Marketing Strategy Notes for Cravens/Piercy Book
Chapter 8 – Innovation and New Product Strategy
We live in a constantly changing world. In order to remain successful we must
continuously come up with new products and service to cope with ever changing needs
and wants, not to mention the actions of competitors. In other words, we need to
Note the types of innovations on page 239.
Well run market-driven companies will have an ongoing deliberate strategy for coming
up with new product and service innovations. This will be carried out through the new
product planning process.
Know the new product planning process per pages 247-264. You should be able to
name and explain each step and including what would be done and how.
Chapter 9 – Strategic Brand Management
For large companies, a significant part of the marketing effort will focus on the creation
and development of brands.
Know what a brand is.
Branding has a strategic role in marketing as there are benefits to both the buyer and
seller as note pages 291-292.
The extra value that is built up in a brand is called brand equity – thus a Polo shirt or
Rolex watch has very high brand equity as measured by the variables listed under
measuring brand equity on page 301.
Know basic brand terminology per brand, brand positioning, brand equity, line
extension, brand extension, co-branding, licensing.
Chapter 10 – Value-Chain Strategy
The channel of distribution performs the functions that are necessary to connect goods
and services with end-users. Distribution involves getting the product or service from the
point of manufacture to the point of consumption. Value chain strategy is a newer more
comprehensive approach to distribution.
The term value chain refers to the distribution activities that must be undertaken to make
a product available when and where it is needed. Value chain basically means
distribution, but reflects a new emphasis that is two fold.
First, there is an emphasis on a team of participants – ie a chain, what the book calls
“vertically aligned organizations” which means that a number of organizations work
together to perform distribution activities.
Second, there is also a new emphasis on the value component – the purpose of the chain
is to add value – by doing what they do more benefits are created and customer value is
Note that distribution has a very important, long-term, strategic role in that it can be an
important source of competitive advantage and create a deep wide moat that
competitors cannot easily cross. This is due to the fact that it is very difficult and
expensive to set up or change your channel of distribution. For example it takes
significant time and money to set up a dealer net work such as you would have with
autos, motorcycles, or appliances. Likewise it is difficult and expensive to obtain shelf
space in retailers such as Kroger and Walmart, or to establish relationships with
suppliers and wholesalers. Distribution innovations such as the direct order of computers
per Dell or company owned stores such as Radio Shack cannot easily be duplicated.
How does the distribution strategy create value? By providing time, place, and service
utitlity. In other words, value is created by making the products available where and
when they are needed plus providing auxiliary services that are desired and needed.
These are termed distribution functions and are discussed in the book on page 319 to
320 and include buying and selling, assembly/accumulation, transportation, processing
and storage, promotion (advertising, sales promotion, and personal selling), pricing,
servicing and repairs. The overall reason to use intermediaries or middleman to handle
distribution is reduction of risk. To the extent that you let others handle these functions
you reduce your investment, work load, and risk. The basic choices for value chain or
distribution structures are shown in Exhibit 10.1. Note that this particular textbook
includes supply chains in addition to the manufacturer/producer. In other words, if the
producers and other suppliers which constitute the supply chain sell directly to the
consumer or organization without using a middleman/intermediary such as the wholesaler
or retailer it is direct distribution/channel. If the producer or supply chain does use
middlemen/intermediaries then it is indirect. In terms of advantages and advantages, if a
producer uses a direct channel then the producer along with the consumer must assume
responsibility for carrying out all of these functions, however they will not have to share
the final value of the product. If an indirect channel using retailers and others is used
then the intermediaries will fulfill some or all of these functions. This is what is usually
done, however it must be kept in mind that the intermediaries must be paid by receiving
some of the final value. This will be usually done through a markup. That is the
intermediary will buy from the producer or other supplier and add on a markup for the
next party in the value chain.
The following summarizes the pros and cons of using middlemen (indirect) versus not
Indirect spreads the risk, enables you to capitalize on the expertise and capital of others,
and reduce risk, effort, and investment requirements.
Direct gives you total control, all the profit is yours, but all of the value enhancing
activities are your responsibility along with the associated costs and risk.
