MKT Glossary PDF

Preview

Summary

Harvard Marketing Glossary PDF ...

Description

Harvard Business School

9-582-044 Rev. July 30, 1987

Glossary of Marketing Terms Users of this glossary should understand that many of the terms defined below have industry-specific or situation-specific meanings. The definition and/or contextual use of a term in a case or note always takes precedence over the necessarily more general definition in the glossary. Advertising—Any form of paid or public service presentation and promotion of ideas, goods, or 7 services by a sponsor. ! Though "word-of-mouth" advertising (in which consumers tell one another about their experiences with a product or service) is a well-known phenomenon, advertising usually takes the form of mass (as opposed to interpersonal) communication. That is, the advertiser buys space or time to get a message across to a large number of people whom no one from his or her organization may know or interact with. The defining characteristic of advertising can be said to be its persuasive nature. It is not disinterested dissemination of information. Rather, it is designed to convince those exposed to it of the merits of what is being sold. Advertising Agency Commission—The percentage of advertising costs earned by advertising agencies for their services to advertisers. Standard practice has traditionally set this commission at 15 percent of gross media expenditures (time, talent, facilities, space, etc.) and 17.65 percent of net advertising production expenses for art work, photography, typesetting, 2 engravings, etc. These "standard" figures are, however, often subject to negotiation. Aftermarket—The market which is created by the need for new component parts for a finished 18 product already in use. The sale of automobile tires, batteries, and air filters is an example. Agent—A person or business unit which negotiates purchases or sales or both but which does not take title to the goods in which it deals. Agents commonly receive remuneration in the form of a commission or fee. They do not usually represent both buyer and seller in the same 7 transaction. Agents are similar to brokers except that agents tend to have long-term relationships with their principals whereas brokers, in general, do not. All-Commodity Rate—In transportation, a rate applicable regardless of the nature of the commodities! 19 shipped.

!

These numbers refer to the sources of the definitions. They correspond to the list at the end of the glossary. Some of the definitions are quoted almost directly from the sources, while others are loosely based upon them. ! All underlined words have their own definitions in this Glossary. This glossary was prepared by Associate Professor Richard S. Tedlow. Copyright © 1981 by the President and Fellows of Harvard College. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the permission of Harvard Business School. Distributed by the Publishing Division, Harvard Business School Boston, MA 02163. (617) 495-6117. Printed in the U.S.A. 1

582-044

Glossary of Marketing Terms

All-Commodity Volume—One way in which manufacturers whose products are distributed through supermarkets and other food stores evaluate the effectiveness of their distribution systems. "Eighty-five percent of ACV," for example, means that a product is distributed in stores which represent 85 percent of the sales volume of all food store products in an area. It does not mean that the product is carried by 85 percent of the stores in an area. Arbitrage—The buying and selling of the same commodity, security, or foreign exchange at the same time but in two or more different markets to take advantage of differences in the prices of the 19 item in question in the markets. Arbitron—A market research service owned by SAMI/Burke, Arbitron specializes in measuring local radio and TV audiences through a paid, diary panel. Audience is estimated in 15-minute 15 blocks of time. Auction—Offering an article to the highest of several bidders.

