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Principles of Marketing Kerin Chapter 9-11

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Market Segmentation (Chapter 9)
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Aggregating prospective buyers into groups that have common needs and will respond similarly to a marketing action
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Purpose of market segmentation (Chapter 9)
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To help a business respond more effectively to the wants of groups of potential buyers and thus increase sales and profits
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Product differentiation (Chapter 9)
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Using different marketing mix activities (eg. product features and advertising) to help consumers perceive the product as being different and better than competing products
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Market-product grid (Chapter 9)
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A framework to relate the market segments of potential buyers to products offered or potential marketing actions
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One Product and Multiple Market Segments (Chapter 9)
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Firm produces one product/service and sells it to multiple market segments by using different promotional campaigns or distribution channels
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Multiple Products and Multiple Market Segments (Chapter 9)
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More expensive, but very effective if it meets customers’ needs better, doesn’t reduce quality or increase price, and adds to sales revenues and products
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Build-to-order (Chapter 9)
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manufacturing a product only when there is an order placed by a customer
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Organizational Synergy (Chapter 9)
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Increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently
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Cannibalization (Chapter 9)
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When new products or new chains simply steal customers and sales from the older, existing ones
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5 Steps in Segmentation Process (Chapter 9)
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1. Group potential buyers into segments 2. Group products to be sold into categories 3. Develop a market-product grid an estimate size of markets 4. Select target markets 5. Take marketing actions to reach target markets
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Criteria to use in forming segments (5) (Chapter 9)
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– Simplicity and cost-effectiveness of assigning potential buyers to segments – Potential for increased profit – Similarity of needs of potential buyers within a segment – Difference of needs of potential buyers within a segment – Potential of a marketing action to reach a segment
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Geographic Segmentation – definition and example variables (Chapter 9)
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Based on where prospective customers live or work Eg. region, city size, density (urban, rural, suburban, etc)
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Demographic Segmentation – definition and example variables (Chapter 9)
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Based on some objective physical, measurable, or other classification attribute of prospective customers Eg. Gender, race, age, income, birth era, occupation, life stage, household size, marital status, education
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Psychographic Segmentation – definition and example variables (Chapter 9)
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Based on some subjective mental or emotional attributes, aspirations, or needs of prospective customers Eg. Personality, lifestyle, values, needs
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Behavioral Segmentation – definition and example variables (Chapter 9)
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Based on some observable actions or attitudes by prospective buyers Eg. Where they buy, what benefits they seek, how frequently they buy, why they buy, product features
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80/20 Rule (Chapter 9)
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80% of a firm’s sales are obtained from 20% of its customers
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Criteria to use in selecting target markets/segments (5) (Chapter 9)
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-Market size -Expected growth -Competitive position -Cost of reaching the segment -Compatibility with the organization’s objectives and resources
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Marketing Synergies (Chapter 9)
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Focus mainly on single target segment that is biggest and highlight only the products they’d need to worry about developing
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Product Synergies (Chapter 9)
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Simplify production, focus on product wanted by most customer segments
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Product Positioning (Chapter 9)
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The place a product occupies in consumers’ minds on important attributes relative to competitive products
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Head-to-head positioning (Chapter 9)
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Competing directly with competitors on similar product attributes in the same target market
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Differentiation positioning (Chapter 9)
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Seeking a less competitive, smaller market niche in which to locate a brand
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Positioning Statement (Chapter 9)
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Used both internally within marketing department and for others outside like R&D engineers or ad agencies to focus marketing strategy
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Perceptual map (Chapter 9)
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A means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers
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Consumer products – definition and types (4) (Chapter 10)
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Products purchased by ultimate consumers – Convenience products – items purchased frequently, conveniently, with minimal effort – Shopping products – consumer compares several alternatives based on price, quality, style – Specialty products – items consumer makes special efforts to find and buy – Unsought products – items the consumer doesn’t know about or doesn’t initially want
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Business products – definition and types (2) (Chapter 10)
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Products organizations buy that assist in providing other products or resale – Components – items that become part of the final product – support products – used to assist in producing the other goods and services
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Product Item vs. Product Line vs. Product mix (Chapter 10)
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Product item = specific product with unique brand, size or price Product line = group of products or services closely related bc they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through same outlets, or fall within given price range Product mix = all product lines offered by an organization
