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Marketing is the management process involved in identifying, anti...
Customer value is the difference between the values the customer gains from owning and using
a product and the costs of ...
The production concept
The production concept holds that consumer...
Marketing Management can be defined as the analysis, plann...
The Role of the Marketing Manager
Marketing management has historically been identified with tasks and personnel dealing...

Market research is the systematic design, collection, analy...
Experimental research involves the gathering of primary data by selecting matched groups of
subjects, giving them differ...
4. Interpreting and Reporting the Findings
The market researcher must now interpret the findings, draw conclusions, and ...
It enables gaps in the market to be identified Promotional costs may also be higher as
and these might be successfully e...
these consumers, in the benefits they seek and in their attitudes towards the product. A
combination of segments must, ...
A product can be defined as anything that can be offered to a market for attentio...
The development of original products, product improvements, product modifications, and...
Benefits of Branding
To consumers
Reduces time to make choices – the branded
goods can be quickly identified.
Quality s...
The amount of money charged for a product or service, or the sum of the values that c...
A figure that is greater than 1 tells the business that demand for the product is relatively price
elastic. This means ...
Mark-up pricing
This is where the business adds a profit mark-up to the direct cost for each unit in order to arrive
‘Getting the right product to the right consumer at the right ...
(c) By selling directly to the consumer, producers can potentially offer their product at prices
lower than those of co...

Promotion is the attempt to draw attention to a product or business ...

Choice of advertising media
There are a number of factors that advertisers may take into account when deciding which
effective in this case.

Personal selling occurs when a company’s sales team promotes a product throug...
Market research can tell us what qualities people want in a new VCR, ...


Social influencers – include family, opinion leaders (people whose opinions are sought
by others) and reference gro...
The Environments of Marketing
Marketing managers must adjust an organization’s ...

Economic forces – The economic environment consists of factors that affect consumer
purchasing power and spending pa...
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Fundamentals of marketing notebook (1)


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Fundamentals of marketing notebook (1)

  1. 1. 1 CONTENT 1: THE CONCEPT OF MARKETING WHAT IS MARKETING? Marketing is the management process involved in identifying, anticipating and satisfying consumer requirements profitably. – The Institute of Marketing Another Definition Marketing is the process of researching and identifying consumer needs and employing appropriate price, product, place and promotion strategies in order to satisfy these needs profitably. This term marketing suggests that the marketing department must work towards satisfying all of the following issues: • Products which the customer demands • Pricing which the customer can afford • Distribution to a place where the customer will purchase the product • Promotion to persuade the customer to purchase in a competitive market. Collectively, these are known as the four Ps – Product, Price, Place (distribution) and Promotion. Alternatively the four P’s can be collectively referred to as the marketing mix. WHAT IS A MARKET? Originally a market meant any place where buyers and sellers meet to arrange a sale/purchase. The current use of the term is wider than this. It means ‘who the customers are’. So the market for sports equipment is made up of all actual or potential consumers of these products. “A market can be defined as all the potential customers that share common needs and wants, and who have the ability and willingness to buy the product.” HUMAN NEEDS AND WANTS The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual needs for knowledge and selfexpression. These needs are not invented by marketers; they are a basic part of human makeup. Wants are the form taken by human needs as they are shaped by culture and individual personality. A hungry person in the US might want a Big Mac, French fries, and a Coke. A hungry person in Grenada might want mangoes. Wants are described in terms of objects that will satisfy needs. People have almost unlimited wants but limited resources. Thus, they want to choose products that provide the most valuable satisfaction for their money. When backed by buying power, wants become demands. Marketers therefore go the extra mile to learn about and understand customer’s needs, wants and demands. VALUE AND SATISFACTION Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many products and services? Consumers make buying choices based on the perceptions of the value that various products and services deliver. Prepared by Dwain Gill
  2. 2. 2 Customer value is the difference between the values the customer gains from owning and using a product and the costs of obtaining the product. Customer satisfaction can be defined as the extent to which a product’s perceived performance matches a buyer’s expectations. If a product’s performance fall short of customers expectations, the buyer is dissatisfied. If performance matches expectations, the buyer is satisfied. Outstanding marketing companies go out of their way to keep their customers satisfied. Satisfied customers make repeat purchases, and they tell others their good experiences with the product. ORGANIZATIONAL OBJECTIVES Objectives are what we attempt or wish to achieve. Marketing objectives are marketing targets, for products and markets, set by the business for a future time period. These objectives must fit in with the overall aims and mission of the business. The marketing objectives should reflect the aims of the whole organization and they should help to aid the achievement of these. Failure to link these objectives with the overall aims of the business can lead to different departments pulling in different directions. For instance, if the marketing team decides to promote an existing product much more forcefully then: • The production department must gear up to increase output, • The human resources department may need to recruit additional production and sales staff, • The finance department may need to increase short-term capital in order to finance higher stock levels. EXCHANGE TRANSACTIONS Exchange is generally viewed as the core element of marketing. Exchange has been defined as the “transfer of something tangible or intangible, actual or symbolic, between two or more social actors.” Thus, the basic purpose of marketing is to get individuals or organizations to transfer something of value (tangible or intangible, actual or symbolic to each other. The most familiar type of exchange occurs when a customer exchanges money with a retail store for a product. Marketing exchanges however are not confined to transactions of money for products. Businesses engage in barter where they exchange their goods and services for the goods and services of another firm. Nonprofit organizations, colleges and universities, politicians, and many other “social actors” are also involved in exchanges. Volunteers and contributors to nonprofit organizations, for example, exchange their time and money for the satisfaction derived from helping a good cause. Or consider the tuition that students pay a university or college in exchange for the education they receive. Even politics involves exchanges, with people trading their votes for the promise of representation from a political candidate. Prepared by Dwain Gill
