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Responsiveness to Price and Promotion—Some groups respond to specialmarketing efforts more than others. Housewives use more coupons than singleprofessional women. The correct number of However, the ability to target just brown-haired men with effective advertising islimited and its usefulness would bedubious. Is brown hair a necessarysegmentation variable? There are nomagazines exclusively targeted to brown-haired males. Besides, blond andredheaded men may also be a reasonablemarket for Corvettes.

You should use thefollowing criteria to evaluate possiblemarketing segments: Measurability—Can you identify thesegment? Can you quantify its size? Accessibility—Can you reach the segmentthrough advertising, sales force ordistributors, transportation, orwarehousing?

Substantiality—Is the segment largeenough to bother with? Is the segmentshrinking, maturing, or is it a growingsegment? Profitability—Are there enough potentialprofits to make targeting it worthwhile? Compatibility with Competition—Are yourcompetitors interested in this segment? Arecompetitors currently investigating it or is itnot worth their trouble? Effectiveness—Does your company havethe capabilities to adequately service this Consequently, many large coffeecompanies continue to target it.

Even in markets that appear hopeless,there may be a segment that othersoverlook. Xerox controlled 88 percent of thecopier market in the s. The majority ofits sales came from large and medium-sized units.

But by , Xerox had lostmore than half of its market share. Xerox ignored the small-copiermarket. Thousands of small companieswith light copy needs had to run to the localcopy shop every time they had a copy job.

Canon, Sharp, and Ricoh seized thismarket by selling a smaller and lessexpensive copier. With a foothold in smallcopiers, the Japanese competitorsproceeded to topple Xerox in the large-copier segment of the market.

Do itfirst so as not to stifle your creativity withthe quantitative analysis you will perform aspart of the strategy developmentframework. After the other steps are completed it canbe altered to fit an evolving marketingstrategy.

Market AnalysisConsumer Market Analysis CompetitionDistribution Marketing Mix EconomicsReviseWhile segmentation analysis focuses onconsumers as individuals, market analysistakes a broader view of potentialconsumers to include market sizes and Market analysis also includes areview of the competitive and regulatoryenvironment.

By closely examining themarket, a marketing manager candetermine if the segment selected is worththe trouble of a targeted marketing effort. MBAs ask three important questions toevaluate a market: What is the relevant market? Where is the product in its product lifecycle?

What are the key competitive factors in theindustry? In Iinvestigated the possibility of selling aMexican gourmet ground coffee in U. It would have beenmisleading for me to assume that all coffeesales were in my relevant target market.

However,60 percent of that total was sold in stores,while the other 40 percent was sold to theinstitutional markets, including restaurantsand vending machines. But within that larger coffee market therewere additional sub-markets to investigatebefore arriving at my final relevant market.

The gourmet coffee market accounted for Within the gourmet coffeemarket, only 60 percent of the coffees soldhad no artificial flavorings.

My Mexicancoffee had no additives and the producerrefused to artificially flavor his coffee. But of that marketslice, only 55 percent was sold insupermarkets. That was my relevantmarket. Once a market segment is identified, youhave to ask if it is large and accessibleenough to justify your marketing effort.

Onlymarketable products make money. These questions are difficult to answer andinvolve marketing research. If it is a newproduct, the answers will not be readilyavailable. Test markets may have to beused to obtain that information. This stepmay lead to further segment investigation. The growth and decline of consumersegments within a market should also benoted.

When the market is growing, futuresales growth can come from new users orexisting customers. Where is the market in its product lifecycle? Markets can be characterized by the stagethat they are at in their product life cycles PLC. Cellular phoneservice began in the early s with fewerthan ten thousand users. The PLC concept is important because theprocess of diffusion or adoption by thepopulation has major implications for how aproduct is marketed. Each productdevelops its own unique PLC as it matures.

The four generic stages of the PLC andtheir implications for action are: Stage 1: Ifpossible a trial is important.

Highadvertising costs may be incurred to get theword out.

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Some vendors opt for anexclusive distribution of their products in afew select outlets at first. Thefirst buyers are called the innovators,followed by the early adopters.

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They freelytake purchase risks because theirpersonalities or pocketbooks allow them to When companies introduce newproducts, managers must make difficultpricing decisions because there isfrequently no basis for comparison.

