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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.
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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.
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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
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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?
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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.
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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)
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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(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.
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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
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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
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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.
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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.
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•
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.
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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.

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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.
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•
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.
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