Fundamentals of Marketing Management

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www.studyMarketing.org
Essentials of
Marketing Management

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Contents
1. Marketing Mix and Key Marketing Activities
2. Developing Market Segmentation
3. Product Planning and Development
4. Promotion Mix : Advertising, Publicity, Personal
Selling and Sales Promotion
5. Distribution Planning and Pricing Strategy

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Marketing Mix and
Market Segmentation

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Marketing Credo
There is only one valid definition
of business purpose : to create a
customer
Peter Drucker

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Marketing Mix
Product Price
Place Promotion
Target
Market

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Key Marketing Activities
Consumer Analysis
Product Planning
Price Planning
Distribution
Planning
Promotion
Planning

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Consumer Analysis
Product Planning
Examination and evaluation of consumer
characteristics, needs, and purchase
processes
Development and maintenance of products,
product assortments, product positions,
brands, packaging, options, and deletion of
old products
Price Planning
Outlines price ranges and levels, pricing
techniques purchase terms, price
adjustments, and the use of price as an
active or passive factor

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Distribution
Planning
Establishment of channel relations, physical
distribution, inventory management,
warehousing, transportation, allocation of
goods, and wholesaling
Promotion
Planning
Combination of advertising, publicity,
personal selling, and sales promotion to
drive sales revenue

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Product/Market Matrix
Existing Products New Products
Existing Markets
New Markets
Market
Penetration
Market
Development
Product
Development
Diversification

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Market
Penetration
Market
Development
• The firm seeks to achieve growth with
existing products in their current market
segments, aiming to increase its market
share
• Effective when the market is growing or not
yet saturated
• The firm seeks growth by targeting its
existing products to new market segments
• Effective when a local or regional business
looks to wider its market, new market
segments are emerging due to changes in
consumer life-style/demographics, and
innovative uses are discovered for a mature
product

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Product
Development
Diversification
• The firms develops new products
targeted to its existing market segments
• Effective when the firm has a core of
strong brands
• The firm seeks growth by targeting its
existing products to new market
segments
• Diversification is utilized so that the
firm does not become overly depend-
ent on one product line

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Market Segmentation
The division of a market into
different homogeneous groups of
consumers
Market
Segment
Should be:
• measurable
• accessible by communication and distribution
channels
• different in its response to a marketing mix
• durable (not changing too quickly)
• substantial enough to be profitable

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Types of Market Segmentation
Geographic
Demographic
Based on regional variables such as
region, climate, population density, and
population growth rate.
Based on variables such as age, gender,
ethnicity, education, occupation, income,
and family status

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Types of Market Segmentation
Psychographic
Behavioral
Based on variables such as values,
attitudes, and lifestyle
Based on variables such as usage rate
and patterns, price sensitivity, brand
loyalty, and benefits sought

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Step in Planning A Segmentation Strategy
Determining
characteristics and
needs of consumers
for the product
category of the
company
Analyzing
consumer
similarities and
differences
Developing
consumer
group
profiles
Selecting
consumer
segment (s)
Positioning
company’s
offering in
relation to
competition.
Establishing
an
appropriate
marketing
plan

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Product Planning and
Development

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Products : Types of Goods
Types of
Goods
Convenience
Goods
Shopping
Goods
Specialty
Goods

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Convenience Goods
Convenience
Goods
• Those purchased with a minimum of effort,
because the buyer has knowledge of
product characteristics prior to shopping
• The consumer does not want to search for
additional information (because the item
has been bought before) and will accept a
substitute rather than have to frequent
more than one store

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Convenience
Goods
• Staples are low-priced items that are
routinely purchased on a regular basis,
such as detergent, milk, and cereal
• Impulse goods are items that the
consumer does not plan to buy on a
specific trip to a store, such as candy, a
magazine, and ice cream
• Emergency goods are items purchased out
of urgent need, such as an umbrella during
a rainstorm, a tire to replace a flat, or
aspirin for a headache
Convenience Goods

