Marketing issues...........

Sometimes market failures lead to a 

need for public policy intervention

•The Big Push:  A Graphical 

Model, 

6 

assumptions

 One factor of production - labor

Two sectors – traditional, modern

Technology - Same production function 

for each sector

–Domestic Demand - Consumers 
spend

an equal amount on each good

–Int’l Supply and Demand - Closed 

economy

–Market Structure - Perfect 
competition

with traditional firms operating, 

limit 

pricing monopolist with a modern 

firm 

operating

•Other cases in which a big push 
may 

be necessary

–Intertemporal effects

•1st period = invest simultaneously; 2nd 

period = income is increased by 

higher 

wages & profits

–Urbanization effects

•Rural – cottage industry; Urban – 

manufacturing (demand for manufactured 

goods)

–Infrastructure effects

•When one sector 

industrializes à higher 

demand for infrastructure 
services 

–Training effects

•Underinvestment in training and 

education – 

firms are afraid that trained 
people will work 

elsewhere and people don’t know 
what skills 

to acquire

Focuses on the sequential process 

through which the economic, industrial 

and institutional structure of an 

underdeveloped country is transformed 

over time to permit new industries to 

replace agriculture.

Savings and investment accumulation 

of physical and human capital, and 

interrelated structural changes in the 

economic structure of a country 

(transformation of production, changes 

in the composition of consumer 

demand, international trade, changes 

in socioeconomic factors like growth 

and distribution of population and 

urbanization) are needed

•Conclusions and 

implications

   The model does not recognize 
differences between countries

Observing developed country patterns 
such as the decline in the share of 
agriculture may lead developing 
country policymakers to neglect that 
sector, policymakers might suggest 
the 
development of an advanced university 
system even before the majority of the 
population has gained basic literacy

Common Characteristics of developing countries

1.Lower levels of living and productivity

2.Lower levels of human capital

3.Higher levels of inequality and absolute 

   poverty

4.Higher population growth rates

5.Greater social fractionalization

6.Larger rural population- rapid migration to 

   cities

7.Lower levels of industrialization and 

   manufactured exports

8.Adverse geography

9.Underdeveloped financial and other markets

10.Colonial legacies - poor institutions etc.
The natural development economics

1.Traditional Economics is concerned with the efficient, least-cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services

2.Political economy is concerned with the relationship between politics and economics, with a special emphasis on the role of power in economic decision making

•A verbal description of the Todaro model

–Migration is a rational decision

–The decision depends on expected rather than actual wage differentials

–The probability of obtaining a city job is inversely related to the urban unemployment rate

–High rates of migration are outcomes of rural urban imbalances

•Five Policy Implications

–Reduction of urban bias

–Imbalances in expected income opportunities is crucial

–Indiscriminate educational expansion fosters increased migration and unemployment

–Wage subsidies and scarcity factor pricing can be counterproductive

–Programs of integrated rural development should be encouraged

Why Study Development Economics?

Why Study Development Economics?
• Pages 9-11 of the book shows        samples of questions that will be  discussed in the book. These questions  illustrate the issues faced by almost  every developing nation.

•The Important Role of Values in

 Development Economics

Value premises – what is or not is desirable (eg. economic and social equality)–The validity of economic analysis and the correctness of economic prescription should always be evaluated in light of the underlying assumptions or value premises

   

   •Social Systems

–Interdependent relationships between economic and non-economic factors

   •Failure of Development Policy

–Importance of Institutional and structural variables

Sales Force Objectives and Strategy

The days when all the sales force did was “sell, sell, and sell” are long gone. Sales reps need to know
how to diagnose a customer’s problem and propose a solution that can help improve the customer’s
profitability.
Companies need to define specific sales force objectives. For example, a company might want its
sales representatives to spend 80 percent of their time with current customers and 20 percent with
prospects, and 85 percent of their time on established products and 15 percent on new products.
Regardless of the selling context, salespeople perform one or more specific tasks:
• Prospecting. Searching for prospects or leads
• Targeting. Deciding how to allocate their time among prospects and customers
• Communicating. Communicating information about the company’s products and services
• Selling. Approaching, presenting, answering questions, overcoming objections, and closing sales
• Servicing. Providing various services to the customers—consulting on problems, rendering
technical assistance, arranging financing, expediting delivery
• Information gathering. Conducting market research and doing intelligence work
• Allocating. Deciding which customers will get scarce products during product shortages
To manage costs, most companies are choosing a leveraged sales force that focuses reps on selling
the company’s more complex and customized products to large accounts and uses inside salespeople
and Web ordering for low-end selling. Salespeople handle fewer accounts and are rewarded for key
account growth; lead generation, proposal writing, order fulfillment, and postsale support are
turned over to others. This is far different from expecting salespeople to sell to every possible
account, the common weakness of geographically based sales forces.92
Companies must deploy sales forces strategically so they call on the right customers at the right
time in the right way, acting as “account managers”who arrange fruitful contact between people in
the buying and selling organizations. Selling increasingly calls for teamwork and the support of
others, such as top management, especially when national accounts or major sales are at stake;
technical people, who supply information and service before, during, and after product purchase;
customer service representatives, who provide installation, maintenance, and other services; and
office staff, consisting of sales analysts, order expediters, and assistants.Once the company chooses its strategy, it can use a direct or a contractual sales force.A direct (company)
sales force consists of full- or part-time paid employees who work exclusively for the company.
Inside sales personnel conduct business from the office using the telephone and receive visits from
prospective buyers, and field sales personnel travel and visit customers. A contractual sales force consists
of manufacturers’ reps, sales agents, and brokers, who earn a commission based on sales.
Sales Force Structure
The sales force strategy also has implications for its structure. A company that sells one product line
to one end-using industry with customers in many locations would use a territorial structure. A
company that sells many products to many types of customers might need a product or market
structure. Some companies need a more complex structure. Motorola, for example, manages four
types of sales forces: (1) a strategic market sales force composed of technical, applications, and
quality engineers and service personnel assigned to major accounts; (2) a geographic sales force
calling on thousands of customers in different territories; (3) a distributor sales force calling on and
coaching Motorola distributors; and (4) an inside sales force doing telemarketing and taking orders
via phone and fax.
Established companies need to revise their sales force structures as market and economic conditions
change. SAS, seller of business intelligence software, reorganized its sales force into industry-specific
groups such as banks, brokerages, and insurers and saw revenue soar by 14 percent.95 “Marketing
Insight:Major Account Management” discusses a specialized form of sales force structure

