# Creating Products and Pricing Strategies to Meet Customers' Needs

## Pricing Strategies and Future Trends

1. What strategies are used for pricing products, and what are the future trends?
An important part of the marketing planning process is setting the right price. Price is the perceived value that is exchanged for something else. Value in our society is most commonly expressed in dollars and cents. Thus, price is typically the amount of money exchanged for a product. Note that perceived value refers to the perception of the product’s value at the time of the transaction. After a consumer has used a product, the consumer may decide that its actual value was less than its perceived value at the time it was purchased. The price paid for a product is based on the expected satisfaction that the customer will receive and not necessarily the actual satisfaction of the customer.
Although price is usually a dollar amount, it can be anything with perceived value. When products are exchanged for each other, the trade is called barter. If a student exchanges this book for a math book at the end of the term, that student has engaged in barter.

### Pricing Objectives

Price is important in determining how much a firm earns. The prices charged customers times the number of units sold equals the gross revenue for the firm. Revenue is what pays for every activity of the company (production, finance, sales, distribution, and so forth). The money that is left over (if any) is profit. Managers strive to charge a price that will allow the firm to earn a fair return on its investment and will maximize return on investment to the highest extent while still maintaining a fair return.
The chosen price must be neither too high nor too low, and the price must equal the perceived value to target consumers. If consumers think the price is too high, sales opportunities will be lost. Lost sales mean lost revenue. If the price is too low, consumers may view the product as a great value, but the company may not meet its profit goals. Sometimes, as in the case of services, a price that is too low will cause the product to viewed as less than credible and lose sales for the company.

### Product Pricing

Managers use various pricing strategies when determining the price of a product, as this section explains. Price skimming and penetration pricing are strategies used in pricing new products; other strategies such as leader pricing and bundling may be used for established products as well.

### Price Skimming

The practice of introducing a new product on the market with a high price and then lowering the price over time is called price skimming. As the product moves through its life cycle, the price usually is lowered because competitors are entering the market. As the price falls, more and more consumers can buy the product. Recent example are DVD players and flat-screen televisions. When they first came out, DVD players were priced at around $500 while flat-screen televisions were priced at over $1,000. Over time, the price of DVD players has sunk to under $100, while 4-inch Insignia brand flat-screen TVs can be purchased for under $220.
Price skimming has four important advantages. First, a high initial price can be a way to find out what buyers are willing to pay. Second, if consumers find the introductory price too high, it can be lowered. Third, a high introductory price can create an image of quality and prestige. Fourth, when the price is lowered later, consumers may think they are getting a bargain. The disadvantage is that high prices attract competition.
Price skimming can be used to price virtually any new products, such as high-definition televisions, new cancer drugs, and color computer printers. For example, the Republic of Tea recently launched Emperor’s White Tea, which it says is among the rarest of teas. Because it is minimally processed, white tea is said to retain the highest level of antioxidants and has a lower caffeine content than black and green teas. The company says the tea is picked only a few days each year, right before the leaf opens, yielding a small harvest. The product retails for $16 per tin of 50 bags. Products don’t have to cost hundreds of dollars to use a skimming strategy.

### Penetration Pricing

A company that doesn’t use price skimming will probably use penetration pricing. With this strategy, the company offers new products at low prices in the hope of achieving a large sales volume. Procter & Gamble did this with its SpinBrush toothbrush. Penetration pricing requires more extensive planning than skimming does because the company must gear up for mass production and marketing. When Texas Instruments entered the digital-watch market, its facilities in Lubbock, Texas, could produce 6 million watches a year, enough to meet the entire world demand for low-priced watches. If the company had been wrong about demand, its losses would have been huge.
Penetration pricing has two advantages. First, the low initial price may induce consumers to switch brands or companies. Using penetration pricing on its jug wines, Gallo has lured customers away from Taylor California Cellars and Inglenook. Second, penetration pricing may discourage competitors from entering the market. Their costs would tend to be higher, so they would need to sell more at the same price to break even.

### Leader Pricing

Pricing products below the normal markup or even below cost to attract customers to a store where they wouldn’t otherwise shop is leader pricing. A product priced below cost is referred to as a loss leader. Retailers hope that this type of pricing will increase their overall sales volume and thus their profit.
Items that are leader priced are usually well known and priced low enough to appeal to many customers. They also are items that consumers will buy at a lower price, even if they have to switch brands. Supermarkets often feature coffee and bacon in their leader pricing. Department stores and specialty stores also rely heavily on leader pricing.

### Pricing of Services

Pricing of services tends to be more complex than pricing of products that are goods. Services may be priced as standard services, such as the price a hair stylist might charge for a haircut, or pricing may be based on tailored services designed for a specific buyer, such as the prices charged for the design of a new building by an architect.

### Bundling

Bundling means grouping two or more related products together and pricing them as a single product. Marriott’s special weekend rates often include the room, breakfast, and free Wi-Fi. Department stores may offer a washer and dryer together for a price lower than if the units were bought separately.
The idea behind bundling is to reach a segment of the market that the products sold separately would not reach as effectively. Some buyers are more than willing to buy one product but have much less use for the second. Bundling the second product to the first at a slightly reduced price thus creates some sales that otherwise would not be made. For example, Aussie 3-Minute Miracle Shampoo is typically bundled with its conditioner because many people use shampoo more than conditioner, so they don’t need a new bottle of conditioner.

### Odd-Even Pricing

Psychology often plays a big role in how consumers view prices and what prices they will pay. Odd-even pricing (or psychological pricing) is the strategy of setting a price at an odd number to connote a bargain and at an even number to imply quality. For years, many retailers have priced their products in odd numbers—for example, $99.95 or $49.95—to make consumers feel that they are paying a lower price for the product.

### Prestige Pricing

The strategy of raising the price of a product so consumers will perceive it as being of higher quality, status, or value is called prestige pricing. This type of pricing is common where high prices indicate high status. In the specialty shops on Rodeo Drive in Beverly Hills, which cater to the super-rich of Hollywood, shirts that would sell for $65 elsewhere sell for at least $150. If the price were lower, customers would perceive them as being of low quality. Prestige pricing is also very prevalent in services because services providers with reputations for excellent service are more in demand, often with a waiting list. This is due to the fact that services are tied directly to the people who provide them and those people have only so much time in a week in which to provide services. Once the calendar fills up, the demand goes up, and the prices become prestige prices.

### Summary of Learning Outcomes

1. What strategies are used for pricing products, and what are the future trends?
The two main strategies for pricing a new product are price skimming and penetration pricing. Price skimming involves charging a high introductory price and then, usually, lowering the price as the product moves through its life cycle. Penetration pricing involves selling a new product at a low price in the hope of achieving a large sales volume.
Pricing tactics are used to fine-tune the base prices of products. Sellers that use leader pricing set the prices of some of their products below the normal markup or even below cost to attract customers who might otherwise not shop at those stores. Bundling is grouping two or more products together and pricing them as one. Psychology often plays a role in how consumers view products and in determining what they will pay. Setting a price at an odd number tends to create a perception that the item is cheaper than the actual price. Prices in even numbers denote quality or status. Raising the price so an item will be perceived as having high quality and status is called prestige pricing. Pricing for services is more complicated and is often tailored to specific services for a specific customer.


# Creating Products and Pricing Strategies to Meet Customers' Needs

## Trends in Developing Products and Pricing

1. What trends are occurring in products and pricing?
As customer expectations increase and competition becomes fiercer, perceptive managers will find innovative strategies to satisfy demanding consumers and establish unique products in the market. Satisfying customers requires the right prices. The internet has delivered pricing power to both buyers and sellers. Another significant trend is the use of one-to-one marketing to create a customized marketing mix for each consumer.

