marketing_strategy_session_iii
DESCRIPTION
Session 3 of my Marketing Strategy Course at ITM, Mumbai. With speaker notes.TRANSCRIPT
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DAY 3Pricing & Promotional
Strategies And Marketing Warfare
BUSINESS STRATEGIES AND THEIR MARKETING
IMPLICATIONS
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Pricing Strategies
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Learning Goals
1. Identify and define the internal factors affecting a firm’s pricing decisions
2. Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
3. Contrast the three general approaches to setting prices
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Definition
Price The amount of money charged for a product or
service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
RentFeeRateCommissionAssessment
TuitionFareTollPremiumRetainer
• Bribe• Salary• Wage• Interest• Tax
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Factors in Setting Price
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Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Market positioning influences pricing strategy
Other pricing objectives: Survival Current profit
maximization Market share leadership Product quality
leadership
Internal Factors
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Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Pricing must be carefully coordinated with the other marketing mix elements
Target costing is often used to support product positioning strategies based on price
Non-price positioning can also be used
Internal Factors
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Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Types of costs: Variable Fixed Total costs
How costs vary at different production levels will influence price setting
Experience (learning) curve affects price
Internal Factors
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Factors to Consider When Setting Price
Marketing objectivesMarketing mix
strategiesCostsOrganizational
considerations
Who sets the price? Small companies: CEO
or top management Large companies:
Divisional or product line managers
Price negotiation is common in industrial settings where pricing departments may be created
Internal Factors
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Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Types of markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly
Consumer perceptions of price and value
Price-demand relationship Demand curve Price elasticity of demand
External Factors
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Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Consider competitors’ costs, prices, and possible reactions
Pricing strategy influences the nature of competition Low-price low-margin
strategies inhibit competition
High-price high-margin strategies attract competition
Benchmarking costs against the competition is recommended
External Factors
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Factors to Consider When Setting Price
Nature of market and demand
Competitors’ costs, prices, and offers
Other environmental elements
Economic conditions Affect production costs Affect buyer perceptions
of price and value Reseller reactions to
prices must be considered Government may restrict
or limit pricing options Social considerations may
be taken into account
External Factors
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General Pricing Approaches
Cost-Based Pricing: Cost-Plus Pricing Adding a standard markup to cost Ignores demand and competition Popular pricing technique because:
It simplifies the pricing process Price competition may be minimized It is perceived as more fair to both buyers and sellers
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Cost-Based Pricing Example
- Variable costs: Rs.20 - Fixed costs: Rs.500,000- Expected sales: 100,000 units - Desired Sales Markup:
20%
Variable Cost + Fixed Costs/Unit Sales = Unit CostRs.20 + Rs.500,000/100,000 = Rs.25 per unit
Unit Cost/(1 – Desired Return on Sales) = Markup PriceRs.25 / (1 - .20) = Rs.31.25
General Pricing Approaches
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General Pricing Approaches
Cost-Based Pricing: Break-Even Analysis and Target Profit Pricing Break-even charts show total cost and total
revenues at different levels of unit volume. The intersection of the total revenue and total
cost curves is the break-even point. Companies wishing to make a profit must exceed
the break-even unit volume.
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Breakeven Analysis
Breakeven analysis Pricing technique used to determine the minimum sales volume a product must generate at a certain price level to cover all costs.