With a conventional distribution channel each intermediary is an independently owned
and operated organization. With a vertical marketing system (VMS) more than one
level of the channel is owned by the same organization. For example in the oil business,
companies like Exxon and BP are vertically integrated and produce, refine, wholesale,
and retail oil. Others like Morris Petroleum strictly retail (Sprint Marts) and others strictly
refine/wholesale (Valero) and other just drill/produce (Denbury).
The intensity of distribution must also be settled per intensive, selective, and exclusive
strategies as discussed on pages 327 to 328.
In some case more than one channel (multi-channeling) may be used. For example many
producers will sell direct to large retailers, but use wholesalers for selling to smaller
companies. Likewise a company may sell direct in the same country but use wholesalers
when going to foreign countries.
Be able to relate the preceding to the simulation?
Chapter 11 – Pricing Strategy
The following points about price should be noted:
1. The total cost to the buyer includes more than just money: it is everything the
buyer gives up to obtain the good or service. In addition to the monetary price the
buyer also gives up time, inconvenience, waiting, travel, and risk.
2. Price is the simplest and most visible element of the marketing mix.
3. Price is the most difficult element of the marketing mix in the sense that we rarely
know what the optimal price is, and as a result, don't know whether we should be
charging more or less.
4. Price is the only element of the marketing mix that generates revenues. Thus, the
price charged must be greater than the cost of making the product plus the cost of
distribution and the cost of promotion
In order to develop an effective pricing for the goods and services that are being sold
there are a number of factors that should be considered and activities that should be
undertaken. These are delineated in Exhibit 11.1 on page 351.
The basic challenge is to set prices in accordance with objectives and in light of particular
In regard to product positioning and determining customer price sensitivity, it is
important to note that we we generally have three price segments in any market. These
High Quality/Prestige – In this segment customers seek quality and status. They want
the best and are willing to pay for it. A high price actually makes it more desirable since
that is where the snob appeal comes from. Examples include Rolex watches, Ritz-Carlton
Hotels, and Mercedes automobiles.
Value – In this segment customers seek a good product at a reasonable price. This is
probably the biggest segment of the auto market and features some of the top sellers such
as Honda Accord, Toyota Camry, and Ford Fusion. In the motel industry this would
include brands such as Hampton and Courtyard Mariot.
Price conscious/Economy – In this segment customers seek a low price. Saving money
is a key motivation. The Toyota Corolla used to be in this segment and was advertised as
the lowest priced car in America. With a retail price in 1974 of $2,250 it certainly was. In
the motel business Motel Six and Days Inn have appealed to this segment.
One of the best examples of these segments is contained in the simulation. How are
these segments demonstrated in the simulation, which ones have you targeted, and
how has that affected your pricing?
You should know the concept of price elasticity, the key measure of consumer
sensitivity to price. If consumers are sensitive to price then demand will be elastic, and if
they are not sensitive to price then demand will be inelastic.
Suppose that a restaurant is considering raising the price of a cup of coffee from $1.00 to
$1.25. If they are currently selling fifty cups at lunch and it falls to forty seven cups when
the price is raised then demand is inelastic. This is because the percentage change in price
((1.25-1.00)/1.00)) of 25%, is larger than the percentage change in demand ((47-50)/50),
of 6%. This is also reflected in total sales revenue which is the reason that we care.
Specifically, with inelastic demand an increase in price will cause total sales revenue to
go up – in this case from 50 x 1.00 = 50, to 47 x 1.25 = 58.75.
On the other hand suppose that demand is inelastic and that demand falls to 35 cups when
the price is increased. In this case we still have the 25% increase in price but now have a
30% decrease in sales ((35-50)/50). Since the percentage decrease in sales is larger than
the percentage increase in price demand is elastic. Unlike the inelastic situation, the
increase in price now causes total revenue (sales$) to go down since the loss of revenue
from the decline in volume more than offsets the gain in revenue from the increase in
price. Selling 50 cups for $1 produces total sales revenue of $50 whereas selling 35 cups
for $1.25 only produces total sales revenue of $43.75. Thus with elastic demand, an
increase in the sales price will result in a lowering of total revenue.
Price, Costs, and Profit
In order to make a truly informed decision about the best price to charge we would need
to look at more than the effect on revenue. We would also want to consider related costs
and ultimate profit. There are three types of costs:
Fixed – do not vary with the quantity sold. For example rent and insurance.