19

Audits—Audits track the movement of products to give manufacturers the most current sales information possible. The two most important are Nielsen and SAMI. Nielsen monitors retail product movement through an audit of beginning and ending inventory plus purchases. SAMI is a middleman audit, monitoring warehouse withdrawals through estimates of 15 shipments from warehouses to retail stores. Bait and Switch—Bait advertising is "an alluring but insincere offer to sell a product or service which the advertiser in truth does not intend or want to sell." The practice of placing such advertising and attempting to "switch" the consumer once in the store to another (more 24 profitable) product through disparagement or various other tactics is illegal. Bargain Basement—The lowest floor of a department store (often, literally the basement) which 14 specializes in merchandise priced lower than in the store as a whole. Billings (Advertising)—The total charges for space, time, production- and other services provided by 2 the advertising agency to the client. Brand—A name, term, sign, symbol, or design, or a combination of them which is intended to 7 identify the goods or services of a seller and to differentiate them from those of competitors. Break-Even Analysis—A technique for determining the volume of sales necessary (at various prices) for the seller to cover costs or to break even between revenue and cost. Break-even analysis is used to help set prices, estimate profit or loss potential, and determine costs that should be 6 incurred. Broker—See Agent. Burke—Recently merged with SAMI, Burke is a major supplier of research and perhaps the largest custom research supplier. Through phone interviews, personal interviews, mail surveys, group discussions, concept tests and product tests, Burke conducts awareness, trial, and 15 usage studies as well as advertising research. Business Format Franchising (as distinguished from product or trademark franchising)—A type of franchise relationship where the franchisor provides the franchisee with the total system for doing business. Not only does the franchisee receive rights to use the trademark of the franchisor but also conducts business under specific guidelines and standards covering operations, marketing, and all other aspects of the business. Some well-known examples of

2

Glossary of Marketing Terms

582-044

format franchising are fast food restaurants, motels, and car rentals. Business format franchising accounted for approximately 26% of franchise sales in 1985. Buying Allowance (Off-Invoice Allowance)—A trade promotion consisting of a short-term offer of a 21 stated reduction in price for a certain quantity of a product purchased. Buying Center—The decision-making unit involved in a specific organizational buying decision. (See DMU.) Buying Group (also Buying Office or Resident Buying Office)—An organization representing a group of non-competing stores formed primarily for buying merchandise. The group may be 14 independent, store owned, or may own the stores. C.B.D.—Abbreviation for "cash before delivery." The payment of cash for a purchase before the purchase is actually delivered. C.I.F.—Abbreviation for "cost, insurance, and freight." These three letters signify that the items for 19 which they stand have been included in the price quoted. C.O.D.—Abbreviation for "cash on delivery." The payment of cash for a purchase at the time of its delivery. Cable Television—A system for delivering television programming which relies upon a cable to connect the television set to a central antenna rather than upon the transmission of signals through the air directly to a residence. Because cable television does not use the air waves as does the traditional transmission system, it is less subject to federal regulation. The basis for federal regulation traditionally rested upon public ownership of the air waves. Cannibalization—Takes place when a new product gains a portion of its sales at the expense of an existing product sold by the same company. Captive Distributor—A distributor owned by a manufacturer. The captive distributor provides a channel of distribution for products the parent company sells and may also carry related items made by other manufacturers. Car Card—A poster type of advertisement designed for mounting inside public transportation 2 vehicles, usually 11 inches high by 28 inches wide. Carriage Trade—The wealthy class of patrons.

14

Cash Cow—One of four categories of business lines or products in a portfolio theory of product management. (The other three are stars, "problem children," and dogs.) A cash cow is a product judged to be in the mature or decline stage of its life cycle, requiring little investment and produced at a low cost, to be "milked" for high profits in order to fund fast-growing stars or 9a to invest in stars and more questionable "problem children." Catalogue Retailers—These merchants sell a variety of high margin, branded goods, at low prices and they rely on catalogues both in their stores and mailed to customers to inform the consumer of their product offering. The orders which customers place are filled from a backroom warehouse which is designed as a low cost facility. The lower prices of catalogue retailers are made possible by lower rents for the out-of-the-way locations which they use, by providing minimal service, and by featuring products which are not fashion intensive.