Marketing Public Relations

Many companies are turning to marketing public relations (MPR) to support corporate or product
promotion and image making. MPR, like financial PR and community PR, serves a special constituency,
the marketing department.
The old name for MPR was publicity, the task of securing editorial space—as opposed to paid
space—in print and broadcast media to promote or “hype” a product, service, idea, place, person, or
organization. MPR goes beyond simple publicity and plays an important role in the following tasks:
• Launching new products. The amazing commercial success of toys such as LeapFrog, Beanie
Babies, and even the latest kids’ craze, Silly Bandz, owes a great deal to strong publicity.
• Repositioning a mature product. In a classic PR case study, New York City had extremely bad
press in the 1970s until the “I Love New York” campaign.
• Building interest in a product category. Companies and trade associations have used MPR to
rebuild interest in declining commodities such as eggs, milk, beef, and potatoes and to expand
consumption of such products as tea, pork, and orange juice.
• Influencing specific target groups. McDonald’s sponsors special neighborhood events in
Latino and African American communities to build goodwill.• Defending products that have encountered public problems. PR professionals must be adept
at managing crises, such as those weathered by such well-established brands as Tylenol, Toyota,
and BP in 2010.
• Building the corporate image in a way that reflects favorably on its products. Steve Jobs’s
heavily anticipated Macworld keynote speeches have helped to create an innovative, iconoclastic
image for Apple Corporation.
As the power of mass advertising weakens, marketing managers are turning to MPR to build
awareness and brand knowledge for both new and established products. MPR is also effective in
blanketing local communities and reaching specific groups and can be more cost-effective than advertising.
Nevertheless, it must be planned jointly with advertising.86
Clearly, creative public relations can affect public awareness at a fraction of the cost of advertising.
The company doesn’t pay for media space or time but only for a staff to develop and circulate the stories
and manage certain events.An interesting story picked up by the media can be worth millions of dollars
in equivalent advertising. Some experts say consumers are five times more likely to be influenced by
editorial copy than by advertising. The following is an example of an award-winning PR campaign.

Major Sponsorship Decisions

Making sponsorships successful requires choosing the appropriate events, designing the optimal
sponsorship program, and measuring the effects of sponsorship.80
CHOOSING EVENTS Because of the number of opportunities and their huge cost, many
marketers are becoming more selective about choosing sponsorship events.
The event must meet the marketing objectives and communication strategy defined for the
brand. The audience must match the target market. The event must have sufficient awareness,
possess the desired image, and be capable of creating the desired effects. Consumers must make
favorable attributions for the sponsor’s engagement. An ideal event is also unique but not encumbered
with many sponsors, lends itself to ancillary marketing activities, and reflects or enhances
the sponsor’s brand or corporate image.81
DESIGNING SPONSORSHIP PROGRAMS Many marketers believe the marketing program
accompanying an event sponsorship ultimately determines its success. At least two to three times the
amount of the sponsorship expenditure should be spent on related marketing activities.
Event creation is a particularly important skill in publicizing fund-raising drives for nonprofit
organizations. Fund-raisers have developed a large repertoire of special events, including anniversary
celebrations, art exhibits, auctions, benefit evenings, book sales, cake sales, contests, dances,
dinners, fairs, fashion shows, phonathons, rummage sales, tours, and walkathons.
More firms are now using their names to sponsor arenas, stadiums, and other venues that hold
events. Billions of dollars have been spent over the past decade for naming rights to major North
American sports facilities. But as with any sponsorship, the most important consideration is the
additional marketing activities.MEASURING SPONSORSHIP ACTIVITIES It’s a challenge to measure the success of events.
The supply-side measurement method focuses on potential exposure to the brand by assessing the
extent of media coverage, and the demand-side method focuses on exposure reported by
consumers.“Marketing Memo: Measuring High Performance Sponsorship Programs” offers some
guidelines critical to issues of sponsorship measurement from industry experts IEG.
Supply-side methods approximate the amount of time or space devoted to media coverage of
an event, for example, the number of seconds the brand is clearly visible on a television screen or
the column inches of press clippings that mention it. These potential “impressions” translate into a
value equivalent to the dollar cost of actually advertising in the particular media vehicle. Some
industry consultants have estimated that 30 seconds of TV logo exposure during a televised event
can be worth 6 percent, 10 percent, or as much as 25 percent of a 30-second TV ad spot.
Although supply-side exposure methods provide quantifiable measures, equating media
coverage with advertising exposure ignores the content of the respective communications. The
advertiser uses media space and time to communicate a strategically designed message. Media
coverage and telecasts only expose the brand and don’t necessarily embellish its meaning in any
direct way. Although some public relations professionals maintain that positive editorial coverage
can be worth 5 to 10 times the equivalent advertising value, sponsorship rarely provides
such favorable treatment.83
The demand-side method identifies the effect sponsorship has on consumers’ brand knowledge.
Marketers can survey event spectators to measure recall of the event as well as resulting attitudes
and intentions toward the sponsor.

