revised what is marketing alexandria emba
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James S. Boles
Robinson College of Business
Georgia State University
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What is Marketing?
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Definitions of Marketingy The process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods andservices to create exchanges that satisfy individual andorganizational goalsThe American Marketing Association
y The art of selling productsKotler
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Selling is onl The tip of the iceberg
There will always be a need for
some selling. But the aim of marketing
is to make selling superfluous. The aimof marketing is to know and understand
the customer so well that the product or
service fits him and sells itself. Ideally,
marketing should result in a customer
who is ready to buy. All that should beneeded is to make the product or
service available.
Peter Drucker
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What is Marketing Management?
Marketing management is theartand i nce
of choosing target marketsandgetting, keeping, andgrowing
customers through
creating,delivering, and communicatingsuperior customervalue.
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Marketingy Consumer Demand.
y Demand Analysis Decisions regarding..
yProduct Development Test Product
y Production/Manufacturing Distribution
y Promotion Feedback from buyers...
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Scope of Marketingy Goodsy Servicesy Experiencesy Eventsy Personsy Placesy Propertiesy
Organizationsy Informationy Ideas
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Marketing Conceptsy Definition of Marketingy Scope of Marketingy Marketing Strategyy Marketing Mixy MarketingProgram/Marketing Plan
y Segmentationy Target Marketsy Needsy Wants
y Valuey Satisfactiony Customer Retentiony Relationship Marketingy Customer Profitabilityy Customer Lifetime Valuey Demandy
MarketingP
lany Marketing Program
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Core Marketing Conceptsy Segmentation
y Target Markets
y
NeedsyWants
y Demands
y Marketing Plan
y Marketing Program
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Definitions of Key Termsy Value
y Ratio between what the consumer gets (both functional andemotional benefits) and what the consumer gives (monetary costs,
time costs, energy costs, and psychic costs)y Customer Perceived Value
y The difference between the prospective customers evaluation of allof the costs and of all of the benefits of an offering compared tothose of perceived alternatives
y
Satisfactiony The feeling of pleasure or disappointment resulting from
comparing a products performance with that individualsexpectations
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Customer Retentiony Four steps to increase customer retention
y Define and measure its retention ratey Distinguish the causes of customer attrition & identify those that can be managed bettery Estimate the profit lost when it loses a customer-Customer Lifetime Value-the present
value of the profit stream that would have been realizedy Determinehow much it would cost to reduce the defection rate
y
High
ly satisfied customer:y stays loyal longer,y Provides positive word-of-mouth about the company and its products,y pays less attention to competitors offerings,y is less price sensitive,y offers product and service ideas,y costs less to serve than new customers
y Market-Driven Companiesy Requires a company-wide passion for and focus on customersy
Research
sh
ows th
at companies with
a customer focus were almost 7 percent moreproductive than their competitors
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The marketplace isnt what it used to be
Information technology
Globalization
Deregulation
Privatization
Competition
Convergence
Consumer resistance
Retail transformation
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Marketing Strategyy MarketingMix or
Four Ps (Six Ps?)
y Producty Packaging
y People
y Price
y
Placey Promotion
y FourCs (Six Cs?)
y Customer Solutiony Co-production
y Customer Cost
y Convenience
y Communicationy Customer relationships
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Marketing Debate:
Take a Position!Does marketing shape consumer needs?
or
Does marketing merely reflect the needs and wants ofconsumers?
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James S. Boles
Robinson College of Business
Georgia State University
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Agenda: Marketing Mathy Types of Costs
y Variable Costsy Constanty Decreasing
y Fixed Costy Total Cost
y Margin Calculationsy Break Even Analysis
y Recovering Fixed Costsy Changes in Fixed Costsy Changes in Margin Per Unit
y Market Size and Sharey Impact ofPrice Decisions
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Variable Cost Per Unity May depend on the total output produced
Total Cost Total Cost
VariableCost
VariableCost
FixedCost FixedCost
Total Volume Produced Total Volume Produced
$$
Figure 1a: Constant Variable
Cost Per Unit
Figure 1b: Decreasing Variable
Cost Per Unit
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Types of Costsy Fixed Costs - Remain at the same level regardless
of the number of units produced
Ex. Regardless ofh
ow many golf clubs Callaway Golf sellsthe media outlet will get the same fee for anadvertisement
y VariableCosts - Change depending on theamount of product produced and sold
Ex. The more golf clubs Callaway Golf sells the greater areits packaging costs, shipping costs, raw material costs,etc.