  3. 3. 3 CONTENT 2: IMPLICATIONS OF DIFFERENT BUSINESS CONCEPTS The production concept The production concept holds that consumers will favor products that are available and highly affordable. Therefore, management should focus on improving production and distribution efficiency. The product concept The product concept holds that consumers will favor products that offer the most in quality, performance, and innovative features. Under this concept¸ marketing strategy focuses on making continuous product improvements. The selling concept Many companies follow the selling concept, which holds that consumers will not buy enough of a firm’s product unless it undertakes a large-scale selling and promotion effort. The concept is typically practiced with unsought goods – those that buyers do not normally think of buying, such as insurance or blood donations. The marketing concept The marketing concept holds that achieving organizational goals depends on knowing the market needs and wants of target markets and delivering the desired satisfaction better than competitors do. Under the marketing concept, customer sales and value are the paths to sales and profits. The societal marketing concept A principle of enlightened marketing that holds that a company should make good marketing decisions by considering consumers’ wants the company’s requirements, consumers’ long-run interests, and society’s long run interests. Companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests. CONTENT 3: ROLES OF MARKETING IN SOCIETY At a broader level marketing offers significant benefits to society. These benefits include: Developing products that satisfy needs, including products that enhance society’s quality of life Creating a competitive environment that helps lower product prices Developing product distribution systems that offer access to products to a large number of customers and many geographic regions Building demand for products that require organizations to expand their labor force Offering techniques that have the ability to convey messages that change societal behavior in a positive way (e.g., anti-smoking advertising). i. ii. iii. iv. v. vi. vii. viii. Quality of Life Improvement Customer Satisfaction Consumer Choice Product Variants Employment Wealth Creation Maximum Consumption Maximum Production See appendix for more on roles of marketing in society Prepared by Dwain Gill
  4. 4. 4 CONTENT 4: MARKETING MANAGEMENT WHAT IS MARKETING MANAGEMENT? Marketing Management can be defined as the analysis, planning, implementation, and control of programmes designed to create, build, and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives. Marketing management involves managing demand, which in turn involves managing customer relationships. THE MARKETING MANAGEMENT PROCESS To find the best mix and to put it into action, a company engages in marketing analysis, market planning, marketing implementation, and marketing control. Market Analysis Managing the marketing function begins with a complete analysis of the company’s situation. The company must analyze its markets and marketing environment to find attractive opportunities and to avoid environmental threats. It must analyze company strengths and weaknesses, as well as current and possible market actions, to determine which opportunities it can best pursue. A SWOT analysis is an overall analysis of a company’s strengths, weaknesses, opportunities, and threats. Market Planning Through strategic planning, the company decides what it wants to do with each business unit. Marketing planning involves deciding on marketing strategies that will help the overall strategic objectives. A detailed marketing plan is needed for each business, product, or brand. The main components of a marketing plan are the executive summary, current market situation, threats and opportunities, objectives and issues, marketing strategies, action programmes, budgets, and controls. Market Implementation Planning good strategies is only a start towards successful marketing. A brilliant marketing strategy counts for little if the company fails to implement it properly. Market implementation is the process that turns marketing plans into marketing actions in order to accomplish strategic-marketing objectives. Marketing Control Because many surprises occur during the implementation or marketing plans, the marketing department must practice constant marketing control. Marketing control involves evaluating the results of the marketing strategies and plans and taking corrective action to ensure that objectives are attained. The Control Process • Set Goals • Measure Performance • Evaluate Performance • Take corrective action What do we want to achieve? What is happening? Why is it happening? What should we do about it? Prepared by Dwain Gill
  5. 5. 5 The Role of the Marketing Manager Marketing management has historically been identified with tasks and personnel dealing with the customer market. Marketing work in the customer market is formally carried out by sales managers, salespeople, advertising and promotion managers, marketing researchers, customer service managers, product and brand managers, market and industry managers, and the marketing vice-president. Each job carries well-defined tasks and responsibilities. Many of these jobs involve managing particular marketing resources such as advertising, sales people or marketing research. In contrast, market managers and the market vice-president manage programmes. Market management has the task of influencing the level, timing, and composition of demand in a way that will help the organization achieve its objectives. Marketing Strategies Strategies are broad statements on the action to be taken to achieve marketing objectives. Strategies will be developed in relation to market segments to be targeted and the features of the product’s marketing mix. Ware-fare base strategies Offensive marketing strategies Defensive marketing strategies Guerilla marketing strategies Aim to take market share from one competitor. Aim to defend market share from an attack from rival. Aim to wear down the competitor by a long series of small attacks on their markets. There are other strategies in relation to the following elements: Product Range, quality, degree of standardization, market position, branding, packaging. Price Skimming, penetration, differentiation, terms and conditions. Promotion Advertising, selling, sales promotion. Place Channels of distribution, delivery, direct or indirect methods. Organization of Marketing Department Modern marketing departments are organized in a number of ways: • The functional marketing organization – the most common form of organization in which different marketing activities are headed by a functional specialist – a sales manager, advertising manager, marketing research manager, customer service manager, newproduct manager. • The geographic organization – sales and marketing people are assigned to specific countries, regions, and districts. • The product management organization – products are assigned to product managers who work with functional specialist to develop and achieve their plans. Used by companies with different products or brands. • The market organization – major markets are assigned to market managers who work with functional specialists. For companies with that sell one product line to many different types of markets with different needs and preferences. Large companies that produce many different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product, and market organization forms. Prepared by Dwain Gill