Events Objectives

1. To identify with a particular target market or lifestyle—

Customers can be targeted geographically, demographically,

psychographically, or behaviorally according to events. Old

Spice sponsors college sports and motor sports—including a

10-year deal with driver Tony Stewart’s entries in the Nextel

Cup and Busch Series—to highlight product relevance and

sample among its target audience of 16- to 24-year-old males.75

2. To increase salience of company or product name—Sponsorship

often offers sustained exposure to a brand, a necessary condition

to reinforce brand salience. Top-of-mind awareness for World

Cup soccer sponsors such as Emirates, Hyundai, Kia, and Sony

benefited from the repeated brand and ad exposure over the one

month–long tournament.

3. To create or reinforce perceptions of key brand image associations—Events themselves have

associations that help to create or reinforce brand associations.76 To toughen its image and appeal

to America’s heartland, Toyota Tundra elected to sponsor B.A.S.S. fishing tournaments

and a Brooks & Dunn country music tour.

4. To enhance corporate image—Sponsorship can improve perceptions that the company is likable

and prestigious. Although Visa views its long-standing Olympic sponsorship as a means

of enhancing international brand awareness and increasing usage and volume, it also engenders

patriotic goodwill and taps into the emotional Olympic spirit.77

5. To create experiences and evoke feelings—The feelings engendered by an exciting or rewarding

event may indirectly link to the brand. Audi models featured prominently in the 2010

blockbuster Iron Man 2, including main character Tony Stark’s personal R8 Spyder, the A8, Q5

and Q7 SUVs, and A3 hatchback. Backed by a month-long marketing blitz, surveys revealed

that positive word of mouth doubled for the brand.78

6. To express commitment to the community or on social issues—Cause-related marketing

sponsors nonprofit organizations and charities. Firms such as Timberland, Stonyfield Farms,

Home Depot, Starbucks, American Express, and Tom’s of Maine have made cause-related

marketing an important cornerstone of their marketing programs.

7. To entertain key clients or reward key employees—Many events include lavish hospitality tents

and other special services or activities only for sponsors and their guests. These perks engender

goodwill and establish valuable business contacts. From an employee perspective, events can

also build participation and morale or serve as an incentive. BB&T Corp., a major banking and

financial services player in the South and Southeast United States, used its NASCAR Busch

Series sponsorship to entertain business customers and its minor league baseball sponsorship

to generate excitement among employees.79

8. To permit merchandising or promotional opportunities—Many marketers tie contests or

sweepstakes, in-store merchandising, direct response, or other marketing activities with an

event. Ford, Coca-Cola, and AT&T Mobility have all used their sponsorship of the hit TV show

American Idol in this way.