### Impact of the Internet on Pricing

The internet, corporate networks, and wireless setups are linking people, machines, and companies around the globe—and connecting sellers and buyers as never before. This link is enabling buyers to quickly and easily compare products and prices, putting them in a better bargaining position. At the same time, the technology enables sellers to collect detailed data about customers’ buying habits, preferences, and even spending limits so that they can tailor their products and prices. Amazon, as well as online businesses from traditional retailers such as Walmart, have drastically changed the retail landscape. Amazon’s Prime membership, which offers free shipping and other amenities for an annual fee, has also taken market share from traditional low-cost warehouse clubs such as Costco and Sam’s Club.
Online price-comparison engines, known as shopbots, are continuing to add new features. ShopSmarter.com now includes coupons and additional retailer discounts in its price results. In the past, consumers had to click deep into a retailer’s site to find out about these additional savings. Vendio eCommerce introduced a toolbar that people can download. If a person is on the web page of a particular product—whether it’s an iPhone or a Canon digital camera—the toolbar flashes a blinking alert when it finds a lower price for that same item somewhere else. The person can then open a window on the side of the site to learn details of the cheaper price—or simply ignore the alert. BuySAFE introduced a website that lets consumers search among about 1.5 million products that are backed by antifraud guarantees. If a buyer purchases one of the items and the seller fails to deliver, the buyer can get reimbursed for the full cost up to $25,000. Merchants on the site include those that sell on eBay and Overstock.com.
Use of these sites has boomed in the past few years as people have become more reliant on the web both as a research tool and as a place to shop. According to a recent survey, more than 90 percent of consumers have used a smartphone when comparison-shopping in stores. Much of the growth has come from the more-established sites such as Shopify, Bizrate, and NexTag, as well as the shopping sections of Amazon, Microsoft’s MSN, and Google. The big attraction with shopping comparison services, of course, is the hunt for a better bargain. Merchants like the sites because they help drive consumer spending. Consumers who use comparison-shopping sites for product information or in-store discount coupons spend more than those who don’t.

### One-to-One Marketing

One-to-one marketing is creating a unique marketing mix for every consumer. The key to creating one-to-one marketing is a good marketing database. The information contained in a marketing database helps managers know and understand customers, and potential customers, on an individual basis. A marketing database is a computerized file of customers’ and potential customers’ profiles and purchase patterns.
In the 1960s, network television enabled advertisers to “get the same message to everyone simultaneously.” Database marketing can get a customized, individual message to everyone simultaneously through direct mail or through the internet. This is why database marketing is sometimes called micromarketing. Database marketing can create a computerized form of the old-fashioned relationship that people used to have with the corner grocer, butcher, or baker. “A database is sort of a collective memory,” says Richard G. Barlow, president of Frequency Marketing, Inc., a Cincinnati-based consulting firm. “It deals with you in the same personalized way as a mom-and-pop grocery store, where they knew customers by name and stocked what they wanted.”
You have also probably heard the term big data. Companies such as Facebook and Google can process information and then tailor information to provide marketers with higher-probability targets. For instance, imagine that you and some friends are discussing a spring break vacation and you are searching for possible locations on the Florida gulf coast. That data, along with the social group considering the vacation, can be sold to companies that provide travel services, airline flights, hotel rentals, and the like. Suddenly, you and your friends see travel offers and alternate destinations on your Facebook page. Likewise, imagine you are looking for a mystery novel to read on a long flight. Let’s say that you are also searching for ways to remove a rust stain on a favorite sweater. When you go to your Amazon page, you see several new mystery novels as well as cleaning solutions highlighted on your page. All of this was done through the use of big data and analytics to provide consumers solutions they are looking for as well as products that they don’t even know that they want.  contrasts the differences in approaches in traditional advertising versus targeted marketing using big data.
The size of some databases is impressive: Ford Motor Company’s is about 50 million names; Kraft General Foods, 30 million; Citicorp, 30 million; and Kimberly Clark, maker of Huggies diapers, 10 million new parents. American Express can pull from its database all cardholders who made purchases at golf pro shops in the past six months, who attended symphony concerts, or who traveled to Europe more than once in the past year, as well as the very few people who did all three.
Companies are using their marketing databases to implement one-to-one marketing. For example, Novartis Seeds, Inc., a Minneapolis-based agriculture business, produces individually customized, full-color brochures for 7,000 farmers. Each piece features products selected by Novartis dealers specifically for the farmer based on information collected about the farm operation and the types of crops grown. Instead of the 30-page catalog Novartis traditionally sent, these customers get a one-page brochure with only the five or six products they need, plus other complementary products dealers feel they should consider.

### Summary of Learning Outcomes

1. What trends are occurring in products and pricing?
The internet has given pricing power to both buyers and sellers. A second trend is that many firms are using databases to create one-to-one marketing. Also, the large amount of information that is available to marketers is being mined and analyzed to target specific customers with personalized messages rather than creating one message that is aimed at a broad audience.

### Preparing for Tomorrow’s Workplace Skills

1. Can the marketing concept be applied effectively by a sole proprietorship, or is it more appropriate for larger businesses with more managers? Explain. (Information)
2. Before starting your own business, you should develop a marketing strategy to guide your efforts. Choose one of the business ideas listed below, and develop a marketing strategy for the business. Include the type of market research you will perform and how you will define your target market. (Information, Systems)

3. “Market segmentation is the most important concept in marketing.” Why do you think some marketing professionals make this statement? Give an example of each form of segmentation. (Systems)
4. Pick a specific product that you use frequently, such as a cosmetic or toiletry item, snack food, article of clothing, book, computer program, or video game. What is the target market for this product, and does the company’s marketing strategy reflect this? Now consider the broader category of your product. How can this product be changed and/or the marketing strategy adjusted to appeal to other market segments? (Systems)
5. Under what circumstances would a jeans maker market the product as a convenience product? A shopping product? A specialty product? (Information)
6. Go to the library, and look through magazines and newspapers to find examples of price skimming, penetration pricing, and value pricing. Make copies and show them to the class. (Information)
7. Explain how something as obvious as a retail price can have a psychological dimension. (Information)
8. Team Activity Divide the class into teams. Create a single market list of products. Each team should go to a different supermarket chain store or an independent supermarket and write down the prices of the goods selected. Report your findings to the class. (Interpersonal)
9. How does the stage of a product’s life cycle affect price? Give some examples. (Informational)

### Ethics Activity

As cosmetics companies roll out line after line of products to satisfy consumers’ quest for youth, the shelves are getting crowded. How can a company stand out? Products such as the Cosmedicine and Rodan+Fields lines promote their affiliation with research institutions and medical doctors to distinguish them from their competition.
Shortly after Johns Hopkins University began consulting with the then-owner of the company that produced Cosmedicine products, medical ethicists criticized Johns Hopkins for this arrangement. Hopkins initially defended its position, claiming that its consulting work does not imply any endorsement of Cosmedicine. “We have been pretty clear about our role,” said Hopkins CEO Edward Miller. “We are reporting on the scientific validity of studies that were done by outside testing agencies.” Cosmedicine packaging includes a disclaimer that discloses the nature of the research and financial relationship between Hopkins and the cosmetics company. Similarly, Rodan+Fields was established as a cosmetics company by two medical doctors. They began their company by starting out as a multi-level marketing company. The practice of multi-level marketing by companies like Herbalife, Rodan+Fields, Beachbody, and Plexus also is controversial to some. Basically, multi-level marketing enlists a new salesperson by making the individual purchase training and inventory of the company product at a discount and begin selling the product at retail prices, while also recruiting new salespeople as their “downline” salespeople. The idea is that eventually you will make most of your income via the results of your downline salespeople—the people you brought into the business.
There are numerous critiques of multi-level marketing, the most notable being investor Bill Ackman’s accusation that weight loss company Herbalife was engaging in a pyramid scheme. A pyramid scheme is an arrangement whose entire whole purpose is the enrichment of the top of the pyramid at the expense of new recruits. Herbalife was able to refute Ackman’s accusations in a lawsuit brought against them by showing that their results were based on product sales rather than recruitment and that they offered money-back guarantees if the recruits were unable to sell the product.
Ethical Dilemma: Is it ethical for research institutions like Johns Hopkins and medical doctors to endorse products such as skin care? Is the practice of multi-level marketing ethical? Does the money-back guarantee provided by Herbalife provide evidence that they are not engaged in a pyramid scheme?
Sources: “Multi-Level Marketing,” Investopedia, http://www.investopedia.com, accessed October 1, 2017; Alissa Fleck, “How Women Making Men Rich Has Been Misbranded as Feminism,” Huffington Post, http://www.huffingtonpost.com, August 28, 2017; Kristen Calderaro, “Why Are Doctors Becoming Rodan+Fields Consultants?” LinkedIn, https://www.linkedin.com, October 29, 2015; Rhonda L. Rundle, “A New Name in Skin Care: Johns Hopkins,” The Wall Street Journal, April 11, 2006, p. B1.