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Shopping Goods
Shopping
Goods
• Those for which consumers lack
sufficient information about product
alternatives and their attributes, and
therefore must acquire further
knowledge in order to make a
purchase decision

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Shopping Goods
Shopping
Goods
• For attribute-based shopping goods,
consumers get information about and then
evaluate product features, warranty,
performance, options, and other factors.
The goods with the best combination of
attributes is purchased. Sony electronics
and Calvin Klein clothes are marketed as
attribute-based shopping goods
• For price-based shopping goods,
consumers judge product attributes to be
similar and look around for the least
expensive item/store

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Specialty Goods
Specialty
Goods
• Those to which consumers are brand
loyal.
• They are fully aware of these products
and their attributes prior to making a
purchase decision.
• They are willing to make a significant
purchase effort to acquire the brand
desired and will pay a higher price than
competitive products, if necessary.
• For specialty goods, consumers will not
make purchases if their brand is not
available. Substitutes are not
acceptable.

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Services
Type of
Services
Rented-
goods
Service
Owned-goods
service
Non-goods

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Services
Rented-
goods
Service
Owned-goods
service
Non-goods
Involves the leasing of a good for a specified
period of time. Examples include car, hotel room,
apartment, and tuxedo rentals
Involves an alteration or repair of a good owned by
the consumer. Examples include repair services
(such as automobile, watch, and plumbing), lawn
care, car wash, haircut, and dry cleaning
Provides personal service on the pan of the seller;
it does not involve a goods. Examples include
accounting, legal, and consulting services

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Characteristics of Services
• The intangible nature of many services makes the
consumer's choice more difficult than with goods
• The producer and his or her services are often
inseparable
• The perishability of services prevents storage and
increases risks
• Service quality may be variable

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Product Life Cycle
Introduction
Growth Maturity
Decline

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Product Life Cycle
Characteristics Introduction Growth
Marketing objective Attract innovators and
opinion leader to new
product
Expand distribution and
product line
Industry sales Increasing Rapidly increasing
Competition None or small Some
Industry profits Negative Increasing
Customers Innovators Affluent mass market
Product mix One or two basic
models
Expanding line
Distribution Depends on product Rising number of
outlets
Pricing Depends on product Greater range of prices
Promotion Informative Persuasive

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Product Life Cycle
Characteristics Maturity Decline
Marketing objective Maintain differential
advantage as long as
possible
(a) cut back,
(b) revive,
(C) terminate
Industry sales Stable Decreasing
Competition Substantial Limited
Industry profits Decreasing Decreasing
Customers Mass market Laggards
Product mix Full product line Best-sellers
Distribution Greatest number of
outlets
Decreasing number of
outlets
Pricing Full line of prices Selected prices
Promotion Competitive Informative

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New Product Planning
Idea
Generation
Product
Screening
Concept
Testing
Business
Analysis
Product
Development
Test
Marketing
Commercial-
ization

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Idea
Generation
• A continuous, systematic search for new
product opportunities
• It involves delineating sources of new
ideas and methods for generating them
Product
Screening
• After the firm identifies potential
products, it must screen them
• Many companies use a new-product
screening checklist for preliminary
evaluation

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Screening Checklist
GENERAL CHARACTERISTICS OF NEW PRODUCTS
Profit potential
Existing competition
Potential competition
Size of market
Level of investment
Patentability
Level of risk
MARKETING CHARACTERISTICS OF NEW PRODUCTS
Fit with marketing capabilities
Effect on existing products (brands)
Appeal to current consumer markets
Potential length of product life cycle
Existence of differential advantage
Impact on image
Resistance to seasonal factors
PRODUCTION CHARACTERISTICS OF NEW PRODUCTS
Fit with production capabilities
Length of time to commercialization
Ease of product manufacture
Availability of labor and material resources
Ability to produce at competitive prices

