Marketing Study Guide 1527508064, 9781527508064

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Marketing Study Guide

Marketing Study Guide By

Geoff Lancaster

Marketing Study Guide By Geoff Lancaster This book first published 2018 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2018 by Geoff Lancaster All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-0806-4 ISBN (13): 978-1-5275-0806-4

TABLE OF CONTENTS

Preface ........................................................................................................ vi Preparing for Marketing Examinations Chapter One ................................................................................................. 1 Development of Marketing and Marketing Orientation Chapter Two .............................................................................................. 50 Marketing Planning and Budgeting Chapter Three .......................................................................................... 110 The Marketing Mix: Product Chapter Four ............................................................................................ 152 The Marketing Mix: Price Chapter Five ............................................................................................ 194 The Marketing Mix: Place Chapter Six .............................................................................................. 223 The Marketing Mix: Promotion Chapter Seven.......................................................................................... 267 The Marketing Mix: Service and Customer Care Chapter Eight ........................................................................................... 306 Marketing Research Chapter Nine............................................................................................ 331 Marketing in Context Glossary of Marketing Terms .................................................................. 379 Index ........................................................................................................ 407

PREFACE PREPARING FOR MARKETING EXAMINATIONS

Marketing is a subject that occurs as a separate subject in a number of examining body syllabi. Many students fail to achieve their full potential in examinations because they are unable to appreciate examination technique. Advice is given to help students in practical terms and instil a positive way of thinking to give them confidence in their own abilities through being adequately prepared in terms of subject knowledge and attitude towards the examination itself. Very few students can pass examinations with limited revision so we advise that you plan your work and revision rigorously and set yourselves objectives.

Objective setting It seems obvious that you should plan and organize work before an examination, but the reality is that many students fail to do this in any logical and planned way. Instead panic often sets in as the examination approaches, with students being ill-prepared, not having revised the essentials. Sadly, it is these quite often capable students who have worked hard during their course, but because of an inability to organise their revision schedule effectively that under perform in the examination. Obviously the planning process should be to obtain a copy of the appropriate syllabus, especially and more so if it is for an external body. Such syllabi are usually very detailed and usually prefaced with a statement of objectives relating to individual subjects. These give an indication of the level of ease or difficulty that can be expected, as well as the level of generality or detail. Following this, a good syllabus should break down the subject into a number of logical sub-divisions. The next stage is to obtain past examination papers and check to see if there have been any syllabus changes. You will then be able to ascertain the time available to answer a range of questions, and be able to practice completing answers to questions within time limits. In fact, many students

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fail through bad time management. Specimen examination answers are available for most examination bodies and the best ones are those prepared by examiners themselves. However, do not be put off when reading these as they normally provide very comprehensive answers. Students could not really be expected to replicate these under normal examination timings and conditions. The examination date and time is important, so ensure that you are entered for the examination in good time. Knowing the date will enable a revision timetable to be drawn up in good time and the best approach is to revise little and often, rather than leaving it to the last minute. You should then ensure that your revision timetable covers all topics on the syllabus. An examination of previous papers should give you an indication of a trend for regular questions, so ensure that you concentrate on these. You should know whether you are a ‘morning’ or a ‘night’ person so plan your revision to the time that suits you best, but ensure that you obtain sufficient sleep and relaxation immediately before the examination.

The revision process A good guideline is to commence revising about 6 weeks before the examination. Many leave less time than this which leads to superficial revision or heavy reliance upon certain ‘banker’ questions, termed ‘question spotting’, that have been forecast to appear on the examination paper. When revising, it is important that you engage in active learning. Many spend hours revising without actually understanding or remembering much. Take brief key notes of the topic being revised and include in these notes appropriate sources of information relevant to the topic being revised, such as lecture notes, textbooks, correspondence course material, and your own ideas. Note the key points and space the notes out so you can find topics quickly at a date nearer the examination. Put in diagrams and illustrations as these are invaluable aids to memory. Many students condense their notes at each successive revision session starting out from detailed notes and ending up with a few basic statements and key words which provide ‘leads’ into the main aspects of the problem. Progress tests are useful every few days and such tests should cover the areas being revised and should be devised before the start of the revision period. A useful source for such questions is previous examination papers or questions that appear in textbooks or websites, similar to the questions

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that appear on this website. Forming ‘self-help’ groups with other candidates provides the medium for pooling information, questioning ideas and evaluating performance. ‘Brainstorming’ sessions are useful as well as ‘mock’ examination papers. The benefit of this group approach is that it encourages participants to be brief and to the point, while at the same time providing a comprehensive answer to the problem under review.

Information requirements Spending hours ‘rote’ learning is not the way to success. Note taking and reading around the subject are more effective. Reading speed is important and skim reading can be effectively combined with information retention and understanding so the process of revision can be more effective. The following guidelines should help: 1. Approach revision with a positive attitude, rather than as an unpleasant task. 2. Sit in a comfortable position behind a desk or table with a good light source. 3. Revise in sections, i.e. whole sections rather than dwelling on each word as the aim is to obtain an appreciation of what is being said. 4. Take regular breaks. About half an hour is the optimum time to revise before taking a five minute break. This allows for reflection and the break is something to look forward to when covering a lot of revision ground quickly. 5. Note taking is important. Remember to include points that are not fully understood, in order to pursue each later, rather than spending excessive time pondering over such points while revising. 6. For key concepts that have to be committed to memory try to take the first letters and make these into a sentence or word, no matter how meaningless the sentence or word might be. ROYGBIV stands for ‘Richard of York gave battle in vain’ represent the colours of the rainbow i.e.: Red, Orange, Yellow, Green, Blue, Indigo and Violet. Similarly in marketing: GUDBI stands for members of the organization buying decision making unit i.e.: Gatekeepers, Users, Deciders, Buyers and Influencers.

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Application A common cause of failure is that students simply do not answer the question set and simply want to get a potted version of their notes across instead of attempting to apply such knowledge to the question itself. If questions are purely descriptive then this is simply, but at higher level examinations it is more likely that questions will be more conceptually based and the student will be expected to apply skills of understanding and analysis. Descriptive questions usually begin with ‘explain’, ‘describe’, ‘define’, ‘state’ or ‘outline’. When answering such questions, remember to include explanations and definitions. Better answers will include hypothetical or practical examples to reinforce the points being made. Analytical questions which are more difficult to answer usually begin with ‘analyse’, ‘criticise’, ‘assess’, ‘evaluate’ or ‘discuss’. It is important to put forward differing viewpoints and to support them with appropriate examples to show an awareness of criticisms that can be levelled at a particular viewpoint. Such an answer should end with a conclusion that summarises the key issues and presents the student’s own judgement on the subject. Such careful revision and preparation as has been described should reduce any ‘nerves’ that might be present before the examination. For those still prone to stress, it is a good idea to talk it over with family, fellow students or counsellors to reduce anxiety. Examinations are stressful, but when viewed in a positive manner stress should be reduced. Allow yourself enough time to compose yourself at the beginning of the examination to ensure that you are calm before you start to write.

Sitting examinations Once the papers have been distributed it is important to read instructions carefully and see if a choice of questions is given. Questions chosen should then be rated in terms of whether they can be answered adequately. Answer your best question first as this might produce a ‘halo’ effect on the part of the marker who might then be more kindly disposed to forgive mistakes in later answers. Answering your best questions first will build up your self-confidence to attempt what seem to be more difficult questions later.

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Prepare an essay plan consisting of brief notes at the beginning of the answer book, giving the main points and structure of the essay. Such a plan gives direction and makes it easier to compose. It is better to start each new question on a new page and lightly cross out your rough working when you have completed your answer. Obvious points are to write legibly and number all answers correctly and clearly, making sure that additional sheets have your name and number on them and these are attached to the answer book in chronological order sequence. Budget your time in order to complete the number of questions to be attempted: this normally means when marks are equal, spend equal time on each answer, but where different marks are given for different sections then divide your time appropriately. Do not waste time by repeating the examination question and remember to write enough; too many candidates fail through giving embryonic answers with too little application or embellishment to score a pass mark.

Extracts from a number of examiners’ reports This section gives a brief overview of what marketing examiners think about the work presented by candidates. It is not meant to be a comprehensive listing, but it does provide pointers to the more usual causes of failure. x The overall standard was disappointing, with most candidates seeming to have little knowledge or understanding of the subject. This was shown by the number ow wild guesses that were offered, showing that candidates were unfamiliar with the subject, presumably because they had done little reading. x Candidates should write clearly the number of the question being attempted. In many cases it was unclear whether candidates were making points within a question they had started to answer, or whether their points related to a new question. Candidates should use the left hand margin for question numbers only and should leave a space of at least three lines between questions. x Many candidates who failed did so because they misjudged time and concentrated too long on certain questions. When an instruction says: ‘notes’ or ‘brief explanation’ then candidates should abide by these instructions. x Some candidates could offer no more than sketchy answer to some questions and failed to grasp the purpose of the question. Answers

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x

x x

x x

x x x

x x

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were concerned with what they thought they knew, rather than with what was asked for in the question. Overall performance of candidates was low because of their inability to present adequate answers. It was apparent that preconceived answers were produced rather than a considered response to the questions set. Most candidates were ill prepared for an examination at this standard. Many answers were too short, providing a few basic bits of information, but in a number of cases, such information was unrelated to the question set. The marketing world is in a state of constant change and tutors and candidates should be aware of newer developments. The major problem is that too many candidates do not read and answer the set questions. Candidates cannot expect good results when they treat ever question as if it reads: ‘Write all you know about……’. The principal reason for failure was misreading or misunderstanding of the questions. A large number of candidates gave no indication of which question they were attempting and some even ran one answer into another with no clear indication of where one question ended and the other began. There is still evidence of insufficient preparedness in terms of quite basic knowledge: students would do well to consult recommended texts more often. Some did not seem to be able to balance their answers very well and produced, for example, two very long answers and two very short answers. The old excuse of being a student with no practical experience to draw upon should no longer pertain: marketing is happening all around us and it takes only imagination to work relevant happenings into examination answers. Candidates are seldom aware of the practical application of behavioural knowledge and as a consequence lose marks. Some candidates had obviously been tutored in terms of examples to use. This indicates a lack of imagination: candidates should be encouraged to read widely and to take their own examples from currently reported business events from newspapers, journals, television, the internet, etc., and to quote marketing examples of what they see around them.

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x It was incredible how many detailed answers had nothing whatever to do with the questions. Most of the candidates seemed to be on the very fringes of marketing. The object in taking an examination in marketing is surely to show that candidates have learned something about the subject. x The point about an international marketing question was that students who answered the ‘standardisation’ and ‘centralisation’ question did so without any reference to overseas situations. x Candidates who score high marks in this examination will be those who, in addition to demonstrating a basic understanding, distinguish themselves in a combination of one or more of the following factors: - appropriate use of relevant practical examples and an application of reality; - evidence of ability to think creatively or originally about a topic or problem; - answers which adhere to the specific question set and are clear, concise and objective. These reports are a good cross-section of what marketing examiners say about poor candidates’ papers. It hardly needs any more comment or elaboration to see where most of the mistakes lie. The point that should be taken is not to fall into the same traps yourself, nor to suppose that examiners do not discriminate in favour of candidates who communicate, accurately and fully, exactly what is required. They do!

CHAPTER ONE DEVELOPMENT OF MARKETING AND MARKETING ORIENTATION

Learning objectives By the end of this chapter you will: x Understand the development of marketing as an exchange process, a philosophy of business and a managerial function, x Recognize the contribution of marketing as a means of creating customer value and as a form of competition, x Appreciate the importance of a market orientation to organizational performance and identify factors that promote and impede the adoption of a market orientation, x Understand the role of marketing in coordinating organizational resources both within and outside the marketing function, x Understand the impacts of marketing actions on society and the need for marketers to act in an ethical and socially responsible manner, x Appreciate the significance of buyer–seller relationships in marketing and the role of relationship marketing in facilitating retention of customers.

Introduction This chapter introduces you to the development, meaning, and role of marketing in the contemporary organization. In short, it sets the scene for the remainder of the text and reflects the process that must occur in an organization if it is to improve its performance in marketing, in as much as the first step in this improvement is an understanding of what marketing means and how it can be implemented. We start by looking at definitions of marketing, moving on to consider the ‘marketing concept’ and ‘marketing orientation’. We look at marketing’s development and the

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notion of marketing as an exchange process, a philosophy of business and a managerial function and consider the importance of marketing orientation to organizational performance and the issues and problems in implementing a marketing orientation through building and enhancing a marketing culture. The important contribution of marketing as a means of creating customer value and as a form of competition is considered, together with the role of marketing in coordinating organizational resources both within and outside the marketing function. We consider the changing role of marketing, and in particular the wider range of applications for marketing; the importance of environmental, ethical and social issues in marketing; and the growth of ‘relationship marketing’. There is now increasing importance of new technology in marketing; this is a theme that is addressed throughout the text. Some of the elements that have been outlined, especially activities and questions, are designed to help you develop application skills. Suggested answers and approaches follow, so do the activity or question before looking at the solution. A glossary of marketing terms is provided at the end of the text. References are made to terms with which you might not be familiar, so that than attempt an in-situ explanation of each within the body of the text, it was decided that it would be more useful to incorporate these as an appendix that can be referred to whilst reading.