### Working the Net

1. You want to start a job at a company like Herbalife or Rodan+Fields and work at home. Do a search of the U.S. Census database at http://www.census.gov to get information about the work-at-home market. Then visit http://www.jbsba.com to expand your research. Then visit the Rodan+Fields (http://www.rodanandfields.com) or Herbalife (http://www.herbalife.com) website and explore the career opportunities. Summarize your findings.
2. Visit the Strategic Business Insights website at http://www.strategicbusinessinsights.com, and click on the VALSTM link. First, read about the VALS survey and how marketers can use it. Describe its value. Then take the survey to find out which psychographic segment you’re in. Do you agree or disagree with the results? Why or why not?
3. How good was the marketing strategy you developed in Question 2 of Preparing for Tomorrow’s Workplace? Using advice from the marketing section of Entrepreneur (http://www.entrepreneur.com) or other resources, revisit your marketing strategy for the business you selected, and revise the plan accordingly. (Entrepreneur’s article “Write a Simple Marketing Plan” is a good place to start.) What did you overlook? (If you didn’t do this exercise, pick one of the businesses and draft a marketing strategy using online resources to guide you.)
4. Visit an online retailer such as Amazon.com (http://www.amazon.com), PCConnection.com (http://www.pcconnection.com), or cvs.com (). At the site, try to identify examples of leader pricing, bundling, odd-even pricing, and other pricing strategies. Do online retailers have different pricing considerations than “real-world” retailers? Explain.
5. Do a search on Yahoo! (http://www.yahoo.com) for online auctions for a product you are interested in buying. Visit several auctions, and get an idea of how the product is priced. How do these prices compare with the price you might find in a local store? What pricing advantages or disadvantages do companies face in selling their products through online auctions? How do online auctions affect the pricing strategies of other companies? Why?
6. Pick a new consumer electronic product such as a digital camera, HDTV, or laptop computer. Then go to shopping bot http://www.dealio.com. Compare prices, information, and ease-of-use of the site. Report your findings to the class.

### Creative Thinking Case

### The Brandfather Strikes Gold

Coca-Cola is promoting its new Full Throttle energy drink, PepsiCo Inc. is marketing energy drinks under its SoBe and Mountain Dew brands, and smaller companies are challenging the soft drink giants with products such as Powerade, Rockstar, and FUZE Mega Energy. With concerns about the amount of sugar in soft drinks and the negative health effects that can cause, brands such as Vitaminwater and Bai have garnered significant market share and have been acquired by soft drink giants such as Coca-Cola and Dr Pepper.
The person behind the success of Powerade, Vitaminwater, and Bai is Rohan Oza. After graduating from the University of Michigan’s business school, Oza began working at Coca Cola, where he worked on brands such as Sprite and Powerade. After Oza left Coca Cola for more entrepreneurial challenges, he scored a coup with Smartwater, where he was able to approach Jennifer Aniston to become the endorser of the product. He also was able to attract rapper 50 Cent as an endorser of Vitaminwater. On the arrangement with 50 Cent, he took no fees for the endorsement, instead opting for equity in the company. It looks like this was a sound strategy, since Vitaminwater parent Glaceau sold to Oza’s former employer, Coca Cola, for $4.2 billion in 2007.
Oza did not stop after the Vitaminwater success. He started Bai and partnered with Justin Timberlake to establish that brand. Just as he did with Jennifer Aniston and Smartwater, and with 50 Cent and Vitaminwater, Oza works on making sure that he has the correct strategy to match the features and benefits of the brand with just the right celebrity endorser. With Bai, a sparkling drink that features antioxidants as a product benefit, Oza was able to convince Timberlake, an entrepreneur in his own right, to invest in Bai. So Timberlake was not only an endorser but a part owner, and he has been intimately involved in the brand strategy. This partnership worked as well, because Bai was sold to the Dr Pepper Snapple Group for $1.7 billion in 2016.
2. Oza has established several successful products in the competitive beverage industry. Why has he been able to achieve this success when large organizations with more resources, such as Coca Cola and Pepsi, are forced to buy these new successful brands?
3. What types of unique marketing support helped to sustain Vitaminwater and Bai’s tremendous growth?
4. Suggest a celebrity endorsement with a beverage brand, and tell why that pairing would lead to success. What are the brand attributes and the reputation of the endorser that would resonate with specific consumer segments?
Sources: John Lynch, “Hollywood’s ‘Brandfather’ Talks About His New Role on ‘Shark Tank,’ Working with 50 Cent and Justin Timberlake,” Business Insider, http://www.businessinsider.com, October 1, 2017; Heidi Parker, “She Has Great Ideas and Is Savvy,” The Daily Mail, http://www.dailymail.co.uk, September 17, 2017; Katie Benner, “He’s Like to Buy the World Something Other Than a Coke,” The New York Times, https://www.nytimes.com, January 6, 2017.

### Hot Links Address Book

1. What’s the latest in customer loyalty programs? For the answer, do a search for “loyalty programs” at SearchCRM.com, http://searchcrm.techtarget.com.
2. Considering a career in marketing? Read articles about different marketing topics of interest and visit the Marketing Jobs and Career Services and Student Resources areas at the American Marketing Association site, http://www.marketingpower.com.
3. What’s different about business-to-business marketing? Find out at the Business Marketing Association site, http://www.marketing.org.
4. How satisfied are American consumers today? The American Customer Satisfaction Index (ACSI) is an economic indicator based on modeling of customer evaluations. Find the latest survey results at http://www.theacsi.org.
5. So what’s so important about branding? Learn more about branding products at http://www.allaboutbrands.com.
6. See how one consulting firm helps clients pick the right name by pointing your web browser to http://www.namebase.com.
7. At Brandchannel.com, an online exchange, you’ll find branding success stories, failures, debates, and more: http://www.brandchannel.com.
8. Companies are turning to smart-pricing software to improve margins on products. Find out how one company’s software works at Zilliant’s website, http://www.zilliant.com.
9. If you have ever wondered how manufacturers make certain types of products, this is the site for you! At How Products Are Made, you can find the details on everything from accordions and action figures to zippers, and everything in between: http://www.madehow.com.


# Distributing and Promoting Products and Services

## Introduction

### Learning Outcomes

After reading this chapter, you should be able to answer these questions:
1. What is the nature and function of distribution (place)?
2. What is wholesaling, and what are the types of wholesalers?
3. What are the different kinds of retail operations?
4. How can supply-chain management increase efficiency and customer satisfaction?
5. What is promotion, and what are the key elements of a promotional mix?
6. How are advertising media selected?
7. What is personal selling?
8. What are the goals of a sales promotion, and what are several types of sales promotion?
9. How does public relations fit into the promotional mix?
10. What is social media, and how has it changed promotion?
11. What is e-commerce, and how does it affect promotion?
This chapter continues to reveal the role of marketing, starting with a discussion of the distribution system and concluding with a look at traditional and nontraditional marketing channels. It explores how organizations use a distribution system to enhance the value of a product and examines the methods used to move products to locations where consumers wish to buy them. Distribution is also known as “place” in terms of the 5Ps, key components of the marketing mix. It is important to have an understanding of the members of a distribution system and to explore the role of wholesalers and retailers in delivering products to customers. In addition to understanding how the supply chain works to increase efficiency and customer satisfaction, marketers must also develop tactics for promotion, the last element of the marketing mix. Promotion is comprised of six parts, which include traditional advertising, sales promotion, personal selling, public relations, social media, and e-commerce.


# Distributing and Promoting Products and Services

## The Nature and Functions of Distribution (Place)

1. What is the nature and function of distribution (place)?
Distribution is efficiently managing the acquisition of raw materials by the factory and the movement of products from the producer or manufacturer to business-to-business (B2B) users and consumers. It includes many facets, such as location, hours, website presence, logistics, atmospherics, inventory management, supply-chain management, and others. Logistics activities are usually the responsibility of the marketing department and are part of the large series of activities included in the supply chain. A supply chain is the system through which an organization acquires raw material, produces products, and delivers the products and services to its customers.  illustrates a typical supply chain. Supply chain management helps increase the efficiency of logistics service by minimizing inventory and moving goods efficiently from producers to the ultimate users.
On their way from producers to end users and consumers, products pass through a series of marketing entities known as a distribution channel. We will look first at the entities that make up a distribution channel and then examine the functions that channels serve.