Thelevel of initial prices and profits has greatimplications regarding the outcome offuture battles with competitors as well asyour ability to perform additional researchand development as with products likehigh-definition TV and DVD.

Stage 2: The earlymajority becomes interested. As moreconsumers become familiar with a productthey examine the new models to decidewhich to buy, not whether they should buy. When buyers get to the store they start To make the productmore accessible, marketers often choose aselective distribution to gain a greaternumber and variety of outlets.

At this stageit is important to boost your sales volumeahead of the competition in order to reducecosts through production and advertisingefficiencies.

This helps a company gain thecompetitive advantage in the next stage ofthe PLC e. Stage 3: Because people are accustomed tobuying the product and the differences arefew, brand loyalty plays a dominant role. Price competition often becomes heated instable markets because additional marketshare comes directly from your Because there isless differentiation on product attributes,advertising is used as a vehicle todifferentiate products.

Marketing managerstry to segment their target market as muchas possible to meet specific unmet consumer needs. In mature marketscompetitors are ferreting out all possiblesegments. All possible channels ofdistribution are also considered using amass market distribution strategy e.

The Product Life Cycle Stage 4: Even themost timid consumers, the laggards, find itsafe to buy the product at this late stage. Ifit does cause cancer, the FDA usually hasfound out by now.

Consumers turn a deaf Atthis stage many companies focus theirefforts on reducing price if competitionremains, or slowly increasing prices if thecompetitive field thins. Trade relations arekey to staying on the retail shelf at thispoint, because without the excitement ofnovelty, distributors and retailers wouldrather allocate space to newer andpotentially more profitable products. Theeffort to sell the trade is popularly calledrelationship marketing e. With some products the maturity phasedoes not necessarily mean death.

Productscan be reinvigorated after a period ofmaturity and a new growth phase canbegin. Baseball trading cards underwent In some cases, lingering death throesproduce large profits for the lastmanufacturer. In the vacuum tubebusiness, which supplies electronic tubesfor old TVs, radios, and other equipment,Richardson Electronics is the survivor in anindustry once dominated by GE, RCA,Westinghouse, and Sylvania. Using an endgame strategy, the remaining producerscan extract large profits from customerssince they have nowhere else to go for theirreplacement parts.

What are the key competitive factors withinthe industry? The basis of competition in each industry ormarket tends to be different. It has a major There are five major keycompetitive factors that constitute thebattleground in most industries: In industries providing raw materials toothers, price and service are key.

In myinvestigation of the coffee industry, I foundprice and quality to be the basis ofcompetition. When developing a marketingplan, you may want to try to change thebasis of competition to one that favors yourfirm, but the key underlying competitive Now, a plan tobeat the competition must be developed. You need to look at yourself and at thecompetition with the same level ofobjectivity.

What are your advantages? What things do you do well? MBAs callthem core competencies.

What are yourweaknesses? The following What is your company good at and what isthe competition good at? Barriers are conditions orhurdles that new competitors have toovercome before they can enter themarket. The availability of cash andspecialized knowledge are such barriers. The pharmaceutical industry, for example,is dominated by a few companies. To be aplayer, a company needs a large salesforce, research labs, and a large bankaccount to pay for it all.

Because of thesebarriers, most small companies team upwith large ones if they have a promisingnew drug to peddle. If in an industry the barriers to entry arelow, the playing field becomes very Savvy marketers should plan forthat eventuality by trying to form amarketing strategy that new competitorscannot easily copy. This is more fullydiscussed later in the book in the Strategychapter.

During my coffee investigation, I looked atwhat my company had to offer. We lacked distribution,advertising expertise, a reputation, andcash. The only thing my Mexican employerhad to offer was quality packaged coffee. Aftermuch questioning, and feeling a little ill, Ihoped that there might be a large foodcompany that would like to enter into a jointventure.

We would supply the coffee and We could piggyback, not unlikewhat small pharmaceutical companies do,recognizing that some profit is better thannone.

What are the market shares of the industryplayers? Many tracking services are available forconsumer products such as Selling AreasMarketing Inc. SAMI and A. Checkout scanners and warehousetracking collect supermarket sales data. However, for industrial products, such asmanufacturing equipment, the informationis less accessible. Trade associations are agood source. The shift of share over time is extremelyimportant.

