
complaint is resolved quickly (consistent with the customers
definition of quickly), less switching cost.
3. Customers, who have their complaint satisfactorily resolved,
tell on average 5 other people.
Treating customers fairly
1. Distributive Justice (was I compensated fairly?)
2. Procedural Justice (were the companys policies and practices
fair? Was it easy to complain?)
3. Interactional Justice (was I treated well by the companys
A framework for detecting and correcting service failure
1. Identifying service failures
2. Resolving customer problems
Individual customer and employee satisfaction increase
customer and employee loyalty profit
3. Communicating and classifying service failures
4. Integrating data and improving overall service
improve service system overall customer and employee
satisfaction increase customer and employee loyalty
Getting employees involved, beyond rules, procedure, and contracts
by creating ownership.
Develop and remunerate service employees to :
1. Gather customer information
2. Measure their own performance
3. Identify unhappy customers
4. Find the root causes of value delivery problems
5. Improve service delivery processes
6. Identify and eliminate low priority tasks.
The cycle of failure
1. Narrow design of jobs to accommodation low skill level (do not
trust employees, let them take no responsibility and give them
low skill jobs)
2. Use technology to control quality
3. Emphasis on rules rather than service

4. Payment of low wages, poorly directed rewards increase

turnover cost
5. Minimization of selection effort
6. Minimization of training
7. Employees become bored
8. Employees cant respond to customer problems
9. Employees dissatisfaction and show poor service attitude
Customer dissatisfaction
High employee turnover and poor service quality
No continuity in relationship with customer
Failure to develop customer loyalty
Low profit margin
High customer turnover
Repeat emphasis on attracting new customer
Ignore existing customer and lead to customer
Re-organising to cure the cycle of failure
1. Provide increased latitude for front-line service workers (within
specified limits)
2. Recruit people who respond well to enfranchisement
3. Involve employees in the selection of co-workers
4. Compensation paid for performance (rather than effort)
It is difficult to get a man to understand something when his salary
depends on his not understanding it.
1. Service failure is inevitable yet many firms are genuinely illprepared to solve problems that emerge (theres no excuse!)
2. Failure and recovery generate emotive responses which affect
3. At the heart of ever effective service recovery framework, is
the notion of justice and the active involvement of frontline
service employees.
Week 11: Marketing Ethics
1. Environmental issue
Shell north sea oil spur
i. Tow not sink the spur
2. Child labour in Pakistan
Nike child labour in Pakistan
i. FIFA announces it is setting up a code of conduct in
consultation with European trade unions
Nike announces to the press that its subcontractor has
opened up Pakistans first soccer ball stitching centre
Production moved away from homes to stitching centres
where standards can be monitored

Education centres set up
v. 95% of all soccer ball exports are child labour free
i. Female participation in industry drops from 50% to 20%
Commute to factories led to lower productivity
No longer supplement stitching income with agriculture
Less flexible
v. Sexual harassment
Education centres wound up in 2004
3. Johnson& Johnson Tylanol poisoned
a. Taken from the market
b. Ford did not, let firms be firm, doesnt have to be
socially just or concerned. Let government do their job.
The social responsibility of business to engage in socially
responsible behaviours
1. Business reasons (instrumental; enlightened sef-interest)
a. Opportunities/rewards
b. Risks/penalties
2. Moral reasons (normative)
a. Corporations cause social problems or have social
b. With power comes responsibility
c. Because governments fail to fix social problems
d. Corporations rely on resources from a broader set of
stakeholders than just shareholders, such as society
dissent, environment finite, , if I rely on stakeholders
why would I behave in opposite favour of these
Classifying stakeholders
Stakeholder power = ability to bring about desired outcomes
(despite resistance)
Stakeholder legitimacy = actions of an entity are desirable, proper
or appropriate
Stakeholder urgency = issues are time sensitive and of great
Definitive stakeholder (power, legitimate, urgency) = urgent plan
how to affect things that are seen legitimate and have power. First
to be considered.
Dependent (legitimacy urgency) = we dont have power to change
In the brent spar case
1. Greenpeace, UK = demanding stakeholder
2. Greenpeace, Europe = dependent stakeholder, lobby Europe
government and consumer
3. European Governments = discretionary stakeholder
4. European Consumer = definitive stakeholder

5. European Shell = definitive stakeholder

Stakeholder expectations
Stakeholder group
Business partners
Governments and regulatory
Local community
Natural environment

Return on investment, corporate
governance, conscience
Value, quality, truthful
Benefits, safety, stimulation,
equal opportunities
Sustained relationship, payment
of bills, technology transfer,
reputation protection
Law abidance, tax contribution,
local economic impact
Charity, community investment,
Sustainable materials, water/air
emissions, energy efficiency,
waste management
Media releases, public relations

No one definition of Corporate Social Responsibility

The business case for corporate social responsibility
Instrumental stakeholder theory (enlightened self-interest)
1. Extra and/or more satisfied customers vs. boycotts or other
consumer actions
2. Employees may be more attracted/committed
3. Forestall legislation (license to operate)
4. Reputation/brand enhancement or differentiation
5. Risk management
Largely due to consumers changing behavior
Consumers will pay only a small premium for ethically
produced goods
But theyll punish an unethically made product even more
harshly, by buying it at a steep discount.
But when we look at the investment performance of socially
responsible investment fund in Australia,
Ethical funds significantly underperform the market in
Risk adjusted returns show that average annual performance is
around 1.52% (2000-2005), higher than (1986-2005) 0.88%
1. The right course of action for businesses will often imply
significant short-term costs (which shareholders dont like)

2. But there are good normative reasons and some evidence for
the instrumental case for ethical behavior
3. Exactly what Corporate Social Responsibility means for
business is not always certain, however, taking a broadened
view of organizational stakeholders is a good starting point.