### Marketing Intermediaries in the Distribution Channel

A distribution channel is made up of marketing intermediaries, or organizations that assist in moving goods and services from producers to end users and consumers. Marketing intermediaries are in the middle of the distribution process, between the producer and the end user. The following marketing intermediaries most often appear in the distribution channel:
1. Agents and brokers: Agents are sales representatives of manufacturers and wholesalers, and brokers are entities that bring buyers and sellers together. Both agents and brokers are usually hired on commission basis by either a buyer or a seller. Agents and brokers are go-betweens whose job is to make deals. They do not own or take possession of goods.
2. Industrial distributors: Industrial distributors are independent wholesalers that buy related product lines from many manufacturers and sell them to industrial users. They often have a sales force to call on purchasing agents, make deliveries, extend credit, and provide information. Industrial distributors are used in such industries as aircraft manufacturing, mining, and petroleum.
3. Wholesalers: Wholesalers are firms that sell finished goods to retailers, manufacturers, and institutions (such as schools and hospitals). Historically, their function has been to buy from manufacturers and sell to retailers.
4. Retailers: Retailers are firms that sell goods to consumers and to industrial users for their own consumption.
At the end of the distribution channel are final consumers and industrial users. Industrial users are firms that buy products for internal use or for producing other products or services. They include manufacturers, utilities, airlines, railroads, and service institutions such as hotels, hospitals, and schools.
 shows various ways marketing intermediaries can be linked. For instance, a manufacturer may sell to a wholesaler that sells to a retailer that in turn sells to a customer. In any of these distribution systems, goods and services are physically transferred from one organization to the next. As each takes possession of the products, it may take legal ownership of them. As the exhibit indicates, distribution channels can handle either consumer products or industrial products.

### Nontraditional Channels

Often nontraditional channel arrangements help differentiate a firm’s product from the competition. For example, manufacturers may decide to use nontraditional channels such as the internet, mail-order channels, or infomercials to sell products instead of going through traditional retailer channels. Although nontraditional channels may limit a brand’s coverage, they can give a producer serving a niche market a way to gain market access and customer attention without having to establish channel intermediaries. Nontraditional channels can also provide another avenue of sales for larger firms. For example, a London publisher sells short stories through vending machines in the London Underground. Instead of the traditional book format, the stories are printed like folded maps, making them an easy-to-read alternative for commuters.
Kiosks, long a popular method for ordering and registering for wedding gifts, dispersing cash through ATMs, and facilitating airline check-in, are finding new uses. Ethan Allen furniture stores use kiosks as a product locator tool for consumers and salespeople. Kiosks on the campuses of Cheney University allow students to register for classes, see their class schedule and grades, check account balances, and even print transcripts. The general public, when it has access to the kiosks, can use them to gather information about the university.
Small and medium-sized New Orleans food and beverage companies and restaurants banded together to promote their goods and establishments over the internet on a specific website at http://www.nolacuisine.com. They also have found that they can successfully sell their offerings through the websites of the profiled restaurants and food outlets, such as Cochon Butcher (https://cochonbutcher.com). With technology rapidly evolving, downloading first-run movies to mobile devices may not be far off. The changing world of technology opens many doors for new, nontraditional distribution channels.

### The Functions of Distribution Channels

Why do distribution channels exist? Why can’t every firm sell its products directly to the end user or consumer? Why are go-betweens needed? Channels serve a number of functions.

### Channels Reduce the Number of Transactions

Channels make distribution simpler by reducing the number of transactions required to get a product from the manufacturer to the consumer. For example, if there are four students in a course and a professor requires five textbooks (each from a different publisher), a total of 20 transactions would be necessary to accomplish the sale of the books. If the bookstore serves as a go-between, the number of transactions is reduced to nine. Each publisher sells to one bookstore rather than to four students. Each student buys from one bookstore instead of from five publishers (see ).
Dealing with channel intermediaries frees producers from many of the details of distribution activity. Producers are traditionally not as efficient or as enthusiastic about selling products directly to end users as channel members are. First, producers may wish to focus on production. They may feel that they cannot both produce and distribute in a competitive way. On the other hand, manufacturers are eager to deal directly with giant retailers, such as Walmart, which offer huge sales opportunities to producers.

### Channels Ease the Flow of Goods

Channels make distribution easier in several ways. The first is by sorting, which consists of the following:
1. Sorting out: Breaking many different items into separate stocks that are similar. Eggs, for instance, are sorted by grade and size. Another example would be different lines of women’s dresses—designer, moderate, and economy lines.
2. Accumulating: Bringing similar stocks together into a larger quantity. Twelve large Grade A eggs could be placed in some cartons and 12 medium Grade B eggs in other cartons. Another example would be to merge several lines of women’s dresses from different designers together.
3. Allocating: Breaking similar products into smaller and smaller lots. (Allocating at the wholesale level is called breaking bulk.) For instance, a tank-car load of milk could be broken down into gallon jugs. The process of allocating generally is done when the goods are dispersed by region and as ownership of the goods changes.
Without the sorting, accumulating, and allocating processes, modern society would not exist. Instead, there would be home-based industries providing custom or semicustom products to local markets. In short, society would return to a much lower level of consumption.
A second way channels ease the flow of goods is by locating buyers for merchandise. A wholesaler must find the right retailers to sell a profitable volume of merchandise. A sporting-goods wholesaler, for instance, must find the retailers who are most likely to reach sporting-goods consumers. Retailers have to understand the buying habits of consumers and put stores where consumers want and expect to find the merchandise. Every member of a distribution channel must locate buyers for the products it is trying to sell.
Channel members also store merchandise so that goods are available when consumers want to buy them. The high cost of retail space often means many goods are stored by the wholesaler or manufacturer.

### Summary of Learning Outcomes

1. What is the nature and function of distribution (place)?
Distribution (place) includes the efficient managing of the acquisition of raw materials by the factory and the movement of products from the producer or manufacturer to business-to-business users and consumers. Place includes such activities as location selection, store layout, atmosphere and image-building for the location, inventory, transportation, and logistics. Logistics activities are usually the responsibility of the marketing department and are part of the large series of activities included in the supply chain.
Distribution channels are the series of marketing entities through which goods and services pass on their way from producers to end users. Distribution systems focus on the physical transfer of goods and services and on their legal ownership at each stage of the distribution process. Channels reduce the number of transactions and ease the flow of goods.


# Distributing and Promoting Products and Services

## Wholesaling

1. What is wholesaling, and what are the types of wholesalers?
Wholesalers are channel members that buy finished products from manufacturers and sell them to retailers. Retailers in turn sell the products to consumers.
Wholesalers also sell products to institutions, such as manufacturers, schools, and hospitals, for use in performing their own missions. A manufacturer, for instance, might buy computer paper from Nationwide Papers, a wholesaler. A hospital might buy its cleaning supplies from Lagasse Brothers, one of the nation’s largest wholesalers of janitorial supplies.
Sometimes wholesalers sell products to manufacturers for use in the manufacturing process. A builder of custom boats, for instance, might buy batteries from a battery wholesaler and switches from an electrical wholesaler. Some wholesalers even sell to other wholesalers, creating yet another stage in the distribution channel.

### Types of Wholesaler Intermediaries

The two main types of wholesalers are merchant wholesalers and agents and brokers. Merchant wholesalers take title to the product (ownership rights); agents and brokers simply facilitate the sale of a product from producer to end user.

### Merchant Wholesalers

Merchant wholesalers make up 80 percent of all wholesaling establishments and conduct slightly less than 60 percent of all wholesale sales. A merchant wholesaler is an institution that buys goods from manufacturers and resells them to businesses, government agencies, other wholesalers, or retailers. All merchant wholesalers take title to the goods they sell.

### Agents and Brokers

As mentioned earlier, agents represent manufacturers and wholesalers. Manufacturers’ representatives (also called manufacturers’ agents) represent noncompeting manufacturers. These salespeople function as independent agents rather than as salaried employees of manufacturers. They do not take title to or possession of merchandise. They get commissions if they make sales—and nothing if they don’t. They are found in a variety of industries, including electronics, clothing, hardware, furniture, and toys.
Brokers bring buyers and sellers together. Like agents, brokers do not take title to merchandise, they receive commissions on sales, and they have little say over company sales policies. They are found in markets where the information that would join buyers and sellers is scarce. These markets include real estate, agriculture, insurance, and commodities.

### Summary of Learning Outcomes

1. What is wholesaling, and what are the types of wholesalers?
Wholesalers typically sell finished products to retailers and to other institutions, such as manufacturers, schools, and hospitals. The two main types of wholesalers are merchant wholesalers and agents and brokers. Merchant wholesalers buy from manufacturers and sell to other businesses. Agents and brokers are essentially independents who provide buying and selling services. They receive commissions according to their sales and don’t take title (ownership) of the merchandise.