What is marketing? We don’t expect a formal definition at this stage but do you really know what marketing is?

Study Tip Organize your study materials from the beginning of your course: x Use file dividers to keep broad topic areas indexed and relevant materials and articles with the relevant notes. x Look out for relevant articles, newspaper reports, etc. that you feel provide good examples of the key concepts and techniques covered in the book. You will find these useful to illustrate examination answers.

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Activity 1.1 In your own words describe what you think marketing is about? Different people will have different views of what marketing is, but it would be surprising if many did not have one or more of the following in their description. Marketing is about: x x x x

Selling, Market research, Advertising, For those who prefer a more formal approach marketing is about ‘Analysis, Planning, Implementation and Control in order to develop a competitive advantage’.

The common theme that runs through these viewpoints about what marketing entails is that it is a set of managerial activities or functions required to be performed in an organization. Certainly marketing does encompass activities such as selling, researching markets, attracting and keeping customers, and developing and implementing plans. This managerial function of marketing is enshrined in the American Marketing Association’s (AMA) own definition of marketing as follows: ‘Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large’. The UK Chartered Institute of Marketing’s (CIM) definition is: ‘The management process which identifies, anticipates and satisfies customer requirements efficiently and profitably’. We can see that the CIM definition, in addition to confirming marketing as a management process, highlights the fact that the central focus of this process is the ‘customer’ and the aim is ‘satisfying’ his/her requirements or ‘needs’ which must be done in the most efficient way possible to achieve maximum profitability. However, the use of the word ‘profitably’ is slightly misleading, because when we consider the police and fire services for instance, they are not in business to make a profit.

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We need to know the key tasks of marketing management and the tools that are used in these tasks. We shall be exploring both tasks and tools more closely. However, marketing is not only or even primarily a management function or set of activities. First and foremost marketing is a way of thinking, or a ‘concept’ for running a business. Some argue that marketing is essentially a ‘philosophy’. The point is that only by first understanding and accepting this way of thinking (concept or philosophy) can a company begin to develop a marketing culture or orientation and ultimately become effective at marketing. So what is the marketing concept and how does it relate to the development of a marketing culture?

The Marketing Concept: Marketing Orientation Put simply, the marketing concept focuses on customers. A company that adopts the marketing concept puts the customer at the centre of business decision-making and planning: it is not just marketing department decision-making and planning. A company with this approach is said to be marketing-oriented. To understand the meaning and implications of being marketing-oriented we need to examine the background to the development of the marketing concept and the distinction between a marketing versus a production, product, or sales-oriented company. We start by highlighting the distinctions between these orientations. Activity 1.2 Marketing oriented versus other possible orientations of an organization. A company can be: x x x x

Production oriented, Product oriented, Sales oriented, Marketing oriented.

Using the following statements from the management of an organization, assess which of these possible orientations for a company best fits the organization described by each statement. Read each of the descriptions and then place a number in the space to indicate the following:

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This company is marketing-oriented This company is sales-oriented This company is production-oriented This company is product-oriented.

Company A ‘We believe that our products are the most innovative on the market. Our quality is second to none and we’ve gone all out to develop the best design team in the business.’ No…………... Company B ‘Our salespeople understand how to get the customer to sign on the dotted line. Most customers really want to purchase our product when they see it; they just need a little push to make up their mind.’ No…………... Company C ‘Customers can be very fickle sometimes. We’ve just had to change a specification because the customer wanted something else at the last minute. This also affected our production schedules and our delivery department, and everything had to be re-costed. Still at least everyone pulled together on this one.’ No…………... Company D ‘The customer can have any colour so long as it is black.’ No.…………. What conclusions did you arrive at from this activity? Each statement is intended to capture the essence of the sort of differences in managerial attitudes and outlook we might find in organizations with each of the different orientations. Your answer should have been as follows:

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Company A = No. 4 This company is product oriented: the attitude is that a good product will sell itself. Company B = No. 2 This company is sales oriented: the attitude is that aggressive hard selling is required. Company C = No. 1 This company is marketing oriented: the attitude is that even though it is sometimes difficult, everyone in the company must try to satisfy the customer. Company D = No. 3 The company is production oriented. The attitude is characterized by an almost exclusive focus on production efficiency and effectiveness. You may have recognized in Company D that Henry Ford, the founder of the Ford Motor Company, allegedly is said to have uttered this much quoted phrase about the world’s first mass-produced motor car. At the time, around 1915, Ford’s major concern was with the problems of producing cars in sufficient volume and at a price the huge latent mass market, which he rightly perceived to exist, could afford. The colour of his cars therefore mattered little to Henry Ford other than the fact that only producing one colour enabled both output to be greater and prices to be lower. Black was the quickest drying paint, and this helped speed up the production process. Interestingly, at the time, Henry Ford’s focus on production rather than the colour preferences of his customers was right for the time. Customers at were less interested in colour than in availability and affordability. The need to be marketing-oriented (Company C) is a function of the market and competitive conditions faced by companies. Put another way, marketing orientation is the result of a gradual process of evolution that many, if not all, companies have passed through as societies, manufacturing economies, and customers themselves have evolved. The stages of evolution are shown below.

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Era (approx.) 1900–1930s 1930s–1960s 1960s–today

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Orientation/emphasis Production orientation Selling orientation Marketing orientation

Societies and markets are still evolving and so too is marketing thought and practice. For example, many developed economies have now become service economies, giving rise to additional considerations in ‘services marketing’. Similarly, many consumers are more concerned about the environment and the possible effects of marketing activities, giving rise to ‘social marketing’. Organizations other than ‘for-profit’ ones are embracing the marketing concept and marketing practices. Charities, churches, political parties and personalities are only some of these wider applications of what is termed ‘meta marketing’. We consider some of the implications of this evolving nature of marketing culture later. In addition to these wider applications of marketing, marketing practices are evolving and changing. In this respect, several recent developments in marketing are particularly worthy of note, namely: the growth of ‘relationship marketing’ and the development of ‘network marketing’. Perhaps one of the most significant developments affecting marketing managers in recent years is the changing nature of marketing due to an increased use, and application, of information technology. As in many areas of business, IT, in all its forms, is having a significant impact on management practice. In the area of marketing, examples of this impact include: the growth of the Internet with its implications for areas such as home shopping; increasing sophistication in the use of databases for marketing purposes with its implications for areas such as direct mail; increasingly powerful computer-based techniques for analysing customers and markets with their implications for areas such as market segmentation targeting and brand positioning. We look at the evolving and changing nature of marketing practices in more detail throughout the text. Exam hint Examiners will expect you to have a good basic grasp of how marketing and its applications are widening and changing in the modern world. It is vital that you try to keep as up to date as possible with what is going on in the world of marketing. You will be expected to be familiar with current thinking and practices in marketing. This book is designed to encompass and reflect this thinking, but the marketing world is very dynamic and you should try to keep up to

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date with current industry practices. The business and financial pages of a good quality newspaper will help you keep up to date and provide you with examples that will potentially earn you higher marks in the examination.

Factors contributing to the need to be marketing oriented Many factors have contributed to the requirement to be marketing oriented in today’s business environment, but to appreciate some of the more important of these you should complete the activity below before proceeding. Activity 1.3 Listed are some of the key factors that have contributed to the need to be marketing oriented. To help you in this activity we have described the ‘state’ of each factor when, as it was in the days of Henry Ford, production orientation was appropriate for organizations. Assess the ‘state’ of these factors today, which in turn underpins the need to be marketing oriented. Look at each factor as it relates to the production oriented era and then decide how you feel each factor is likely to have changed in the era of marketing orientation. FACTOR Demand Average disposable income General level of education Mass media/access to information Supply/industry capacity Competition

PRODUCTIONORIENTED ERA Latent – demand high Low Low Underdeveloped/low Insufficient Negligible/local

MARKETINGORIENTED ERA

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Your answers should have indicated the following: FACTOR Demand Average disposable income General level of education Mass media/access to information Supply/industry capacity Competition

MARKETING-ORIENTED ERA Latent demand low High High Well-developed/high Overcapacity Severe/global

Broad economic, political, social and technological factors have all contributed to the development of marketing orientation; however, in summarizing these factors, the overriding reason underpinning the need to be marketing oriented is customer choice. Quite simply, the organization most effectively identifying and supplying customer needs will get the business. It is important to stress that both production and sales orientation were probably the right approaches to markets for their times. However, not only does it now make more sense to focus the whole of the business and hence product design, pricing policies, distribution and everything else on a careful analysis of customer needs, i.e. to start the planning process around those needs, but the fact is that in today’s environment, being market oriented is an essential ingredient in organizational survival and success. Business planning must now start and end with the customer. We look at marketing planning shortly, but it is important to recognize that marketing plans and business plans are different albeit interrelated. The business plan relates to the organization as a whole and encompasses objectives and strategies for the whole company embracing all functions and activities. Marketing plans, however, relate to marketing objectives and strategies and primarily involve the functions and activities of the marketing department. Marketing plans must start and end with customers, but under the marketing concept, and where a marketing culture exists in an organization, then business plans too, despite their wider remit, must also start and end with customers. The simple reason for this is that in the final analysis it is the customer’s needs, and the importance of identifying and satisfying these, which lie at the heart of the success or failure of business plans.

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It is acknowledged that business plans necessarily have a broader remit than just the marketing part of the business and must seek to co-ordinate every key function in the organization. However, the primary input into and focus for all the elements of the business plan in the company which has a true marketing culture must centre on the needs of the customer. The truly marketing-oriented organization is the one that places customer needs at the centre of everything the company does. Not only marketers and the marketing function must accept this central importance of customers and the need to develop plans and activities to satisfy them, but every department, even every individual, in the marketing-oriented organization must be attuned to the importance of satisfying customer needs. We return to this aspect later. This is what is meant by being marketing oriented. Key Definition Marketing orientation is a philosophy that places customer satisfaction at the centre of all organizational planning and procedures.

Marketing as a Form of Competition: Creating Customer Value Although marketing and being marketing oriented is essentially about thinking customers and focusing all the company’s efforts and resources on their needs and satisfaction, increasingly marketers recognize that it is as important to be competitor as well as customer oriented. This does not detract from the importance of customer orientation, but is simply recognition that with so much competition about, and with so many competitors themselves being customer and marketing oriented, very often the achievement of organizational and marketing objectives rests on whether or not a company can beat the competition. Beating the competition, of course, should still be viewed from a customer perspective; competitors are beaten where customers perceive a company’s offerings, or more specifically the value of those offerings, to be superior to competitor offerings. In this sense although still oriented around customers, marketing can be thought of as a form of competition. The marketer’s task is to out-compete other potential suppliers by creating and maintaining superior customer value through the effective application and co-ordination of the marketing mix. Obviously there are numerous ways in which a company can attempt to create superior customer value including,

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for example, low prices, better service, higher quality, speedier delivery, etc. The ways a company creates superior value should reflect customer needs, but also needs to be based on marketing assets and strengths which are superior to competitors and which can be defended and sustained in the market place. Marketers refer to this process as creating a sustainable competitive advantage (SCA). Sustainable competitive advantage represents the objectives and output of successful marketing activities in the contemporary organization.

Building a Marketing Culture In today’s environment it is vital to become marketing oriented. We have seen that although identification of customer needs and the development of plans and programmes to meet these needs are the responsibility of the marketing function, all functions and individuals in organizations need to accept the central importance of the customer. In other words, we need to establish and encourage the right (marketing-oriented) attitudes and practices throughout the company. What is required is a marketing culture. While most managers, even non-marketing ones, accept the importance of the customer/client to their organizations, in practice many do not ‘think customers’ in their day-to-day activities or even long-term planning. The questions are: x How can we establish the extent to which an organization has the basics for building a marketing culture? x How can we assess the extent to which this culture has permeated organizational thinking and planning? x How, if necessary, can we instil and enhance a marketing culture in an organization? These are not simple questions, and the last one, in particular, has no easy solution. Let us examine each question in turn.

Business Definition and a Marketing Culture The starting point for building a marketing culture in an organization is quite simply to ‘think customers’. Perhaps one of the most fundamental ways in which the extent to which the management of an organization is ‘thinking customers’ can be assessed is in how it defines what business the organization is in.

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Activity 1.4 Summarize what business the following organizations are in: x x x x x

The Ford Motor Company Microsoft Max Factor A religious organization Your own company (or an organization with which you are familiar).

We each might have different ideas about what business the organizations listed in the activity are in, but what really matters is our perspective or basis for defining each business. The non-marketing oriented manager will base the definition of each of these organizations essentially on the products or services they produce. For example, Ford = vehicles; Max Factor = cosmetics/perfume; Microsoft = computing and software; a Religious organization = praying, and so on. In the marketing-oriented company, however, business definitions will be based on a customer perspective, i.e. the definition will stem from the benefits that the customer is seeking; so now, Ford = transport (or perhaps for some products, status); Max Factor = beauty; Microsoft = solutions to business problems; and a Religious organization = hope or salvation. Any organization that sees and defines its business in anything other than customer benefit terms has not reached first base in developing a marketing culture. An organization that defines its business in terms of what it produces is said to be suffering from what Theodore Levitt, called ‘marketing myopia’. Levitt, T. (1960). "Marketing Myopia". Harvard Business Review, Jul/Aug 1960, Vol. 38 (4), pp. 45-56. Key Definition Marketing myopia – Results from a company having a short-sighted and narrow view of the business it is in as a result of product- or service-based business definitions rather than customer need-based ones. The notions of marketing myopia and the importance of business definition are, quite rightly, much vaunted concepts in developing a marketing culture. The work of Theodore Levitt in this area therefore is considered classic.