Little was left for a newentrant. Market share leverage is a key concept toconsider when examining market shareswithin an industry.

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The companies withlarger market shares relative to theircompetition usually enjoy higher profits. Larger competitors can produce morecheaply on a per-unit basis because theycan spread their costs over more units.

Asmaller competitor cannot afford to spendas much on either research or moreefficient equipment, because the smallersales volume cannot support the burden.

IfI had been charged with a new instant And thatshare had increased from 16 percent in This constituted a far more favorableenvironment for a new entrant such as myMexican ground coffee. How does my product perceptually mapagainst the competition? Acommonly used grid is price and quality,but many others are possible and useful.

Maps are another MBA technique to Perceptions are paramount in marketing,just as they are in politics. In the papertowel industry, for example, towel strengthand decorator appeal are very important.

Notice that Bounty found itself a veryprofitable market segment by providingstrength and a pretty pattern. By visualizing how your product mapsversus the competition, you may gain aninsight into how to market your existingproduct, make product changes, or add If your company has many products withina category, then you are said to have depthof line.

In the paper towel market no oneproducer dominates the category. If your company has many products in avariety of product classes, you are said tohave breadth of product line.

Kimberly-Clark has a wide breadth of paper productsin several categories: Depth andbreadth of product lines can be cleverlyused in a blocking strategy to prevent In the dog food industry, competitors foundother ways around Ralston to reach doggieowners. In the There are often many ways of reachingyour customers, as described with dog foodsales.

Distribution channel analysis iscritical, because the choice of channelinfluences the price you can charge, and,consequently, the profit margins that youmay enjoy.

Three questions should beasked to provide you with a basis for yourdistribution decision: How can my product reach the consumer? How much do the players in eachdistribution channel profit? Who holds the power in each distributionchannel available? In the case of many mail-order catalogs,there is a direct link between the marketerand the final consumer. A catalogmanufacturer of clothing has a direct pulseon sales, returns, pricing, and consumertastes.

As manufacturers of grocery items,brand managers are distanced from thebuyer. Cereal, for instance, must gothrough wholesalers and retailers beforereaching the consumer.

Those middlemenare called channel intermediaries. As a Commonly used channel intermediaries tothe consumer are: As I mentioned, it is very helpful tounderstand all the paths to the consumer inorder to know all the possible ways tomarket your product.

Take the time to drawthem out on paper. A channel sketch canalso give you the insight into the retail pricethat must be charged to make a profit. Everyone who touches the merchandisetakes a cut, which is called their margin. Channel participants in most industriescalculate their cut as a markup on sellingprice. Canadian and some U.

The selling price is not theultimate retail price, but the price at whichone intermediary sells goods to the nextintermediary in the chain. The retail price iswhat a consumer pays. Because of my experience in the coffeeindustry, I will use coffee retailing todemonstrate the economics of the channels At each level of the chain,the intermediary buys the coffee from theprevious level and takes a margin based onthe sales price to the next level.

The marginis not based on cost. At eachlevel, the channel participant adds valueand incurs costs by either roasting,grinding, and packaging the coffee beans;promoting the brand; or distributing andshelving the packaged coffee for theconsumer. Collection coffee. At each level in the distribution channel, theparticipant performs its function, takes itsmargin, and sells to the next participantcloser to the consumer. Because marketing strategyis a circular process, another price,manufacturing process, or cost may haveto be altered.

Such changes could affect allthe other elements of the plan. The relative power of the channelparticipants can dictate pricing decisionsbased on the economics of the channelchosen. Kraft Foods decided to use an alternativechannel in addition to grocery stores. Withmost products there are usually a variety ofways to reach the consumer. Each channelhas its own channel margin mathematics. By understanding the math you are betterable to make a choice of channel.

Who has the power in the channels? The question of channel power is verycrucial in selecting where to sell. If yourproduct is unique and in demand, then the In the grocery trade, the power of thechannel has shifted from the manufacturersto the supermarket chains. Each product must be tracked,shelved, and inventoried. When Mazolacooking oil produces three sizes, it takes upthree SKUs. With a finite amount of storeand warehouse space, the shelf real estatehas become valuable, and retailers want tobe paid for carrying each SKU.