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Newness compared to existing products (Chapter 10)
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If a product is functionally different from existing products
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Newness from consumer’s perspective (Chapter 10)
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The way it affects consumption – Continuous innovation – don’t need to learn new behavior, eg. toothpaste that whitens teeth – Dynamically continuous innovation – minor changes in behavior required – Discontinuous innovation – making consumer learn entirely new consumption patterns to use the product
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Newness in legal terms (Chapter 10)
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Up to 6 months after a product enters regular distribution
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Newness from organization’s perspective (3 levels) (Chapter 10)
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– Product line extension – incremental improvement of existing product line – Significant jump in innovation or technology or brand extension involving putting established brand name on a new product in an unfamiliar market – Radical invention
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Protocol (Chapter 10)
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A statement that, before product development begins, identifies: 1. A well defined target market 2. specific customers’ needs, wants and preferences 3. What the product will be and do to satisfy consumers
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Marketing Reasons for new product failures (8) (Chapter 10)
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1. Insignificant points of difference 2. No economical access to buyers 3. Incomplete market and product protocol 4. Not satisfying customer needs on critical factors 5. Bad timing 6. Poor product quality 7. Too little market attractiveness 8. Poor execution of the marketing mix – brand name, package, price, promotion, distribution
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Organizational Problems in new product failures (6) (Chapter 10)
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1. Not really listening to the voice of the consumer 2. Skipping stages in the new product process 3. Pushing a poorly conceived product into the market to generate quick revenue 4. Encountering “groupthink” in task force and committee meetings 5. Not learning critical takeaway lessons from past failures 6. Avoiding the “NIH problem”
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Stage 1: New-product strategy development (Chapter 10)
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Defines the role for a new product in terms of the firm’s overall objectives – SWOT analysis and environmental scanning
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Stage 2: Idea Generation – definition + sources (Chapter 10)
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Developing a pool of concepts to serve as candidates for the new products Sources: Employee/coworker suggestions, customer/supplier suggestions, R&D labs, competitive products, smaller firms, universities, individual inventors
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Crowdsourcing (p. 255) (Chapter 10)
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Generating insights leading to actions based on massive numbers of people’s ideas
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Stage 3: Screening and evaluation (Chapter 10)
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Internally and externally evaluating new product ideas to eliminate those that warrant no further effort
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Stage 4: Business analysis (Chapter 10)
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Specifying the features of a product and the marketing strategy needed to bring it to market and make financial projections
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Stage 5: Development (Chapter 10)
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Turning the idea on paper into a prototype
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Stage 6: Market Testing – definition and 3 types (Chapter 10)
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Exposing actual products to prospective consumers under realistic purchase conditions to see if they will buy – Standard test markets – develop product and try to sell it through normal distribution channels in several test-market cities – Controlled test markets – contract entire test program to outside service – Simulated test markets – replicate full scale test market to limited degree, often run in shopping malls, saves time and money
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Stage 7: Commercialization (Chapter 10)
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Positioning and launching new product in full-scale production and sales – Regional rollout is one method
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Key risks in commercializing grocery products (2) (Chapter 10)
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1. Slotting fee – payment made by manufacturer to place new item on retailer’s shelf 2. Failure fee – penalty payment made by manufacturer to compensate retailer for devoting valuable shelf space to a product that failed to sell
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Product Life Cycle – Definition and 4 Stages (Chapter 11)
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The stages a new product goes through in the marketplace: introduction, growth, maturity, decline
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What happens at Intro stage? (Chapter 11)
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Sales grow slowly, profit is minimal, goal = create consumer awareness and stimulate trial of product; spend heavily on advertising and promotion, stimulate primary demand
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Primary Demand vs. Selective demand (Chapter 11)
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Primary demand is the desire for the product class rather than for a specific brand; Selective demand is the preference for a specific brand
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Skimming strategy vs. Penetration pricing (Chapter 11)
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Skimming strategy = high initial price to help company recover from high production cost and capitalize on price insensitivity of early buyers; Penetration pricing = low initial price to discourage competitive entry and build unit volume
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What does Growth Stage look like? (Chapter 11)
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Rapid increase in sales, profit peaks; competitors appear, stimulate selective demand; goal = gain market share, repeat purchasers
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What does Maturity Stage look like? (Chapter 11)
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Slowing of total industry sales/product class revenue; competitors start to leave market, profit declines; key goal is holding market share thru product differentiation
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What does Decline stage look like? What options do companies have at this point? (Chapter 11)
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Sales drop, often occurs due to environmental changes, not bc of poor strategies Options: 1. Deletion – drop product from company’s product line 2. Harvesting – retain product but reduce marketing costs, only offer product to maintain ability to meet consumer requests
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4 Key aspects of product life cycle (Chapter 11)