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Activity 1.5 Managers’ definitions of their business Talk to senior managers of an organization to whom you can gain access. Ask them: ‘What business do you feel the organization is in?’ Preferably ask marketing managers and managers of other functional areas in the business this question. From their answers what do you conclude about the extent the organization has begun to develop a marketing culture by ‘thinking customers’? Alternative/additional activity If it is difficult to gain access, alternatively obtain copies of the annual reports of two public companies. Read through the reports, noting any signs/evidence you can find of the company ‘thinking customers’. Exam hint Given the emphasis placed on business definition this is an important area. Because of this you can expect marketing myopia/business definition to be a popular area with examiners.

Assessing the extent of the marketing culture ‘Thinking customers’ through how we view and define the business is the first step in developing a marketing culture. It must permeate all functions and levels of the organization; not just the marketing function or senior management. Certainly, talking to managers from different functions to assess how they define the business will give the first indication of how widespread or otherwise is the marketing culture. Given the importance of developing this culture company wide, means more formal methods of assessing the extent to which a marketing culture has permeated organizational thinking and planning are available. Organizations now enshrine this assessment in annual marketing audits, parts of which are measurement of the extent to which there is a marketing or customer culture. Such measurement entails the use of formal questionnaires in a

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marketing effectiveness rating review. Aspects covered by such reviews include: x x x x

Evidence of market and customer research, Co-ordination between functions based on customer needs, Evidence of long- versus short-term planning and plans, Company-wide communication on customer needs.

Instilling and enhancing marketing culture: factors that promote and impede the adoption of market orientation A marketing culture essentially means putting customers first and ‘thinking customers’. We have seen that this must permeate the organization at all levels and functions and it is possible to assess the extent of such a marketing culture in an organization. What if we find that no such culture exists and we wish to instil a marketing culture? Or, what if we wish to enhance and extend a marketing culture? This is probably the most difficult step, especially when it comes to instilling such a culture into non-marketing staff. However, a number of steps can be taken to grow a marketing culture. Activity 1.6 Think about an organization you know. Use these questions to prompt your thoughts about the key steps in growing a marketing culture: Is senior management in the organization totally committed to customers and improved marketing? Has anyone the specific responsibility and authority for enhancing a marketing culture in the organization? Do job descriptions in functions other than marketing include reference to customer satisfaction? Are marketing staff regularly trained in developments contemporary marketing concepts and techniques?

in

Are non-marketing staff trained in customer appreciation and care? Are non-marketing and sales staff ever given a chance to meet customers/clients?

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Do reward and motivation systems in all jobs encourage employees to serve customers better? If the answer to any of the questions in the activity is ‘no’, then there are opportunities to enhance the marketing culture in the organization. It is important to recognize that this sort of culture cannot be achieved overnight. Indeed, there is often antagonism and resistance on the part of individuals outside marketing or sales departments. Such resistance should be anticipated. Often the persuasive (rather than authoritative) powers of a respected senior executive committed to building a marketing culture are essential. The development of a marketing culture, and in particular, the training and motivation of all the individuals in an organization to achieve this is referred to as ‘internal marketing’. Key Definition (Grönroos) Internal marketing is the creation of an internal environment which supports customer-consciousness and sales-mindedness amongst all personnel within an organization. Grönroos, Christian (1991) ‘The Marketing Strategy Continuum: Towards a Marketing Concept for the 1990s’, Management Decision, Vol. 29(1) pp. 713. The importance and value of internal marketing to building a marketing culture and ultimately in helping to achieve a sustainable competitive advantage has increasingly been recognized by organizations. Only if all the employees of an organization are committed to delivering customer satisfaction can an organization be said to be truly marketing oriented. Achieving this commitment requires the senior management through the marketing function of an organization to market the need for customer orientation and delivering customer satisfaction throughout a company’s employees. Internal marketing starts by identifying how customer orientation relates to the needs of non-marketing employees in an organization and how these needs can be met through providing customer satisfaction. At its most basic, by helping meet customer needs an employee derives the benefit of helping the company stay in business and hence help keep a job. Internal marketing needs to go further than this; to convince employees that by helping generate customer satisfaction an employee’s job satisfaction and motivation can be improved. Another facet of internal marketing is the use of the tools of marketing within the

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organization such as segmentation and targeting, i.e. recognizing that different employee groups or functional areas of the business will have different needs and requirements and identifying and satisfying these. Internal marketing is achieved through the application of marketing mix elements, though in this case this would involve, for example: the use of staff training; the provision of systems and technology to help employees provide customer satisfaction through their work activities; linking reward and remuneration structures to customer satisfaction; and so on. It is suggested that marketing plans should include objectives, strategies and activities for marketing internally as well as externally. Although internal marketing is important, it has proved particularly popular in service organizations, e.g. banks and hotels, where a wide range of staff are often in direct contact with customers. Not-for-profit organizations too have made extensive use of the idea of internal marketing. Special and additional issues of marketing in voluntary and not-for-profit organizations are considered in more detail in Chapter 7, but in the context of internal marketing, the fact that many voluntary and notfor-profit organizations also have substantial employee contact with their customers and clients, coupled with the fact that the exchange process between company and customer is often complex and multi-faceted, serve to heighten the importance of all employees being customer oriented and trying to deliver customer satisfaction and value.

Managing introduction of a customer-oriented culture Achieving a customer-oriented culture is not easy. Some difficulties and barriers are: x Managers fail to realize or understand the true concept, x The structure of the organization may require changing and this can lead to other managers’ resistance and costs, x People are frightened and reluctant to change, x The power struggle between different departments within an organization can hinder the process, e.g. the production department, x In some organizations, responsibility for marketing strategy and implementation are separated, and this may cause problems.

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Marketing’s co-ordinating role Effective marketing, as we shall see when we consider marketing planning and the management of the marketing mix, requires that all marketing and sales activities within the marketing function be co-ordinated. Unfortunately, the degree of co-ordination required in some organizations, particularly between sales and marketing, is not perfect. For example, in some organizations the sales department often functions almost independently of the marketing department. In part this is because of the traditional structure and position of the sales function in many organizations and also because some organizations are not truly marketing oriented. Sales and selling activities should be part of an overall coordinated marketing effort. As with achieving a marketing culture, this gives rise to problems of conflict and antagonism between sales and marketing. Senior management needs to ensure that sales personnel understand their relationship to marketing and the fact that all marketing activities including selling need to be marketing department led and in the process, customer driven. This is not to suggest that selling is inferior or should be subservient to marketing, but rather stresses the co-ordinating role of marketing. Other marketing activities, too, need to be co-ordinated including activities encompassing marketing research, promotion and advertising, customer service and the marketing mix. Even more problematical, marketing also has a role and responsibility in co-ordinating organizational efforts and resources outside of the marketing function; hence the need for a company-wide marketing culture. In particular, marketing should help co-ordinate the efforts and activities of the other key functional areas of the business that impinge on and affect customers. This includes, for example, the production and quality control functions, accountancy and finance, research and development and personnel. This is not to imply that these other functions should be subservient to marketing, rather only that marketing should play the coordinating role in the efforts of these other functions, again centred on achieving customer satisfaction. Marketing also has a role to play in co-ordinating resources and activities not only outside of the marketing function in the organization, but also outside of the organization itself. Often marketing strategies and plans encompass and involve other individuals and external organizations. A simple example would include the need to co-ordinate the activities and resources of, say, distributors. After all, they play a key part in achieving marketing objectives and in levels of customer satisfaction achieved. In

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many ways effective marketing requires the efforts of many parties to be co-ordinated both internal and external to the organization. Sometimes external parties are marketing agencies like market research companies and advertising agencies. Marketers must often play a co-ordinating role with other parties in the overall value chain including suppliers. Increasingly, marketers build strategies and plans taking into account and having to co-ordinate the full set of activities in the value chain. Achieving co-ordination, both inside and outside of the marketing function and including outside agencies and organizations, requires the marketer to have clear objectives and planning processes. The marketer must ensure that all parties concerned with customer satisfaction are aware of customer needs and the company’s objectives and plans with respect to meeting these. Other parties must also be aware of their contribution and role in fulfilling these plans and the activities that need to be performed. The marketer increasingly needs analysis and planning skills to be able to steer other parties in the right direction with regard to the use of resources to achieve customer satisfaction. The contemporary marketer must have good communication and interpersonal skills to be able to motivate these other parties. Figure 1.1 illustrates this issue: Customers Marketing functions/activities Other internal company functions/activities External factors/activities Figure 1.1 Coordinating role of Marketing

Technology and the marketing culture Developments in technology affect every facet of marketing. Indeed, these developments are among the most pervasive of factors influencing the practice of marketing. Because of this we shall be looking at some of the more important of these developments later. At this point it is useful to point to some of the ways in which technology and particularly

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information technology is helping companies in their management of a customer-oriented culture: x More effective and efficient internal communication via ICT, x Speedier responses to customer needs and market changes, x Better prepared analysis of data and statistics for market and customer intelligence, x More powerful databases which help customer profiling and therefore tailoring of products to customer needs, x The use of intranets and extranets to keep staff and suppliers informed and to manage the value chain, x Related to the above, the use of electronic data interchange (EDI) systems to facilitate communication through the value chain, x Improved systems of stock control and management through use of computer applications enabling more effective customer service delivery, etc., x Automated telephone and call-centre systems potentially improving customer response, x Increases in the number of channels through which customers and other stakeholders can communicate with an organization, x The Internet and website developments which enable customers, for example, to shop in alternative ways, facilitate customer choice, and allow easier trading around the world, x The use of database systems to facilitate more effective customer relationship management (CRM) through developments such as, for example, loyalty card systems, etc.

Marketing as a management function We have suggested that a common theme to definitions of marketing is that it is a management function. However, we also suggested that before we looked at the tasks of marketing management, we need to explore marketing as a way of thinking or philosophy, called the marketing concept, and the importance of building a marketing culture in an organization. Having done this, we can now turn our attention to the tasks and tools of marketing management.

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Activity 1.7 Look at the advertisement below for a marketing post. Study it carefully then write down a list of what you see as the key activities in this post. Marketing Manager x

x x

x x

x

x

Challenge of this new role is to develop creative approaches and long-range marketing plans while also adding immediate commercial value to the activities of operations colleagues with strong bottom-line orientation and limited application of professional marketing. Major retail service group which leads their market with over 100 outlets nationwide and turnover of £1bn. Key accountabilities in the creation of an influential marketing function will include market analysis, building of customer database, new product/service development, corporate identity, business planning and developing cooperative relationships with suppliers. Operating company board member with additional line responsibility for two development businesses. Probably 35–45, graduate calibre and possibly MBA. Successful record in senior brand marketing role in blue-chip retailing, multisite service or FMCG company. General management experience would be an advantage. Strategic visioning and business planning skills combined with ability to win credibility and make things happen with powerful line directors. Management skills to handle hybrid staff/line role and to lead change processes. Strong but subtle influencing style. Creative but pragmatic. Common touch as well as ability to develop senior relationships. General management potential.

Exam hint Use the initial letters APIC to help you remember the key tasks of marketing managers: A: Analysis – The first stage in marketing management’s tasks. Customers, markets, competitors, and company strengths and weaknesses must be analysed. Examples from recruitment

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advertisements include ‘market analysis’/‘building of customer database’. P: Planning – Includes objective setting, choice of target markets, marketing strategies and tactics. Examples from recruitment advertisement include ‘develop long-range marketing plans’, ‘new product/service development’, ‘corporate identity’. I: Implementation – Includes staffing, allocating tasks, budgeting and organizing. Examples from recruitment advertisement include ‘handling hybrid staff/line role’, ‘leading change process’. C: Control – Evaluating progress against objectives and targets. Correcting any deficiencies. Example from Recruitment Advertisement includes ‘strong bottom line orientation’. Clearly the specific tasks of an individual marketing manager will vary from one organization to another but you will find that most of your list of key activities from this recruitment advertisement can be categorized under one of the following headings.

Analysis Analysis includes the assessment of both internal and external factors that affect and help shape marketing plans. It encompasses analysis of the wider marketing environment including economic, political, social/cultural and technological factors and nearer task environment factors such as competitors, and of course customers. Effective marketing ultimately stems from effective analysis. The marketer must understand how markets operate and the trends affecting them. The analysis tasks of marketing managers require them to make use of the tools and techniques of marketing research leading increasingly to the development of marketing information systems.

Planning Based on careful analysis, the marketing manager is responsible for developing marketing plans. Although the marketing manager will be required to perform all of the key activities listed, the planning element is the central activity. It is important

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that you understand the key steps in the planning process and how these fit together into a systematic framework.

Study Tip You should note that the marketing planning process is considered in much more detail in the next chapter: ‘Marketing planning and budgeting’. We feel, though, that it is useful to give you a basic overview of the process as this will help you to see how the various elements of marketing fit together. At this stage you simply need to familiarize yourself with this basic overview of the planning steps.

