MKT 359 ADVANCED MARKETING MANAGEMENT

MEETING EIGHT: LECTURE OUTLINE

PART I: MARKETING STRATEGY THEMES

Competing on price

Downward pressure on prices. Why? Low inflation. Stagnant growth in real consumer incomes. Global over capacity. Brutally competitive international markets. Consumers want lower prices and are willing to pass up products they deem overpriced. Continued decline in brand loyalty. Business firms are unable to raise prices even when their costs are rising.

Low-cost, low-price sellers make it tough for differentiators. Examples: Private versus national brands of breakfast cereals give retailers more power. Retailers get higher profit margins for private brands; because, prices are lower and they have to spend less time on advertising and promotion.

How private brands negate the long-term quality advantage of national brands

1) Put stress on quality and brand recognition. Loblaw's "President's Choice" is a national brand masquerading as a private label.
2) Place private brands favorably on retailer's shelves.
3) Move upscale and become a premium private brand. Safeway's "Select" brand.

How national brands fight back

1) Discredit private brands in ads.
2) Practice relationship marketing. Nestle's Friskies pet food sends customers to its "Cat Club News."
3) Use couponing for promotional pricing.
4) Lower prices to reduce price differential.
5) Move national brands down scale as a "Super value."
6) Make private brands for retailers.

Pay attention to the "gouge gap."

Shift in buying behavior leads to a reduction in competitive advantage

Case: Hallmark Cards use to have 50 percent of the market. Its share is down to about 40 percent. Hallmark's strategy is product differentiation--that is, "when you care enough to send the very best." This is prestige over low price. Getting a good buy on a greeting card does not carry the same connotation as getting a good buy on a car. Profit margins on greeting cars are huge but have been facing downward pressure all through the 1990s. Key competitive advantage is the firm's ability to distribute cards through nearly ten thousand small, independently owned card shops that feature Hallmark cards. Hallmark sells 75 percent of its cards through these shops.

Socio-cultural change: Women buy 90 percent of the greeting cards sold in the US. However, they no longer shop at card shops in the numbers that they used to. Women who work have less time to shop at specialty card shops; now they purchase cards at discounters, drugstores, and supermarkets. Women sacrifice larger selection for convenience. Hallmark cards sold at Walgreens are discounted, and this undercuts the full service card shops and lowers Hallmark's profit margin. Sales by American Greetings and Gibson Greeting to discounters soared as well as the profits of these two competing card companies.

Fall-back strategy: Hallmark sells a "discount" brand, the Ambassador card,, but it earns less on each low-end card and risks cannibalizing customers from its flagship brand. Also major discounters want the flagship line and they are powerful enough to demand it. In summary, there has been an inexorable shift in buyer behavior.

When products become commodities

As products progress from new to mature products, there is a tendency for differentiated products to become commodities. Examples: PCs. Tires.

Apply the low-price formula to new market space

Examples: Toys 'R' Us. Staples. Home Depot. Sam's Club, etc.

How to compete on price

1) Ruthless cost cutting through reengineering.
2) Stressing equal quality at lower prices.
3) Specialization and lower prices.
4) Copying and cutting prices.
5) Letting prices dictate costs.