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1. Length of product life cycle – shorter for consumer products, and can be shortened by technological change 2. Shape of product life cycle – depends on whether product is high-learning, low-learning, fashion product, or fad 3. Product level – class (entire product category/industry) and form (variations within product class) 4. Consumers: Innovators -> Early adapters -> Early majority -> Late majority -> laggards
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4 Types of products resulting in differently shaped lifecycle curves (Chapter 11)
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1. High-learning product – requires significant customer education -> extended introductory period 2. Low-learning product – sales begin immediately, normal lifecycle curve 3. Fashion product – Introduced, decline, and then return; cycles could last very long 4. Fad – rapid sales in introduction and then rapid decline
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Barriers for resisting a product in introduction stage (Chapter 11)
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– Usage barrier (product is incompatible with existing habits) – Value barrier (product provides no incentive to change) – Risk barriers – Psychological barriers (cultural differences or image)
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Product/brand manager (Chapter 11)
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Manages the marketing efforts for existing products through all stages of the product life cycle, including data analysis
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Category Development Index (CDI) vs. Brand Development Index (BDI)
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CDI = percent of a product CATEGORY’s total US sales in a market segment (DIVIDED BY) Percent of total US population in a market segment BDI = percent of BRAND’s total US sales in a market segment (DIVIDED BY) Percent of total US population in a market segment
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Product modification (Chapter 11)
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Altering one or more of a product’s characteristics such as quality, performance, or appearance, to increase the product’s value to customers and increase sales
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Market Modification (Chapter 11)
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When a company tries to find new customers, increase a product’s use among existing customers, or create new use situations
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Product repositioning (Chapter 11)
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Changes the place a product occupies in a consumer’s mind relative to competitive products
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Trading up vs. Trading down (Chapter 11)
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Trading up = adding value to product by adding features or higher-quality materials; Trading down = reducing number of features, quality, or price
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Branding (Chapter 11)
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Organization uses a name, phrase, design, symbols to identify its products and distinguish them from competitor products
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Trademark (Chapter 11)
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Identifies that a firm has legally registered its brand name so it has its exclusive use
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Brand Personality (Chapter 11)
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A set of human characteristics associated with a brand name; consumers assign personality traits to products, choose brands that are consistent with their own or desired self-image
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Brand Equity (Chapter 11)
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The added value a brand name gives to a product beyond the functional benefits provided, including competitive advantage, consumer willingness to pay higher prices, and actual market value in terms of buying and selling a brand
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Choosing a good brand name (5 key criteria) (Chapter 11)
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1. Should suggest the product benefits 2. Should be memorable, distinctive and positive 3. Should fit the company or product image 4. Should have no legal or regulatory restrictions 5. Should be simple and emotional
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Multiproduct branding strategy – definition and variations (3) (Chapter 11)
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When a company uses one name for all its products in a product class – Subbranding – combines a overall brand with new brand to distinguish part of product line from others, eg. Gatorade G2 – Brand Extension – using a current brand name to enter a different product class, eg. Honda extended its established name to lawn mowers, snowblowers, snowmobiles, etc. – Co-branding – pairing 2 brand names on single product, eg. Hershey partnered with General Mills to offer Reese’s Peanut Butter Puffs cereal
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Multibranding Strategy – definition and variations (Chapter 11)
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Multibranding – giving each product a distinct name – Price-quality segments, eg. Marriott EDITION hotels vs. Marriott and Renaissance vs. Courtyard Mariott and Fairfield Inn – Fighting brands – brands with chief purpose being to combat competitor brands, eg. Frito-Lay brought in Santitas tortilla chips to combat regional tortilla chips taking away sales from Doritos and Tostitos
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Private Branding strategy (Chapter 11)
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When a firm manufactures productsbut sells them under brand name of a wholesaler or retailer
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Mixed Branding Strategy (Chapter 11)
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When a firm markets products under its own name and that of a reseller because the segment attracted to reseller is different from its own market
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Importance of Packaging and Labeling (Chapter 11)
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Customer’s first exposure to a product is package and label, creates first impression
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Communication benefits of packaging (Chapter 11)
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Label information conveyed to consumer, eg. directions on how/where/when to use product, source/composition of product (legally required)
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Functional benefits of packaging (Chapter 11)
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Storage, convenience, protection, product quality
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Perceptual benefits of packaging (Chapter 11)
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Perception created in consumer’s mind – label shape, color, and graphics distinguish one brand from another, convey brand’s positioning, and build brand equity and brand recognition
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Warranty – definition and different types (4) (Chapter 11)
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Warranty = statement indicating liability of manufacturer for product deficiencies – Express warranties – written statements of liabilities – Limited-coverage warranty – specifically states bounds of coverage and areas of noncoverage – Full warranty – has no limits on coverage – Implied warranty – assigns responsibility for product deficiencies to manufacturer