Marketerseven diagram their shelves like architects indrawings called planograms and fight overbest placement. In the s the packaged good giantscould force their products on the trade. That is no longer the case. Unfortunately, slotting fees can run intomillions of dollars for a new productintroduction. Therefore, in practice, slottingfees bar smaller competitors from selling inthe supermarket. A maker of an excellentpizza in the Midwest that I knew failed toget off the ground because it could notafford the bribes necessary for space.

Feel free to interject this topic into MBAconversation as often as you like. Development of the Marketing MixConsumer Market CompetitionDistribution Plan the Marketing MixEconomics ReviseBased on judgments developed in theanalysis of the consumer, the market, thecompetition, and the distribution channels,the marketing manager must make a set oftangible decisions.

MBAs call it the actionplan. Marketing managers choose what mixof marketing efforts should be made. The development of the marketing mix isan evolutionary process whose goal is an That cannot beoveremphasized.

The Marketing Mix How does my product fit with my otherproducts? How will I differentiate my product? How does the product life cycle affect myplans? How does the product fit with my existingproduct line? This question tries to identify areas ofsynergy among your products, or uncover aconstraint on your activities. There would be a fit with thisline extension. But if Maytag wanted to sellpersonal hair dryers, the fit would bequestionable.

Differentiation is a broad issue that includesany way that a marketer can distinguish hisproduct from the field. Consequently thereare many ways to do it. Lifshitz somehow fails to convey the imageof English aristocracy. In many cases the so-called brand equity ofone product can be transferred to newproducts using a brand or line extensionstrategy that differentiates it from the pack. Kraft Foods has chosen to place the Jell-Obrand name on its new pudding and icecream treats.

The Jell-O brand bestowsupon the new products all the goodwill andbrand recognition brand equity that Jell-Oearned over decades. It would take manyyears of expensive advertising to establishthe brand equity of the Jell-O brand.

Accordingly, almost 70 percent of thetwenty-four thousand new productintroductions since were line andbrand extensions. The choice of any one of these productdifferentiation techniques affects the entiremarketing process, as it lays thegroundwork for your promotional efforts.

Aproduct can be differentiated from thecompetition by creative advertising andpromotion, even if competing products arephysically identical.

Perceptual maps and positioning can helpto differentiate the product. All the productattributes mentioned affect the positioningof a product in the marketplace. As my perceptual map ofpaper towels indicated, consumers havespecific needs within a product class and Hopefully the brand manager will choose aniche that will yield the most sales andprofits by targeting a market segment hisproduct serves best.

Positioning isinexorably tied to the market segmentselected through your consumer andmarket analysis. Based on the point in the product life cycle PLC , different aspects of the productbecome more important in the competitivebattles. The previous discussion of the PLCnoted that product features are extremelyimportant to differentiate products in thegrowth phase, while branding isincreasingly more important in the maturityphase. The emphasis on multiplay featureson compact disc players, for example,currently indicates the growth phase of thePLC.

In the mature cassette deck market,the battles over auto reverse and Dolbynoise reduction have already been playedout. Where to Sell? In your review of the distribution channels,the goal was to determine what avenuesexist and what margins are available. Atthis stage, having made product decisionsand a choice of target market, the marketerhas to choose an appropriate channel to fitwith the product and the intended buyers. What distribution strategy should I use?

On what basis should I choose a channel ofdistribution? What type of distribution strategy should Iselect? A distributionstrategy can differentiate your product fromthe crowd. For example, if a new designerchooses to sell exclusively at NeimanMarcus, it gives a certain cachet to theproduct.

Consumers tend to perceivecertain attributes in a product, such asstyle, quality, and price, based on the pointof sale. The same designer may choose toselectively sell in only better department The California marketer of carwindow sun shields had no such concern,and selected a mass distribution strategy.

The company wanted to distribute thecardboard shade as widely and quickly aspossible. That choice made sense sincethe shades, unlike designer clothing, didnot have any status appeal and could beeasily copied and manufactured. Each of these distribution methods placescertain responsibilities upon themanufacturer and the retailer. Whenmanufacturers share the costs ofadvertising with retailers, that is called Ifthose obligations are not met, the contractis breached and the relationship can besevered.

Ralph provided theimage and the margins sought by retailers. The retailers were in turn obliged to provideRalph Lauren with special placement andselling efforts. Which channels of distribution to choose? It depends…on a variety of factors. Thereis usually more than one choice. However,if a channel is integrated into a mutuallysupportive and internally consistentstrategy, many choices can potentially besuccessful.