Implementation Implementation represents the penultimate stage of the marketing planning process, though we have listed it separately. It is important enough in its own right to be considered one of the four key activities and responsibilities of the marketing manager. Implementation essentially involves getting things done. This in turn entails the marketing manager ensuring that resources and budgets are in place to implement marketing plans that are communicated and accepted, and that staff both within the marketing function and in other functional areas both inside and outside of the business are motivated.

Control Monitoring and control of marketing activities is often a neglected area. It is the marketer’s responsibility to assess the extent to which marketing strategies and plans are working, achieving the objectives set and doing this in a cost-effective manner. In addition, the control process involves making any necessary changes to marketing activities and plans to take account of, say, any changed circumstances. A basic overview of the steps in marketing planning is shown in Figure 1.2:

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Business mission/corporate objectives Marketing audit SWOT analysis Business objectives Marketing objectives Marketing tactics/marketing mix decisions Implementation Monitoring and control Figure 1.2 Key steps in marketing planning These are the basic activities and responsibilities of the marketing manager. Within these broad areas of activity, the marketing manager has several specific marketing activities and responsibilities to perform in the organization. Among the most important of these activities are those of market segmentation and the development and application of the marketing mix. We now consider these two aspects of the marketing manager’s job.

Market segmentation Many feel that market segmentation lies at the heart of the contemporary marketing manager’s task and it certainly represents a key facet of a marketing-oriented organization and hence a marketing culture. The next chapter considers this in detail, but it is useful to introduce you to the notion of market segmentation at this point as it is so central as a concept and technique to the marketing culture.

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Market segmentation recognizes the fact that in most, markets all customers are not the same with respect to their needs and wants. Market segmentation is the process of identifying and classifying customers according to these different needs and wants. By doing so, the marketer is better able to decide which groups of customers or segments to serve, and on what basis. In particular, effective market segmentation enables the marketer to develop marketing mix programmes which are much more closely tailored to the needs of different customers. We can now see how market segmentation enables the marketer to translate the marketing concept into practical marketing programmes and because of this, market segmentation represents one of those powerful tools of the modern marketer.

The tools of marketing management: the marketing mix In performing key tasks, marketing managers have at their disposal a number of tools or ingredients they can use to develop marketing plans, create customer satisfaction. and ultimately profits for the organization. These tools or ingredients are referred to as the ‘marketing mix’. Key Definition The marketing mix: Using the 4Ps set of controllable variables that the marketer uses to develop marketing plans and programmes to best satisfy customers in the target market. • • • •

Product Price Place Promotion

In the chapters that follow we shall be looking at each of these in detail. A further 3Ps – More recently, because of the growth of services marketing, the original mix has been extended to include three further Ps, namely: • People • Process • Physical evidence. Four P’s definition: McCarthy, E.J., Basic Marketing: A Managerial Approach Irwin, Homewood, Ill., 1960

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Marketing mix definition: Borden, N.H., ‘The Concept of the Marketing Mix’. Journal of Advertising Research, 1964, pp. 2-7 Seven P’s definition: Booms, B. and Bitner, M.J. ‘Marketing Strategies and Organizational Structures for Service Firms’ in James H. Donnelly and William R. George, (eds). (1981), Marketing of Services, Chicago: American Marketing Association, pp. 47-51.

Overviewing the marketing process: marketing as an exchange process We have looked at the evolution and meaning of the marketing concept, and the development of a marketing orientation or culture in an organization. We have also looked at the tasks of the marketing manager and the basic tools or ingredients with which to perform these tasks. It is now helpful to outline briefly how all of this translates into the marketing process as illustrated in Figure 1.3: Customer needs and wants

Products and services

Customers

Organization Money resources

Organization’s objectives Figure 1.3 The Marketing process We can see how the marketing process facilitates an ‘exchange’ process between customers and company. Two or more parties must participate and each must possess something of value that the other party desires, and

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be willing to give up its ‘something of value’ to receive the ‘something of value’ held by the other party. The exchange is based on goods/services for money/resources, but those are not the only types of exchange between organizations and their customers. The nature of the exchange process depends on the type of organization and customers. Above all we must be careful not to think of exchange processes (and hence marketing) as only being relevant to profit-making organizations. It is increasingly recognized that the need for a marketing culture, accompanied by the application of marketing principles and techniques, applies to any organization that wishes to undertake an exchange process with its customers. What differs between the profit-seeking and other types of organizations is not the need for an exchange process, but the nature of what is exchanged between the organization and its customers. Because of this, we now consider in more detail this changing role of marketing. In particular we look at the widening range of applications for marketing as it has spread from being initially applied to the marketing of fast-moving consumer goods (FMCGs) through: marketing in business-to-business marketing; the adoption of marketing in service industries; and finally to marketing in voluntary and not-for-profit organizations such as: local authorities, political parties, charities and churches. Some of the key strategic implications of adopting and implementing marketing are: x x x x x x

Customer orientation, Generic business definition, Information/research, Tailored/targeted marketing programmes, Integrated/co-ordinated marketing efforts, Long-term planning.

The changing role of marketing We referred to the evolution of the marketing concept. In the same vein we suggested that marketing thought and practice is still evolving. Some of the more important ones are now introduced, but we shall consider these trends and changes in more detail later.

A wider range of applications for marketing Once exclusively applied only to FMCG manufacturers, marketing has spread through business markets, service markets, and finally to the

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‘markets’ of not-for-profit organizations. We now consider some of these markets.

Business-to-business (B2B) Markets These are markets where customers are primarily distinguished from those in FMCG markets by the fact that they are purchasing to further the objectives of their organizations, rather than for personal motives. There are plenty of examples of organizations who have recognized and used the concepts and techniques of marketing in their business-tobusiness markets to good effect. Hewlett-Packard, the multi-national computer and electronics company, has long utilized many of the tools once associated only with fast-moving consumer-goods marketers to help build a successful company. Tools such as focus group research, global media advertising and effective public relations are used together with other key marketing tools and concepts to help build a strong market position. These markets account for a substantial amount of economic activity in most economies and they include, for example, producers (manufacturers) and distributors/intermediaries. The importance of a marketing culture and the general principles of marketing apply to just the same extent and often in the same manner in these markets as in consumer goods markets. However, there are some quite important differences for the marketer in these markets which stem, in essence, from the different nature of the buyers and the buying process encountered in these markets. There are many implications for the marketer because of this essential difference, but a major implication is in the design and use of the elements of the marketing mix.

Services marketing We have touched on the growth of service markets. In many developed economies such as the USA and the United Kingdom, service industries now predominate. Service industries include a myriad of different types of markets ranging from, financial services such as banks, building societies and insurance companies, through to holidays, fast food, management consultancy and cleaning services. It is recognized that service products have, compared to their physical product counterparts, a number of characteristics which are different. We consider some of these differences

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and their implications in later chapters, but services marketing differs because service products are largely intangible compared to physical products. This, in turn, has implications, for example, for how they are promoted by the marketer. Service benefits are much more difficult for the marketer to communicate to customers. Similarly, intangibility gives rise to additional considerations with respect to branding and packaging. Asked to name an effective services marketer, many would put McDonald’s at the top of their list. Certainly McDonald’s were one of the first service companies to fully appreciate and utilize the concepts and tools of modern marketing and they continue to do so. As regards the marketing concept in a service organization it is important to consider the characteristics of services as intangible, inseparable, perishable. We consider these special characteristics in more detail later, together with some other important characteristics of services, such as inseparability and non-ownership. At this stage it is sufficient to note that these characteristics will mean a need to ensure that a marketing orientation is managed well. In the service organization in particular, regular customer audits need to identify the consumers’ expectations of the service quality and delivery. This means that the service quality must be managed well, and includes the tangibles, reliability, responsiveness, assurance and empathy of the organization. Marketers need to consider an extended marketing mix for services to include the additional elements of ‘people’, ‘processes’ and ‘physical evidence’. Developing a marketing-oriented service organization has implications for the management style used, the structure of the organization, and its marketing strategy. Information systems, staff attitudes and skills, and shared values in the organization may all need to be considered to ensure a marketing-oriented service organization.

Not-for-profit organizations Sometimes referred to as ‘non-business markets’, these are organizations essentially established for reasons other than to earn profits for shareholders. As in B2B and service markets, non-profit organizations and markets encompass a wide variety of types of organization and marketing practices. For example, they include institutions such as local authorities, hospitals, governments, universities and churches. Charities and social

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causes include, for example, Oxfam and the National Trust. With such a wide variety of types of not-for-profit organizations and markets it is difficult to try to encompass the differences in the application of the marketing culture and practices in such organizations in just a few sentences. However, so long as we do not overgeneralize, it is possible to highlight a number of key differences in the application of the marketing concept and tools in these organizations. In particular: x Such organizations often operate within a much tighter regulatory framework with regard to if, and how, they apply the concepts and tools of marketing. x Many of the characteristics of service products, which we introduce later, such as intangibility, also apply to many not-for-profit organizations. x The marketing mix elements and their application often differ in these organizations and markets. For example, the ‘price’ element of the marketing mix is different in ‘not-for-profit’ organizations, and often no price is set by the marketer or paid by the customer. If we take, say, a political party marketing itself for an election then as an example, customers (voters) are not asked to pay a financial price for the ‘product’, but rather are being asked to ‘pay’ with their vote. This example illustrates differences in the nature of the ‘exchange process’ between not-for-profit organizations and their customers and it is to this difference that we now turn our attention. x In overviewing the marketing process, Figure 1.3 has illustrated the centrality of the concept of exchange in this process. Although the essence of the exchange process is the same for any market, and underpins the concept of a market, and although the related concept of ‘value’ in this process is just as relevant, the notion of what is exchanged, and what constitutes value, between not-for-profit organizations and their customers differs from profit-seeking organizations. Figure 1.4 shows some examples of exchanges which might take place between different types of not-for-profit organizations and their customers. x The final difference in considering marketing in not-for-profit organizations is that ‘the customer’ can comprise several different, and often potentially conflicting, groups. If we take a university, its ‘customers’ could include: students; potential employers/industry; local government; the local community and national government. Because of this, often in not-for-profit organizations a distinction is made between ‘customers’ and ‘publics’, the latter term being used

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to denote any party to which the organization will, from time to time, need to address its marketing efforts. Type of not-for-profit organization exchanges

Possible nature of exchanges

Organization exchanges Culture Education Entertainment

Customer exchange Time Interest Donations Entry Fee

University

Education Qualifications Career

Fees Time Commitment

Political party

Standard of living Lifestyle

Votes Time Donations

Local authority

Local services Lifestyle

Rates Votes

Charity

Self-esteem Well-being

Money Time Help

Museum

Figure 1.4 Marketing process and exchange in not-for-profit organizations

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Activity 1.8 Select a not-for-profit organization of your choice, e.g. a church, a charity, a political party, and find out as much as you can about how it ‘markets’ its ‘products’/services. Environmental and social marketing: ethical and social responsibilities Once exclusively concerned with satisfying ‘wants’ and profitability, marketers are now being called upon to balance these against the need to protect the environment and indeed the interest of consumers and society as a whole. Recognition of the social and environmental impacts of marketing through the promotion of consumption has to some extent been forced upon the marketer by social attitudes and pressure groups. Social attitudes have changed and are now more concerned with factors like the environment, welfare and safety of customers and the effect which consumption and marketing of products can have upon these. Of particular importance among social trends has been the growth of ‘consumerism’ and ‘green marketing’. Exam hint Although consumerism and green issues are relatively new for many marketers, and although in some parts of the world they are seen as being much less important, owing to factors such as the level of economic development, they are popular areas for examination questions. Because they might be less relevant issues in your own environment, do not be tempted to ignore them as topics for revision. Question 1.1 What were President Kennedy’s four consumer rights, which he proposed in his now famous speech in 1962. The four consumer rights that President Kennedy referred to in his speech in 1962 were: x x x x

The right to safety, The right to be informed, The right to choose, The right to be heard.

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Since Kennedy’s speech outlining these four basic rights, the consumer movement has gathered pace, first in America and then in Western Europe. Consumers have become increasingly critical of what are questionable practices of a minority of marketers. They are increasingly aware of their rights, and demand that these be protected. Many of the worst excesses of marketing in years gone by are now covered by legislation that protects consumers. Consumers have become much better organized and skilled in protecting themselves. In the UK, in addition to the legal protection afforded to consumers, a number of consumer organizations look after and promote consumers’ interests. Some of these are official, like consumer watchdogs set up to monitor marketing activities and particularly prices in utilities of electricity, gas and water. Others are unofficial, such as local pressure groups that respond to what they see as any infringement of their rights. There are specialist consumer magazines, TV programmes, and websites, which report on the marketing activities of companies and look at how customers can get the best value. The best example of such a magazine in the UK is Which? produced and published by the Consumers’ Association. Activity 1.9 List as many examples as you can think of where marketers have responded to the need to protect the environment. Activity 1.10 Research any organizations that have been established, specifically to augment the rights and power of buyers, in relation to sellers. These can be formal organizations or bodies established by government, or informal ones. In addition to finding out the names/titles of any such organizations, try to establish what it is they do, i.e. their aims and activities. The results of consumerism have included an increase in various acts and legislation designed to protect consumers, and an increased awareness on the part of marketers of the need to ensure that consumers’ views and welfare are protected. Enlightened marketers see consumerism not as a threat but an opportunity to respond to changing customer needs and requirements. The most successful companies have been those that have responded positively to the consumer movement and have been proactive in developing marketing programmes to take account of the movement.