Variable – vary with the amount sold. For example packaging costs and sales
Mixed – are somewhat fixed and somewhat variable. For example some rent contracts
called for a fixed amount based on time plus an extra amount based on sales. Thus total
rent is a combination of both and is mixed. Likewise, some sales people are paid a salary
(fixed), some are paid a commission (variable), and some are paid a base salary plus
Legal and Ethical Considerations – see page 364 per price fixing, price
discrimination, deceptive pricing, bait and switch, and predatory pricing.
Negotiated pricing vs fixed pricing
This is not in the book but is an important strategic choice. Should your prices be set with
no room or negotiation or should they be adjustable for the situation and customer? With
negotiated prices we can adjust the price to the situation. For example if I am selling
treadmills that cost me $700 each and customer one comes in and says “How much is that
treadmill” and I say “$1,500”, and he says “that is a little more than I want to spend”,
then I could then say “Well let me see if the manager will let me knock one hundred
dollars off,” and then come back with a price and sale for $1,400. Then customer two
comes in and says that the treadmill is way too much, and I tell him that today is his luck
day that, we are just getting ready to have a close out sale, and that I can let him have it
for $1,200, which he agrees. Note that this negotiation takes time, requires a higher level
of skill on the part of the salesperson, and can cause resentment with customers who
don’t want to negotiate or who learn that someone else got a better price. As an
alternative, I could have a fixed price of $1,250, in which case I would make the sale to
customer one but at a $250 lower price, and would lose the sale to customer two who will
not spend more than $1,200.
Chapter 12 – Promotion, Advertising, and Sales Promotion Strategies
Note what promotion is and it’s ultimate purpose – to alter people’s behavior. That is
to get them to do something they would not have done otherwise, or not to something
they would have done otherwise. Many times this behavior will involve a sales
transaction but not always. For example we might want have an objective of getting
people to call, visit, or stop smoking.
You should know the promotional mix or tools that we have for achieving this per the
composition of promotion strategy beginning on page 373. You should know the
definition for each element for matching purposes.
Promotional strategy should always be driven by clear specification of the target
market/audience (the who) and the objectives we are trying to accomplish (the why).
You should know the methods of determining the promotional budget which starts on
Be able to give some examples of advertising objectives per Exhibit 12.5 on page 383.
Know examples or types of sales promotion (activities) per Exhibit 12.7 on page 391.
Not in book but you should know;
Valid reasons for sales promotion:
Generate awareness and trial – a coupon plus free sample is very effective
Clear out excess inventory – sales promotions are often used to clear out seasonal items.
Shift purchase patterns – use sale promotions to get people to buy early or later.
Limitations of Sales promotion:
Will not correct fundamental problems that may exist with other elements of marketing
Can erode value of brand.
Can train buyers to wait for promotions. Why buy at regular price if a sales promotion
will be coming?
Chapter 13 Sales Force, Internet, and Direct Marketing.
Sales force strategy involves the role of personal selling in the overall promotional
What is personal selling? Personal selling is providing information to existing and
potential customer through personal conversation in order to alter behavior.
Some organizations have extensive sales forces, others have little or none. Personal
selling is most likely to be used where the purchase amounts are large and the purchase
is high involvement (extended problem solving) or business oriented. In these situations
there is a lot at stake (high risk) and the buyer will want more information and perhaps
demonstration in order to make a decision. Thus personal selling is often used for autos,
computers, boats, and insurance.
Personal selling is often used where there is not an efficient way to communicate with
mass media. This is the main reason we use personal selling and not advertising in B2B
selling. There is no radio or television station that car dealers, doctors, or computer store
owners watch, therefore we use personal selling to reach these people.
Why would you use personal selling – why not? There are advantages and disadvantages
to using personal selling.
Advantages of using personal selling.
It is more persuasive.
It is hard to ignore a real person whereas you can easily flip a magazine page or change
You can incorporate feedback and adjust message for the situation and the person when
using personal selling.
You can demonstrate the product.
Why would you use it
Disadvantages of using personal selling.
Time inefficient – it would take forever to contact 50,000 people using sales people,
would take only a few seconds using mass media.
Expensive – average outside sales call cost about 300$ when you figure salary,
trasportation, lodging, and benefits. Inside sales cost be a few dollars to several hundred
dollars per transaction .
