Rajagopal. Marketing Dynamics: Theory and Practice

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Marketing Dynamics: Theory and Practice

REFERENCES

Blundell, Richard: Consumer Behaviour: Theory and Empirical Evidence—a Survey, Economic

Journal, Vol 98, March 1988, 16-65

Heien, Dale : Habit, Seasonality, and Time Aggregation in Consumer Behaviour, Applied Economics,

33 (13), October, 2001, 1649-1653

Lähteenmäki, Liisa, Nielsen, Niels A., Poulsen, Jacob B, Ueland Oydis and Åström Annika : Consumer

perception of food products involving genetic modification: Results from a qualitative study in

four Nordic countries, Aarhus School of Business, The MAPP Centre, Working Paper # 72, July

2000, 1-105

Molina, Jose Alberto : Is Spanish Consumer Behaviour Consistent with the Utility Maximization? A

Non-parametric Response, Applied Economic Letter, Taylor and Francis Journals, 3 (4), April,

1996, 273-241

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Appendix I : Specimen

Meeting of the Board of Directors, Universal Spirits Mexico SA de CV

Agenda

I. Call to Order

II. Items for Discussion/Possible Action

#1 Report on September 5-6, 2003, Board Retreat [Ms Angelica Segura, Company Secretary]

(Estimated Time: 5 minutes)

#2 Report – Exotic Fruit Nectars-Industry Dimensions [Dulce Flores/Alma Garcia](Estimated

Time: 5 minutes)

#3 Renewal of Resolution on Advisory Committee for Finance and Budget [Ben

Ferrell](Estimated Time: 3 minutes)

#4 Report on Consumer Behaviour of Non-alcoholic Beverages [(Robert Green)(Estimated

Time: 3 minutes)

#5 Competitor Analysis and Advertising Trends (Phil Ames-Market Research manager)

(Estimated Time: 5 minutes)

#6 Budgeting for New Launch [Ben Ferrell – Accounts Manager](Estimated Time: 5 minutes)

#7 Discussion on the marketing activities of Crimson Nectar (Estimated Time: 20 minutes)

#8 Revisions to marketing Policy/Marketing Strategy 2(Estimated Time: 5 minutes)

#9 Report on action points on marketing of Crimson Nectar [Alma Garcia](Estimated Time:

10 minutes)

#10 Report on retailing of the product/ supply chain management (Functional Managers)

(Estimated Time: 30 minutes)

#11 Market penetration and repositioning strategy in the weak markets (Dulce Flores, Alma

Garcia, Arturo Henandez)(Estimated Time: 45 minutes)

III. Executive Session

Consultants’ opinion on the marketing strategies of the Crimson Nectar in the Latin American

markets. Mr David Abraham and Roberto Vergas to highlight their reports on the marketing

strategies as per the contract agreement of the consultation.

IV. Reconvene

V. Announcements

VI. Quick Meeting Evaluation

VII. Adjournment

Board will announce, it will go into Executive Session, if necessary . The Board of Trustees may

also announce, it will go into Executive Session, if necessary, to receive advice from Business

Legal Counsel regarding any item on this agenda.

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Case 4.3

BLOCKBUSTER ENTERTAINMENT CORPORATION: CROSS PROMOTION AND

PRICING STRATEGY

Blockbuster’s corporate objective was to provide customers with entertainment, instructional, and

cultural videos in pleasant, family-oriented, and spacious surroundings. Blockbuster had developed

the “superstore” concept on the premise of large title selection and convenience, with rental rates

as a less important factor. The typical store had 8,000 to 10,000 square feet of selling space and

stocked an average of 10,000 tapes. The videocassettes were arranged alphabetically within more

than 30 categories. The facing of the films also encouraged customers to pick up more than one

film as they browsed through the selections. Since, the actual movies were displayed with their

descriptive boxes on the showroom floor, the customer knew immediately, if the selection was

available for rental. This helped the sales personnel by not making them search for the titles behind

the counter or in the back room. Once the customer made the selection, proprietary computer

software allowed store personnel to process transactions rapidly. Customers received free

membership. When applying for membership, their general preferences and other demographic

information were put into the database. Blockbuster developed a laser barcode scanner system,

which sped up the transaction time while also providing management with a database on customer

addresses, customers’ buying habits, rental activity by tape, and so on. This database allowed