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There are plenty of examples of how the consumer movement has affected how products are produced and marketed, and even if they are marketed at all. For example, in the interests of health, cigarette advertising is now largely banned completely. Similarly, many food products are now marketed on the basis of the fact that they are healthier than their predecessors. Consumers are demanding healthier and safer products from marketers. Activity 1.11 Think of examples of products and services where their marketing has been affected by the need to cater for the consumer’s increased interest in his/her own health and safety. Here are some examples: x x x x x x

Lower tar tobacco products, Low fat products, Low cholesterol products, Exercise products, Sun blocks, Air bag crash protectors in cars.

Green marketing This development associated with the social-based marketing concept is an increase in environmentally friendly products and services. Not only are customers more concerned to protect their rights as consumers, but an increasing number are also concerned to protect the environment. Specifically, they are concerned about the potential effects of the marketing of products on the environment. Activity 1.12 Think of examples of issues associated with marketing that are frequently raised as causing problems for the environment. Here are some examples: x Products that use/deplete scarce resources, e.g. hardwood forests, x Products whose manufacture, use, and disposal pollutes rivers. x Products that endanger species,

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x Products whose manufacture, use, or disposal of pollutes the atmosphere. Like the consumer movement, the Green movement has increased in importance and become more powerful and influential. In several European countries this movement has become political, with representatives being elected to voice the opinions and attitudes of the members of the Green movement. The Greens are a minority group no longer, and even non-Green members of society have become more aware of the potential polluting effects associated with the production and consumption of products and services. Like the consumer movement, the Green movement has resulted in legislation designed to protect the environment from pollution. We are increasingly seeing voluntary codes of practice to reduce pollution. Farsighted marketers have responded positively to the Green movement, not only conforming to legislation but also taking proactive steps to produce and market ‘greener’ products. In some countries environmental groups have combined to produce guides to products that are environmentally safe, giving them a seal of approval. This seal of approval can then be used by marketers in their advertising, packaging and promotion. There is little doubt that this importance and this impact are growing and spreading and will affect most marketers in the future. It is relatively easy to find examples of how green issues have affected marketing programmes already from the materials used in some products and services, to how they are manufactured, how they are promoted, and how they are designed to be used and disposed of. Activity 1.13 Think of examples of products and services that have been affected by green issues and where as a consequence the marketing mix for these products has been designed to take account of such issues. Examples of products that have specifically been marketed to take account of green issues and concerns include: Unleaded petrol, Fake furs, Chlorinefree detergents, CFC-free aerosols and refrigeration, Biodegradable plastics, Recyclable packaging, Wood products made from managed forests. Although consumerism and green issues are perhaps the best examples of some of the trends and changes that have given rise to a change in the

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underpinning concept, philosophy, and activities of marketing, there are several forces and factors that have caused the need for a more societybased marketing concept. Increasingly marketers have to resolve the potential for conflict between meeting profit and commercial objectives, customer needs, customer interests, and the wider interests of society as a whole.

An increased emphasis on quality, service and customer care As markets have continued to become increasingly competitive, marketers have recognized that customers now demand and expect consistent quality. This applies not only to product quality, but delivery and after-sales service. In turn customers expect a high degree of service and customer care from suppliers of the goods and services they select. Research has shown that quality is one of the major factors accounting for differences in profitability. Companies which produce consistent quality products tend to be more profitable than their inconsistent quality counterparts. In part, the demand for high quality products reflects increasing affluence and disposable incomes in developed economies. We should not forget that in some parts of the world high-quality products are not necessarily what is wanted, and in many cases are unaffordable. The marketer therefore must be careful to ensure that quality and hence price levels are not beyond the reach of the customer in a particular market. Consistency of quality has also become more important due to changes in manufacturing processes. Although the Japanese were the first to use justin-time, or lean manufacturing, in their manufacturing, these systems are now widespread throughout the world. This approach in particular means that suppliers to companies operating such systems must ensure zero defects. Because components and raw materials are incorporated immediately into the production process with most lean manufacturing systems without inspection it is vital that quality can be relied on. Quality and related aspects such as customer service and care are considered in more detail in Chapter 7, but related to an increased emphasis on quality and customer care is one of the most significant developments in the marketing culture, namely the growth in the concept and application of relationship marketing.

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The growth of relationship marketing (RM) Related to the growth in the importance of customer care has been the recognition on the part of many marketers that it makes sense to try to build long-term relationships with customers, and in particular build company and brand loyalty, rather than treating each purchase a customer makes as a one-off transaction. Relationship marketing is the term that is used to describe this process of building long-term commitment and loyalty from customers. RM itself can be defined as all of the activities which an organization can use to build, maintain, and develop customer relations. The concept of RM is one of the most fundamental changes in recent years with regard to how marketers look at marketing and practice their marketing activities. However, RM is still underpinned by the concept of exchange. During the exchange process both buyer and seller exchange something of value in return for something. RM aims to maximize such value to both buyer and seller and to ensure that both customer and company are truly satisfied. In a way, then, RM is simply a heightening of the acceptance and application of the marketing concept. It is also much more than this, RM requires a building of trust between the organization and its customers. It also demands long-term loyalty between both parties to the exchange. Initially, practised principally in business-tobusiness markets, RM has now grown in consumer markets. Almost all UK supermarket retailers have developed loyalty schemes designed to reward customers for continuing patronage. The RM approach in marketing is based on a fundamentally different approach to customers even though it is still underpinned by the concept of exchange. Although conventional marketing is based upon identifying and satisfying customer needs, it is essentially based upon the premise that once these needs have been satisfied through an effective exchange between two parties, then the process of marketing is complete. This concept in traditional marketing is based upon the idea of effecting a transaction with the customer. For example, the emphasis on completing an individual sale is the measure of the success of the exchange. Not surprisingly, this approach is often now referred to as a ‘transaction marketing’ approach. It is increasingly recognized that this is in effect a very short-term and potentially ineffective way of dealing with customers. Relationship marketing is aimed at developing a long-term series of mutually beneficial exchange processes between buyer and seller. The RM approach means all activities of an organization are used to build, maintain and develop customer relations, the objective being to build

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customer loyalty, thereby leading to customer retention. RM is concerned with getting and keeping customers by ensuring that an appropriate combination of marketing, customer service and quality is provided. In order for RM to work it is important to recognize that both parties must feel that they can benefit from long-term relationships rather than one-off transactions. A key element of RM is the development of mutually beneficial long-term relationships between customers and suppliers. With RM, we see a shift towards more interactive, two-way sets of relationships between suppliers and customers. This leads to two-way communications together with the development of more personalized marketing strategies to ensure a unique sustained competitive advantage. RM also widens the concept of exchange to consider all of the parties involved. For example, RM also considers all of the organization’s partnerships i.e. suppliers, lateral, internal, as well as the buyer/consumer. RM requires a fundamentally different approach to that found in transaction marketing. To ensure successful RM there needs to be an appropriate supportive organizational culture and everyone in the company must be concerned with generating customer satisfaction. Hence, internal marketing is necessary in companies that are to successfully develop a RM approach. Its growth is linked to developments in information and databases by enabling the marketer to develop much more detailed understanding of customers, their expectations and needs. Customer databases help marketer to listen to customers and interpret their problems. The use of customer databases has become so important in contemporary marketing culture that the role and use of database marketing is considered in later chapters. An outline of some of the most important developments in information and database marketing and developments in new technology in marketing is now considered.

An increase in information and data-based marketing Information, and particularly data-based marketing, has allowed ever-more powerful and cost-effective marketing. Examples of areas where we shall see indications of this power include the growth of direct marketing and areas such as segmentation and market targeting. For example, improved information and databases are allowing marketers to identify and target smaller and smaller groups of customers but with greater accuracy. This is helped by the proliferation of media channels now available to reach these smaller, more fragmented target segments. As a result, we have seen the growth of fragmented marketing approaches with a marketer being able to

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target more and more accurately specific groups of, or even individual, customers. Information and database marketing is having a major impact on the application of marketing. More broadly new technology in is impacting marketing.

Study tip Because marketing is such a dynamic area of business and society it is constantly changing and evolving. Although we have introduced some of the more important trends and developments recently in marketing. Other developments and trends include the growth in the importance of branding, increasing fragmentation of markets and media, and the growth of network marketing. Although the examiner will not realistically expect you to be an expert in all the areas of marketing which are evolving and changing, it is important that you try and keep as up to date as possible with developments and trends. You should try to read as widely as possible in the marketing press and journals.

Growth of new technology in marketing Technology helps to facilitate and improve the way we do things. Think for a moment how different your life would be without, say, the mobile telephone or the internet, or without access to penicillin and other medical treatments. What would the lives of some of us be like without the technology to purify water or deliver electricity and power? Less dramatically, technology also affects and helps facilitate marketing and the marketing process so much so that some areas of marketing and marketing techniques are almost totally underpinned by technology and its application. Much advertising relies on communications technology; effective distribution and logistics relies on transport technologies; marketing research and analysis relies upon computing technology. This reliance on and use of technology in marketing is not new. After all, trade and marketing between the Egyptians and Phoenicians was dependent on and affected by the technology of boat-building. More recently business in general and marketing in particular, has become more and more affected by, and reliant upon, technology. Moreover, technology itself is changing at an ever-increasing pace. We explore some of the more important of these changes and advances in technology as they affect the marketer in

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more detail later. Suffice it to say that advances in technology are now beginning to fundamentally change the nature of marketing and other business and commercial activities. The contemporary marketer needs to be familiar with the key advances in technology which currently affect the marketing process. A summary of reasons for this, which captures the importance of technological advances for marketers are: x Competitive success increasingly is based on the application of advances in technology, x Technology is increasingly being used by companies to both differentiate their products and reduce their costs, x Many of the advances in technology allow the marketer to be much more customer and marketing oriented with, for example, much speedier and flexible responses to customer needs, x Technological advances have led to the emergence of new critical success factors for organizations as a result of new ways of doing business, x Advances in technology enable the marketing process to be carried out not only more effectively but more efficiently, x New technology increasingly facilitates the ease with which information, so vital to effective marketing planning and decisionmaking, can be collected and analysed, x Advances in technology often underpin the growth of the global company and a move towards the global market and consumer. Another way of illustrating the importance of some of the technological advances which are now taking place in marketing is to consider some of the effects that such technology is having, or will have in the future. Some of these effects are considered later, but some of the key areas of marketing thinking and practice where technological advances have had a major effect include: x Fundamental changes to retailing and shopping, for example in the future many customers will shop predominantly from home, x Much greater price competition as customers are able to ‘shop around’ on, say, their computers, x The potential demise of whole markets and their replacement by entirely new products and industries, x Entirely new relationships between members of the value chain and particularly between customers and suppliers,

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x Related to the above, the growth of new entrepreneurial companies such as the dotcom companies. Needless to say, marketers have not been slow to grasp the advantages of the growing sophistication and application of advances in technology. Information and communication technology (ICT) in particular has assisted in the management of a customer-oriented culture in the following ways: x The sophisticated use of current databases to understand consumer behaviour, x Using the Internet as a marketing information system, e.g. for gathering competitor intelligence information, x Using the World Wide Web to make products more accessible for consumers, i.e. the use of on-line shopping, offering more information about the company or product, etc., x Building customer care systems for customers/clients using e-mail and webcasting, x Considering segmentation and global niches, from the observation of the use of current, or specifically designed, Internet pages. Together, these factors mean that today’s marketer must not only be aware of, but understand, the advances in technology which are taking place. Moreover, the marketer must be sensitive to, and be prepared for, future advances in technology. This means that the marketer must also have the skills to use the new technologies to help facilitate the marketing process. Activity 1.14 x Recall a purchase where you felt that you did not receive an adequate level of customer care. x Describe what was inadequate or unsatisfactory about the level of care you received. x Write down your feelings about the supplier/company you dealt with. x What could/should the company/supplier do to improve levels of customer care?