Most Transactions do not involve personal selling – it is too time consuming and
expensive. What percent of the items that you have purchase involved a sales person?
From a marketing strategy perspective how do we decide whether or not to use personal
selling and if so how?
See page 398
Types of sales jobs (not exactly same as book):
Order taking (fast food), sales assisting (shoe store or high end restaurant), and
persuasive (insurance, cars, college recruiting).
Cold call (no prior contact) vs. Responsive (have requested information of sales visit0
Inside (don’t travel) vs. Outside (go visit customers)
Consumer (selling to regular people) vs. B2B per trade (selling to retailers and
wholesalers), industry (manufacturers), organization/institutions (churches, schools),
government (state, local, federal).
New account vs. existing account
Organizing the sales force:
Can be organized by product, category, type of customer, market, or geographic,
application, or some combinatiion.
Hiring Salespeople – made or born, can you tell in advance? Some say yes, some say
What type of person would you want to hire – what makes for a successful sales person
Characteristics relating to success in personal selling include:
Good social skills – able to get along with others, likable
Competitive drive – wants or even driven to succeed
Self motivated – gets going without supervision from others
Hard working – does what ever it takes to do the job
Reliable – follows through on what is promised.
Ethical/honest – tells the truth and puts the customers needs and wants above his/her own
– often called “Golden Rule Selling.”
Motivating Sales People – Sales people must believe that putting forth extra effort will
produce extra sales and profits and that these will in turn translate into a reward that they
care about. Motivation leads to effort which leads to results which leads to reward. This
linkage is called Expectancy Theory and is widely used to explain why or why not
Direct marketing as opposed to traditional marketing.
The organization advertises through mass media now and later customers go to the store
Direct Marketing: The organization promotes with a variety of tools directly to the
customer now and asks the customer to buy now. This is actually not new, as years ago
peddlers were very common. They would go directly to houses and sell out of a wagon,
truck, or car. With the growth of mass media and retail stores direct selling declined, but
in recent years with changes in communication and transportation direct marketing has
become very common. What has changed: Cable Tv and infomercials, bulk mail with
computerized databases and credit cards and UPS and Fed Ex. The Internet.
Chapter 14 Designing Market Driven Organizations
Per pages 445-449:
Know what is meant by traditional structures for organizing businesses and the
problems or weaknesses that are associated with it.
Know in general terms how and why organizational structures have changed.
Per pages 452-344
Know the general idea of organizing for market-driven strategy, marketing functions
versus marketing processes, and especially marketing as cross-functional process.
Per page 456 know centralization versus. decentralization.
Know product-focused versus market-focused designs.
Chapter 15 Implementation and Control
Review the overall planning process: Analyze situation, develop a strategy and plan
for implementing, implement, and analyze results. Most our attention thus far has
been on strategic choice, not implementation and follow up. That is where we are now
In business things often go wrong, just like in the simulation. Why?
1. Bad plan – poor strategy
2. Plans don’t match actions – there is a performance gap, why?
A. What was supposed to be done wasn’t
B. External factors like the economy, competition, energy prices, the weather and so on.
Implementation and control are crucial so that performance gaps can be identified and
corrected – ultimate results will depend on this.
One tool for doing this is to prepare a written marketing plan to guide the
implementation of our marketing strategy.
Benefits/functions of a written marketing plan
Forces us to analyze and plan for the areas ordinarily addressed by a marketing plan
Communicates to all parties what is to be done
Documents the goals and objectives that are to be achieved
Specifies the actions that are to be taken, when, and by whom.
Serves as proof that we have done our homework on the proposed project
The truth is, whether you like it or not, market planning and the development of actual
marketing plans is an important point of a career in marketing. Note exhibits 15.2 and
Note that there are structural and behavioral issues in implementing a plan. Structure has
to do with resources available and the actual structure of the organization. Behavior has
to do with peoples buying into and supporting the plan.
Incentives and communication are key. Note 3M feature on page 476.
Note the idea of internal marketing per page 479 and the Nucor example per page 480.
Discuss the idea of a strategic marketing audit – see page 484-486.
Performance criteria, marketing metrics and a dashboard – see page 441.
Key is to identify problems or gaps and take corrective actions.