Blockbuster to develop more effective marketing/promotional activities. In 1990, there were 12

million members in the Blockbuster system, and this number grew at a rate of 300,000 new members

per month.

In addition to broad title selection and convenience factors, all Blockbuster Superstores

conformed to standardized design specifications and operating procedures, much like the

McDonald’s chain. Blockbuster’s tag line was “Arnerica’s Family Video Store”. All Blockbuster

Superstores offered extended business hours from 10 in the morning till midnight, seven days

a week. Most stores were highly visible, located in free-standing structures or at the end of strip

shopping centers, and had plenty of free parking. They were designed to be destination points

and did not rely on traffic drawn by neighbouring stores. In keeping with its emphasis on customer

service, many stores had exterior drop-off boxes, provided a child’s play area, and sold movie-

oriented food products.

Franchise Development

Blockbuster believed that the penetration of available markets in a short period of time was a

critical success factor in competing in the videocassette market; therefore, they employed a strategy

of franchise development. The ratio between corporate-owned and franchise locations was 50:50.

Blockbuster aimed to run the operations in major markets while franchising out those locations in

smaller, less dominant markets. By the end of 1995, the company hoped to reduce this 50 : 50 ratio to

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40:60 as Blockbuster expanded further into the smaller markets. Opening a Blockbuster Video

Superstore generally required between $ 425,000 and $ 700,000, exclusive of any franchise fee or

development fee. In many cases, the ability of a prospective franchise owner to meet these large

financial requirements was contingent on the availability of outside financing. Each franchise owner

had the sole responsibility for all financial commitments relating to the opening and operation of

superstores in the franchised territory, including rent, utilities, payroll, and other relevant expenses.

The typical franchise agreement called for a $ 55,000 initial fee for the right to operate under the

Blockbuster Video name, a fee in the amount of up to $ 30,000 for the required proprietary software,

and a continuing monthly payment of $ 650 for the maintenance of the software. Additionally, the

franchisee had to pay (1) a continuing royalty and service fee equal to a certain percentage of gross

sales, ranging from 3 percent to 8 percent, (2) a percentage of gross revenue for national advertising

and marketing programs, approximately 0.5 percent, and (3) an additional percentage of revenue for

local advertising.

Franchise owners were generally required to have an opening inventory of 5,000 to 7,000 tapes.

They were not required to purchase their initial inventories from the company (used tapes could

usually be purchased at lower prices) but, because of barcoding and packaging requirements, many

chose to do so, because it was much easier and more efficient. The company priced videocassettes

competitively with major cassette distributors and charged a packaging and handling fee. Franchisees

were not allowed to place any tape in inventory that had not been previously approved by the company.

The company’s franchise agreement required the franchise owner to participate actively in the

operation of the franchise. To assist its franchisees, the company offered a wide range of services

including site selection and lease negotiation assistance, construction assistance, employee training,

and computer hardware and software support on a fee basis. All franchise owners and managers, in

typical McDonald’s fashion, had to attend a program at Blockbuster University that trained them in

the standard operating procedures and practices of the company.

Pricing

Average videocassette cost Blockbuster $ 40 to purchase, package, and deliver to its store

locations. Blockbuster, then charged customers for each tape. which they were allowed to keep for

three evenings. The pricing structure was used to encourage multiple rentals per visit by the customer,

as Blockbuster customers averaged two tapes per visit. This liberal three-day policy could be disastrous,

though, because the big hits were rarely available for Friday or Saturday rental. “Whenever I go to

Blockbuster they don’t have the movies I want,” said a customer in Atlanta. Company officials stood

by the policy for customer convenience and marketing reasons. Though the $3 pricing structure was

above the industry average of $ 2 per night, Blockbuster believed that the consumer was willing to

pay the premium for the services and selection.