# Distributing and Promoting Products and Services

## The Competitive World of Retailing

1. What are the different kinds of retail operations?
Some 15 million Americans are engaged in retailing. Of this number, almost half work in service businesses such as barbershops, lawyers’ offices, and amusement parks. Although most retailers are involved in small businesses, most sales are made by the giant retail organizations, such as Walmart, Target, and Macy’s. Half of all retail sales come from fewer than 10 percent of all retail businesses. This small group employs about 40 percent of all retail workers. Retailers feel the impact of changes in the economy more than many other types of businesses. Survival depends on keeping up with changing lifestyles and customer shopping patterns. In recent years, online retailing trends have significantly impacted retailing organizations, providing more opportunity for smaller retailers and more competition for larger retailers.

### Types of Retail Operations

There is a great deal of variety in retail operations. The major types of retailers are described in , which divides them into two main categories: in-store and nonstore retailing. Examples of in-store retailing include Walmart, Target, Macy’s, and Neiman Marcus. These retailers get most of their revenue from people who come to the store to buy what they want. Many in-store retailers also do some catalog and telephone sales.
Nonstore retailing includes vending, direct selling, direct-response marketing, home shopping networks, and internet retailing. Vending uses machines to sell food and other items, usually as a convenience in institutions such as schools and hospitals.

### Atmosphere and Retail Image

In considering retailing as a distribution strategy (place in the 5Ps), it is important to understand that place includes more than channel members or logistics. It also includes atmospherics—the image of the actual retailing store (or, in the case of nonstore retailing, the platform from which the product is offered, such as a website or vending machine). An important task in retailing is to create this image. Marketers combine the store’s merchandise mix, service level, and atmosphere to make up a retail image. Atmosphere refers to the physical layout and décor of the store. They can create a relaxed or busy feeling, a sense of luxury, a friendly or cold attitude, and a sense of organization or clutter.
These are the most influential factors in creating a store’s atmosphere:
1. Employee type and density: Employee type refers to an employee’s general characteristics—for instance, neat, friendly, knowledgeable, or service-oriented. Density is the number of employees per 1,000 square feet of selling space. A discount retailer such as Target has a low employee density that creates a “do-it-yourself” casual atmosphere.
2. Merchandise type and density: The type of merchandise carried and how it is displayed add to the atmosphere the retailer is trying to create. A prestigious retailer such as Saks or Nordstrom carries the best brand names and displays them in a neat, uncluttered arrangement. Other retailers such as Dollar Tree may display goods in a more cluttered, crowded, disheveled way because their target market (lower-income individuals) equates clutter with open markets (and with lower prices and “deals”).

3. Fixture type and density: Fixtures can be elegant (rich woods) or trendy (chrome and smoked glass), or they can be old, beat-up tables, as in an antique store. The fixtures should be consistent with the general atmosphere the store is trying to create. By displaying its merchandise on tables and shelves rather than on traditional pipe racks, the Gap creates a relaxed and uncluttered atmosphere that enables customers to see and touch the merchandise more easily. In addition to traditional display racks, Cabela’s retail stores feature two 5,000-gallon aquariums stocked with carp, trout, and other fish and a diorama featuring elephants, lions, zebras, hyenas, and other animals. A typical Cabela’s has several million customers a year. It is not unusual for someone to drive many miles to get to a Cabela’s, where you can often see license plates from many states and Canadian provinces.
4. Sound: Sound can be pleasant or unpleasant for a customer. Classical music at a nice Italian restaurant helps create ambiance, just as country and western music does at a truck stop. Music can also entice customers to stay in the store longer and buy more, or it can encourage them to eat quickly and leave a table for others.
5. Odors: Smell can either stimulate or detract from sales. The wonderful smell of pastries and breads entices bakery customers, as does the smell of freshly brewed coffee in a shopping mall. Conversely, customers can be repulsed by bad odors, such as cigarette smoke, musty smells, antiseptic odors, and overly powerful room deodorizers.

### Summary of Learning Outcomes

1. What are the different kinds of retail operations?
Some 15 million Americans are engaged in retailing. Retailing can be either in-store or nonstore. In-store retail operations include department stores, specialty stores, discount stores, off-price retailers, factory outlets, and catalog showrooms. Nonstore retailing includes vending machines, direct sales, direct-response marketing, home shopping networks, and internet retailing. The most important factors in creating a store’s atmosphere are employee type and density, merchandise type and density, fixture type and density, sound, and odors.


# Distributing and Promoting Products and Services

## Using Supply Chain Management to Increase Efficiency and Customer Satisfaction

1. How can supply-chain management increase efficiency and customer satisfaction?
Distribution (place) is an important part of the marketing mix. Retailers don’t sell products they can’t deliver, and salespeople don’t (or shouldn’t) promise deliveries they can’t make. Late deliveries and broken promises may mean the loss of a customer. Accurate order filling and billing, timely delivery, and arrival in good condition are important to the success of the product.
The goal of supply-chain management is to create a satisfied customer by coordinating all of the activities of the supply-chain members into a seamless process. Therefore, an important element of supply-chain management is that it is completely customer driven. In the mass-production era, manufacturers produced standardized products that were “pushed” through the supply channel to the consumer. In contrast, in today’s marketplace, products are being driven by customers, who expect to receive product configurations and services matched to their unique needs. For example, Dell builds computers according to its customers’ precise specifications, such as the amount of memory, type of monitor, and amount of hard-drive space. The process begins with Dell purchasing partly built laptops from contract manufacturers. The final assembly is done in Dell factories in Ireland, Malaysia, or China, where microprocessors, software, and other key components are added. Those finished products are then shipped to Dell-operated distribution centers in the United States, where they are packaged with other items and shipped to the customer.
Through the channel partnership of suppliers, manufacturers, wholesalers, and retailers along the entire supply chain who work together toward the common goal of creating customer value, supply-chain management allows companies to respond with the unique product configuration demanded by the customer. Today, supply-chain management plays a dual role: first, as a communicator of customer demand that extends from the point of sale all the way back to the supplier, and second, as a physical flow process that engineers the timely and cost-effective movement of goods through the entire supply pipeline.
Accordingly, supply-chain managers are responsible for making channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer-service activities. Supply-chain managers are also responsible for the management of information that flows through the supply chain. Coordinating the relationships between the company and its external partners, such as vendors, carriers, and third-party companies, is also a critical function of supply-chain management. Because supply-chain managers play such a major role in both cost control and customer satisfaction, they are more valuable than ever.
For products that are services, the distribution channel is based primarily on location of the services, such as where the company has its headquarters; the layout of the area in which the service is provided (for example, the interior of a dry cleaners’ store); alternative locations for the presentation of services, such as an architect visiting a client’s site location; and elements of atmosphere, such as dark wooden bookcases for bound legal volumes in an attorney’s office, which provide credibility. Services companies also utilize the traditional entities of distribution for any actual goods they sell or supplies they must purchase.

### Summary of Learning Outcomes

1. How can supply-chain management increase efficiency and customer satisfaction?
The goal of supply-chain management is to coordinate all of the activities of the supply-chain members into a seamless process, thereby increasing customer satisfaction. Supply-chain managers have responsibility for main channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer-service activities.


# Distributing and Promoting Products and Services

## Promotion Strategy

1. What is promotion, and what are the key elements of a promotional mix?
Promotion is an attempt by marketers to inform, persuade, or remind consumers and B2B users to influence their opinion or elicit a response. Most firms use some form of promotion. Because company goals vary widely, so do promotional strategies. The goal is to stimulate action from the people or organizations of a target market. In a profit-oriented firm, the desired action is for the consumer to buy the promoted item. Mrs. Smith’s, for instance, wants people to buy more frozen pies. Not-for-profit organizations seek a variety of actions with their promotions. They tell us not to litter, to buckle up, to join the military, or to attend the ballet. (These are examples of products that are ideas marketed to specific target markets.)
Promotional goals include creating awareness, getting people to try products, providing information, retaining loyal customers, increasing the use of products, and identifying potential customers, as well as teaching potential service clients what is needed to “co-create” the services provided. Any promotional campaign may seek to achieve one or more of these goals:
1.
Large companies often use catchy slogans to build brand awareness. For example, Dodge’s wildly successful ads where a guy in a truck yells over to another truck at a stoplight, “Hey, that thing got a Hemi?” has created a huge number of new customers for Dodge trucks. Hemi has become a brand within a brand. Now,
2.
3.
People typically will not buy a product or support a not-for-profit organization until they know what it will do and how it may benefit them. Thus, an informative ad may stimulate interest in a product. Consumer watchdogs and social critics applaud the informative function of promotion because it helps consumers make more intelligent purchase decisions.
4.
Firms can also help keep customers loyal by telling them when a product or service is improved.
5.
6.
7.