3

582-044

Glossary of Marketing Terms

Caveat Emptor—A Latin phrase meaning "Let the buyer beware." The phrase describes a philosophy that it is and/or should be the responsibility of the purchaser to assure himself or herself of 14 the value of a seller's wares rather than relying on the seller's word. Chain Discount—A series of discounts taken on a base lessened successively by the amount of the preceding discount. For example, $100 discounted by 40 plus 10 plus 2 equals $52.92, and the total amount of the discount is 47.08 percent ($100 - 40% =$60; $60 - 10% = $54; $54 - 2% = 19 $52.92; $100 - $52.92 = 47.08). Chain Store—A group of retail stores of essentially the same type, centrally owned and with some 7 degree of centralized control of operation. Channel Captain or Commander—An organization in a channel of distribution that assumes leadership for firms from which it buys and/or to which it sells by absorbing risk on their behalf and generally engaging in actions designed to benefit its suppliers and customers as 11 well as itself. An example of a channel commander's role would be J.C. Penney's relationship with some of its apparel suppliers. Penney's volume and importance relative to these suppliers are such that it can establish the specifications of their product, conduct inspection programs at the factory, and determine the margin structure. Channel of Distribution—The structure of intercompany organization units and extra-company 7 agents and dealers, wholesale and retail, through which a product or service is marketed. Circular—Printed advertising matter, usually from one to twenty-four pages, widely used in sales 2 promotion. Clayton Act—A federal statute passed in 1914 which strengthened antitrust legislation by restricting such practices as price discrimination, exclusive dealing, tying contracts, and interlocking 5 directorates. Closed Circuit—A telecast fed to receivers by cable rather than broadcast by air. Reception is controlled, limited, and not available to the public at large. Clutter—The incidence of numerous, short commercials, particularly on television, increasing the 11 potential level of confusion on the part of the intended recipients of advertising. Commodity—A product category or a product that is not distinguished in the minds of potential 11 customers from similar products produced by competitors. Commodity Exchange—An organization usually owned by the member traders, which provides facilities for bringing together buyers and sellers of specified commodities, or their agents, for 7 promoting trades in these commodities. Comparative Advertising—Advertising that makes specific brand comparison using actual product 18 names. Concentration Ratio—The percentage of total output of an industry manufactured by a certain number of firms. Thus, if the four-firm concentration ratio in industry X is 40 percent, four firms produce 40 percent of the output in that industry. Consignment Sales—Sales not completed until products placed with a retailer by a supplier are sold to the consumer. Payment for goods placed on consignment is not due until such goods are 11 resold.

4

Glossary of Marketing Terms

582-044

Consumer Behavior—The acts of individuals directly involved in obtaining and using economic 3 goods and services, including the decision processes that precede and determine these acts. Consumers' Cooperative—A retail business owned and operated by ultimate consumers to purchase 7 and distribute goods and services primarily to the membership. Consumer Credit—Funds borrowed or financial obligations incurred for periods of time of generally 6 three years or less. Consumer Goods—Goods destined for use by ultimate consumers or households and in such form 7 that they can be used without commercial processing. Consumer Panel—See Diary Panel. Consumer Promotions—Techniques designed to attract the ultimate consumer or end user to a 21 specific product. Consumerism—A social movement seeking to increase the rights and powers of consumers and responsibilities of sellers. Contests and Sweepstakes—These are important consumer promotion devices. They differ in that in a contest participants compete for prizes on the basis of their skill in fulfilling a certain requirement, usually analytical or creative. In sweepstakes, participants merely submit their 21 names to have them included in a drawing of prizewinners. Contracting Out—The decision by a firm to have goods or components of a good which it assembles and/or sells manufactured by another company. Contribution—The monetary (or percentage) difference between revenues realized and the variable 11 costs incurred in the production and distribution of one or more units of a product. Convenience Goods—Consumer goods which are usually purchased frequently, immediately, and with a minimum of comparison. The articles are usually of small unit value and are bought in small quantities at any one time. Examples include tobacco products, chewing gum, and 7 newspapers. Convenience Store—Smaller grocery stores with limited numbers of items usually at relatively high prices, which are open long hours. These stores specialize in fill-in type items such as bread, 14 milk, and soft drinks and usually do not carry fresh meat or fresh produce. Cooperative—An establishment owned by an association of customers of the establishment. In general, the distinguishing features of a cooperative are patronage dividends based on the volume of expenditures by the members and a limitation of one vote per member regardless 14 of the amount of stock owned. Cooperative Advertising—Local or regional advertising, the cost of which is shared by a national 2 advertiser (manufacturer) and a retailer and/or wholesaler. Copy—In the advertising world, copy usually refers to the text, written or spoken, accompanying an advertisement. Copy Testing—Preliminary trials of different copy advertising appeals or selling ideas to determine 2 their effectiveness.