Three factors should serve as aguide to make a selection. Product Specifics. Another factor toconsider is the level of attention needed forthe sale. This is related to the level ofcomplexity of the product, the newness, orthe price.

The product may indicate a needfor your own sales force despite the costs. On the other hand, products such as candyand soft drinks are sold through a series ofwholesalers and distributors beforereaching the store shelves. These productsare simple and do not require direct control Need for Control. The ability to motivate thechannels to carry your product effectivelyand appropriately enters into the placementdecision.

The further the manufacturer isremoved from the consumer withdistributors, wholesalers, and jobbers, theless control the manufacturer has over howa product is sold. Pharmaceuticalcompanies usually have their own salesforces, also called captive sales forces, thatare thoroughly trained to provide credibleinformation to doctors.

If Merck or Pfizerhad to rely on an independent sales forcethey would not have absolute control overtheir training or conduct in the field. Margins Desired. The analysis of thechannels of distribution helps to determine Where arethe margins taken at each level? Can yourcompany deliver the product through thechannels at a competitive price and stillreserve enough margin for itself? Based onthe available margins, channel decisionscan be made. In the case of radardetectors, Cincinnati Microwave opted tosell directly to the public through magazinedisplay advertising.

They chose not to sellthrough electronics stores or other generalmerchandisers. Their managementbelieved that the technological superiorityof their Escorts and Passports would helpthe units sell themselves. CincinnatiMicrowave chose to capture the entire retailmargin and to cut out all the middlemenwho typically distribute and sell electronics.

Product PlacePromotion PricePromotional DecisionsPromotion includes all the advertising andselling efforts of the marketing plan. Goalsetting is paramount in developing apromotional campaign. You need to knowthe mission you want to accomplish beforeyou can begin to draft or spend thepromotion budget.

The ultimate goal ofpromotion is to affect buyer behavior;therefore the desired behavior must bedefined. Different products, at differentstages of the PLC, with different levels ofinvolvement and complexity, requiredifferent promotional efforts to performdifferent missions. The promotional missionchosen for your product must be consistentwith the buying process outlined in your As with distribution,promotional efforts should be guided by astrategy. Pull strategies are those effortsthat pull buyers to the outlets that carryyour product.

Another importantmission of promotion is to encourage the Such efforts are apush strategy. Beer distributors, forinstance, spend a great deal of their timetrying to court bar owners to stock andpromote their brew on tap. Most plans havean element of both push and pullstrategies.

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In the beer industry they spendheavily to advertise the brand as well as togain greater bar distribution. To pull buyers to a store or to push thedistribution channel to stock and sell, thereare five general categories of promotionalefforts: AdvertisingPersonal Selling Advertising takes many forms: Two importantthings to keep in mind are your intendedmission and the quantitative measurementof exposure required to accomplish it.

Please pay attention to the followingmeasurement vocabulary. This is what youpay for when you buy advertising. Buyingadvertising is just like buying marketingresearch—know what and why you are Reach and frequency are key quantitativemeasurements of media goals. Reach isthe percentage of the target market whosee and hear your promotion oradvertisement.

Frequency is the number oftimes they saw or heard it. Marketers referto the number of times a person is exposedto a message as the total impressionsmade on that audience. Because of thebuying behavior associated with differentproducts, different mixes of reach andfrequency are required to induce purchase.

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The desired demographics andsegmentation variables of the audiencesdelivered also enter prominently into theequation. A TVprogram that attracts a muddled mix ofdemographic audiences is less valuableper audience member. Even if you have theright media vehicle, scheduling is key inreaching your target.

High GRPs do not guarantee sales. Themessage delivered is also a keydeterminant. When advertising people referto the message, copy wording , or layoutof advertising, they call it the creative, a Ad agency people who develop theideas are called creatives.

Magazine and newspaper advertising ispurchased based on the size andsegmentation variables of their circulations. Magazines have a longer shelf life, butnewspapers deliver a much moreimmediate and focused geographicreadership which is best for salepromotions. Both of these print audiencesare bought on a cost per thousand CPM readers basis. A competitive measure of media is share ofvoice. Using this measure, an advertisercan target a certain percentage of mediaspending by all competitors within a Advertisers believe thatto have an impact through the competitivemedia clutter and noise, the relativespending level is just as important as theabsolute dollars spent.