Sales Promotion

Sales promotion, a key ingredient in marketing campaigns, consists of a collection of incentive
tools, mostly short term, designed to stimulate quicker or greater purchase of particular products
or services by consumers or the trade.50
Whereas advertising offers a reason to buy, sales promotion offers an incentive. Sales promotion
includes tools for consumer promotion (samples, coupons, cash refund offers, prices off, premiums,
prizes, patronage rewards, free trials, warranties, tie-in promotions, cross-promotions, point-ofpurchase
displays, and demonstrations), trade promotion (prices off, advertising and display allowances,
and free goods), and business and sales force promotion (trade shows and conventions,
contests for sales reps, and specialty advertising).
Objectives
Sales promotion tools vary in their specific objectives. A free sample stimulates consumer trial, whereas
a free management-advisory service aims at cementing a long-term relationship with a retailer.
Sellers use incentive-type promotions to attract new triers, to reward loyal customers, and to increase
the repurchase rates of occasional users. Sales promotions often attract brand switchers, who
are primarily looking for low price, good value, or premiums. If some of them would not have otherwise
tried the brand, promotion can yield long-term increases in market share.51
Sales promotions in markets of high brand similarity can produce a high sales response in the
short run but little permanent gain in brand preference over the longer term. In markets of high
brand dissimilarity, they may be able to alter market shares permanently. In addition to brand
switching, consumers may engage in stockpiling—purchasing earlier than usual (purchase acceleration)
or purchasing extra quantities. But sales may then hit a postpromotion dip.52
Advertising versus Promotion
Sales promotion expenditures increased as a percentage of budget expenditure for a number of
years, although its growth has recently slowed. Several factors contributed to this growth, particularly
in consumer markets. Promotion became more accepted by top management as an effective
sales tool, the number of brands increased, competitors used promotions frequently, many brands
were seen as similar, consumers became more price-oriented, the trade demanded more deals from
manufacturers, and advertising efficiency declined.
But the rapid growth of sales promotion created clutter. Consumers began to tune out promotions:
Coupon redemption peaked in 1992 at 7.9 billion coupons redeemed but dropped to 2.6 billion
by 2008. Incessant price reductions, coupons, deals, and premiums can also devalue the product in
buyers’ minds. There is a risk in putting a well-known brand on promotion over 30 percent of the
time. Having turned to 0 percent financing, hefty cash rebates, and special lease programs to ignite
sales in the soft post-9/11 economy, auto manufacturers have found it difficult to wean consumers
from discounts ever since.53
Loyal brand buyers tend not to change their buying patterns as a result of competitive promotions.
Advertising appears to be more effective at deepening brand loyalty, although we can
distinguish added-value promotions from price promotions.54 Gain’s “Love at First Sniff ” campaign
used direct mail and in-store scented tear-pads and ShelfVision TV to entice consumers
to smell the product, resulting in an almost 500 percent increase in shipments over the goal.Price promotions may not build permanent total-category volume. One study of more than
1,000 promotions concluded that only 16 percent paid off.56 Small-share competitors may find it
advantageous to use sales promotion, because they cannot afford to match the market leaders’ large
advertising budgets, nor can they obtain shelf space without offering trade allowances or stimulate
consumer trial without offering incentives. Dominant brands offer deals less frequently, because
most deals subsidize only current users.
The upshot is that many consumer-packaged-goods companies feel forced to use more sales
promotion than they wish. They blame heavy use of sales promotion for decreased brand loyalty,
increased price sensitivity, brand-quality image dilution, and a focus on short-run marketing planning.
One review of promotion effectiveness concluded, “When the strategic disadvantages of promotions
are included, that is, losing control to the trade and training consumers to buy only on
deal, the case is compelling for a reevaluation of current practices and the incentive systems responsible
for this trend.

Deciding on Reach, Frequency, and Impact

Media selection is finding the most cost-effective media to deliver the desired number and type of
exposures to the target audience.What do we mean by the desired number of exposures? The advertiser
seeks a specified advertising objective and response from the target audience—for example,
a target level of product trial. This level depends on, among other things, level of brand awareness.
Suppose the rate of product trial increases at a diminishing rate with the level of audience awareness,
as shown in Figure 18.2(a). If the advertiser seeks a product trial rate of T *, it will be
necessary to achieve a brand awareness level of A*.
The next task is to find out how many exposures, E *, will produce a level of audience awareness
of A*. The effect of exposures on audience awareness depends on the exposures’ reach, frequency,
and impact:
• Reach (R). The number of different persons or households exposed to a particular media
schedule at least once during a specified time period
• Frequency (F). The number of times within the specified time period that an average person
or household is exposed to the message
• Impact (I). The qualitative value of an exposure through a given medium (thus a food ad will
have a higher impact in Bon Appetit than in Fortune magazine)
Figure 18.2(b) shows the relationship between audience awareness and reach. Audience awareness
will be greater, the higher the exposures’ reach, frequency, and impact. There are important trade-offs
here. Suppose the planner has an advertising budget of $1,000,000 and the cost per thousand exposures
of average quality is $5. This means 200,000,000 exposures ($1,000,000 ÷ [$5/1,000]). If the advertiser
seeks an average exposure frequency of 10, it can reach 20,000,000 people (200,000,000 ÷ 10) with the
given budget. But if the advertiser wants higher-quality media costing $10 per thousand exposures, it
will be able to reach only 10,000,000 people unless it is willing to lower the desired exposure frequency.
The relationship between reach, frequency, and impact is captured in the following concepts:
• Total number of exposures (E). This is the reach times the average frequency; that is, E = R × F,
also called the gross rating points (GRP). If a given media schedule reaches 80 percent of homes
with an average exposure frequency of 3, the media schedule has a GRP of 240 (80 × 3). If another
media schedule has a GRP of 300, it has more weight, but we cannot tell how this weight
breaks down into reach and frequency.
• Weighted number of exposures (WE). This is the reach times average frequency times average
impact, that is WE = R × F × I.
Reach is most important when launching new products, flanker brands, extensions of wellknown
brands, or infrequently purchased brands; or when going after an undefined target market.
Frequency is most important where there are strong competitors, a complex story to tell, high consumer
resistance, or a frequent-purchase cycle.25
A key reason for repetition is forgetting. The higher the forgetting rate associated with a brand,
product category, or message, the higher the warranted level of repetition. However, advertisers
should not coast on a tired ad but insist on fresh executions by their ad agency.26 GEICO has found
advertising success by keeping both its campaigns and their executions fresh.