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Concept
Testing
Business
Analysis
• Concept testing presents the consumer with
a proposed product and measures attitudes
and intentions at this early stage of
development
• Concept testing is a quick and inexpensive
way of measuring consumer enthusiasm
• Business analysis for the remaining product
concepts is much more detailed than product
screening
• Because the next step is expensive and time-
consuming product development, critical use
of business analysis is essential to eliminate
marginal items

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Business Analysis Variables
Factors Considerations
Demand projections Price/sales relationship; short- and long-run sales potential;
speed of sales growth; rate of repurchases; channel intensity
Cost projections Total and per unit costs; use of existing facilities and
resources; startup vs. continuing costs; estimates of future
raw materials and other costs; economies of scale; channel
needs; break-even point
Competition Short-run and long-run market shares of company and
competitors; strengths and weaknesses of competitors;
potential competitors; likely competitive strategies in
response to new product by firm
Required investment Product planning (engineering, patent search, product
development, testing); promotion; production; distribution
Profitability Time to recoup initial costs; short- and long-run total and per-
unit profits; control over price; return on investment (ROI)

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Product
Development
Test
Marketing
• Product development converts a product idea
into a physical form and identifies a basic
marketing strategy
• It involves product construction, packaging,
branding, product positioning, and attitude and
usage testing.
• Test marketing involves placing a product for
sale in one or more selected areas and
observing its actual performance under the
proposed marketing plan.
• The purpose is to evaluate the product and
pretest marketing efforts in a real setting prior to
a full-scale introduction

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Commercial-
ization
• After testing is completed, the firm is ready
to introduce the product to its full target
market. This is commercialization and
corresponds to the introductory stage of the
product life cycle
• Commercialization involves implementing a
total marketing plan and full production

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Promotion Mix :
Advertising, Publicity, Personal
Selling and Sales Promotion

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Promotion Mix
Advertising Publicity
Personal
Selling
Sales
Promotion
Target
Market

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Promotion Mix
Factor Advertising Publicity Personal Selling Sales Promotion
Audience Mass Mass Small (one-to-one) Varies
Message Uniform Uniform Specific Varies
Cost Low per viewer or
reader
None for media space
and time; can be
moderate costs for
press releases and
publicity materials
High per customer Moderate per
customer
Sponsor Company No formal sponsor in
that media are not
paid
Company Company
Flexibility Low Low High Moderate
Control over content
and placement
High None High High
Credibility Moderate High Moderate Moderate
Major goal To appeal to a mass
audience at a
reasonable cost, and
create awareness and
favorable attitudes
To reach a mass
audience with an
independently reported
message
To deal with individual
consumers, to resolve
questions, to close
sales
To stimulate short-run
sales, to increase
impulse purchases
Example Television ad for a
Kodak video camera
Newspaper article
reporting on the
unique features of a
Kodak video camera
Retail sales personnel
explaining how a
Kodak video camera
works
A Kodak video camera
displayed at consumer
photography shows

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Four Key Steps to Advertise
Determine
message content
and devise an ad
Specify the
location of an ad
(media placement)
Outline a promotion
schedule
Choose how many
variations of a
basic message to
utilize

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Things to Consider in Advertising
Waste
Reach
Waste is the portion of an audience that is
not in a firm's target market. Because
media appeal to mass audiences, waste
is a significant factor in advertising.
Reach refers to the number of viewers or
readers in the audience

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Frequency
Message
permanence
Frequency is how often a medium can be
used. It is greatest for newspapers, radio, and
television, where ads may appear daily and
advertising strategy may be easily changed
Message permanence refers to the number
of exposures one advertisement generates
and how long it remains with the audience

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Persuasive
impact
Clutter
Persuasive impact is the ability of a medium
to stimulate consumers. Television often has
the highest persuasive impact because it is
able to combine audio, video, color, animation,
and other appeals.
Clutter involves the number of ads that are
contained in a single program, issue, etc. of a
medium. Clutter is low when a limited number
of ads is presented and high when many ads
are presented.