  6. 6. 6 CONTENT 5: MARKETING RESEARCH CONCEPT OF MARKETING RESEARCH Market research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. The marketing research process has four steps: 1. Defining the Problem and Research Objectives Marketing managers and researchers must work closely together to define the problem and agree on research objectives. The manager best understands the decision for which information is needed; the researcher best understands marketing research and how to obtain the information. Defining the problem and research objectives is often the hardest step in the research process. The manager may know that something is wrong, without knowing the specific causes. After the problem has been defined carefully, the manager and researcher must set the research objectives. A market research project might have one of three types of objectives. The objective of exploratory research is to gather preliminary information that will help define the problem and suggests hypotheses. The objective of descriptive research is to describe things, such as market potential for the product or the demographics and attitudes of consumers who buy the product. The objective of causal research is to test hypotheses about cause-and-effect relationships. 2. Developing the Research Plan Once the research problems and objectives have been defined, researchers must determine the exact information needed, develop a plan for gathering it efficiently, and present the plan to management. The research plan outlines sources of existing data, and spells out the specific research approaches, contact methods, sampling plans, and instruments that researches will use to gather new data. To meet the manager’s information needs, the research plan can call for gathering secondary data, primary data, or both. Secondary data consists of information that already exists somewhere, having been collected for another purpose. Primary data consists of information collected for the specific purpose at hand. Secondary Data – Researchers usually start by gathering secondary data. Examples include Online Databases, the company’s internal database, government sources, trade press. The researcher must evaluate secondary data carefully to make certain it is relevant, accurate, current, and impartial. Primary data collection – Research approaches for gathering primary data include observations, surveys, and experiments. Observational research involves gathering primary data by observing relevant people, actions, and situations. (Best suited for exploratory research) Survey research involves gathering of primary data by asking people about, their knowledge, attitudes, preferences, and buying behavior. (Best suited for descriptive research) Prepared by Dwain Gill
  7. 7. 7 Experimental research involves the gathering of primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses. (Best suited for gathering causal information) Contact Methods - Information can be collected by: • Mail – mail questionnaires • Telephone – telephone interviewing • Personal interview - individual and group interviewing (focus groups). Focus groups interviewing is personal interviewing that involves inviting 6 to 10 people to gather for a few hours with a trained interviewer to talk about a product, service, or organization. The interviewer “focuses” the discussion on important issues. • Online – Internet surveys and online focus groups Sampling Plan Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population. A sample is a segment of the population selected to represent the population as a whole. Designing samples requires three decisions: 1. Who is to be surveyed (what sampling unit)? 2. How many people should be should be surveyed (what sample size)? 3. How should the people in the sample be chosen (what sampling procedure)? The table below describes the different kinds of samples. Using probability samples, each population member has a known chance of being included in the sample, and researchers can calculate confidence limits for sampling error. But when probability sampling costs too much or takes too much time, marketing researchers often take nonprobability samples, even though their sampling error cannot be measured. Table 5.1 Types of samples Probability Sample Simple random sample – Every member of the population has a known and equal chance of selection. Systematic sampling – The sample is selected by taking every nth item from the target population until the desired sample is reached. Stratified random sampling – The population is divided into mutually exclusive groups (such as age groups), and random samples are drawn from each group. Cluster (area) sample – The population is divided into mutually exclusive groups (such as blocks), and the researcher draws a sample of the groups to interview. Nonprobability Sample Convenience sample – The researcher selects the easiest population members from which to obtain information. Judgment sample – The researcher uses his or her judgment to select population members who are good prospects for accurate information. Quota sample – The researcher finds and interviews a prescribed number of people in each of several categories. 3. Implementing the research plan The researcher next puts the marketing research plan into action. This involves collecting, processing, and analyzing the information. Prepared by Dwain Gill
  8. 8. 8 4. Interpreting and Reporting the Findings The market researcher must now interpret the findings, draw conclusions, and report them to management. CONTENT 6: PRINCIPLES OF SEGMENTATION MARKET SEGMENTATION Market segmentation is the process of dividing a market into groups, known as segments, of customers with similar needs or characteristics who are likely to exhibit similar purchase behaviour. In segmenting the market the business is acknowledging that different 'types' of buyers may require different products or marketing approaches / marketing mixes. Once these segments have been identified, a business can decide on which segments to focus on – this is called targeting. Once target segments have been decided on then business will engage in positioning which is the designing of appropriate marketing mixes for each segment being targeted. Whilst a mass marketing approach will treat the market as a whole providing one version of the product and one marketing mix for all buyers in the market, market segmentation enables the business to target different groups of buyers by adapting its product and marketing mix to best suit each targeted segment. A good example of this approach can be seen in the mobile phone industry. REASONS FOR SEGMENTATION 1. To improve profits through increases in sales. 2. Once specific consumer needs in relation to market segments are known, the marketing budget and effort – whether towards the total market or segment(s) – can be allocated and targeted more precisely to reconcile these needs. 3. To give the company stronger control of the total market or a market segment and/or to protect itself against potential or current competition. 4. Segmentation can help the company in assessing its relative strengths and weaknesses with regard to the 4 Ps as well as opportunities and threats. ADVANTAGES AND DISADVANTAGES OF SEGMENTATION Advantages Disadvantages Businesses can define their market precisely Production and stock holding costs may be and design and produce goods that are higher than for the option of just producing and specifically focused on target groups of stocking one undifferentiated product. consumers. Small firms, that may not be able to compete in Loss of economies of scale from not mass the whole market, are able to specialize on one producing just one product. or two market segments. Marketing strategies can be focused on the By focusing on one or two market segments target market groups and this avoids wasting there is a danger that excessive specialization resources on trying to sell products to the could lead to problems if consumers in those whole market. This will obviously include segments change their purchasing habits consumer groups that have little intention of significantly. buying the product. Prepared by Dwain Gill