Developing and Managing an Advertising Program

Advertising can be a cost-effective way to disseminate messages, whether to build a brand preference
or to educate people. Even in today’s challenging media environment, good ads can pay off.
P&G has also enjoyed double-digit sales gains in recent years from ads touting the efficacy of Olay
Definity antiaging skin products and Head & Shoulders Intensive Treatment shampoo.3
In developing an advertising program, marketing managers must always start by identifying the
target market and buyer motives. Then they can make the five major decisions, known as “the five
Ms”:Mission:What are our advertising objectives? Money: How much can we spend and how do we
allocate our spending across media types? Message: What message should we send? Media: What
media should we use? Measurement: How should we evaluate the results? These decisions are
summarized in Figure 18.1 and described in the following sections.
Setting the Objectives
The advertising objectives must flow from prior decisions on target market, brand positioning, and
the marketing program.
An advertising objective (or goal) is a specific communications task and achievement level to
be accomplished with a specific audience in a specific period of time:4
To increase among 30 million homemakers who own automatic washers the number who
identify brand X as a low-sudsing detergent, and who are persuaded that it gets clothes
cleaner, from 10 percent to 40 percent in one year.
We can classify advertising objectives according to whether their aim is to inform, persuade, remind,
or reinforce. These objectives correspond to different stages in the hierarchy-of-effects model
discussed in Chapter 17.
• Informative advertising aims to create brand awareness and knowledge of new products or
new features of existing products.5 To promote its OnStar in-vehicle safety, security, and information
service that uses wireless and GPS satellite technology, GM launched the “Real Stories”
campaign in 2002. The award-winning TV, radio, and print ad campaign used actual subscriber
stories in their own words and voices to share the importance and benefits of OnStar
through life-changing experiences. By 2005, the OnStar brand had reached 100 percent awareness
among consumers shopping for a new vehicle • Persuasive advertising aims to create liking, preference, conviction, and purchase of a product
or service. Some persuasive advertising uses comparative advertising, which makes an explicit
comparison of the attributes of two or more brands. Miller Lite took market share from Bud
Lite by pointing out that Bud Lite had higher carbs. Comparative advertising works best when
it elicits cognitive and affective motivations simultaneously, and when consumers are processing
advertising in a detailed, analytical mode.7
• Reminder advertising aims to stimulate repeat purchase of products and services.
Expensive, four-color Coca-Cola ads in magazines are intended to remind people to purchase
Coca-Cola.
• Reinforcement advertising aims to convince current purchasers that they made the right
choice.Automobile ads often depict satisfied customers enjoying special features of their new car.
The advertising objective should emerge from a thorough analysis of the current marketing situation.
If the product class is mature, the company is the market leader, and brand usage is low, the
objective is to stimulate more usage. If the product class is new, the company is not the market
leader, but the brand is superior to the leader, then the objective is to convince the market of the
brand’s superiority.

Factors in Setting the Marketing Communications Mix

Companies must consider several factors in developing their communications mix: type of product
market, consumer readiness to make a purchase, and stage in the product life cycle.
TYPE OF PRODUCT MARKET Communications-mix allocations vary between consumer
and business markets. Consumer marketers tend to spend comparatively more on sales promotion
and advertising; business marketers tend to spend comparatively more on personal selling. In
general, personal selling is used more with complex, expensive, and risky goods and in markets
with fewer and larger sellers (hence, business markets).
Although marketers rely more on sales calls in business markets, advertising still plays a significant
role:
• Advertising can provide an introduction to the company and its products.
• If the product has new features, advertising can explain them.
• Reminder advertising is more economical than sales calls.
• Advertisements offering brochures and carrying the company’s phone number or Web address
are an effective way to generate leads for sales representatives.
• Sales representatives can use copies of the company’s ads to legitimize their company and products.
• Advertising can remind customers how to use the product and reassure them about their purchase.
Advertising combined with personal selling can increase sales over personal selling alone.
Corporate advertising can improve a company’s reputation and improve the sales force’s chances of
getting a favorable first hearing and early adoption of the product.36 IBM’s corporate marketing
effort is a notable success in recent years.BUYER-READINESS STAGE Communication tools vary in costeffectiveness
at different stages of buyer readiness. Figure 17.4
shows the relative cost-effectiveness of three communication tools.
Advertising and publicity play the most important roles in the
awareness-building stage. Customer comprehension is primarily
affected by advertising and personal selling. Customer conviction is
influenced mostly by personal selling. Closing the sale is influenced
mostly by personal selling and sales promotion. Reordering is also
affected mostly by personal selling and sales promotion, and
somewhat by reminder advertising.
PRODUCT LIFE-CYCLE STAGE In the introduction stage of
the product life cycle, advertising, events and experiences, and
publicity have the highest cost-effectiveness, followed by personal
selling to gain distribution coverage and sales promotion and direct
marketing to induce trial. In the growth stage, demand has its own
momentum through word of mouth and interactive marketing. Advertising, events and experiences,
and personal selling all become more important in the maturity stage. In the decline stage, sales
promotion continues strong, other communication tools are reduced, and salespeople give the
product only minimal attention.