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Publicity : Poor and Good Response
Situation Poor Response Good Response
Fire breaks out in
a company plant
Requests for information by
media are ignored.
Company spokesperson explains the cause of
the fire and company precautions to avoid it
and answers questions.
New product
introduced
Advertising is used without
publicity
Pre-introduction news releases, product
samples, and testimonials are used.
News story about
product defects
Requests for information by media
are ignored, blanket denials are
issued, hostility is exhibited toward
reporter of story.
Company spokesperson states that tests are
being conducted on products, describes
procedure for handling defects, and answers
questions.
Competitor
introduces new
product
The advertising campaign is
stepped up.
Extensive news releases, statistics, and
spokespeople are made available to media to
present company's competitive features.
High profits
reported
Profits are rationalized and positive
effects on the economy are cited.
Profitability is explained, data (historical and
current) are provided, uses of profits are
detailed: research, community development.
Overall view of
publicity
There is an infrequent need for
publicity; crisis fighting is used
when bad reports are circulated.
There is an ongoing need for publicity, strong
planning, and contingency plans for bad
reports.

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Developing a Publicity Plan
Setting
objectives
Outlining
types of
publicity
Selecting
media
Creating
publicity
messages
Timing
publicity
messages

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Publicity Type
Publicity Type Example
News publicity Macy's describes its decision to sell its stores in the Midwest.
Business feature article Toyota explains its goals and objectives for the 2020.
Service feature article A trade association offers 10 tips on how to reduce home heating
costs.
Finance release General Electric distributes quarterly financial data about the
company.
Product release Intel announces its new, fast-speed microprocessor
Pictorial release Apple distributes photos showing all of its personal computer
products and related software
Background editorial
release
Mc Kinsey presents a biography of its president and his rise
through the company.
Emergency publicity The Red Cross makes a request for aid to tornado victims.

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Specific Personal Selling Objectives
Type of Objective Illustrations
Demand-Oriented
Information To fully explain all good and service attributes
To answer any questions
To probe for any further questions
Persuasion To clearly distinguish good or service attributes from those of competitors
To maximize the number of sales as a per cent of presentations
To convert undecided consumers into buyers
To sell complementary items, e.g., film with a camera
To placate dissatisfied customers
Reminding To ensure delivery, installation, etc.
To follow up after a good or service has been purchased
To follow up when a repurchase is near
To reassure previous customers when making a new purchase
Image-Oriented
Industry and company To maintain a good appearance by all personnel in contact with consumers
To follow acceptable sales practices

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Personal Selling Process
Prospecting
(blind, lead)
Approach
Customer
Wants
Sales
Presentation
Answering
Questions
(questions and
objections)
Close
Follow up
(satisfaction,
referrals,
repurchase)

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Types of Sales Promotion
Type Characteristics Illustration
Coupons Manufacturers or retailers advertise
special discounts for customers who
redeem coupons.
P&G mails consumers a 25-cents-
off coupon for Sure deodorant,
which can be redeemed at any
supermarket.
Refund or
rebate
A consumer submits proof-of-
purchase (usually to the
manufacturer) and receives an extra
discount.
First Alert home fire alarms
provides $5 rebates to consumers
submitting proof of purchase.
Samples Free merchandise or services are
given consumers, generally for new
items.
When Sunlight dishwashing liquid
was introduced, free samples were
mailed to consumers.
Contests or
sweepstakes
Consumers compete for prizes by
answering questions (contests) or
filling out forms for random drawings
of prices (sweepstakes).
Publishers Clearinghouse sponsors
annual sweepstakes and awards
automobiles, houses, and other
prices.