5

582-044

Glossary of Marketing Terms

Cost of Goods Sold—The total amount of all costs related to the acquisition and preparation of 25 goods for sale. Cost per Thousand (often abbreviated "CPM")—The cost of advertising for each 1,000 homes reached in TV or radio or for each 1,000 circulation of a publication. Coupon—A certificate which, when presented for redemption at a retail store, entitles the bearer to a 21 stated savings on the purchase of a specific product. Credit—A loan extended, often for the purpose of facilitating the acquisition of goods and services in advance of the payment for them. Cumulative Audience (or "Cume")—The net unduplicated audience delivered by a specific program 2 in a particular time slot over a measured period of time, usually one to four weeks. DMP—Abbreviation for "Decision-Making Process," which is the process by which a decision-making unit arrives at the decision to make a purchase. DMU—Abbreviation for "Decision-Making Unit." DMU can refer to a single individual. More commonly, however, it refers to a group of individuals linked by a common organizational bond but separated by functional specialization, trying to reach a joint decision on a purchase. Individuals tend to take on certain roles in the buying process, such as initiator, gatekeeper, influencer, decider, purchaser, and user, descriptive of their purchase involvement and predictive of their behavior. Dating—The practice of giving credit beyond a stated period by forward dating of an invoice. For example, a buyer technically obliged to pay for a purchase within 30 days may be given a postdated invoice bearing a date perhaps a month later than the actual date of purchase. In effect, the buyer now has 60 days in which to make payment. Dating is often used to 1 encourage orders for seasonal goods well in advance of need. Dealer—A firm that buys and resells merchandise at either retail or wholesale. Dealer Loader—A premium presented to retailers for the purchase of certain quantities of merchandise. Its purpose is to gain new distribution or to move an unusually large quantity 21 of goods from the manufacturer to the retailer and subsequently to the consumer. Deciders—Those individuals actually making the decision concerning whether a contemplated 4 purchase should be made. (See DMU.) Demographic Segmentation—Market segmentation on the basis of age, sex, family size, family life cycle (e.g., young, single; young, married; young, married, youngest child under six; etc.), 13 income, occupation, education, religion, race, nationality, and/or social class. Department Store—A large retailing business which carries a wide assortment of shopping and specialty goods, usually in the medium-to-high price range. Its products are "departmentalized" or segmented by categories within the store. Each department has a discrete store space allocated to it, a cash register to record sales, and salespersons to assist customers. There are two types of department stores: "traditional" and "departmentalized specialty." The major difference is that the former carry a full line of merchandise, including consumer durables such as furniture and home appliances. The latter tend not to carry such items but rather to focus their efforts on apparel.

6

Glossary of Marketing Terms

582-044

Department Store Ownership Group—An aggregation of centrally owned stores in which each store continues to be merchandised and operated primarily as an individual concern with central 14 guidance rather than central management or direction. Diary Panel—A survey technique in which an individual or a family keeps a record of Listening or 2 viewing behavior or of product purchasing activities. Diffusion—The process through which a new product or service moves from its introduction to a wider acceptance in its potential market. Direct Selling—The process whereby a firm responsible for production sells to the user, ultimate 7 consumer, or retailer without intervening middlemen. Discount Store—A departmentalized retail establishment utilizing many self-service techniques to sell hard goods, health and beauty aids, apparel and other soft goods, and other general merchandise. These stores operate at low margins, have a minimum annual volume of $1 10 million and are 10,000 square feet or over in size. Discretionary Income—Funds remaining after necessities are paid for out of disposable income.

18

Disposable Income—Personal income remaining after the deduction of income taxes and 7 compulsory payments, such as social security. Distributor—A firm (or an individual) sel...