Deciding on the Marketing Communications Mix

Companies must allocate the marketing communications budget over the eight major modes of communication—
advertising, sales promotion, public relations and publicity, events and experiences,
direct marketing, interactive marketing, word-of-mouth marketing, and the sales force.Within the
same industry, companies can differ considerably in their media and channel choices. Avon concentrates
its promotional funds on personal selling, whereas Revlon spends heavily on advertising.
Electrolux spent heavily on a door-to-door sales force for years, whereas Hoover has relied more on
advertising. Table 17.2 breaks down spending on some major forms of communication.
Companies are always searching for ways to gain efficiency by substituting one communications
tool for others.Many are replacing some field sales activity with ads, direct mail, and telemarketing.
One auto dealer dismissed his five salespeople and cut prices, and sales exploded. The substitutability
among communications tools explains why marketing functions need to be coordinated.
Characteristics of the Marketing Communications Mix
Each communication tool has its own unique characteristics and costs.We briefly review them here
and discuss them in more detail in Chapters 18 and 19.
ADVERTISING Advertising reaches geographically dispersed buyers. It can build up a long-term
image for a product (Coca-Cola ads) or trigger quick sales (a Macy’s ad for a weekend sale). Certain
forms of advertising such as TV can require a large budget, whereas other forms such as newspaper
do not. The mere presence of advertising might have an effect on sales: Consumers might believe a
heavily advertised brand must offer “good value.”34 Because of the many forms and uses of
advertising, it’s difficult to make generalizations about it.35 Yet a few observations are worthwhile:
1. Pervasiveness—Advertising permits the seller to repeat a message many times. It also allows
the buyer to receive and compare the messages of various competitors. Large-scale advertising
says something positive about the seller’s size, power, and success.2. Amplified expressiveness—Advertising provides opportunities for dramatizing the company
and its brands and products through the artful use of print, sound, and color.
3. Control—The advertiser can choose the aspects of the brand and product on which to focus
communications.
SALES PROMOTION Companies use sales promotion tools—coupons, contests, premiums,
and the like—to draw a stronger and quicker buyer response, including short-run effects such as
highlighting product offers and boosting sagging sales. Sales promotion tools offer three
distinctive benefits:
1. Ability to be attention-getting—They draw attention and may lead the consumer to the product.
2. Incentive—They incorporate some concession, inducement, or contribution that gives value
to the consumer.
3. Invitation—They include a distinct invitation to engage in the transaction now.
PUBLIC RELATIONS AND PUBLICITY Marketers tend to underuse public relations, yet a
well-thought-out program coordinated with the other communications-mix elements can be
extremely effective, especially if a company needs to challenge consumers’ misconceptions. The
appeal of public relations and publicity is based on three distinctive qualities:
1. High credibility—News stories and features are more authentic and credible to readers than ads.
2. Ability to reach hard-to-find buyers—Public relations can reach prospects who prefer to
avoid mass media and targeted promotions.
3. Dramatization—Public relations can tell the story behind a company, brand, or product.EVENTS AND EXPERIENCES There are many advantages to events and experiences as long
as they have the following characteristics:
1. Relevant—A well-chosen event or experience can be seen as highly relevant because the
consumer is often personally invested in the outcome.
2. Engaging—Given their live, real-time quality, events and experiences are more actively engaging
for consumers.
3. Implicit—Events are typically an indirect “soft sell.”
DIRECT AND INTERACTIVE MARKETING Direct and interactive marketing messages
take many forms—over the phone, online, or in person. They share three characteristics:
1. Customized—The message can be prepared to appeal to the addressed individual.
2. Up-to-date—A message can be prepared very quickly.
3. Interactive—The message can be changed depending on the person’s response.
WORD-OF-MOUTH MARKETING Word of mouth also takes many forms both online or
offline. Three noteworthy characteristics are:
1. Influential—Because people trust others they know and respect, word of mouth can be highly
influential.
2. Personal—Word of mouth can be a very intimate dialogue that reflects personal facts, opinions,
and experiences.
3. Timely—Word of mouth occurs when people want it to and are most interested, and it often
follows noteworthy or meaningful events or experiences.
PERSONAL SELLING Personal selling is the most effective tool at later stages of the buying
process, particularly in building up buyer preference, conviction, and action. Personal selling has
three notable qualities:
1. Personal interaction—Personal selling creates an immediate and interactive episode between
two or more persons. Each is able to observe the other’s reactions.
2. Cultivation—Personal selling also permits all kinds of relationships to spring up, ranging
from a matter-of-fact selling relationship to a deep personal friendship.
3. Response—The buyer is often given personal choices and encouraged to directly respond.