Finding the Breakeven Point
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General Pricing Approaches
Value-Based Pricing: Uses buyers’ perceptions of value rather than
seller’s costs to set price. Measuring perceived value can be difficult. Consumer attitudes toward price and quality have
shifted during the last decade. Value pricing at the retail level
Everyday low pricing (EDLP) vs. high-low pricing
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General Pricing Approaches
Competition-Based Pricing: Also called going-rate pricing May price at the same level, above, or below the
competition Bidding for jobs is another variation of competition-
based pricing Sealed bid pricing
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Number of flash drives/memory sticks demanded
Price p
er flash d
rive/mem
ory stick
Equilibrium Price: Supply = Demand
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measure of the sensitivity of demand to changes in prices
not price sensitive
no real change in demand
Inelastic Demand
Q2 Q1 Quantity
P1
P2
ElectricityPri
ce
price sensitive - changes in demand
Elastic Demand
Q2 Quantity
P1
P2
Recreational Vehicles
Q1P
rice
Elasticity of Demand
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INTRODUCTION GROWTH MATURITY DECLINEMarketing strategy Market development Increase market Defend market Maintain efficiency inemphasis share share exploiting product
Pricing High price, unique Lower price Price at or below Set price to remain
strategy product / cover over time competition profitable or reduceproduction costs to liquidate
Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce
product awareness benefits & loyalty promotion costs
Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim
outlets network unprofitable outlets
Marketing Strategy Over the Product Life Cycle
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Pricing Existing Products/Services - 3 options Pricing below market prices - Price wars
EX: airlines, store brand vs. manufacturer’s brand Dumping
Pricing above prevailing market prices for similar products EX: Sony – higher price = higher quality?
Pricing at or near market prices
Alternative Pricing Strategies
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Penetration Low price establish
product in the market Elastic demand;
Predatory pricing Skimming
High price; unique product; appeal to early adopters; Prestige pricing
Recovering high R&D costs
Combination Move inventory; stimulate
D; extend product life
PRICE
PRICE
PRICE
Skimming > Penetration
Penetration Price Strategy
Skimming Price Strategy
Alternative Pricing Strategies
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Applies to large markets with elastic demand, economies of scale, intense competition
Penetration Pricing
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Pricing of iPhones
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Market Skimming
Applies to new, distinctive products, early in the PLC
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Pricing Tactics
Price Lining Setting a limited number of prices for certain categories of
products Psychological Pricing
Pricing to take advantage of the fact that consumers do not always respond rationally to stated prices
Discounting Price reductions offered as an incentive to purchase
High tech Pricing: giving it away!
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Captive Product Pricing
Gillette Fusion Manual Razor
Gillette Fusion Manual Razorwith cartridges
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Discount / allowance SegmentedPsychologicalPromotionalInternational
Types of discounts Cash discount Quantity discount Seasonal discount
Allowances Trade-in allowances Promotional allowances
Strategies
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Price Adjustment Strategies
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Seasonal Discounts
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Bundling
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(Mixed) Bundling
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Discount / allowance SegmentedPsychologicalPromotionalInternational
Types of segmented pricing strategies: Product-line pricing Location pricing Time pricing
Also called revenue or yield management
Certain conditions must exist for segmented pricing to be effective
Strategies
Price Adjustment Strategies
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Market must be “segmentable” Segments must show different demand Pricing must be legal Costs of segmentation cannot exceed revenues earned Segmented pricing must reflect real differences in
customers’ perceived value
Segmented Pricing Effectiveness
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High Quality
Low Quality
Toyota Corolla Altis
Toyota Camry W1
Pricing a Product Line
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Time Pricing
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Discount / allowance SegmentedPsychologicalPromotionalInternational
The price is used to say something about the product. Price-quality relationship Reference prices Differences as small as
Re.1 can be important Numeric digits may have
symbolic and visual qualities that psychologically influence the buyer
Strategies
Price Adjustment Strategies
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Psychological
Pricing
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Mercs can actually be more important
to many people than their spouses. That is a price they are willing to pay.
Luxury Car!
Psychological Pricing
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Discount / allowance SegmentedPsychologicalPromotionalInternational
Temporarily pricing products below the list price or even below cost Contracts, Special-
event pricing Cash rebates Low-interest financing,
warranties Loss leaders
Strategies
Price Adjustment Strategies
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Promotional Cellphone Pricing
PROMOTIONAL
PRICING
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No Promotional Pricing
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Discount / allowance SegmentedPsychologicalPromotionalInternational
Prices charged in a specific country depend on many factors Economic conditions Competitive situation Laws / regulations Distribution system Consumer perceptions Corporate marketing
objectives Cost considerations
Strategies
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Price Adjustment Strategies
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India USA
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Price Transparency
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Select the appropriate pricing strategy. Explain your choice.