Distribution

Blockbuster operated an 80,000 square feet distribution center in Dallas, Texas and other states

of USA and Mexico through, which it supplied new stores with videocassettes and other necessities.

The facility had storage capacity of 400,000 cassettes and was used for shipping, receiving, and

packaging rental videocassettes according to the company’s uniform standards. This process involved

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removing each rental from its original carton. applying barcode labels to the video, and placing the

cassette into its hard plastic case The display carton was created for each cassette by inserting a

foam device into the original carton and shrink wrapping it. The end result of this process was a

shipment that arrived at the store alphabetically sorted within categories and ready to be placed on

display shelves. All stores received their initial titles from a pre-selected inventory compiled by this

facility, alleviating the store manager from the tedious task of selecting 8,000 titles. This system at

Blockbuster greatly contributed to the efficiency of videocassette selection and distribution nationwide.

Advertising and Promotion

Company advertised the Blockbuster Video Superstore on television, radio, newspapers, and

billboards and through direct mail. Blockbuster’s corporate marketing department, with the assistance

of national advertising agencies, developed advertising campaigns were implementation through out

the Blockbuster system. Along with its explosive store growth, Blockbuster’s advertising expenditures

increased from US $25 million in 1989. to US$560 million in 1990, to over US $90 million in 1991.

One of Blockbuster’s marketing themes. “WOW! What A Difference,” incorporated the competitive

standing of the company. Blockbuster believed it offered a combination of variety, convenience, and

service that no other firm could provide. In response to this belief and the consumer’s perception of

these attributes, Blockbuster expressed, “WOW! What A Difference.”

As part of their marketing program, Blockbuster began running McDonald’s-like promotions. In

1990, they launched the Blockbuster Video $10 million game which was the largest promotional

event ever in the video industry. The game utilized game pieces and a variety of prizes ranging from

free rentals to $100,000 in cash. Plans called for another such promotion in the summer of 1991. The

company also sponsored a college football game in 1990, with the introduction of the Blockbuster

Bowl, the sixth largest college bowl game. Both programs were expected to be repeated in future

periods. Blockbuster’s advertising and promotions were founded on the belief that an effective

advertising umbrella would increase store sales by a significant amount. Additionally, the marketing

clout established by Blockbuster offered those advantages and economies of scale over competitors

on a national basis.

Chapter

DISTRIBUTION STRATEGY

CHAPTER FOCUS

• To build knowledge on fundamentals of distribution and supply

chain management,

• To develop management skills in developing the distribution and

logistics strategies,

• To learn about the functional excellence in the distribution management,

and

• To understand the concepts of distribution planning and management

issues in contemporary perspective.

arketing is defined as an exchange process. Distribution strategies are concerned with the

channels that a company may engage to make its goods and services available to consumers.

Channels are the organized structures of buyers and sellers that bridge the gap of time and space

between manufacturer and the customer. There are hundreds of ways goods and services can be

distributed to customer. These may be identified from direct bulk shipments in railcars or pipelines to

the use of complex arrangements of brokers, wholesalers, and retailers. No single distribution satisfies

the needs of every firm, and many organizations use several channels to reach different market

segments. A paper mill, for example may contact large users directly, whereas independent wholesalers

service smaller customers. Distribution channels help conquer the time and distance intervals that

divide users from the merchandise they need. Channel members initiate and complete many of the

following vital activities:

• Communication: Dispense product information to customers and report on market potentials,

competitors, and market conditions

• Bargaining: Negotiate agreements on prices and terms with potential

• Reordering: Transmit orders for merchandising back to manufacturers

• Financing: Acquire funds to finance inventories and distribution facilities

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• Maintain inventories: Assume the risk of storage and movement of the channel.