  9. 9. 9 It enables gaps in the market to be identified Promotional costs may also be higher as and these might be successfully exploited. different strategies will be required for different segments. BASES FOR SEGMENTATION Geographic Segmentation Geographic segmentation divides the market into different geographical units, be they neighbourhoods, cities, counties, countries, or world regions such as Europe or South East Asia etc. Such segmentation will seek to identify factors, which should be taken into account in developing appropriate marketing strategies for each area, including Language, Climate, and Lifestyles Geographical segmentation is most commonly used by multi-national and global businesses, which may alter their marketing mix based on the differing needs of consumers in each geographic segment they operate within. Demographic Segmentation Demographic segmentation divides the market into groups based on demographic variables including age, gender, race, religion, occupation, family size, and life cycle (i.e. young single, adult single, unmarried with child, married no children, etc). Behavioural Segmentation Behavioural segmentation divides the market into groups based on their knowledge, attitudes, uses and responses to the product. The way people behave during and after purchasing is continuing in importance to the rapid integration of social class attitudes. This has been caused to a great extent by programmes or/and articles of the popular media that are now seen worldwide, causing most people to constantly re-evaluate the way they behave. For instance, a number of people from every social class may now drive the same make of car and wear the same kind of clothes, possibly from the same national chain of clothing stores. Therefore buyer behaviour is becoming more important. Benefit Segmentation A powerful form of segmentation is to group buyers according to the different benefits that they seek from the product. Benefits segmentation requires finding the right benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. For example, one study of the benefits derived from travel uncovered three main market segments: those who travel to get away and be with family, those who travel for adventure or educational purposes, and people who enjoy the “gambling” and “fun” aspects of travel. Psychographic Segmentation Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics. People in the same demographic group can have very different psychographic makeups. Combining methods of segmentation Individual segmentation methods are rarely applied in isolation. The methods invariably have to be combined in order to obtain a large enough homogeneous segment. For instance, demographic segmentation may uncover a potential consumer market consisting of women, 3550 years of age. However, there may be tremendous differences in the geographic locations of Prepared by Dwain Gill
  10. 10. 10 these consumers, in the benefits they seek and in their attitudes towards the product. A combination of segments must, therefore, be sought to identify a large enough market to service. Prepared by Dwain Gill
  11. 11. 11 CONTENT 7: PRODUCT MANAGEMENT PRODUCT A product can be defined as anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Broadly defined products include physical objects, services, persons, places, organizations, ideas, or mixes of these entities. SERVICES Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and does not result in the ownership of anything. Examples are banking, hotel, tax preparation, and home repair services. Its production may or may not be tied to a physical product. Major characteristics of services include: • Intangibility – They cannot be seen, tasted, felt, heard, or smelled before they are bought. • Inseparability – They are produced and consumed at the same time and cannot be separated from their providers, whether the providers are people are machines. • Variability – Their quality may vary greatly, depending on who provides them and when, where, and how. • Perishability – They cannot be stored for later sale or use. Product Planning Product planners need to think about products and services on three levels; • The core product - addresses the question: What is the buyer really buying? • The actual product – The planner must now build an actual product around the core product. Actual products have as many as five characteristics: a quality level, features, design, a brand name, and packaging. • An augmented product – Finally the product planner must build an augmented product around the core and actual products by offering additional consumer services and benefits. The CORE product is NOT the tangible, physical product. You can't touch it. That's because the core product is the BENEFIT of the product that makes it valuable to you. So with the car example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly. The ACTUAL product is the tangible, physical product. You can get some use out of it. Again with the car example, it is the vehicle that you test drive, buy and then collect. The AUGMENTED product is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacture, and any after-sales service. Prepared by Dwain Gill
  12. 12. 12 WHAT IS NEW-PRODUCT DEVELOPMENT? The development of original products, product improvements, product modifications, and new brands through the firm’s own R & D efforts. NEW PRODUCT DEVELOPMENT PROCESS The new-product development process consists of eight sequential stages. The process starts with idea generation. Next comes idea screening, which reduces the number of ideas based on the company’s own criteria. Ideas that pass the screening stage continue through product concept development, in which a detailed version of the new-product idea is stated in meaningful consumer terms. In the next stage, concept testing, new product concepts are tested with a group of target consumers to determine whether the concepts have strong consumer appeal. Strong concepts proceed to marketing strategy development, in which an initial marketing strategy for the new product is developed from the product concept. In the business analysis stage, a review of the sales, costs, and profit projections for a new product is conducted to determine whether the new product is likely to satisfy the company’s objectives. With positive results here, the ideas become more concrete through product development and test marketing and finally are launched during commercialization. THE PRODUCT LIFE CYCLE The course of a product’s sales and profits over its lifetime. It involves four distinct stages after development and testing: 1. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of heavy expenses of product introduction. 2. Growth is a period of rapid market acceptance and increasing profits. 3. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. 4. Decline is the period when all sales fall off and profits drop. See appendix for more on the product life cycle BRANDING A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service. Branding helps buyers in many ways. Brand names help consumers identify products that might benefit them. Brands also tell the buyer something about product quality. Buyers who buy the same brand know that they will get the same features, benefits, and quality each time they buy. Branding also gives the seller several advantages. The brand name becomes the basis on which a whole story can be built about a product’s special qualities. The seller’s brand name and trademark provide legal protection for unique product features that otherwise might be copied by competitors. Prepared by Dwain Gill