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Type Characteristics Illustration
Bonus or
multipacks
Consumers receive discounts
for purchasing in quantity
Some stores run I-cent sales,
whereby the consumer buys one
item and gets a second one for a
penny.
Point-of-
purchase
displays
In-store displays remind
customers and generate
impulse purchases.
Chewing gum sales in
supermarkets are high because
displays arc placed at checkout
counters.
Special
events
Manufacturers or retailers
sponsor celebrity appearances,
fashion shows, and other
activities.
Virtually every major league
baseball team has an annual "Old
Timers' Day," which attracts large
crowds.
Gifts Consumers are given gifts for
making a purchase or opening
a new account.
Savings banks offer a range of
gifts for consumers opening new
accounts or expanding existing
ones.
Types of Sales Promotion

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Sales Promotion Advantages
• It helps attract customer traffic and maintain brand or store
loyalty
• Quick results can be achieved
• Some forms of sales promotion (calendars, t-shirts. Pens,
etc) provide value to the consumer and are retained by
them; and these forms can provide a reminder function
• Impulse purchases can be increased through in-store
displays

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Sales Promotion Disadvantages
• The image of the firm may be lessened if it continuously runs
promotions. Consumers may view discounts as representing a
decline in product quality and believe the firm could not sell its
offerings without them.
• When coupons, rebates, or other special deals are used
frequently, consumers may not make purchases if the items are
sold at regular prices. Instead, they will stock up each time there
is a promotion.

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Sales Promotion Disadvantages
• Sometimes sales promotions shift the focus away from the
product onto secondary factors. Consumers may be attracted by
calendars, coupons, or sweepstakes instead of by product
quality, functions, and durability. In the short run this generates
consumer enthusiasm. In the long run this may have adverse
effects on a brand's image and on sales, because a product-
related differential advantage has not been developed.

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Distribution Planning and
Pricing Strategy

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Distribution Planning
• Distribution planning is systematic decision making
regarding the physical movement and transfer of
ownership of a product from producer to consumer.
• It includes transportation, storage, and customer
transactions.
• Distribution functions are carried out through a channel of
distribution, which is comprised of all the organizations or
people involved in the process.
• These organizations or people are known as channel
members or middlemen.

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Intensity of Channel Coverage
Characteristics Exclusive
Distribution
Selective
Distribution
Intensive
Distribution
Objectives Prestige image,
channel control and
loyalty, price
stability and high
profit margins
Moderate market
coverage, solid
image, some
channel control and
loyalty, good sales
and profits
Widespread
market coverage,
channel
acceptance, sales
volume and profits
Channel
members
Few in number,
well-established
reputable stores
Moderate in number,
well-established,
better stores
Many in number,
all types
of outlets
Customers Few in number,
trend setters,
willing to travel to
store, brand loyal
Moderate in number,
brand conscious,
somewhat willing to
travel to store
Many in number,
convenience-
oriented

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Intensity of Channel Coverage
Characteristics Exclusive
Distribution
Selective
Distribution
Intensive
Distribution
Marketing
Emphasis
Personal selling,
pleasant
shopping
conditions, good
service
Promotional mix,
pleasant shopping
conditions, good
service
Mass
advertising,
nearby location,
items in stock
Major
Disadvantages
Limited sales
potential
May be difficult to
carve out a niche
Limited channel
control
Examples Automobiles,
designer clothes,
caviar
Furniture,
clothing, watches
Groceries,
household
products,
magazines

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Methods of Channel Cooperation
Factor Manufacturer Action Channel Member Action
New-product
introduction
Thorough testing, adequate
promotional
support
Good shelf location and
space, enthusiasm for
product, assistance in test
marketing
Delivery Prompt filling of orders, adherence to
scheduled dates
Proper time allowed for
delivery, shipments
immediately checked for
accuracy
Promotion Sales force training, sales force
incentives, development of national
advertising campaign, cooperative
programs
Attractive in-store displays,
knowledgeable salespeople,
participation in cooperative
programs
Product
quality
Product guarantees Proper installation and
servicing of products

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Pushing and Pulling Strategy
Manufacturer
Channel
members
Consumers
Manufacturer
Channel
members
Consumers
Pushing Strategy Pulling Strategy