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Marketing in practice case study ‘Who needs marketing – we’re bankers!’ Once notoriously product oriented, the banking industry took a long time to wake up to the need to be customer oriented and the potential for increased sales and profits by using the tools and techniques of marketing. There are several reasons why the banks were slow to accept and implement the marketing concept and begin to utilize the full range of marketing tools and techniques including, for example, in many countries the banking sector comprised of a relatively small number of large banks who operated in oligopolistic market structures and hence, to some extent, were protected from intense competition. Marketing was seen as being something that was relevant only to fastmoving consumer goods. Certainly, it was felt, a traditional and professional sector such as banking should not be tainting itself with marketing ideas. Traditionally the senior management of commercial banks came from a banking background and had few, if any, marketing skills. Finally, it was felt that the special characteristics of what is essentially a service product meant that in any event many of the tools and techniques of marketing simply did not apply. Over the last twenty years the situation has changed dramatically. Throughout the world the banking sector is now one of the most ardent users of marketing concepts and techniques. Again, there are several reasons for this but the most important include: x Customers are increasingly more demanding in their needs and requirements from their banks. This stems from the fact that they are more aware of the services on offer and are better educated in their choice of financial services. x Throughout the world the banking sector has been opened up to more and more competition. In some cases, this has been as a result of de-regulation with regard to the banking sector in many countries leading to a much wider range of financial institutions offering banking services. In addition, like many

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markets, the banking sector is now global with global competition. x A new generation of bank employees has emerged with many senior managers in banking now coming from more commercial and often specifically marketing backgrounds as opposed to being ‘pure bankers’. x Many banks are now as much customer oriented then as their fast-moving consumer goods marketing counterparts. This has led to substantial and wide-ranging changes in how the banks operate; their products and services; and their marketing and organizational structures. Some of the changes which the adoption of marketing concepts and techniques in the banking sector has given rise to include: x Much greater use of the tools of market research and analysis. The leading banks regularly conduct marketing research exercises designed to keep abreast of customer needs and levels of customer satisfaction. x Organizational and marketing structures which are based around customer and market requirements with, for example, product and brand manager systems being common now. Marketing has been elevated in many banks to the position of providing the overall co-ordinating role for the resources and activities of the business. x More effective marketing planning and control systems with strong emphasis on techniques such as market segmentation and targeting and the application of the elements of the marketing mix extended to include the additional 3Ps of marketing services in a co-ordinated and controlled manner. x Related to the application of the marketing mix, banks have recognized the need for an increased emphasis on quality, service and customer care and have been particularly adept in using some of the developments in information and data-based marketing to foster the growth of relationship marketing with their customers. x The banking sector is demonstrating an awareness of wider environmental forces and factors with its increased recognition of its ethical and social responsibilities towards customers.

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x Although there is room for improvement, the global banking sector is one of the success stories in recent years of the application and implementation of the marketing concept.

Summary In this chapter we have seen that: x Marketing is first and foremost a way of thinking that puts the customer at the centre of all organizational decisions. In doing so, marketing is a form of competition which serves as the means of creating customer value, x Marketing orientation is the result of an evolution from a production-oriented through a sales-oriented era, x A marketing culture must be developed throughout the organization, but this takes time and resources, x Marketing is also a management function encompassing the key tasks of analysis, planning, implementation and control and involves the co-ordination of organizational resources both within and outside the marketing function. The major tools of the marketer are the elements of the marketing mix, which in turn are allied to the processes of market segmentation and targeting, x The marketing concept is still evolving and now embraces business-to-business marketing, services marketing and marketing in not-for-profit organizations, x Marketing has responded to an increased awareness of environmental issues and an interest in total quality, x Increasingly, marketers recognize the importance of treating customers as partners and in developing long-term, customer loyalty through the development of improved relationships with customers, x As in many areas of management, developments in information technology are having, and will continue to have, a major impact on marketing practices, x Database marketing is becoming increasingly important in the contemporary marketing culture.

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Question 1.2 Identify and explain what is meant by a marketing concept by referring to at least three definitions from different theorists. The basic view of marketing is that to succeed, a business requires satisfied and happy customers who return to the business to provide additional custom. It is about an exchange process for something of value, typically payment or a donation; the customers receive a product or service that satisfies their needs. Three factors confirm this view: 1. Marketing consists of personal and organizational activities to facilitate satisfying exchange relationships through the creation, distribution, promotion and pricing of goods, ideas and services; 2. Marketing means working with markets to bring about exchanges for the purpose of satisfying needs and wants. Individuals and groups obtain what they need and want by creating and exchanging products and value with others; 3. Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably. These definitions mainly refer to products and services. It must not be forgotten that marketing is also important for the not-for-profit organizations such as charities., where profit is not the goal. In these organizations marketing is required for a range of other issues such as raising awareness and communicating messages which aim to change behaviour. Take time to consider the exchange process for a number of organizations and clients/customers with which you are familiar. Question 1.3 What are the main differences between the following terms: production concept, selling concept and marketing concept? 1. The production concept holds that consumers prefer products that are available and affordable and management therefore should focus on improving production and distribution efficiency.

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2. The selling concept holds that consumers will not buy enough of the organization’s products unless it undertakes a large-scale selling and promotion effort. 3. The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. Thus, it can be seen that the organizations which are customer focused are practicing the marketing concept and endeavour to achieve the maximization of customer satisfaction. However, the production or selling concepts can lead to ‘marketing myopia’ and short-term results. Question 1.4 Identify organizations which in your opinion have not adopted a marketing concept. Try to explain why you feel that this is the case. The answer to this question will be based on your knowledge of different organizations; however, you should try to make a note of such organizations and try to identify their problems and reasons for not adopting a marketing concept. Question 1.5 Identify the steps for introducing a marketing-oriented concept within an organization. The steps for introducing a marketing-oriented concept within an organization are: 1. 2. 3. 4. 5.

Define and determine customers’ needs, Top management commitment for marketing orientation, Invest resources and set up information systems, Adapt the product/service and/or internal structures, Communicate the philosophy of staff (customer-driven shared values) and establish a marketing-oriented culture, 6. Establish marketing strategy and set up customer care systems, 7. Measure and control.

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Question 1.6 Why might it be difficult to manage the introduction of a customeroriented culture within an organization? Some of the main difficulties encountered when introducing a customeroriented culture are: 1. Managers fail to realize or understand the true concept, 2. The structure of the organization may require changing and this can lead to other manager’s resistance and costs, 3. People are frightened and reluctant to change, 4. The power struggle between different departments within an organization can hinder the process e.g. the production department, 5. In some organizations the responsibility for marketing strategy and implementation are separated and this may offer many problems. Question 1.7 How might the use of information technology assist in the management of a customer-oriented culture? The use of information technology can assist in the management of a customer-oriented culture in the following ways: 1. The sophisticated use of current databases to understand consumer behaviour, 2. Using the Internet as a marketing information system e.g. for gathering competitor intelligence information, 3. Using the World Wide Web to make products more accessible for consumers, i.e. the use of on-line shopping, offering more information about the company or product, 4. Building customer care systems for customers/clients using e-mail and webcasting, 5. Considering segmentation and global niches from the observation of the use of current or specifically designed Internet pages.

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Question 1.8 What are the main differences in the exchange relationship for notfor-profit organizations such as charities? For an exchange to take place, two or more individuals must participate. Each party must possess something of value that the other party desires, each party must be willing to give up its ‘something of value’ to receive the ‘something of value’ held by the other party. However, this process is interesting when considering charities, as the ‘something of value’ for the ‘customer’ or donator is usually money or time to help the charity – the exchange item is the self-esteem and sense of well-being received by the donator. Question 1.9 Discuss the implications of a marketing concept in a service organization. Within a service organization it is important to consider the characteristics of services as intangible, inseparable, perishable and variable. These characteristics mean that the organization will need to ensure that a marketing orientation is managed well. Regular customer audits will need to identify the consumer’s expectations and perceptions of the service quality and delivery. This means that the service quality must be managed well and includes the tangibles, reliability, responsiveness, assurance and empathy of the organization. Marketers need therefore to consider the extended marketing mix elements of people, processes and physical evidence. Therefore, those developing a marketing-oriented service organization will need to consider the marketing strategy, the management style, structure of the organization, the information systems, skills and staffing and shared values of the organization, so that customer-driven service quality levels are paramount.

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Question 1.10 What are the main barriers when introducing a customer-oriented culture within an organization? For this answer try to think of examples from any organizations with which you are familiar. You should get used to citing examples within your examination scripts as this will add to your discussion and demonstrate your understanding and knowledge of the theory to the examiner. Question 1.11 Discuss the concept of social responsibility and comment on the implications of social responsibility from a marketing perspective relating to consumers and the marketing mix. There are a number of issues which marketers must understand when considering their role. In today’s environment the contemporary marketer is much more aware of responsibilities towards society in terms of moral and ethical responsibilities of business. The recognition of the social and environmental impact of marketing must be appreciated, such as economic, legal and, importantly, ethical concerns. Society has become more concerned about factors such as the environment and safety issues, which have grown out of consumerism and green marketing issues. Consumers are demanding and getting healthier and safer products from marketers. It is interesting to consider the concept of social responsibility relating to the marketing mix and the following offers some examples of these implications: 1. Products: safety, recyclable packaging and the use of environmentally friendly materials, 2. Promotion: accurate and reliable, the use of an ethical stance as a communication message (e.g. Body Shop) 3. Pricing policies: ensure fair and ethical pricing strategies, 4. Place: distribution using ‘green’ methods, 5. People: organizations’ responsibility for their staff and the local community, 6. Process: consideration of the energy consumed and decreases in waste products,

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7. Policies: companies consider the motivational aspects for their staff and how to add value to society in general. Question 1.12 Explain what relationship marketing means. One of the most recent changes in marketing management has been the concept of relationship marketing. Relationship marketing is where all the activities of an organization are used to build, maintain and develop customer relations, which should lead to customer retention. RM is concerned with getting and keeping customers by ensuring that an appropriate combination of marketing, customer service and quality is provided. It is concerned with the development of mutually beneficial long-term relationships with customers and suppliers. This leads to twoway communications and the development of personalized marketing strategies to ensure a unique sustained competitive advantage. The concept also considers all of the organization’s partnerships – supplier, lateral, internal as well as the buyer/consumer. To ensure successful RM there needs to be a supportive organizational culture, internal marketing and a clear understanding of customer expectations. The use of information technology is also important to help manage the programme with the use of sophisticated customer databases.

CHAPTER TWO MARKETING PLANNING AND BUDGETING

Learning Objectives By the end of this chapter you will: x Understand the importance of the marketing planning process, the structure and components of the marketing plan, and where it fits into the corporate or organizational planning framework, x Appreciate the models that describe the various stages of the marketing planning process, x Comprehend the concept of the marketing audit and the various analytical tools used in the marketing auditing process, x Understand the value of marketing research and information in developing marketing plans, x Be cognizant with the importance and approaches to objective setting, x Be aware of the importance and process of segmentation, targeting and positioning, market segmentation, targeting and positioning, x Appreciate the range of tools and techniques available to satisfy customer requirements and compete, x Understand the process of setting marketing budgets, x Recognise the various management structures for implementing marketing plans and the importance of monitoring and control of marketing activities.

Introduction This chapter serves as an overview and framework for the rest of the chapters in this book in as much as it encompasses the whole of the marketing process from the perspective of steps and issues in marketing planning and budgeting. We look at the nature and importance of the marketing planning process working through each of the stages and introduce relevant tools and concepts appropriate to each stage. Some

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central areas of marketing are considered including the marketing audit and the related areas of SWOT and PEST (or STEP) analysis. We examine the concept of market segmentation and how this relates to targeting and positioning and the creation of an integrated marketing mix. The nature of marketing objectives is considered along with marketing strategies to achieve these. Finally, we look at implementation and control issues together with the role of marketing research and information in developing marketing plans.

The nature and importance of marketing planning In the last chapter analysis, planning, implementation and control were considered and these account for a major part of marketing’s responsibilities and activities. Historically, much of marketing was characterized by a lack of systematic and structured planning. Marketing managers often acted on hunch or intuition. Marketing activities were often unstructured and not set in a coherent and integrated framework. Different marketing activities in different parts of the organization were not coordinated, e.g. the sales function and the marketing function pulled in different directions and the co-ordinating role of marketing with respect to other functions in the business was often neglected. Increasingly, marketing is characterized by more systematic and structured marketing planning using a variety of sophisticated planning tools and techniques. Contemporary marketing is imbued with a planning culture. Among some of the more important reasons for this move are: x A more competitive and dynamic marketing environment, x High levels of investment required to develop new products and markets and hence high risk, x More sophisticated and powerful planning tools and models, x Better trained marketing managers, x Improved access to marketing data and information, x Recognition of the need for improved co-ordination and integration of marketing and other plans. As a result of these factors, most companies have effective and sophisticated marketing planning systems. In addition to the move towards planning cultures in organizations, the perspective on the nature of plans has changed. Corporate and marketing planning has become more strategic in

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nature and so too has marketing itself. Strategic, as opposed to tactical, marketing planning has the following characteristics: x Longer-term planning horizons, x Involves major commitments of company resources, x Strategic marketing planning determines the nature of what an organization is and has to be, x Such planning affects and involves all levels, functions and activities of a business, x It reflects both internal (company) and external considerations. One of the most comprehensive and easy to understand definitions of strategic marketing is that proposed by Cravens: Key definition Strategic marketing is a process of strategically analysing environmental, competitive and business factors affecting business units and forecasting future trends in business areas of interest to the enterprise, participating in setting objectives and formulating corporate and business unit strategies, selecting target market strategies for the product markets in each business unit, establishing marketing objectives, and developing, implementing and managing programme positioning strategies for meeting target market needs. Cravens, D.W. ‘Strategic Marketing’, (1982), Homewood, Ill., Richard D. Irwin, Inc. The advantages of adopting a planning culture, coupled with a more strategic approach to marketing planning are: x More structured analyses of the marketing environment, x Objectives and strategies based on exploiting company strengths and marketing assets, x An awareness of key marketing trends and possible future developments, x Proactive rather than reactive approaches to marketing activities, x An increased customer focus/customer orientation, x Integrated marketing programmes involving cross-functional activities. We now consider the steps and stages in this process in more detail.