  13. 13. 13 Benefits of Branding To consumers Reduces time to make choices – the branded goods can be quickly identified. Quality standards are likely to be consistent as business will not want the good name of the brand to be damaged by bad publicity. Status may be conferred on the consumers of certain expensive branded products. Branding Strategies Individual Branding Family Branding Combination Branding To the business Branded goods can often be sold at higher prices than non-branded goods. If quality and reputation remain high, then consumer loyalty will be achieved. Effective branding – supported by packaging – allows a firm to clearly differentiate its products from those of competitors. A business may attempt to brand individual products with individual brand names. This is where the business has a brand name which includes a number of different products. It can sometimes mean including the company name which then becomes a corporate brand. A middle way between the two previous strategies. It involves an emphasis being placed upon the family, corporate and individual brand name. PACKAGING Packaging involves designing and producing the container or wrapper for a product. The package includes a product’s primary container (the tube holding Colgate Total toothpaste). It may also include a secondary package that is thrown away when the product is about to be used (the cardboard box containing the tube of Colgate). Finally, it can include a shipping package necessary to store, identify, and ship the product (a corrugated box carrying six dozen tubes of Colgate). Labeling, printed information appearing on or with the package is also part of packaging. Prepared by Dwain Gill
  14. 14. 14 CONTENT 8: PRICING STRATEGY PRICE The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. PRICING PROCESS The pricing process involves deciding on the price to charge for a good or service. There are some important factors that a marketing manager should consider when undertaking the pricing process: 1. Objectives The marketing objectives for the product will reflect the company’s overall objective. If the firm has the aim of achieving high short-term profits, then this will be reflected in the marketing objectives set for each product. The following are some major pricing objectives: Pricing objectives Profit-oriented To achieve a target return To maximize profits Sales-oriented To increase sales volume To maintain or increase market share Status quo-oriented To stabilize prices To meet competition 2. Internal and External Analysis This means identifying and analyzing the key factors- within the business and external to the business – that might impact on the pricing decision (factors affecting pricing decisions). A company’s pricing decisions are affected by both internal company factors and external environmental factors. Internal factors • Marketing objectives • Marketing mix strategy • Costs (fixed & variable) • Organizational considerations Pricing decisions • • • • External factors Nature of market and demand Competition Price elasticity of demand Other environmental factors (economy, resellers, government) Price Elasticity of Demand The relationship between price changes and the size of the resulting change in demand is known as price elasticity of demand. It measures the responsiveness of demand following a change in price. This concept can be demonstrated on demand curves but it can also be measured mathematically. The formula for price elasticity of demand is: % change in quantity demanded / % change in price A figure that is less than 1 tells the business that demand for the product in price inelastic. This means that the % change in quantity demanded is less than the % change in price. In other words consumers do not change the quantity of a good they demanded proportionally more than any price change. Prepared by Dwain Gill
  15. 15. 15 A figure that is greater than 1 tells the business that demand for the product is relatively price elastic. This means that the percentage change in quantity demanded is greater than the percentage change in price. When demand is price elastic, consumers react to changes in price by changing the quantity demanded by a greater proportion. 3. Price basis This means the way in which the price is going to be calculated for each customer. Here are some examples of different ‘pricing bases’: Distance Weight Quantity used Age Taxi, rail and bus companies will use the distance travelled to calculate prices. Postal and parcel delivery businesses will not only consider distance but also the weight of the item to be transported. Gas and electric companies will often charge a lower unit cost the greater the amount of energy consumed – high energy users pay a lower tariff than low energy users. Different tariffs are often offered to consumers depending on the age range they fall into, e.g. discounts at the cinema or on buses for young and elderly customers. 4. List price List price is the standard price that the firm intends to charge its customers. It is the price listed in the firm’s catalogues and sales brochures. It can also be the price the end customer is expected to pay as determined by the manufacturer; also referred to as the suggested retail price. 5. Price Adaptation In many market situations, companies do not usually set one single list price. Instead they will have a pricing structure that reflects differences between markets, market segments and customers within market segments. In these cases it is quite common to find different customers paying different prices for the same product. This can result from different costs in selling the product in different markets, e.g. the additional transport and marketing costs of selling to export markets. The term used to describe most of these examples of price adaption is price discrimination. Price discrimination exists when a business is able to separate distinct groups of consumers for the same product or service and charge them different prices. Price discrimination takes place in markets where it is possible to charge different groups of consumers different prices for the same product. An example of this would be airline firms, who charge many different rates for the same journey. PRICING STRATEGIES COST-PLUS PRICING. This is where the cost of producing each unit is calculated, and then a percentage profit is added to this unit cost to arrive at the selling price. The basic idea is that firms will assess their costs per unit, and then add an amount on top of the calculated cost. Prepared by Dwain Gill