Wal-Mart launches a new range of own-label soups.
Cunard launches two new cruise ships.
A cable TV provider moves into a new area and needs to achieve a market share.
Holiday Inns try to fill hotels during winter weekends.
Burger King introduces a new range of value meals.
Nokia launches a new videophone.
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Promotion Strategies
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Learning Goals
Discuss how integrated marketing communications relates to a firm’s overall promotion strategy.
Explain promotional mix and outline the objectives of promotion.
Summarize the different types of advertising and advertising media.
Outline the roles of sales promotion, personal selling, and public relations.
Describe pushing and pulling promotional strategies.
Discuss the major ethical issues involved in promotion.
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Promotions – What is it?
Promotion is the function of informing, persuading, and influencing a purchase decision.
Integrated marketing communications (IMC) Coordination of all promotional activities—media advertising, direct mail, personal selling, sales promotion, and public relations—to produce a unified customer-focused message.
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Integrated Marketing Communications
Must take a broad view and plan for all form of customer contact.
Create unified personality and message for the good, service, or brand.
Elements include personal selling, advertising, sales promotion, publicity, and public relations.
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Promotional Mix
Promotional mix Combination of personal and nonpersonal selling techniques designed to achieve promotional objectives. Personal selling Interpersonal promotional process
involving a seller’s face-to-face presentation to a prospective buyer.
Nonpersonal selling Advertising, sales promotion, direct marketing, and public relations.
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Components of Promotional Mix
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Objectives of Promotional Strategy
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Objectives of Promotional Strategy
Providing Information Major portion of advertising provides information about a
product.Differentiating a Product
Communicate to buyers meaningful distinctions about the attributes, price, quality, or use of a good or service.
Increasing Sales Most common objective of a promotional strategy.
Stabilizing Sales Stable sales evens out the production cycle, reduces some
management and production costs, and simplifies financial, purchasing, and marketing planning.
Accentuating the Product’s Value Explaining hidden benefits of ownership.
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Promotional Planning
Product placement Marketers pay placement fees to have their products showcased in various media, ranging from newspapers and magazines to television and movies.
Guerilla marketing Innovative, low-cost marketing efforts designed to get consumers’ attention in unusual ways.
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Advertising
Advertising Paid nonpersonal communication delivered through various media and designed to inform, persuade, or remind members of a particular audience.
Consumers receive 3,500 to 5,000 marketing messages each day.
Types of Advertising Product advertising Messages designed to sell a particular good or
service. Institutional advertising – Messages that promote concepts, ideas,
philosophies, or goodwill for industries, companies, organizations, or government entities.
Cause advertising – Form of institutional messaging that promotes a specific viewpoint on a public issue as a way to influence public opinion and the legislative process
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Advertising and the Product Life Cycle
Informative advertising – Used to build initial demand for a product in the introductory phase of the product life cycle.
Persuasive advertising – Attempts to improve the competitive status of a product, institution, or concept, usually in the growth and maturity stages of the product life cycle. Comparative advertising – Compares products directly with their
competitors either by name or by inference.
Reminder-oriented advertising – Appears in the late maturity or decline stages of the product life cycle to maintain awareness of the importance and usefulness of a product.