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The marketing planning process In Chapter 1 you were introduced to a basic model of the marketing planning process. We now examine the stages and steps in planning in more detail and see how the various stages of the marketing planning process fit together and relate to the overall corporate or organizational planning framework. We have reproduced this model again as Figure 2.1, as it is important that you become familiar with this, and now take you through each of the steps in more detail: Business mission/corporate objectives

Marketing audit

SWOT analysis

Business objectives

Marketing objectives

Marketing tactics/marketing mix decisions

Implementation

Monitoring and control Figure 2.1 Key steps in marketing planning

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Business mission/corporate objectives The start part of the marketing planning process is to determine the overall business mission and corporate objectives. Marketing objectives and strategies must be reflective and supportive of this overall business mission and corporate objectives. The business mission is to determination what the company intends to be; its general culture and operating philosophies. An example of a business mission is: To be the leading provider of technological solutions in the information technology market by using the greenest technologies available, and with a commitment to developing community and customer relations. Corporate objectives may encompass several areas relating to growth, financial performance, innovation, corporate reputation and contributions to community and society. These should be specific and quantified unlike the business mission statement. Before starting the marketing planning process, the marketing function must ascertain, and help shape, the overall objectives of the organization. These will then serve to feed into, and shape, marketing objectives and strategies and individual elements of the marketing mix. There is often confusion about the differences and relationships between corporate objectives and strategies and marketing objectives and strategies. The main differences are that corporate objectives and strategies relate to objectives and strategies for the organization as a whole and encompass and affect every functional area of the business. Corporate objectives relate to broad objectives concerned, for example, with growth and financial performance. Corporate strategies for achieving these relate to major routes or paths for achieving these e.g. growth through mergers, acquisitions or expansion. Within these broad corporate objectives and strategies each functional area of the business, including marketing, will need to develop a set of objectives and strategies that are consistent with, and supportive of, overall corporate and organizational objectives and strategies. Of all the functional areas of business, it is the marketing function, and marketing management, which will probably have most input to, and effect upon, the identification and selection of overall corporate and organizational strategies. In many organizations, particularly multi-product/market organizations, the basic unit of marketing planning, i.e. the organizational element

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around which individual marketing strategies are planned, is increasingly the strategic business unit. Key definition A strategic business unit (SBU) is a part of a business or organization which has its own customers/markets and its own competitors against which it is competing. It has its own management team who collectively are responsible for determining objectives, strategies and plans for this part of the business and who are responsible for the performance of the business. A strategic business unit can operate to all intents and purposes as an independent business. While a key role of marketing management then is to help shape overall corporate objectives and strategies, detailed marketing plans and the sequence of steps are carried out at the level of the individual strategic business unit. Where a company has multiple strategic business units then the activities of these individual business units, including, for example, the resources they will be allocated and the related aspect of which business units are to figure most strongly in the future plans of the organization, need to be assessed and co-ordinated. Although each SBU will have its own marketing objectives and strategies, the collection of business units have to be managed to ensure an effective balance of business units which will serve to meet current corporate objectives and more importantly, will serve to meet future corporate objectives. Collectively these techniques and models are referred to as ‘portfolio analysis’ which is discussed in the next chapter. Study tip It is debatable whether techniques of portfolio analysis are tools of strategic marketing planning or specific tools of product management. Although portfolio models vary, most encompass and relate to both strategic marketing planning and managing the product mix. These include tools on product management and new product development, but can be classed as tools of marketing planning. Their use in this context is as part of the marketing auditing process.

Marketing audit The second step in the marketing planning process involves the marketer in assessing the situation which faces the organization. The first half of the

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marketing audit encompasses the internal situation of the organization and its performance. The second half involves analysing the external situation. It is important that marketing managers understand the environment in which they are operating. This means that a systematic PEST (sometimes referred to as STEP) analysis will need to be undertaken on a regular basis. One half of the marketing audit encompasses the internal situation of the organization and evaluation of its assets, resources and competences. This is referred to as a ‘Strengths’ and ‘Weaknesses’ assessment which is the first half of SWOT analysis, discussed in the next section. The second element of the marketing audit involves analysing the external situation by identifying the Opportunities and Threats elements of SWOT.

PEST (or STEP) Factors The initials PEST are widely used and represent major factors in the wider marketing environment: x Political factors such as government regulations, policies and strategies, tax, education, business and industry, x Economic factors such as movements in the trade cycle, levels of disposable income, interest rates and inflation, x Social/cultural factors such as the ageing consumer, increases in one-parent families, changing values, attitudes and beliefs, x Technological factors such as the increased rate of computer capability, developments in IT and production methods. In addition to these PEST factors, the marketing audit of the environment should also encompass factors such as competitors, suppliers and distributors, which also must be taken into account in planning marketing decisions. With regard to the internal half of the audit the marketer must regularly and systematically assess resources, systems and procedures and skills of the organization. The internal marketing audit should examine these from the perspective of the extent to which they can be used to generate competitive advantage through customer satisfaction. In other words, resources, procedures and skills should be assessed from the point of view of a customer/marketing orientation. In carrying out the internal audit, the marketing planner must decide what resources, activities and skills of the organization should be included. Many companies use standard checklists for this process encompassing including:

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Financial, Marketing, Manufacturing, Physical resources, Human resources, Research and development.

The following major areas which the marketing audit should encompass are: x The marketing strategy audit includes key marketing objectives of the organization together with an assessment of the major competitive strategies being pursued. These are assessed with regard to continuing relevance, feasibility and effectiveness. x Marketing structures audit encompasses areas of responsibilities and authority, co-ordination and communication. x Marketing systems audit encompasses areas such as planning and control mechanisms including budgeting, resource allocation and measures of marketing effectiveness. x Productivity audit uses specific measurement criteria to assess marketing performance encompassing areas of profitability, sales effectiveness and market share measures. Detailed analysis can be applied to assess the relative productivity of products, market segments, individual customers and distribution channels. x Marketing functions audit relate to the elements of the marketing mix. This part of the audit encompasses an assessment of products, pricing, distribution, promotional and additional functional elements of marketing associated with services, i.e. the extended marketing mix with the additional three Ps of People, Process and Physical evidence. The marketing audit should be carried out on a regular basis; certainly at least every year. Some suggest that the audit be carried out by external auditors to increase objectivity and provide fresh perspectives on marketing issues and performance. If carried out by internal staff, inevitably the expertise of personnel from functions other than marketing and encompassing other key functional areas of the business such as production, accountancy, human resource management, research and development will be required. This means that ideally the marketing audit should be a team effort, and should be the first step in developing effective marketing plans and programmes. It should not be interpreted to admonish

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and discipline marketing or other functional staff for ineffectiveness or poor performance. The internal audit encompasses not just marketing: it relates to the coordinating function of marketing and the need to look at all business activities from a marketing/customer perspective. The internal audit seeks to establish bases for competing in the market place. Often these bases will be primarily marketing in nature, e.g. effective advertising or packaging. Often companies compete, using skills and resources in other functional areas e.g. research and development through new products may be a major means of achieving competitive success. What marketers must do in conducting the internal audit is to establish what critical resources, skills and processes are needed in the context of markets in which the company operates, as well as the objectives it wishes to achieve. The audit should also help highlight those resources and competencies which may be difficult for competitors to imitate, so provided they are valued by customers, they can be used to develop a sustainable competitive advantage. Once the internal part of the marketing audit has been completed, we can consider the results with an audit of external factors.

Marketing in practice: example An example of a company identifying a potential competitive advantage through a careful analysis and consideration of its resources through the marketing audit is that of Hewlett-Packard who recognized that one of its key strengths is the fact that it actively encourages teamwork between different divisions of the business. Unlike many organizations with divisional organizational structures, where each division operates as an autonomous profit centre, HewlettPackard has recognized that they have substantial potential synergies and competitive advantage by co-ordinating marketing activities across divisions. This may mean, for example, that customers may be offered a particular product mix which encompasses products from several divisions where it is felt such a mix would better meet an individual customer needs. Activity 2.1 Find your own real-life examples of where a trend/change in each PEST factor has resulted in an opportunity or threat to a company.

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SWOT analysis The framework for combining internal and external audit assessment and analysis procedures is the production of a SWOT analysis illustrated in Figure 2.2: Internal to company

STRENGTHS

WEAKNESSES

CONVERT

Convert

e.g. No. 1 in marketplace

e.g. poor customer service

OPPORTUNITIES

THREATS Convert

e.g. competitor dropping from market

e.g. new legislation for certain products

External to company Figure 2.2 SWOT Analysis The strengths and weaknesses part of the SWOT analysis come from the internal half of the marketing audit. In conducting the internal marketing audit, the objective is to assess company resources, activities and skills with regard to establishing the extent to which the company is strong or weak. When, for example, the marketing audits financial, managerial, marketing, production and research

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and development elements of the business, it is from the perspective of assessing strengths and weaknesses. Completing the strengths and weaknesses part of the SWOT analysis helps to point out what is possible in terms of marketing objectives and strategies. For example, it would be pointless to pursue a marketing strategy in which innovatory products feature strongly if the organization is not strong in this area. The opportunities and threats part of the SWOT analysis is derived from the analysis of the marketing environment including PEST factors. Examples of how the marketing environment might give rise to opportunities and threats are: x A downturn in disposable income may threaten the demand for luxury products, x A change in government policy may give rise to opportunities for more environmentally friendly products, x A decline in the birth rate may threaten baby food manufacturer, x Developments information technology may provide opportunities for direct marketing. One of the main aims of SWOT analysis is having identified the company’s weaknesses, to look at ways in which these can be converted into strengths and threats into opportunities. Decision makers can then decide the best ways through which these conversion processes can be achieved. Through reorganizing SWOT into a TOWS matrix, you can assess options and list strategic options and match external opportunities and threats with internal strengths and weaknesses: You must then answer: x x x x

How do you make the most of your strengths? How do you evade your weaknesses? How do you exploit your opportunities? How do you alleviate your threats?

Taking SWOT one step further this produces a TOWS matrix in Figure 2.3:

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EXTERNAL ORIGIN

Internal Factors

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ORIGIN

STRENGTHS (S)

WEAKNESSES (W)

OPPORTUNITIES (O)

SO Strategies/

Tactics

WO Strategies/ Tactics

THREATS (T)

ST Strategies/ Tactics

WT Strategies/ Tactics

External Factors

Figure 2.3 TOWS Matrix TOWS analysis, developed by Weihrich, assists in providing an understanding of the strategic choice a company makes. Weihrich, H. “The TOWS Matrix a Tool for Situational Analysis,” Long Range Planning, Vol. 15, No. 2, 1982, pp. 54-66. This helps to identify strategic alternatives that address: Strengths and Opportunities (S/O) How can you use internal strengths to take advantage of existing external opportunities? Strengths and Threats (S/T) How can you take advantage of strengths to avoid real and potential external threats?

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Weaknesses and Opportunities (W/O) How can you use external opportunities to surmount internal weaknesses? Weaknesses and Threats (W/T) What can you do to minimize internal weaknesses and circumvent external threats?

Marketing objectives The marketing audit and SWOT/TOWS analysis enable marketers to determine overall marketing objectives for the organization. Marketing objectives encompass long-, medium- and short-term marketing objectives. What constitutes the timescale for these three different planning horizons differs from company to company and industry to industry. For example, in the pharmaceutical industry long-term marketing objectives may encompass timescales of ten years or more with timescales for medium-term marketing objectives being five years, and short-term one year. In the fast changing IT industry long-term marketing plans may not make sense if they encompass planning horizons of more than two or three years, with short-term marketing plans encompassing planning horizons of no more than six months. Marketing objectives may relate to market share, sales and growth. At the broadest level, they relate to the product market scope of the organization involving what business and markets the company is to be in in the future. This area of marketing objectives links to the overall corporate strategy and in particular to the mission statement. Defining the scope of the business for the future should be part of the organizational mission statement and should reflect overall corporate objectives. More specific marketing objectives will relate to goals and targets for marketing performance and might encompass areas such as sales and profits, market share, growth, and possibly areas of marketing performance such as innovation, market standing and environmental issues. Sometimes companies have marketing objectives which can potentially conflict, for example, an organization may have objectives with regard to short-term profit levels which conflict with objectives for long-term market growth. The marketer must balance conflicting objectives often resulting in having to compromise in certain areas. Many factors affect selection of marketing objectives including competitor considerations, customer considerations, company considerations, stakeholder considerations and environmental considerations. Objective setting is more important than any other element of the marketing plan as they provide guidance for strategy selection and

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facilitate measurement of marketing effectiveness and control. In many ways, it provides the guiding framework with regard to how a company will compete in a market place. Put another way, marketing objectives determine the competitive posture of an organization. This is illustrated in the following example:

Marketing in practice: example There is evidence that a great degree of the marketing success enjoyed by many Japanese companies in world markets stems in large measure from the aspirational and largely offensive (in competitive terms) objectives that many of these companies set for themselves. For example, Komatsu is now one of the world’s largest producers of earth moving equipment whereas comparatively only a few years ago it was a small player in the global market for this type of equipment. Komatsu has achieved this position because it set itself aspirational objectives to become number one in the market place by encircling and beating its major competitor, namely Caterpillar. This objective has driven Komatsu to improve product quality, develop far reaching licensing agreements and expand its product and market range. The whole of its marketing activities ranging from broad marketing strategies to detailed marketing goals stem from and reflect its aspirational objectives in the market place, and are in no small measure a key factor in its global success. It is important that marketing objectives, like any other area of objective setting in an organization fulfil the SMART criteria, namely: Specific, Measurable, Actionable, Realistic, and Time framed. In addition, marketing objectives must reflect and be integrated with the company’s overall corporate objectives.