  16. 16. 16 Mark-up pricing This is where the business adds a profit mark-up to the direct cost for each unit in order to arrive at the selling price. This profit mark-up will need to cover the fixed overheads and then contribute towards profit. Mark-up vs. Margin Mark-up is defined as the percentage of the cost that is added on the cost to find price. E.g. if a 20% mark up is applied to a unit cost of $30, the price will be 1.2 x $30 = $36. A profit margin is used to express the profit as a percentage of the selling price. E.g. A business has costs of $36 and places a mark-up of 33% on costs to arrive at the selling price. $36 x 1.33 = $48 The margin is therefore is $12/48 (the percentage of the selling price which is profit) = 25% COMPETITION-BASED PRICING This method of pricing ignores both the costs of production and the level of customer demand. Instead it bases the price level on the prices charged by the competitors in the industry – either undercutting the competitors, charging a higher price, or charging the same price. ‘Going rate’ pricing is the term used to describe a business charging a similar price to competitors for a similar product. PERCEIVED VALUE (VALUE-BASED PRICING) Setting price based on the buyers’ perceptions of value rather than on the seller’s cost. Perceived value pricing means that the marketer cannot design a product and marketing programme and then set price. Price is considered along with the other marketing mix variables before the marketing programme is set. SKIMMING PRICING This is a pricing strategy for a new product, designed to create an up-market, expensive image by setting the price at a very high level. It is a strategy often used for new, innovative or high-tech. products, or those which have high production costs which need recouping quickly. PENETRATION PRICING This is a pricing strategy for a new product, designed to undercut existing competitors and discourage potential new rivals from entering the market. The price of the product is set at a low level in order to build up a large market share and a high degree of brand loyalty. The price may be raised over time, as the product builds up a strong brand-loyalty. Prepared by Dwain Gill
  17. 17. 17 CONTENT 9: DISTRIBUTION STRATEGY CONCEPT OF DISTRIBUTION ‘Getting the right product to the right consumer at the right time in a way which is most convenient to the consumer’ is a good definition of distribution. CUSTOMER SERVICE AS AN OBJECTIVE OF DISTRIBUTION Customer service is the key objective of distribution. Goods and services should be available to customers as and when they choose to purchase them – not at the convenience of the producer. Cost must be a factor in the distribution strategy used by any business, but it should not be the primary one. Customer service is. CHANNEL STRATEGY Within the marketing mix, Place is the title given to all aspects of the approach taken to distributing products into the market, so that customers can purchase them. Dependent on the structure of the market, there are a number of different methods of distribution, which are referred to as channels of distribution. The most common channels of distribution are illustrated in figure 9.1. Figure 9.1 : The channels of distribution Within each channel of distribution there are a differing number of channel intermediaries, namely wholesalers and retailers, which stand between the producer and the consumer. The number of intermediaries in any particular channel is referred to as the length of the channel. (a) This traditional channel of distribution has two intermediaries, the wholesaler and the retailer. Often used by manufacturers of food, drugs, and hardware, the Wholesaler purchases the product in large bulk quantities from the producer, and then breaks these bulk purchases down into smaller quantities, which are then sold onto retailers, who then sell them to the consumer, often individually. (b) Producers of televisions, furniture, and major appliances, tend to sell their product to large retailers such as Marks & Spencer and Dixons. Able to buy in the large quantities preferred by the producer, the major retailers organize their own distribution of the product to their retail outlets. By purchasing in large quantities they are able to negotiate discounts from the producer, which more than cover the costs of providing their own distribution network. Prepared by Dwain Gill
  18. 18. 18 (c) By selling directly to the consumer, producers can potentially offer their product at prices lower than those of competitors, who supply through channel intermediaries - wholesalers and retailers. Alternatively the profits that had been shared with channel intermediaries can be retained by the producer, by selling directly to the consumer. Companies such as the computer company Dell, sell their computers by mail-order or over the Internet, rather than through large retailers such as PC World. Multichannel distribution system More and more companies have adopted a multichannel distribution system – often called a hybrid marketing channel. This is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. The choice of a distribution channel will be influenced by a number of factors: • The type of product. Perishable, fragile or extremely large products that are difficult to transport are more likely to be distributed direct to avoid incurring additional costs. • The structure and geography of the Market Scattered or difficult to reach markets usually require the services of established wholesalers who will have the facilities and expertise to deal effectively and efficiently with these types of market. • The complexity of the product. Technically complex products which require expert advice and after sales service, are more efficiently distributed either directly from the producer to consumer, or through expert retailers. The same will apply to individually tailored products or services, which require a high level of communication between the producer and consumer prior to production. • The quantity and price of a product. Producers who rely on selling large quantities of a product at low prices, may look to reduce their overheads in terms of storage, and distribution of the product into the market, by selling to wholesalers. PHYSICAL DISTRIBUTION (LOGISTICS) Marketing logistics – also called physical distribution – involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. In short, it involves getting the right product to the right customer in the right place at the right time. Marketing logistics involves outbound distribution (moving products from the factory to resellers and ultimately to customers), inbound distribution (moving products and materials from suppliers to the factory), and reverse distribution (moving broken, unwanted, or excess products returned by consumers or resellers. The goal of marketing logistics should be to provide a targeted level of customer service at least cost. Major logistics functions include: Warehousing, inventory management, transportation, and logistics information. Today, more and more companies are adopting the concept of integrated logistics management. This concept recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. Prepared by Dwain Gill