### The Promotional Mix

The combination of traditional advertising, personal selling, sales promotion, public relations, social media, and e-commerce used to promote a product is called the promotional mix. Each firm creates a unique promotional mix for each product. But the goal is always to deliver the firm’s message efficiently and effectively to the target audience. These are the elements of the promotional mix:
1. Traditional advertising: Any paid form of nonpersonal promotion by an identified sponsor that is delivered through traditional media channels.
2. Personal selling: A face-to-face presentation to a prospective buyer.
3. Sales promotion: Marketing activities (other than personal selling, traditional advertising, public relations, social media, and e-commerce) that stimulate consumer buying, including coupons and samples, displays, shows and exhibitions, demonstrations, and other types of selling efforts.
4. Public relations: The linking of organizational goals with key aspects of the public interest and the development of programs designed to earn public understanding and acceptance. Public relations can include lobbying, publicity, special events, internal publications, and media such as a company’s internal television channel.
5. Social media: The use of social media platforms such as Facebook, Twitter, Pinterest, Instagram, and various blogs to generate “buzz” about a product or company. The skills and knowledge needed to generate information as well as to defend the company against problems (such as incriminating videos “going viral”) are separate skills from those related to traditional advertising. Even promotional strategies such as paying celebrities to wear a specific line of clothing and posting these images on Twitter or Instagram (a form of advertising) requires different types of planning and expertise than traditional advertising.
6. E-commerce: The use of a company’s website to generate sales through online ordering, information, interactive components such as games, and other elements of the website. Website development is mandatory is today’s business world. Understanding how to develop and utilize a website to generate sales is imperative for any marketer.
Ideally, marketing communications from each promotional-mix element (personal selling, traditional advertising, sales promotion, public relations, social media, and e-commerce) should be integrated. That is, the message reaching the consumer should be the same regardless of whether it comes from an advertisement, a salesperson in the field, a magazine article, a blog, a Facebook posting, or a coupon in a newspaper insert.

### Integrated Marketing Communications

This disjointed approach to promotion has propelled many companies to adopt the concept of integrated marketing communications (IMC). IMC involves carefully coordinating all promotional activities—traditional advertising (including direct marketing), sales promotion, personal selling, public relations, social media and e-commerce, packaging, and other forms of promotion—to produce a consistent, unified message that is customer focused. Following the concept of IMC, marketing managers carefully work out the roles the various promotional elements will play in the marketing mix. Timing of promotional activities is coordinated, and the results of each campaign are carefully monitored to improve future use of the promotional mix tools. Typically, a company appoints a marketing communications director who has overall responsibility for integrating the company’s marketing communications.
Southwest Airlines relied on IMC to launch its “Transfarency” campaign. The campaign integrated and promoted the concept on its website, as well as through advertising and airport signage. The campaign has resonated with consumers because most competitors add extra fees for baggage and premium seats. One of the taglines Southwest uses is “Reward seats only on days ending with the letter ‘y.’” The integrated marketing campaign was created in collaboration with Southwest’s advertising agency, GSD&M, based in Dallas, Texas.
The sections that follow examine the elements of the promotional mix in more detail.

### Summary of Learning Outcomes

1. What is promotion, and what are the key elements of a promotional mix?
Promotion aims to stimulate demand for a company’s goods or services. Promotional strategy is designed to inform, persuade, or remind target audiences about those products. The goals of promotion are to create awareness, get people to try products, provide information, keep loyal customers, increase use of a product, identify potential customers, and even teach clients about potential services.
The unique combination of advertising, personal selling, sales promotion, public relations, social media, and e-commerce used to promote a product is called the promotional mix. Advertising is any paid form of nonpersonal promotion by an identified sponsor. Personal selling consists of a face-to-face presentation in a conversation with a prospective purchaser. Sales promotion consists of marketing activities—other than personal selling, advertising, and public relations—that stimulate consumers to buy. These activities include coupons and samples, displays, shows and exhibitions, demonstrations, and other selling efforts. Public relations is the marketing function that links the policies of the organization with the public interest and develops programs designed to earn public understanding and acceptance. IMC is being used by more and more organizations. It is the careful coordination of all of the elements of the promotional mix to produce a consistent, unified message that is customer focused.


# Distributing and Promoting Products and Services

## The Huge Impact of Advertising

1. How are advertising media selected?
Most Americans are bombarded daily with advertisements to buy things. Traditional advertising is any paid form of nonpersonal presentation by an identified sponsor. It may appear on television or radio; in newspapers, magazines, books, or direct mail; or on billboards or transit cards. In the United States, children between the ages of two and 11 are exposed to more than 25,600 exposures to advertising through TVs and online exposures a year. Adults are exposed to three times as many—more than two million commercials in a lifetime.
The money that big corporations spend on advertising is mind-boggling. Total advertising expenses in this country were estimated at more than $206 billion in 2017. Global advertising expenditures are approximately $546 billion annually. General Motors is America’s largest advertiser, spending over $3.1 billion annually. This is slightly over $350,000 per hour, seven days a week, 24 hours per day. America’s biggest global spender on advertising is Procter & Gamble at $4.6 billion.
Nissan was a sponsor of the 2016 Rio Olympic Games and provided 5,000 vehicles for the events. Ads for the 2018 Super Bowl cost between $5 million and $5.5 million for a 30-second commercial. A 30-second spot on NBC’s Sunday Night Football costs about $650,000.

### The Impact of Technology and the Internet on Traditional Advertising

Many new media are not hardwired or regulated, and digital technology is delivering content anytime, anywhere. Cable, satellite, and the internet have highly fragmented audiences, making them tougher than ever to reach. In the late 1950s, Gunsmoke on CBS captured a 65 percent share of the TV audience nearly every Saturday night. Only one event, the Super Bowl, has a chance to do that now.
Traditional forms of entertainment are being rapidly digitized. Magazines, books, movies, shows, and games can be accessed through a laptop or a cell phone. In 2017, 93 million U.S. homes have broadband connections—nearly as many as the 119.6 million that now have cable and satellite hookups.
Technology is driving many of the changes, but so is consumer behavior. Advertiser questions abound. How do you market a product to young people when millions of them are glued to video game screens instead of TVs? How do you reach TV audiences when viewers can TiVo their way past your ads? How do you utilize social media to get the word out about your product, and once you do, how do you control the message if something goes viral? What role do influencers play in promoting products and services via various electronic platforms? What should you make of blogs? How do you plan a website that fosters sales and continually provides information and other forms of value for your customers? Product placements in films and streaming content? Podcasts? We will touch on each of these later in the chapter.

### Choosing Advertising Media

The channels through which advertising is carried to prospective customers are the advertising media. Both product and institutional ads appear in all the major advertising media. Each company must decide which media are best for its products. Two of the main factors in making that choice are the cost of the medium and the audience reached by it.

### Advertising Costs and Market Penetration

Cost per contact is the cost of reaching one member of the target market. Naturally, as the size of the audience increases, so does the total cost. Cost per contact enables an advertiser to compare media vehicles, such as television versus radio or magazine versus newspaper, or, more specifically,  versus  An advertiser debating whether to spend local advertising dollars for TV spots or radio spots could consider the cost per contact of each. The advertiser might then pick the vehicle with the lowest cost per contact to maximize advertising punch for the money spent. Often costs are expressed on a cost per thousand (CPM) contacts basis.
Reach is the number of different target consumers who are exposed to a commercial at least once during a specific period, usually four weeks. Media plans for product introductions and attempts at increasing brand awareness usually emphasize reach. For example, an advertiser might try to reach 70 percent of the target audience during the first three months of the campaign. Because the typical ad is short-lived and often only a small portion of an ad may be perceived at one time, advertisers repeat their ads so consumers will remember the message. Frequency is the number of times an individual is exposed to a message. Average frequency is used by advertisers to measure the intensity of a specific medium’s coverage.
Media selection is also a matter of matching the advertising medium with the product’s target market. If marketers are trying to reach teenage females, they might select Seventeen magazine. If they are trying to reach consumers over 50 years old, they may choose AARP: The Magazine. A medium’s ability to reach a precisely defined market is its audience selectivity. Some media vehicles, such as general newspapers and network television, appeal to a wide cross section of the population. Others—such as Brides, Popular Mechanics, Architectural Digest, MTV, ESPN, and Christian radio stations—appeal to very specific groups. Marketers must also consider utilizing various social media platforms and which platforms are most likely to reach the targeted market.