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Margin Calculationsy The difference between the per unit revenue and
the per unit variable cost is the unit margin (or the
margin or the unit contribution)
Ex. Selling price $65.35
Variable cost $36.31
Unit margin $29.04
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Margin Calculationsy Sometimes it is useful to state the margin in percentage terms. To dothis, divide the unit margin in dollars by the revenue per unit in dollarsand then multiply that by 100:
Ex. Margin = $29.04 = .444 x 100 = 44.4%
Revenue $65.35
y To calculate a selling price given a cost and a % margin:
Selling Price = Cost1- [Percent Margin / 100]
= 100 = 2001- [50 / 100]
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Price and Cost at Levels in the Channel of
Distribution
Manufacturer
Wholesaler
Retailer
Consumer
Variable cost per unit: $4.00Selling price to wholesaler: $7.50
Purchase price from manufacturer: $7.50Selling price to retailers: $8.70
Purchase price from wholesaler: $8.70Selling price to consumers: $10.00
Purchases from retailer at $10.00
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Price and Cost at Levels in the Channel of
Distributiony Manufacturers Manufacturers Manufacturing
Margin selling price costto distributors
($3.50) = ($7.50) - ($4.00)
y Wholesalers W holesalers Price paid toMargin selling price manufacturer
to retailers($1.20) = ($8.70) - ($7.50)
y Retailers Retailers Price paid to
Margin selling price wh
olesalerto consumers($1.30) = ($10.00) - ($8.70)
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Break Even Analysisy Recovering Fixed CostsWhat an organization makes in margins helps it to cover its
fixed costs andh
opefully produce a profit.Th
e number ofunits sold which just enables the company to cover its fixedcosts is its break even volume:
BEV= Fixed Costs in Dollars
DollarMargin per Unit
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Break Even Analysisy The Beginning to Golf tape manufacturer had $700,000
in costs to produce the tape. These costs are fixed becausethey would not change with the number of tapes sold.Given the $3.50 margin per tape, to recover the $700,000investment, we would have to sell the break even volumeof:
BEV= $700,000 = 200,000 units$3.50 / unit
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Break Even Analysis With
Changes in Fixed Costs
y We can also use this type of calculation to see what other
potential investments wouldh
ave to yield to beworthwhile:
Added Costs = $175,000 = 50,000 units
DollarM
argin per Unit $3.50 / unit
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Break Even Analysis With
Changes in Margin Per Unit
y We can use this formula to examine changes in the unitmargin:
BEV= $700,000 = 280,000 units
$2.50 / unit
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Market Size and Sharey We can convert the units number into a share of market
number. For example, suppose that market researchrevealed that a total of 5,000,000 golf instruction videos
were likely to be sold annually. With this information wecan calculate our break-even market share:
BreakEven Share of GolfVideo Market =
200,000 units = 4%5,000,000 units
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Market Size and Sharey Suppose that our research revealed that of the 5,000,000
golf video tapes sold, only 1,000,000 were of the beginnervariety. It might be more appropriate to examine the share
we would need of th
is market instead:Break- Even Share ofBeginner GolfVideo Market =
200,000 units = 20%1,000,000 units
y We also need to select the time horizon which is the mostappropriate for us, since it will vary with each specificsituation. The two market share numbers we calculatedimplicitly assume that we were looking to recover our fixedcosts in one year.
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Drivers of ProfitProfit
SalesRevenue
Sales
Volume
Costs
VariableCost
FixedCosts
Sales
Volume
VariableUnit Cost
Price
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Effect of Price on Total Marginy A manufacturer sells a product for $100 per unit, achieving
sales of 1 million units per year. Variable costs per unit are$60, thus the unit margin is $40.
Sales Volume (millions)
PriceVariable Unit Cost $
10060
Variable Unit Cost Price
1
.5
1.5
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Effect of Price on Total Marginy The manufacturer decides to lower the price of their product to $80 perunit. Variable costs per unit are still $60, thus the unit margin is now$20. The company must now sell 2 million products to get the same
profit.Sales Volume (millions)
PriceVariable Unit Cost $
60
Variable Unit Cost Price
1.0
.5
1.5
2.0
80
Necessary sales increaseto get the same profit
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Effect of Price on Total Margin
y The manufacturer decides to increase the price of a product to $120 perunit. The variable costs per unit are still $60 so the unit marginincreases to $60. Thus, 666,666 units need to be sold to generate $40million total margin.
Sales Volume (millions)
PriceVariable Unit Cost $
60
Variable Unit Cost Price
1
.5
1.5
120
Acceptable sales reductionto get the same profit
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Importance ofSales and Marketing:
Top Line Bottom Line
y If a firms top line (revenue line) = $0.00, what willthat firms bottom line look like?y
If you cannot develop products and service thatcustomers desire, you will fail!
y If you cannot place products/services where customerswant them, you will fail!
y
If you cannot market and sell effectively, you will fail!y If you price your product/service incorrectly, you will fail
-- to maximize revenue!
@James S. Boles 2010