Marketing Channels and Value Networks

Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries
performing a variety of functions. These intermediaries constitute a marketing channel
(also called a trade channel or distribution channel). Formally, marketing channels are sets of
interdependent organizations participating in the process of making a product or service available
for use or consumption. They are the set of pathways a product or service follows after production,
culminating in purchase and consumption by the final end userSome intermediaries—such as wholesalers and retailers—buy, take title to, and resell the merchandise;
they are called merchants. Others—brokers, manufacturers’ representatives, sales
agents—search for customers and may negotiate on the producer’s behalf but do not take title to
the goods; they are called agents. Still others—transportation companies, independent warehouses,
banks, advertising agencies—assist in the distribution process but neither take title to goods nor
negotiate purchases or sales; they are called facilitators.
Channels of all types play an important role in the success of a company and affect all other marketing
decisions.Marketers should judge them in the context of the entire process by which their products
are made, distributed, sold, and serviced.We consider all these issues in the following sections.
The Importance of Channels
A marketing channel system is the particular set of marketing channels a firm employs, and decisions
about it are among the most critical ones management faces. In the United States, channel
members collectively have earned margins that account for 30 percent to 50 percent of the ultimate
selling price. In contrast, advertising typically has accounted for less than 5 percent to 7 percent of
the final price.3Marketing channels also represent a substantial opportunity cost. One of their chief
roles is to convert potential buyers into profitable customers. Marketing channels must not just
serve markets, they must also make markets.4
The channels chosen affect all other marketing decisions. The company’s pricing depends on
whether it uses online discounters or high-quality boutiques. Its sales force and advertising decisions
depend on how much training and motivation dealers need. In addition, channel decisions
include relatively long-term commitments with other firms as well as a set of policies and procedures.
When an automaker signs up independent dealers to sell its automobiles, it cannot buy them
out the next day and replace them with company-owned outlets. But at the same time, channel
choices themselves depend on the company’s marketing strategy with respect to segmentation,
targeting, and positioning. Holistic marketers ensure that marketing decisions in all these different
areas are made to collectively maximize value.
In managing its intermediaries, the firm must decide how much effort to devote to push versus
pull marketing. A push strategy uses the manufacturer’s sales force, trade promotion money, or
other means to induce intermediaries to carry, promote, and sell the product to end users. A push
strategy is particularly appropriate when there is low brand loyalty in a category, brand choice is
made in the store, the product is an impulse item, and product benefits are well understood. In a
pull strategy the manufacturer uses advertising, promotion, and other forms of communication to
persuade consumers to demand the product from intermediaries, thus inducing the intermediaries
to order it. Pull strategy is particularly appropriate when there is high brand loyalty and high
involvement in the category, when consumers are able to perceive differences between brands, and
when they choose the brand before they go to the store.
Top marketing companies such as Coca-Cola, Intel, and Nike skillfully employ both push and pull
strategies. A push strategy is more effective when accompanied by a well-designed and well-executed
pull strategy that activates consumer demand. On the other hand,without at least some consumer interest,
it can be very difficult to gain much channel acceptance and support, and vice versa for that matter.

Adapting the Price

Promotional Pricing
Companies can use several pricing techniques to stimulate early purchase:
• Loss-leader pricing. Supermarkets and department stores often drop the price on wellknown
brands to stimulate additional store traffic. This pays if the revenue on the additional
sales compensates for the lower margins on the loss-leader items.Manufacturers of loss-leader
brands typically object because this practice can dilute the brand image and bring complaints
from retailers who charge the list price.Manufacturers have tried to keep intermediaries from
using loss-leader pricing through lobbying for retail-price-maintenance laws, but these laws
have been revoked.
• Special event pricing. Sellers will establish special prices in certain seasons to draw in more
customers. Every August, there are back-to-school sales.
• Special customer pricing. Sellers will offer special prices exclusively to certain customers.
Road Runner Sports offers members of its Run America Club “exclusive” online offers with
price discounts twice those for regular customers.74
• Cash rebates. Auto companies and other consumer-goods companies offer cash rebates to
encourage purchase of the manufacturers’ products within a specified time period. Rebates
can help clear inventories without cutting the stated list price.
• Low-interest financing. Instead of cutting its price, the company can offer customers lowinterest
financing. Automakers have used no-interest financing to try to attract more customers.
• Longer payment terms. Sellers, especially mortgage banks and auto companies, stretch
loans over longer periods and thus lower the monthly payments. Consumers often worry
less about the cost (the interest rate) of a loan, and more about whether they can afford the
monthly payment.
• Warranties and service contracts. Companies can promote sales by adding a free or low-cost
warranty or service contract.
• Psychological discounting. This strategy sets an artificially high price and then offers the
product at substantial savings; for example, “Was $359, now $299.” Discounts from normal
prices are a legitimate form of promotional pricing; the Federal Trade Commission and Better
Business Bureaus fight illegal discount tactics.

A Changing Pricing Environment

Pricing practices have changed significantly.At the turn of the 21st century, consumers had easy access
to credit, so by combining unique product formulations with enticing marketing campaigns,
many firms successfully traded consumers up to more expensive products and services. The onset
of the Great Recession—a recession more severe than previous recessions, which resulted in many
jobs lost and many businesses and consumers unable to receive loans due to their poorly leveraged
situations—changed things though.
A combination of environmentalism, renewed frugality, and concern about jobs and home values
forced many U.S. consumers to rethink how they spent their money. They replaced luxury purchases
with basics. They bought fewer accessories like jewelry, watches, and bags. They ate at home
more often and purchased espresso machines to make lattes in their kitchens instead of buying
them at expensive cafés. If they bought a new car at all, they downsized to smaller, more fuelefficient
models. They even cut back spending on hobbies and sports activities.4
Downward price pressure from a changing economic environment coincided with some longerterm
trends in the technological environment. For some years now, the Internet has been changing
how buyers and sellers interact.Here is a short list of how the Internet allows sellers to discriminate
between buyers, and buyers to discriminate between sellers.5
Buyers can:
• Get instant price comparisons from thousands of vendors. Customers can compare the
prices offered by multiple bookstores by just clicking mySimon.com. PriceSCAN.com lures
thousands of visitors a day, most of them corporate buyers. Intelligent shopping agents
(“bots”) take price comparison a step further and seek out products, prices, and reviews from
hundreds if not thousands of merchants.
• Name their price and have it met. On Priceline.com, the customer states the price he or she
wants to pay for an airline ticket, hotel, or rental car, and Priceline looks for any seller willing
to meet that price.6Volume-aggregating sites combine the orders of many customers and press
the supplier for a deeper discount.
• Get products free. Open Source, the free software movement that started with Linux, will
erode margins for just about any company creating software. The biggest challenge confronting
Microsoft, Oracle, IBM, and virtually every other major software producer is:How do
you compete with programs that can be had for free? “Marketing Insight: Giving It All Away”
describes how different firms have been successful with essentially free offerings.