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Advertising and the Product Life Cycle
Attract Attention
Convince
EntertainRemind
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Brand Risk
Invo
lvem
ent
High
Hig
hLo
w
Low
• Only few brands available in its space
• Promiscuous users• The job of Advertising is to
‘ENTERTAIN’• Marketing Paradigm: FEEL /
DO / FEEL
• High involvement / High Risk• Can’t afford to make mistakes• Includes existing users also• Ex: Durables / Hospitals• The job of Advertising is to
‘CONVINCE’• Marketing Paradigm: LEARN /
FEEL / DO
• Commoditised Brands• Predominantly speaking to ‘Own
Past Users• The job of Advertising is to ‘REMIND’• Marketing Paradigm: DO / FEEL /
DO
• Commoditised Brands• Experienced by ‘New Brands’
entering an existing market• Talks predominantly to ‘New users’
only• The job of Advertising is to
‘ATTRACT ATTENTION’• Marketing Paradigm: LEARN / DO /
FEEL
Advertising and the Product Life Cycle
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Vehicles
Television Largest reach Large variety of channels with
varied interests Expensive
Newspapers Short life span Possibility to localize Easy to coordinate with other
promotional efforts. Radio
Latest entrant (after a hiatus) Car commuters – captive
audience Magazines
Including Consumer publications and trade journals.
Direct Mail High per person cost, but
can be carefully targeted and highly effective.
Outdoor Advertising Requires brief messages.
Online and Interactive Advertising Experts predict sales from
online advertising will double in 2012.
Virals – Kolaveridi? Low cost Sometimes Intrusive
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More Vehicles…
Sponsorship Providing funds for a sporting or cultural event in
exchange for a direct association with the event. Benefits: Exposure to target audience and association
with image of the event.Other Media Options
Marketers look for novel ways to reach customers. Examples: infomercials, ATM receipts, directory
advertising
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SALES PROMOTION
Sales promotion Nonpersonal marketing activities other than advertising, personal selling, and public relations that stimulate consumer purchasing and dealer effectiveness.
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Consumer-Oriented Promotions
Premiums, Coupons, Rebates, Samples Two of every five promotion dollars are spent on premiums,
items given free or at reduced price with the purchase of another product.
Coupons attract new customers but focus on price rather than brand loyalty.
Rebates increase purchase rates, promote multiple purchases, and reward product users.
Three of every four consumers who receive a sample will try itGames, Contest, and Sweepstakes
Often used to introduce new goods and attract new customers. Subject to legal restrictions.
Specialty Advertising Gift of useful merchandise carrying the name, logo, or slogan
of an organization.
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Trade-Oriented Promotions
Sales promotion geared to marketing intermediaries rather than to consumers. Encourage retailers in several ways:
To stock new products. To continue carrying existing ones. To promote both new and existing products effectively to
consumers. Point-of-purchase (POP) advertising Displays or
demonstrations that promote products when and where consumers buy them, such as in retail stores.
Promote goods and services at trade shows
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PERSONAL SELLING
A person-to-person promotional presentation to a potential buyer.
Usually used under four conditions: Customers are relatively few in number and
geographically concentrated. The product is technically complex, involves trade-ins,
and requires special handling. The product carries a relatively high price. It moves through direct-distribution channels.
Example: Selling to the government or military.
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The Sales Process
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Public Relations
Public organization’s communications and relationships with its various audience. Helps a firm establish awareness of goods and
services and builds a positive image of them.Publicity
Publicity Stimulation of demand for a good, service, place, idea, person, or organization by disseminating news or obtaining favorable unpaid media presentations.
Good publicity can promote a firm’s positive image Negative publicity can cause problems.
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PROMOTIONAL STRATEGY
Pushing and Pulling Strategies Pushing strategy Relies on personal selling to market an
item to wholesalers and retailers in a company’s distribution channels. Companies promote the product to members of the marketing
channel, not to end users. Pulling strategy Promote a product by generating
consumer demand for it, primarily through advertising and sales promotion appeals. Potential buyers will request that their suppliers—retailers or
local distributors—carry the product, thereby pulling it through the distribution channel.
Most marketing situations require combinations of pushing and pulling strategies, although the primary emphasis can vary.
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ETHICS IN PROMOTION
Puffery and Deception Puffery – Exaggeration about the benefits or superiority of a product.