• Cash settlements: Collect money from buyers and deliver it to sellers.

• Ownership: Transfer title for goods and services from one firm to another

Some of these activities flow forward (title, inventories) and some move backward (ordering,

market data). All of them need to be performed by someone who does the work of distribution

depending on the costs different channels and the efficiencies of specialization. If the manufacturer

assumes these functions, the selling prices must be adjusted to cover the costs. The cost of incurred

to the manufacturer declines whenever, the functions are shifted to intermediaries, but such shift

increases the cost at the dealer’s end. Sometimes distribution activities are transferred to the consumer

(like self service gasoline) and prices to the buyer are lowered. The distribution planning may invariably

be based on the market survey carried out at the time of preparing the business plan. The distribution

planning should be to make the products available to a larger number of consumers at lower marketing

costs. To reduce the cost of marketing, it is required to determine the most feasible channel. The

product characteristics and the operational area are the major factors to be considered while selecting

a distribution channel. In any channel, different distribution approaches can be adopted to deliver the

products more economically to the ultimate user. The important factor to be assessed in this process

is the cost-effectiveness. It is observed that, the longer the chain of intermediaries in product

distribution, higher is the cost of marketing. Since cost is one of the determinants of profit, it should

also be viewed from the angle of product distribution. The exclusive distribution approach is always

confined to an area. Such a distribution plan can be useful in the areas (i) where the demand

concentration for the product is low (ii) which are located at a distance from the high concentration

areas i.e., urban places (iii) the storage, transportation and other overhead costs are higher and (iv)

the competition is absent or very low. In the urban areas where the market competition for the

product is high and the retailing is at large-scale, a selective distribution policy would be more useful.

However, retailers and consumers in rural areas and in the location, where the purchasing power of

the consumers is low but a large number of retailers are in a business fray, regard the approach of

extensive distribution of products. In other words, such an approach would help the market condition.

The following seven factors should be considered while developing the products distribution policy.

• Product - characteristics and consumer recognition

• Size and value of sales - extent of sales realization

• Market area - consumer coverage, retailers and other traders

• Existing methods of distribution - impact, problems, and

• Needed efforts - consumer approachability, appealing to distributors, cost-effectiveness and

sales realization

PROFILE OF PRINCIPAL DISTRIBUTION STRATEGIES

Channel structure strategy is about using perspectives of intermediaries in the flow of goods from

manufacturers to customers. Distribution may be either direct from manufacturer to retailer or from

manufacturer to customer or indirect involving the use of one or more intermediaries, such as

wholesalers or agents, to reach the customer. The channel structure strategy is aimed at reaching the

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optimal number of consumers in a given time

schedule at the lowest possible cost while

maintaining the desired degree of control. In

implementing this distribution strategy the

company should make the comparison of

direct versus indirect distribution on the basis

of the following parameters:

• Cost,

• Product characteristics,

• Degree of control, and

• Other factors.

Cost variable includes distribution costs,

opportunity costs which incurs during the non-

availability of the product inventory costs and

shipping costs. The product attributes may be

measured in terms of replacement rate, gross

margin, service requirements and the time

involved in search thereof. The degree of

control is generally greater when direct

distribution is followed. The factors other than

above are adaptability, technological changes

and social/cultural values. The effective

implementation of channel structure strategy

may result effectively in performing the direct

distribution. However this may result into the

high marketing costs and needs a large degree

of control. The foreign firms need to consider

the following issues for channel selection for

effective distribution:

• Market access

• Multiple markets, seasonality, safety,

channel length

• Value added competencies

• Resources, logistics and control,

competitive skills

• Financial consideration

• Building distribution network,

revenue-cost implications, operating

capital requirements

• Flexibility and control conditions

Strategy Focus 5.1: Radio Frequency

Identification Technology in Distribution

Management

Wireless identification and tracking with Radio

Frequency identification (RFID) technology represents

a new way to conduct operations, which creates new

benefits and challenges. This technology operates with

a reader that identifies the product tag in the warehouse

and sends the signal about its movement through a

computer based tracking tool. The identification is

accomplished by an interrogator, also called a reader or

“master,” and a tag, also called a transponder or “slave”

that has a unique identification code. Data is exchanged

between tags and readers using radio waves between

the tag and interrogator, and no direct line of sight is

required for the transaction. The interrogator asks the

tag for the code, or processes the signal being broadcast

by the tag, decodes the transmission and transfers the

data to a computer. The computer, in turn, may simply

record the reading, or look up the tag identification in a

database to direct further action, and may also direct

the interrogator to write additional information to the

tag. The latest generation of RFID allows the dozens

of individual objects within a group to be uniquely

identified at the same time. This is in contrast to bar

codes, which must be read one by one, and can be very

advantageous in high-speed reading, sorting and material

handling applications.

The low-cost tags generally are have limited data storage

capacity, typically 32 to 128 bits, which are read-only

(not rewriteable) like bar codes, and have limited read

range. On the contrary, high-cost tags are available for

many more complicated longer read applications. They

often have their own power source for managing large

storage databases. RFID systems are available in a

wide range of frequencies to suit various performance

needs. Frequency is an important factor in transmission

range and speed. This is an important consideration

when planning logistics and supply chain applications.

Most RFID technology used in warehousing and

distribution operates at 13.56 MHz (high frequency),

860-930MHz (ultrahigh frequency, or UHF) or the

2.45GHz (microwave) band.

Wal-Mart has already begun its RFID pilot with

selected distributors in 2006 while other eight suppliers

that started shipping a handful of RFID-enabled pallets

were Gillette, Hewlett-Packard, Johnson & Johnson,

Kimberly-Clark, Kraft Foods, Nestle Purina PetCare,

and Procter & Gamble.

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• Channel network and participation, procedural control

• Channel strategy illustration

• Sales forecasting, selling approaches, cost factors, promotion and creativity, control

Customers receive comprehensive information about the product, company and distribution channel

in this strategy and acquire strong image of the product and brand. This strategy would also help in

building the indirect distribution vice-versa at lower marketing costs, less control and limited channel

management responsibilities. The channel-strategy decisions include deciding to manage or coordinate

operations in the channel of distribution, becoming a member of a vertically co-ordinated channel, or

becoming a member of a conventional channel system. The following factors need to be assessed in

the choice of the channel strategy:

• Market Access

• Value-Added Competencies

• Financial Considerations

• Flexibility and Control Considerations

Decision on market targeting needs to be closely co-ordinated with channel strategy, since the

channel connects products and end-users. The channel selected should offer the most favorable

combination of value-added competencies. Making this assessment requires looking at the

competencies of each participant and the trade-offs concerning financial flexibility and control factors.

The financial consideration in selecting the channels is to be done in reference to status of resources

available for launching the proposed strategy and evaluating the revenue-cost impact of alterative

channel strategies. Management should decide the extent of flexibility to be provided to the channel.

The legal and regulatory measures also affect the channel selection.

DISTRIBUTION STRATEGIES

Distribution scope strategy is advantageous for establishing the distribution of goods and services

effective with the target customers. The company may choose to implement the exclusive

distribution strategy wherein one retailer is granted sole rights in serving a given area or intensive

distribution approach in which a product is made available at all possible retail outlets. The

company can also prefer to have the selective distribution approach to serve many customers

but not through all the retail outlets in a given area that distribute the product. This strategy

should be followed with the objective to serve chosen markets at a minimal cost while maintaining

the desired product image. Of many core issues associated with the international distribution

channels, following are listed as below:

• Market considerations

• Selling capabilities

• Product know-how

• Credit Worthiness

• Business image or personality

• Geographical coverage