### Summary of Learning Outcomes

1. How are traditional advertising media selected?
Cost per contact is the cost of reaching one member of the target market. Often costs are expressed on a cost per thousand basis. Reach is the number of different target customers who are exposed to a commercial at least once during a specific period, usually four weeks. Frequency is the number of times an individual is exposed to a message. Media selection is a matter of matching the advertising medium with the target audience. Technology continues to drive many of the recent changes to traditional advertising strategies.


# Distributing and Promoting Products and Services

## The Importance of Personal Selling

1. What is personal selling?
Advertising acquaints potential customers with a product and thereby makes personal selling easier. Personal selling is a face-to-face sales presentation to a prospective customer. Sales jobs range from salesclerks at clothing stores to engineers with MBAs who design large, complex systems for manufacturers. About 6.5 million people are engaged in personal selling in the United States. Slightly over 45 percent of them are women. The number of people who earn a living from sales is huge compared, for instance, with the nearly 300,000 workers employed in the traditional advertising sector. Personal selling offers several advantages over other forms of promotion:
1. Personal selling provides a detailed explanation or demonstration of the product. This capability is especially desirable for complex or new goods and services.
2. The sales message can be varied according to the motivations and interests of each prospective customer. Moreover, when the prospect has questions or raises objections, the salesperson is there to provide explanations. In contrast, advertising and sales promotion can respond only to the objections the copywriter thinks are important to customers.
3. Personal selling can be directed only to qualified prospects. Other forms of promotion include some unavoidable waste because many people in the audience are not prospective customers.
4. Personal selling costs can be controlled by adjusting the size of the sales force (and resulting expenses) in one-person increments. In contrast, advertising and sales promotion must often be purchased in fairly large amounts.
5. Perhaps the most important advantage is that personal selling is considerably more effective than other forms of promotion in obtaining a sale and gaining a satisfied customer.

### The Selling Process

Selling is a process that can be learned. Experts have spelled out the steps of the selling process, shown in , and professional salespeople use them all the time. These steps are as follows:
1.
For many companies, the inquiries generated by advertising and promotion are the most likely source of prospects. Inquiries are also known as sales leads. Leads usually come in the form of letters, cards, e-mail addresses, telephone calls, or through social media sites. Some companies supply salespeople with prospect lists compiled from external sources, such as Chamber of Commerce directories, newspapers, public records, club membership lists, internet inquiries, and professional or trade publication subscription lists. Meetings, such as professional conventions and trade shows, are another good source of leads. Sales representatives attend such meetings to display and demonstrate their company’s products and to answer the questions of those attending. The firm’s files and records can be another source of prospects. Correspondence with buyers can be helpful. Records in the service department can identify people who already own equipment and might be prospects for new models. Finally, friends and acquaintances of salespeople can often supply leads.
One guideline is that not all prospects are “true” opportunities for a sale. Just because someone has been referred or has made an inquiry does not mean that the person is a genuine prospect. Salespeople can avoid wasting time and increase their productivity by qualifying all prospects.

2.
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Often employed in business, the “higher authority” objection is frequently used when one of the parties says, “This agreement looks good, but I’ll have to run it by my committee” (or wife or any other “higher authority”). The result is that that sales presentation turns out to be just a preliminary, nonbinding round. After the higher authority responds, often disapproving the agreement, the sale goes into round two or starts all over again.
For example, when a customer wants to buy a house, car, or anything expensive, the salesperson will say, “If we find the house (or car) that you really like, is there any reason you could not make the purchase today?” Once they get the green light, the salesperson will spend whatever time it takes to find the right product for the customer. However, if the client says his uncle has to give the final approval because he will be loaning the money, the salesperson will try and set up an appointment when the uncle can be present.
5.
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After the product is delivered to the customer, the salesperson must make a routine visit to see that the customer is satisfied. This follow-up call may also be a chance to make another sale. But even if it isn’t, it will build goodwill for the salesperson’s company and may bring future business. Repeat sales over many years are the goal of professional salespeople.

### Summary of Learning Outcomes

1. What is personal selling?
About 6.5 million people in the United States are directly engaged in personal selling. Personal selling enables a salesperson to demonstrate a product and tailor the message to the prospect; it is effective in closing a sale. Professional salespeople are knowledgeable and creative. They also are familiar with the selling process, which consists of prospecting and qualifying, approaching customers, presenting and demonstrating the product, handling objections, closing the sale, and following up on the sale.


# Distributing and Promoting Products and Services

## Sales Promotion

1. What are the goals of sales promotion, and what are several types of sales promotion?
Sales promotion helps make personal selling and advertising more effective. Sales promotions are marketing events or sales efforts—not including traditional advertising, personal selling, and public relations—that stimulate buying. Sales promotion can be developed as part of the social media or e-commerce effort just as advertising can, but the methods and tactics are much different. Sales promotion is a $300 billion—and growing— industry. Sales promotion is usually targeted toward either of two distinctly different markets. Consumer sales promotion is targeted to the ultimate consumer market. Trade sales promotion is directed to members of the marketing channel, such as wholesalers and retailers.
The goal of many promotion tactics is immediate purchase. Therefore, it makes sense when planning a sales-promotion campaign to target customers according to their general behavior. For instance, is the consumer loyal to the marketer’s product or to the competitor’s? Does the consumer switch brands readily in favor of the best deal? Does the consumer buy only the least expensive product, no matter what? Does the consumer buy any products in your category at all?
Procter & Gamble believes shoppers make up their mind about a product in about the time it takes to read this paragraph.
This “first moment of truth,” as P&G calls it, is the three to seven seconds when someone notices an item on a store shelf. Despite spending billions on traditional advertising, the consumer-products giant thinks this instant is one of its most important marketing opportunities. It recently created a position entitled Director of First Moment of Truth, or Director of FMOT (pronounced “EFF-mott”), to produce sharper, flashier in-store displays. There is a 15-person FMOT department at P&G headquarters in Cincinnati as well as 50 FMOT leaders stationed around the world.
One of P&G’s most prominent in-store promotions has been for a new line of Pampers. In the United States, P&G came up with what it calls a “shopper concept”—a single promotional theme that allows it to pitch products in a novel way. The theme for Pampers was “Babies First.” In stores, the company handed out information on childhood immunizations, car-seat safety, and healthy diets while promoting its diapers and wipes in other parts of the store. To market Pampers diapers in the United Kingdom, P&G persuaded retailers earlier this year to put fake doorknobs high up on restroom doors, to remind parents how much babies need to stretch.
The objectives of a promotion depend on the general behavior of target consumers, as described in . For example, marketers who are targeting loyal users of their product don’t want to change behavior. Instead, they want to reinforce existing behavior or increase product usage. Frequent-buyer programs that reward consumers for repeat purchases can be effective in strengthening brand loyalty. Other types of promotions are more effective with customers prone to brand switching or with those who are loyal to a competitor’s product. Cents-off coupons, free samples, or an eye-catching display in a store will often entice shoppers to try a different brand.
The use of sales promotion for services products depends on the type of services. Consumer services, such as hairstyling, rely heavily on sales promotions (such as providing half off the price of a haircut for senior citizens on Mondays). Professional services, however, use very little sales promotion. Doctors, for example, do not often use coupons for performing an appendectomy, for example. In fact, service product companies must be careful not to utilize too many sales-promotion tactics because they can lower the credibility of the firm. Attorneys do not have a sale on providing services for divorce proceedings, for example.
Two growing areas of sales promotion are couponing and product placement. American consumers receive over $321 billion worth of coupons each year and redeem about $3 billion. Almost 85 percent of all Americans redeem coupons. Sunday newspaper supplements remain the number one source, but there has been explosive growth of online or consumer-printed coupons. General Mills, Kimberly-Clark, and General Electric like online coupons because they have a higher redemption rate. Coupons are used most often for grocery shopping. Do they save you money? One study found that people using coupons at the grocery store spent eight percent more than those who didn’t.
Product placement is paid inclusion of brands in mass media programming. This includes movies, TV, books, music videos, and video games. So when you see Ford vehicles in the latest James Bond movie or Tom Hanks putting on a pair on Nikes on-screen, that is product placement. Product placement has become a huge business. For example, companies paid more than $6 billion in a recent year to have their products placed prominently in a film or television program; that figure is expected to reach more than $11 billion by 2019. It is easy to go overboard with this trend and be portrayed as a parody, however. The 2017 Emoji Movie is an example of failed product placements. The theme of the movie centered on various emojis caught in a smartphone as they are forced to play Candy Crush and say glowing things about such apps as Dropbox and Instagram as they make their way through the phone. Also, some have suggested that product placement might doom the products and companies. For example, Atari products appeared in the classic 1982 film Blade Runner, but the original company went out of business shortly after the movie was released, while another product, the Cuisinart food processor, had to settle a price-fixing scandal after making an appearance in the film. This has not stopped companies such as Sony, Peugeot, and Coca-Cola from tempting fate by appearing in the recently released Blade Runner 2049. Many large companies are cutting their advertising budgets to spend more on product placements. One area of product placement that continues to raise ethical issues is so-called “experts” being paid to mention brands on the air.