Legal because it doesn’t guarantee anything but raises ethical questions. May ultimately undermine the credibility of a firm’s marketing
messages. Deception – Deliberately making promises that are untrue, such as
guaranteed weight loss in five days, get-rich-quick schemes for would-be entrepreneurs, or promised return on investments
Promotion to Children and Teens Children and teens have enormous purchasing power. Children cannot analyze advertising messages. Can be socially responsible (e.g., healthy products)
Promotion in Public Schools and on College Campuses Schools earn income from in-school advertising, but it is generating
backlash.
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ETHICS IN PROMOTION
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Marketing Warfare
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“Out of a thousand men who are remarkable, some for mind, others for boldness or strength of will, perhaps not one will combine in himself all those qualities which are required to raise a man above mediocrity in the career of a general!”Karl Von Clausewitz
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The Four Types of Marketing ‘Warfare’
Defensive: Only for the leader. Attack yourself is the
best way. Block strong
competitor movesOffensive
Only for No.2 or even 3
Find a weakness in the leader’s strength.
E.g.: Long queue.
Flanking: Uncontested area Must have an element of
surprise Must have a follow-
throughGuerilla:
Find a segment in the market small enough to defend.
Never act like the leader. Develop Allies. Be prepared to enter or
exit in a short notice.
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Marketing Wisdom
There’s no such thing as good marketing strategy in the abstract. Good strategy is bad. And bad strategy is good. It all depends on who is going to use it. The business world is evolving to being “competitor-driven” rather than “customer-driven”.
Ask yourself what position you occupy in the market place before you apply a strategy.
The position is set by the customer: Customer-mind map!
Unkept promises undermine morale.The truth will get out!
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Without pursuit, no victory can have a great effect: The “pour-it-on” principle.
Success breeds success.When you own the pie, you should try to
enlarge the pie, rather than try to increase the size of your slice.
Marketing Wisdom
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“The statesman who, seeing war inevitable, hesitates to strike first is guilty of a crime against his country”: Karl von Clausewitz.
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Strategy Development
Ways to develop strategy: “The ivory-tower think-tank approach” “Get-away-from-the-phones, get-away-from-it-all
approach” BOTH ARE WRONG!
As form follows function, strategy should follow tactics.
The use of advertising at the tactical level is CRUCIAL!
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Strategy Development
At any given point in time, ONE objective should dominate a company’s strategic plans.
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Strategy Development
Attack and counterattack: For every action, states a law of physics, there is an equal and opposite reaction.
Many marketing commanders draw up battle plans as if the enemy will make no response. NOTHING is FURTHER from the TRUTH!
Expect the COUNTERATTACK!
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Is Marketing Really War?
Marketing is like a football match. You can’t run straight to score the goal (make more sales!)
“War belongs to the province of business competition, which is also a conflict of human interests and activities”: Karl von Clausewitz.
War without bloodshed? – Sun TzuEthical Considerations in Marketing
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Responsibilities of the Marketer
Marketers must accept responsibility for the consequences of their activities and make every effort to ensure that that their decisions, recommendations and actions function to identify, serve and satisfy all relevant publics: Customers, organizations, and society.
Marketers’ Professional Conduct must be guided by: The basic rule of professional ethics: Not knowingly to do harm; The adherence to all applicable laws and regulations; The accurate representation of their education, training, and
experience; and The active support, practice, and promotion of this Code of
Ethics.
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Pearls of Wisdom
Hard work
=Victory
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Pearls of Wisdom
Battle is not fought at the market
place.
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Characteristics of a Marketing General
Flexibility - to adjust the strategy to the situation.Courage - to make a decision and stand by it.Boldness - to act without hesitation when the time
is right.Knowing the facts - in order to formulate strategy
from the ground up.Knowing the rules - but internalizing them so they
can be forgotten.Lucky - marketing warfare has an element of
chance; a good strategy only makes the odds more favorable.
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END OF DAY 3