  19. 19. 19 CONTENT 10: PROMOTION STRATEGY WHAT IS PROMOTION? Promotion is the attempt to draw attention to a product or business in order to gain new customers or to retain existing ones. OBJECTIVES OF PROMOTION • To make consumers aware or increase awareness of a product. • To reach a target audience which might be geographically dispersed. • To remind customers about the product. • To show a product is better than that of a competitor. • To develop or improve the image of a business rather than a product. • To reassure consumers after the product has been purchased. • To support an existing product. ADVERTISING Advertising involves the use of paid media by a seller to inform, persuade, and remind about its products or organization. There is a wide range of advertising media that firms can choose from in order to make consumers aware of their products. Table 10.1 below looks at the advantages and limitations of some of these. Table 10.1 Profiles of Major Media Types Medium Advantages Newspapers Flexibility; timeliness; good local market coverage; broad acceptability; high believability Television Good mass-market coverage; low cost per exposure; combining sight, sound and motion; appealing to the senses Direct Mail High audience selectivity; flexibility; no ad competition within the same medium; allows personalization Radio Good local acceptance; high geographic and demographic selectivity; low cost Magazines High geographic and demographic selectivity; credibility and prestige; high-quality reproduction; long life and good pass-along readership Outdoor Flexibility; high repeat exposure; low cost; low message competition; good positional selectivity Internet High selectivity; low cost; immediacy; interactive capabilities Limitations Short life; poor reproduction quality; small pass-along audience High absolute costs; high clutter; fleeting exposure; less audience selectivity Relatively high cost per exposure, “junk mail” image Audio only, fleeting exposure; low attention (“the half-heard” medium); fragmented audiences Long ad purchase lead time; high cost; no guarantee of position Little audience limitations selectivity; creative Small, demographically skewed audience; relatively low impact; audience controls exposure Prepared by Dwain Gill
  20. 20. 20 Choice of advertising media There are a number of factors that advertisers may take into account when deciding which medium will be most suitable for their product. These include (1) cost, (2) the advertising of competitors, (3) the impact, (4) the law, (5) the marketing mix, and (6) the presentation and recording of information. (Hall) INFORMATIVE VS. PERSUASIVE ADVERTISING Advertising can also be classified into two types (informative and persuasive), but in practice this distinction is often quite blurred. Informative advertising These are adverts that give information to potential purchasers of a product, rather than just trying to create a brand image. This information could include price, technical specifications or main features and places where the product can be purchased. This style of advertising could be particularly effective with promoting a new product that consumers are unlikely to be aware of or when communicating a substantial change in price. Persuasive advertising This is trying to create a distinct image or brand identity for the product and it may not contain any details at all about materials or ingredients used, prices or places to buy it. This form of advertising is very common, especially in those markets where there might be little actual difference between products and where advertisers are trying to create a perceived difference in the minds of consumers. ADVERTISING Advantages Possible Limitations Wide coverage Advert content is controlled by the business. Media can be selected which have greatest chance of targeting the target market consumers. Provides effective means of informing consumers about new products. Cost May be difficult to check on effectiveness. Advert may be seen by people who are not potential consumers – waste of resources. May be accused of unethical practice if directed at children. SALES PROMOTION Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Major sales promotion tools include samples, coupons, competitions, product endorsements, and special credit terms. SALES PROMOTION Advantages Possible Limitations Range of different strategies can be used for different products and types of consumers. Effectiveness can often be judged, e.g. by return of coupons or number of people who join loyalty scheme. Often effective in building up loyalty and repeat sales. Can have a negative impact on perceived quality and exclusive brand images. Gross profit is often reduced – will sales increase enough to compensate for this. May be directed at consumers who would have continued buying the product anyway – not cost Prepared by Dwain Gill
  21. 21. 21 effective in this case. PERSONAL SELLING Personal selling occurs when a company’s sales team promotes a product through personal contact. This can be done over the telephone, by setting up meetings, in retail outlets, or by ‘knocking on doors’. The main advantage of personal selling over other methods is that individuals can be given personal attention. One disadvantage is that it can be expensive. Another problem is the dislike of ‘callers’ by consumers. PERSONAL SELLING Advantages Possible Limitations Directed at individual customers/consumers – can meet their needs and reply to their questions. Can be very persuasive and effective. Helps to build long-term relationships between company and customers. Cost of employing the sales force. Incentives need to be provided to sales force to ‘perform’. This may lead to excessive pressure put on customers to buy – may damage reputation of business or long-term relationship. Can only see one customer at a time – may not be cost effective. PUBLICITY Publicity and public relations are the marketing functions that communicate with the general public and not necessarily to specific target markets. It is the one activity that is not paid for by the company but commensurately neither does the company control its content nor context. Corporations most commonly use publicity to introduce a new product or advise the public about a new process or procedure. It serves to stimulate primary demand. Publicity is an important strategy for new ventures and small businesses when introducing new products. Public relations is the activity of establishing and maintaining relationships with the company’s publics. PR is an important part of marketing since it contributes to the corporate image of the organization, its employees and management. A good corporate image assists in production acceptance and is a part of the overall satisfaction customers have in using them. A poor corporate image generates negative feelings and may backlash on company sales. (Blawatt) PUBLICITY Advantages Possible Limitations Free. Provides regular reminders to consumers about the company and its products. Can be used to provide support for other promotional tools. There are some costs – salaries of Public Relations staff and show/exhibition costs. The company is not in control of the final message. Difficult to measure whether key messages are being communicated to and received by the target groups. Prepared by Dwain Gill