### Summary of Learning Outcomes

1. What are the goals of sales promotion, and what are several types of sales promotion?
Immediate purchase is the goal of most sales promotion, whether it is aimed at consumers or the trade (wholesalers and retailers). The most popular sales promotions are coupons, samples, product placement, premiums, contests, and sweepstakes. Trade shows, conventions, and point-of-purchase displays are other types of sales promotion.


# Distributing and Promoting Products and Services

## Public Relations Helps Build Goodwill

1. How does public relations fit into the promotional mix?
Like sales promotion, public relations can be a vital part of the promotional mix. Public relations is any communication or activity designed to win goodwill or prestige for a company or person. This could include publicity, information about a company or product that appears in the news media and is not directly paid for by the company. Publicity can be good or bad. Reports of children overeating fast food, which can lead to obesity, is an example of negative publicity. Public relations includes many other activities, such as lobbying, event planning, acting as a press agent, managing internal communication, and coordinating crisis management for communications.
Naturally, firms’ public relations departments try to create as much good publicity as possible. They furnish company speakers for business and civic clubs, write speeches for corporate officers, and encourage employees to take active roles in such civic groups as the United Way and the Chamber of Commerce. One of the tools of the public relations department is the press release, a formal announcement of some newsworthy event connected with the company, such as the start of a new program, the introduction of a new product, or the opening of a new plant. Public relations departments may perform any or all of the functions described in .
Much of sales promotion and publicity is about creating buzz. Buzz marketing (or viral marketing) is intense word-of-mouth marketing. Word-of-mouth is essentially a linear process with information passing from one individual to another, then to another. A marketer has successfully created a buzz when the interactions are so intense that the information moves in a matrix pattern rather than a linear one and everyone is talking about the topic. Leading-edge firms now feel that they get more bang for their buck using buzz marketing than other forms of promotion.

### Summary of Learning Outcomes

1. How does public relations fit into the promotional mix?
Public relations is mostly concerned with getting good publicity for companies and other organizations. Publicity is any information about a company or product that appears in the news media and is not directly paid for by the company. Public relations departments furnish company speakers for business and civic clubs, write speeches for corporate officers, and encourage employees to take active roles in civic groups. These activities help build a positive image for an organization and create buzz, which is a good backdrop for selling its products.


# Distributing and Promoting Products and Services

## Trends in Social Media

1. What is social media, and how has it changed promotion?
Advances in technology continue to change the marketing landscape. As you will see in the following sections, marketers are harnessing new technology to hone their marketing message and reach more customers.
The business world now relies on the internet for much of its communications, marketing or otherwise. Almost all companies have Facebook accounts, and individual leaders of companies have separate individual accounts on Linked In, Twitter, Instagram, and other social media sites. New social media sites are popping up almost every week. The phenomenon of social media has created a business climate in which thousands of impressions can be made with one social media post. That impression could be positive or negative. Within social media, there are “stars” of social media—individuals who have developed audiences in the millions who follow their posts every day. Social media is a hugely powerful tool for marketers. It has it challenges, though, because the platforms are constantly changing and evolving. Also, the audiences being reached often read (or view) and believe the messages seen on various social media platforms without understanding the context of the message. A social media post that goes viral can close down a business, even if the post is not true. That’s what makes social media the newest challenge/opportunity for marketers. Companies that want to retain market share and build their image must develop tactics for the use of social media and for defending against problems created by the use of this powerful marketing tool.

### Promotion through Blogs

Blogs provide marketers with a real-time dialogue with customers and an avenue to promote their products or services. A blog is an online journal with regularly updated content. This content is pushed to subscribers by RSS (really simple syndication) or e-mail and allows for response and discussion from site visitors. RSS enables users to automatically gather updates from various websites, especially news sites and blogs, and display headlines and a brief summary of those updates in a single location. Blogs can be considered to be offerings of social media unless the site is actually part of the company’s main web page.
Well-run marketing blogs usually focus tightly on one niche area, product line, or vertical market segment. The aim is to provide the blog’s readers with a constantly renewing source of news and insight about that topic. About 366 million blogs are registered on Tumblr, and more than 23 million blog entries are posted daily.
Many companies have set up their own blogs, including General Motors, Apple, the American Cancer Society, and Microsoft, to name a few. These companies blog because they: (1) get real-time input from customers and prospects; (2) create and maintain relationships; (3) can have a continuing dialogue with loyal customers and prospective clients; and (4) can zero in on specific marketing goals. For example, Disney uses a blog called Disney Baby to cater to the needs of new mothers. Each of their bloggers has a personal bio that helps provide a connection for the new mother to the blogger and provides a deeper connection to the Disney brand.
Firms can also use emerging search tools such as BlogPulse, Feedster, PubSub, and Technorati to monitor conversations about their company and brands. A public relations department might then decide to feed new-product information to bloggers who are evangelists for their brand.

### Advertisers Jump on Podcasts and Videos

Podcasts are basically blogs with a multimedia file. The trend developed when a new version of iTunes software made it easy for people to create their own podcasts and post them on a website. There are more than 8,000 podcasters in the United States. Besides individuals, companies are beginning to do their own podcasts as well as posting videos from the company on YouTube as another marketing channel. For listeners, the advantage of a podcast is convenience. Companies now have the ability to use streaming video, which potential customers can download to their mobile devices; for example, ABC News offering a digital version of its programming. The customers’ favorite programs download automatically from the internet, usually free of charge, and they can listen to the programs any time they wish. They can also listen wherever they wish, if they have a mobile device to receive the downloads.
Gimlet Media is one of the nation’s largest podcasters, offering material from nearly 40 different stations as podcasts. At first ad-free, Gimlet’s podcasts are done for direct-to-consumer companies like Blue Apron, as well as for traditional advertisers like Pepsi and Ford. Gimlet now includes a short advertisement before the programming—short enough that people won’t fast-forward through it. Gimlet also received a $5 million investment from advertising giant WPP, a clear sign that the business community sees a bright future in podcasts.
Pet owners can go to http://www.purina.com and opt in to receive Purina’s podcasts. The products will offer advice ranging from animal training to pet insurance to nutrition for older pets. Weekly tips will also be sent on things such as how to help your dog lose weight. Owners spend close to $25 billion a year on pet food. The aim of the podcasts is to build brand loyalty with a soft sell.
Videos have become another important promotions channel. Literally hundreds of thousands of videos can be viewed on YouTube, the top video-hosting site on the internet. Many people now log in to YouTube to watch videos on a particular product and how the product can be used. Entrepreneurs and other small-business owners have made extensive use of YouTube to provide value to their customers by creating and uploading informational videos that highlight their products.

### Summary of Learning Outcomes

1. What is social media, and how does it affect promotion?
Social media is a relatively new marketing channel that includes platforms such as Facebook, Twitter, LinkedIn, Pinterest, and Instagram. The phenomenon of social media has created a business climate in which thousands of impressions (marketing messages) can be achieved with one creative social media post. Social media is a hugely powerful tool for marketers. It has it challenges, though, because a social media post that goes viral can close down a business, even if it is not true. That’s what makes social media the newest challenge/opportunity for marketers. The internet and new technology are having a major impact on promotion and promotion expenditures. Traditional media are losing advertising funds to the internet. Many companies are now creating blogs to get closer to customers and potential customers. Podcasts offer advertisers a new medium to reach consumers. Streaming video and videos uploaded to YouTube are also important social media channels.