Packaging, Labeling,Warranties, and Guarantees

Some product packages—such as the Coke bottle and Red Bull can—are world famous. Many
marketers have called packaging a fifth P, along with price, product, place, and promotion.
Most, however, treat packaging and labeling as an element of product strategy. Warranties
and guarantees can also be an important part of the product strategy and often appear on the
package.

PackagingPackaging includes all the activities of designing and producing the container for a product.
Packages might have up to three layers. Cool Water cologne comes in a bottle (primary package) in
a cardboard box (secondary package) in a corrugated box (shipping package) containing six dozen
bottles in cardboard boxes.
The package is the buyer’s first encounter with the product. A good package draws the consumer
in and encourages product choice. In effect, they can act as “five-second commercials” for the product.
Packaging also affects consumers’ later product experiences when they go to open the package
and use the product at home. Some packages can even be attractively displayed at home. Distinctive
packaging like that for Kiwi shoe polish, Altoids mints, and Absolut vodka is an important part of a
brand’s equity.56
Various factors contribute to the growing use of packaging as a marketing tool:
• Self-service. An increasing number of products are sold on a self-serve basis. In an average supermarket,
which may stock 15,000 items, the typical shopper passes some 300 products per
minute. Given that 50 percent to 70 percent of all purchases are made in the store, the effective
package must perform many sales tasks: attract attention, describe the product’s features, create
consumer confidence, and make a favorable overall impression.
• Consumer affluence. Rising affluence means consumers are willing to pay a little more for the
convenience, appearance, dependability, and prestige of better packages.
• Company and brand image. Packages contribute to instant recognition of the company or
brand. In the store, they can create a billboard effect, such as Garnier Fructis with its bright
green packaging in the hair care aisle.
• Innovation opportunity. Unique or innovative packaging such as resealable spouts can bring
big benefits to consumers and profits to producers.
1. Identify the brand.
2. Convey descriptive and persuasive information.
3. Facilitate product transportation and protection.
4. Assist at-home storage.
5. Aid product consumption.
To achieve these objectives and satisfy consumers’ desires, marketers must choose the
aesthetic and functional components of packaging correctly. Aesthetic considerations relate
to a package’s size and shape, material, color, text, and graphics. There are a number of
factors and criteria in each area.
Color is a particularly important aspect of packaging and carries different meanings
in different cultures and market segments. Table 12.3 summarizes the beliefs of
some visual marketing experts about its role.

Product and Services Differentiation

To be branded, products must be differentiated. At one extreme are products that allow little variation:
chicken, aspirin, and steel. Yet even here, some differentiation is possible: Perdue chickens,
Bayer aspirin, and India’s Tata Steel have carved out distinct identities in their categories. Procter &
Gamble makes Tide, Cheer, and Gain laundry detergents, each with a separate brand identity. At
the other extreme are products capable of high differentiation, such as automobiles, commercial
buildings, and furniture. Here the seller faces an abundance of differentiation possibilities, including
form, features, customization, performance quality, conformance quality, durability, reliability,
repairability, and style.6 Design has become an increasingly important means of differentiation and
we will discuss it in a separate section later.Product Differentiation
FORM Many products can be differentiated in form—the size, shape, or physical structure of a
product. Consider the many possible forms of aspirin. Although essentially a commodity, it can be
differentiated by dosage size, shape, color, coating, or action time.
FEATURES Most products can be offered with varying features that supplement their basic
function. A company can identify and select appropriate new features by surveying recent buyers
and then calculating customer value versus company cost for each potential feature. Marketers
should consider how many people want each feature, how long it would take to introduce it, and
whether competitors could easily copy it.7
To avoid “feature fatigue,” the company must prioritize features and tell consumers how to use
and benefit from them.8 Companies must also think in terms of feature bundles or packages. Auto
companies often manufacture cars at several “trim levels.” This lowers manufacturing and inventory
costs. Each company must decide whether to offer feature customization at a higher cost or a
few standard packages at a lower cost.
CUSTOMIZATION Marketers can differentiate products by customizing them. As companies
have grown proficient at gathering information about individual customers and business partners
(suppliers, distributors, retailers), and as their factories are being designed more flexibly, they have
increased their ability to individualize market offerings, messages, and media.Mass customization
is the ability of a company to meet each customer’s requirements—to prepare on a mass basis
individually designed products, services, programs, and communications.9
Levi’s and Lands’ End were among the first to introduce custom jeans. Other firms have introduced
mass customization into other markets. Online retailers such as Zazzle and CafePress allow
users to upload images and create their own clothing and posters or buy merchandise created by
other users. Customers must know how to express their personal product preferences, however, or
be given assistance to best customize a product.10
PERFORMANCE QUALITY Most products occupy one of four performance levels: low,
average, high, or superior. Performance quality is the level at which the product’s primary
characteristics operate. Quality is increasingly important for differentiation as companies adopt a
value model and provide higher quality for less money. Firms should design a
performance level appropriate to the target market and competition, however, not
necessarily the highest level possible. They must also manage performance quality
through time. Continuously improving the product can produce high returns and
market share; failing to do so can have negative consequences.