  22. 22. 22 CONTENT 11: CONSUMER BEHAVIOUR CONSUMER BEHAVIOUR Market research can tell us what qualities people want in a new VCR, but it cannot tell us why people buy VCRs. What desire are they fulfilling? Is there a psychological or sociological explanation for why consumers purchase one product and not another? These questions and many more others are addressed in the area of marketing known as consumer behaviour. Consumer Behaviour consists of the activities people engage in when selecting, purchasing, and using products so as to satisfy needs and desires. CUSTOMERS AND CONSUMERS The terms customer and consumer are often used interchangeably to mean the purchaser of a good or service. However, there is an important distinction between the two terms, relating to two distinct markets. Consumers can be seen as the end-user of goods and services. They can take the form of people (grouped into households) who buy goods and services for their own benefit and enjoyment (known in economics as utility derived from goods). There is also a group of customers for goods and services which is made up of business organizations that purchase inputs from other firms. These are customers but not consumers. Organizations as customers The comparison between the consumer market and industrial market can provide an insight into buyer behaviour. There is a distinction between the two. The number of customers will be relatively small in the industrial market (i.e. thousands rather than millions). This facilitates direct marketing techniques and a substantially greater role for personal selling than is the case in most consumer markets. In the industrial market the purchaser will be knowledgeable and will take a rational approach to decision making. This means that the potential purchase will be evaluated in terms of price, quality, performance and terms of supply. The buyer will not be swayed by advertising and packaging. What advertising there is will tend to be informative and will be carried out through specialist media. Finally, the buying power of the purchaser results in a greater amount of negotiation over terms than is the case when consumers buy goods. In essence there is a substantial difference between the marketing mix used in industrial markets than used in consumer markets. Influences on consumer behaviour To understand consumer behaviour marketers draw heavily on the fields of psychology and sociology. The result is a focus on the following influences on consumer behaviour: • Psychological influencers – include an individual’s motivations, perceptions, ability to learn, and attitudes. • Personal influencers – include lifestyle, personality, economic status, and life-cycle stage. Prepared by Dwain Gill
  23. 23. 23 • Social influencers – include family, opinion leaders (people whose opinions are sought by others) and reference groups such as friends, co-workers, and sports figures. • Cultural influencers – include mainly culture, subculture (smaller groups, such as ethnic groups, with shared values), and social class. CONSUMER DECISION MAKING PROCESS The decision making process varies depending on how routine the consumer perceives the situation to be. It involves a series of steps aimed at identifying a need and satisfying a need. For decisions involving extensive problem-solving, consumers follow a multi-step process: Step 1. Problem/Need Recognition 2. Information seeking 3. Evaluation of alternatives 4. Purchase Decision 5. Post-Decision Evaluations Explanation The buyer process begins when a consumer becomes aware of a problem or need. Once they have recognized a need, consumers seek information. Based on product attributes, such as colour, taste, price, prestige, quality, and service record, you will decide which product best meets your needs. Ultimately, consumers must make a purchase decision. They may decide to defer the purchase until a later date or they may decide to buy now. Marketing does not stop with the sale of the product or service, but includes the process of consumption. What happens after the sale is very important. Prepared by Dwain Gill Example Need to replace old shoes. Search for stores, styles, prices, opinions of others. Which are comfortable? Affordable? How will others react to them? Choose rationally emotions. or on Observe reactions of others; test durability; compare with old shoes.
  24. 24. 24 CONTENT 12: THE ENVIRONMENTS OF MARKETS The Environments of Marketing Marketing managers must adjust an organization’s marketing mix to cope with domestic environments and other foreign environments aw well. In both cases, the marketing environment consists of uncontrollable forces that provide both opportunities and constraints. We can divide the marketing environment into two categories: the macro-environment and the microenvironment. The Micro-environment consists of actors close to the company that affect its ability to serve its customers. These include: • Company’s suppliers – These form an important link in the company’s overall customer value delivery system. They provide the resources needed by the company to produce its goods and services. • Competitors – The marketing concept states that to be successful, a company must provide greater customer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. • Marketing Intermediaries – These help the company promote, sell, and distribute its goods to final buyers. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. • Customers – The Company needs to study five types of customer markets closely. Consumer markets consist of individuals and households that buy goods and services for personal consumption. Business markets buy goods and services for further processing or for use in their production process, whereas reseller markets buy goods and services to resell at a profit. Government markets are made up of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them. Finally, international markets consists of those buyers in other countries, including consumers, producers, resellers, and governments. Each market type has special characteristics that call for careful study by the seller. The Macro-environment consists of the broad societal forces that shape every business and nonprofit marketer. These forces shape opportunities and pose threats to the company. They include the following: • Demographic forces – Important demographic trends include the aging of the population, a general trend toward having fewer children, an increase in the number of households, and greater cultural diversity. These and other demographic factors not only affect the demand of goods and services but also lead to variations in pricing, distribution, and promotion. Prepared by Dwain Gill
  25. 25. 25 • Economic forces – The economic environment consists of factors that affect consumer purchasing power and spending patterns. The various booms and busts in the economy influence unemployment, inflation, and consumer spending and savings patterns, which in turn influence marketing activity. • Natural Forces – The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities. Marketers should be aware of several trends in the marketing environment including the growing shortages of raw materials, increased pollution, and increased government intervention in natural resource management. Natural disasters can adversely affect can affect the demand of goods and services. • Political/Legal Forces – Encompasses factors related to governmental activities and laws and regulations, directly affecting marketing activities. Laws and regulations normally present constraints within which marketers must operate. These laws and regulations are closely related to political trends. Some marketers can identify market opportunities arising from these laws and regulations. • Cultural forces – Every society has a culture that guides its everyday life. It is the marketer’s job to “read” the social environment and reflect the surrounding culture’s values and beliefs in a marketing strategy. Prepared by Dwain Gill