Through the clutter, it would have beenfutile to run a TV ad to promote the tinycoffee brand that I managed during mysummer internship. Any affordable adwould have been drowned out by thegiants.

Remember, each medium has its strengthsin reaching people. Some are moreselective than others. Marketers want toreach their intended targets as efficiently as Personal Selling. Marketers choosepersonal selling when they need to makedirect contact with the buyer. This avenue is generally the mostexpensive element in any marketing mixbecause of the high cost of labor andcommissions paid.

Managers of products that are new,complex, or expensive find that the benefitsof personal selling often outweigh their highcost. Because some target markets areinaccessible by other media vehicles,personal selling is sometimes the only Waterpurification systems, pharmaceuticals,encyclopedias, copiers, and industrialproducts widely utilize personal selling intheir marketing mixes. Current theory holds that personal selling isa problem-solving and consultationprocess.

Professor Derek A. Newton of theDarden School at the University of Virginiasaw personal selling as having evolvedover the years in four stages: Vacuum Sales Promotion. Sales promotion isdesigned to elicit the desired behavior fromthe consumer, the sales force, and otherchannel participants.

Sales promotions aredesigned to complement and reinforceother promotional efforts, especiallyadvertising. Each type of promotion has itsown associated vocabulary that you shouldbe aware of. If you are not a marketer,knowing the vocabulary does not make youan expert, but it can sure help you toengage in intelligent marketingconversation, if need be. There are twotypes of promotions: Consumer sales promotions techniquesavailable are coupons, refund offers, Coupons are a direct way to pass a pricereduction on to consumers.

As amanufacturer, if you give retailers adiscount in hopes that they will pass italong to consumers, you may be sadlydisappointed. Marketers use coupons toencourage trial, brand switching, and brandloyalty. Grocery coupons are most oftenplaced in a special coupon section of theSunday paper called freestanding inserts FSI. Refunds are generally used to acceleratethe normal consumer purchase cycles.

Refunds are usually used to increase thequantity or frequency of purchase by Batterymanufacturers frequently use refund offers.

Samples are a high-cost way of introducinga new product. Sampling requires a cashinvestment to produce and stock thesmaller-sized packages. Sampling may also be effective forproducts that consumers would view asrisky in switching to a new brand, or thatmay have a high probability of generatingword of mouth WOM activity after use. Many new shampoos use free or low-cost Consumers are reluctant to risk four dollarsto try a whole bottle. Premiums are items offered at low or nocost to purchasers of a product.

Self-liquidating premiums are those for whichthe price charged covers just costs. Hershey has periodically offered watchesand Christmas ornaments as premiums.

Toget the goodies, chocolate lovers have tosend in wrappers as proof of purchase. Bubble, the happy pink bubble-bath man, ispictured on inexpensive T-shirts, beachtowels, and sweatshirts that are printed onevery box. Contests and sweepstakes are a popularpromotion and the most restricted legally,because they border on gambling. A very State gambling laws must beinvestigated to ensure compliance. Thegame rules and odds of winning must alsobe scrutinized to ensure that thepromotional budget will cover theforecasted costs.

Every timethe United States won, game pieces couldbe redeemed for free food and other prizes. When the Communist bloc boycotted thegames, the United States won most of themedals, and most of the game piecesbecame winners. Trade-directed sales promotions toolsinclude sales contests, point-of-purchasedisplays, dealer incentives, trade shows,and in-store demonstrations.

There are many variations on the point-of-purchase display POP. To get them in thestores requires the cooperation of thetrade.

On the retail shelf a POP can be ashelf talker, a mini-billboard attached to theend of the shelf with a little ad used toattract attention. Freestanding aisledisplays and built-in shelf displays are otherforms of POP. When a display is at the endof an aisle it is referred to as an end cap.

To get those prime spots, the manufacturermust entice the retailer. A marketer can doit by providing a high markup per item or ahigh turnover on lower-margin items. Dealer and employee incentives: Paymentsmade to dealers for marketing support arecalled spiffs. They can take the form ofslotting fees, case discounts, cashpayments, free merchandise, or prizes.