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Price Planning
A Price
Represents the value of a
good or service for both the
seller and the buyer
Price
Planning
Systematic decision making
by an organization regarding
all aspects of pricing

60
Factors Affecting Pricing Decisions
Consumers Competitors
Channel
Members
Government
Cost
Total Effects
on Price
Decisions

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Consumers and Price Decisions
Consumers
• The relationship between price and
consumer purchases and perceptions is
explained by two economic principles —
the law of demand and price elasticity of
demand
• The law of demand states that consumers
usually purchase more units at a low price
than at a high price
• The price elasticity of demand defines the
sensitivity of buyers to price changes in
terms of the quantities they will purchase

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Elastic
Demand
• Elastic demand occurs if relatively small changes in
price result in large changes in quantity demanded
• Numerically, price elasticity is greater than 1
• With elastic demand, total revenue goes up when
prices are decreased and goes down when prices
rise
• Inelastic demand takes place if price changes have
little impact on quantity demanded
• Price elasticity is less than 1
• With inelastic demand, total revenue goes up when
prices are raised and goes down when prices decline
In-elastic
Demand

63
Unitary
Demand
• Unitary demand exists if changes in price are
exactly offset by changes in quantity demanded,
so that total sales revenue remains constant.
• Price elasticity is 1

64
Competitors and Price Decisions
Competitors
• Another element contributing to the
degree of control a firm has over
prices is the competitive environment
within which it operates

65
Market-
controlled
price
environment
• Characterized by a high level of com-
petition, similar goods and services, and
little control over price by individual
companies
• Characterized by moderate competition,
well-differentiated goods and services, and
strong control over price by individual firms
Company-
controlled
priced
environment

66
Government-
controlled
price
environment
• Characterized by prices set by the
government. Examples are public utilities,
buses, taxis, and state universities

67
Channel Members and Price Decisions
Channel
Members
• A wholesaler or retailer can gain stronger
control over price by stressing its importance as
a customer to the manufacturer, refusing to
carry unprofitable product, stocking competitive
items, and developing strong dealer brands so
that consumers are loyal to the seller and not
the manufacturer
• Sometimes retailers engage in selling against
the brand, whereby they stock merchandise,
place high prices on it, and then sell other
brands for lower prices. This is often done to
increase the sales of their own brands

68
Channel Members and Price Decisions
Channel
Members
• To ensure channel member cooperation with
price decisions, the manufacturer needs to
consider four factors: channel member profit
margins, price guarantees, special deals, and
the impact of price increases

69
Government and Price Decisions
Government
Price fixing regulations
Prohibitions against price
discrimination among
channel members
Unfair sales acts :
predatory pricing

70
Cost and Price Decisions
Cost
Cost of raw
materials and
supplies
Labor cost
Advertising Cost
Distribution Cost
Pricing
Decisions

71
Price Strategy
Cost-based Price
Strategy
Demand-based
Price Strategy
Competition-
based Price
Strategy
Price
Strategy

72
Price Strategy
Cost-based Price
Strategy
Demand-based
Price Strategy
With a cost-based price strategy, the
marketer sets prices by computing
merchandise, service, and overhead
costs, and then adding the desired profit
to these figures
The marketer sets prices after
researching consumer desires and
ascertaining the range of prices
acceptable to the target market

73
Price Strategy
Competition-
based Price
Strategy
• The marketer sets prices in
accordance with competitors
• Prices may be below the market, at
the market, or above the market,
depending on customer loyalty,
services provided, image, real or
perceived differences between
brands or stores, and the competitive
environment

74
Reference/Recommended Further Reading
• Joel Evans and Barry Berman, Marketing in The 21st
Century, Prentice Hall. You can obtain this excellent book at this link:
http://www.amazon.com/Marketing-21st-Century-
Ninth/dp/159260143X/ref=sr_1_1?ie=UTF8&s=books&qid=1219802238&sr=1-1

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Fundamentals of Marketing Management

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