Marketing strategies Marketing strategies represent the overall thrust of a company’s marketing activities. There are a number of components to marketing strategies as follows.

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Growth strategies: the Ansoff matrix There are a number of strategies which a company may use to achieve growth. Ansoff’s matrix delineates alternative growth strategies based on a framework of ‘markets’ on one axis and ‘products’ on the other as shown in Figure 2.4: NEW MARKETS (1)

EXISTING MARKETS (2)

NEW PRODUCTS (1)

EXISTING PRODUCTS (2)

Figure 2.4 Ansoff’s matrix Ansoff, I., ‘Strategies for Diversification’, Harvard Business Review, Vol. 35 Issue 5, Sept-Oct 1957, pp. 113-124. Each decision is looked at under their respective headings: x 1/1 decisions (diversification) are true innovators, but the strategy is perhaps risky in terms of expenditure and the high failure rate of new products. x 1/2 decisions (product development i.e. new products into existing markets) comprise producers who like to stay ahead of competitors or are able to provide sustainable advantage that makes their product unique in the minds of consumers. Sometimes these may be extensions to the existing product range, such as additional features or different packaging. x 2/1 decisions (market development i.e. existing products into new markets) relate to manufacturers who are seeking to expand their total sales volume by moving into an entirely new (to them) marketplace. An example might be an industrial adhesives

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manufacturer who decides to target the office stationery market by modifying the existing range of industrial adhesives. x 2/2 decisions (market penetration) are taken by manufacturers who play safe. Arguably, it lacks imagination and there is a possibility of such manufacturers being left exposed if their particular market hits recessionary times. The company may attempt to encourage customers to use the product more frequently or more heavily.

Overall competitive strategies Having identified strategies for growth, a second facet of overall marketing strategy is to determine how a company will compete

Marketing in practice: example Individual key players in the UK grocery market pursue different generic strategies e.g. ASDA, owned by the American Walmart, are competing on the basis of a low price value-for-money. They aim to offer customers the best value for money in the business, a strategy which is reflected not only in their pricing strategies but also in their product and merchandising strategies and their promotional theme of ‘Its ASDA price’ which has been changed to: ‘More for you for less’. One of their major competitors, Sainsbury’s, pursued a differentiation strategy claiming higher levels of service, with a wide range of support activities for their merchandising and an emphasis on quality. This generic strategy was reflected in their pricing and product decisions and in their promotional strapline of ‘making life taste better’. However, this has now been replaced with: ‘Live well for less’.

Portfolio analysis Portfolio analysis comprises a collection of techniques aimed at assessing and analysing a company’s collection of products and SBUs. They attempt to develop marketing plans in a multi-product business. The first we consider is that developed by the American Boston Consulting Group (the BCG matrix) and is illustrated in Figure 2.5:

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Figure 2.5 BCG Matrix Each circle represents an SBU and the volume of the circle represents the size of the SBU. x ‘Stars’ are those SBUs that have a promising future. Significant investments are necessary to develop their full potential. If managed correctly, they will develop into a valuable source of revenue as the market evolves. x ‘Cash cows’ have achieved a high market share in a mature market. They deserve the company’s fullest attention as the cash they generate can be invested in newer market areas with high growth potential. x ‘Question marks’ (or ‘wildcats’ or ‘problem children’) pose a problem to management. While market growth prospects are good, these SBUs have a low relative market share. If they are to be moved to the left to increase their market share then substantial investment will be required. Based on available market information, management must decide whether such investment could be better employed supporting other SBUs.

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x ‘Dogs’ show no growth potential and their relative market share is low. Although they may not necessarily be a drain on the company’s resources, they are unable to make a positive contribution to profits. Those dogs that sit to the left of the box are called ‘cash dogs’ as they still make a marginal contribution to company income. The accuracy of any model is only as good as the information upon which it is based. Marketing should ensure that decisions are not based on incomplete or misleading information. A well prepared BCG matrix is valuable because it forces objective consideration of the elements of the portfolio in relation to each other. Activity 2.2 If you have information at your disposal, place each of the products/services of your company into an appropriate position within the BCG matrix. Justify your criteria and consider the difficulties in applying, and the shortcomings of, the BCG matrix approach. Essentially, only two criteria are used with respect to positioning products in different cells i.e. relative market share and market growth rate. Cash flow, too, can give an indication ow where a product is likely to be in the matrix. Products in the cash cow area of the matrix have strong positive cash flows, whereas stars and gods often have high negative cash flows. Question marks too, are likely to be net users of cash rather than contributors, though perhaps to a lesser extent than stars. The next matrix is the General Electric (GE) Business Screen. This was developed by General Electric (USA) and McKinsey & Co., management consultants. It attempts to overcome some of the criticisms of the BCG matrix and is illustrated in Figure 2.6:

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Figure 2.6 GE/McKinsey matrix SBUs or product lines are considered with the two dimensions of competitive position and market attractiveness. These two criteria are good in evaluating a business or group of products in that they will be seen to be successful to the extent that they go into attractive markets and have the requisite competitive business strength to succeed in those markets. The two complement each other, for a weak company operating in an attractive market will not do well, and neither will a strong company operating in an unattractive market. Each of the two dimensions is further analysed into a number of factors that underpin each dimension. In order to use this technique, the strategic marketing planner must first determine factors that contribute to market attractiveness and business position.

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Factors used to assess product/market attractiveness: x x x x x x x x x

Size; Growth rate; Competitive diversity and structure; Historical profit margin; Technological requirements; Social impact; Environmental impact; Legal impact; Energy requirements.

Factors used to assess competitive position: x x x x x x x x x x x

Market share; Share growth rate; Product quality; Brand reputation; Distribution network; Promotional effectiveness; Productive capacity; Productive efficiency; Unit costs; Research and development performance; Managerial personnel.

This list can be modified according to each company’s requirements and circumstances. The GE matrix is compiled in five steps: 1. 2. 3. 4.

Identify SBUs (or product groups); Determine factors contributing to market attractiveness; Determine factors contributing to business position; Establish ways of measuring market attractiveness and business position; 5. Rank each SBU high, medium or low on business strength, and high, medium or low on market attractiveness.

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Some kind of numerical ranking should be given to relative importance of the last two factors. Multiplying these together and totalling them for each SBU gives a composite score that enables the matrix to be compiled. In addition, the total market size for each SBU can be represented by the area of the circle with the company’s SBU share represented as a segment in the circle. Having completed the matrix, the marketing planner can assess the balances of SBUs or product groups within the organization, and determine future strategies for each. According to an SBU or product group’s position within the matrix, we can distinguish between three broad strategic alternatives and these are detailed in Figure 2.7:

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MARKET ATTRACTIVENESS

High

Medium

Low

Strong

Medium

Weak

COMPETITIVE POSITION

Invest/grow Selective earning Harvest/divest Figure 2.7 Strategy guidelines for the GE matrix SBUs that score high or medium on competitive position and market attractiveness are those in which a company should seek to maintain an investment and possibly grow. SBUs that score a combination of low/low or low/medium on competitive position and market attractiveness should

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be considered for no more investment, and as much cash as possible should be harvested from them. SBUs scoring either high/low or medium/low combinations on competitive position/market attractiveness should be examined to see if some degree of selective investment is possible to maintain or increase earnings. Activity 2.3 If you have information at your disposal, place each of the products/services of your company into an appropriate position within the GE matrix. Justify your criteria and consider the difficulties in applying, and the shortcomings of, the GE matrix approach. Classifying product groups or SBUs in the GE matrix is more complex than for the BCG matrix. Criteria used to assess the position of product groups or SBUs use more factors with regard to assessing product/market attractiveness and competitive position. Furthermore, there are a variety of ways of measuring these dimensions of the matrix which can lead to a degree of subjectivity with respect to positioning in the grid. However, the upside is that the GE matrix has nine boxes, whereas the BCG matrix only has four. These nine information boxes provide more detail for analytical purposes.

Porter’s industry/market evolution model In 1985 Michael Porter developed a model that furthered research performed in 1980. In summary, he based his model on three broad stages in the evolution of and industry/market. 1. Emerging industry characterized by buyers’ uncertainty over product performance, potential applications and likelihood of obsolescence, and sellers’ uncertainty over customer needs, demand levels and technological developments; 2. Transition to maturity characterized by falling industry profits, slowdown in growth, customers knowledgeable about products and competitive offerings, less product innovation and competition increasingly based on non-product aspects of marketing.

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3. Decline characterized by competition from substitutes, changing customer needs, and demographic and other macro-environmental forces and factors affecting the market. He used the characteristics of each stage to suggest a number of strategies as being appropriate to each, as shown in Figure 2.8: Strategic position

Growth

Maturity

Leader

Keep ahead of the field

Cost leadership; raise barriers; deter competitors

Redefine scope; divest

Differentiation; focus

Differentiation; new opportunities

Follower

Limitation at lower costs; joint ventures

Decline

Peripherals; encourage departures

Figure 2.8 Industry life cycle and strategic position Porter, M.E. 1985. Competitive advantage: creating and sustaining superior performance. New York: Free Press Emerging industry strategies (growth column) should be developed to take account of industry’s competitive structure characteristics: x x x x

Threat of entry; Rivalry among competitors; Pressure from substitute products; Bargaining power of buyers and suppliers.

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Transition to maturity strategies (maturity column) should be developed to focus upon: x Developing new market segments; x Focusing strategies for specific segments; x Developing a more efficient organization. Decline strategies should: x Seek pockets of enduring demand; x Divest the product or SBU. We distinguish between: 1. 2. 3.

Cost leadership strategies, Differentiation strategies, Focus strategies. Extending knowledge

Porter referred his classification of different types of overall competitive strategies in marketing as ‘generic strategies’. Although you will not be expected to be familiar with the work of Porter in depth for an introductory marketing programme, it would be useful if you could familiarize yourself with some of Porter’s basic ideas. A generic strategy which is selected as a basis for competing will obviously have major implications for the selection of marketing tactics, i.e. the design of the marketing mix. Activity 2.4 Find out what is meant by each of Porter’s three alternative generic strategies. When you have done this, briefly describe the possible implications of each strategy for the marketing mix. 1.

Cost leadership is a strategy based on having the lowest costs in the industry. It requires the company to pursue ways of reducing cost, such as economies of scale and efficiencies in design and production. It is more of a financial strategy. The problem is that it is not market/customer oriented and can leave a company vulnerable to its more marketing-oriented competitors.

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2.

Differentiation is based on offering the market something distinct from competitors. Differentiation may be based on having the highest quality in the industry, or the speediest delivery. A more marketing-oriented approach than cost leadership but needs to be based on differences that have value to customers and can be protected from competitors.

3.

Focus is based on targeting specific segments of the market rather than adopting an industry-wide approach. Companies that focus can become specialists in supplying particular markets but can be vulnerable to market trends and larger competitors.

Arthur D Little industry maturity/competitive position matrix This was developed by management consultants, Arthur D Little, and its approach has similarities to that developed by Porter. ‘Stage of industry maturity’ is on the horizontal axis and ‘competitive position’ on the vertical axis as shown in Figure 2.9: Stage of industry maturity Company’s competitive position

Embryonic

Growth

Maturity

Ageing

Dominant Strong Favourable Tentative Weak Figure 2.9 Arthur D. Little Industry maturity/competitive position matrix Eight key descriptors to determine which stage the product group or SBU in is are then assessed:

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1. 2. 3. 4. 5. 6. 7. 8.

Rate of market growth; Industry potential; Product line; Number of competitors; Market share stability; Purchasing patterns; Ease of entry; Technology.

Shell directional policy matrix This approach was developed by Shell Chemicals (UK) in 1975. Its approach is similar to the GE Business Screen, and it has two dimensions: 1.

Competitive capability of the company;

2.

Prospect for sector profitability.

The company’s products are plotted into one of the nine cells and there is a suggested strategy for each cell as shown in Figure 2.10. Prospects for sector profitability

Prospects for sector profitability Company’s competitive capability

Unattractive

Average

Attractive

Weak

Disinvest

Phased withdrawal

Double or quit

Average

Phased withdrawal

Proceed care

Strong

Cash generation

Growth

with

Try harder Leader

Figure 2.10 Shell directional policy matrix

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Sector profitability includes criteria of market growth rate, market quality, industry situation and environmental considerations. On each of these factors, a product is given from one to five stars and the same procedure is followed for each of the other three factors. Competitive capability uses the same approach, except that the company’s capabilities are assessed on the basis of market position, product research and development, and production capability. These are further divided into sub-factors applicable to any particular industry. The strategy recommendations contained in each of the nine cell have the proviso that whatever strategy selected, the aim is that it should be ‘resilient’ in terms of being viable in a diverse range of potential futures. Thus, each strategy should be evaluated and be acceptable in commercial terms.

Barksdale and Harris portfolio analysis/product life cycle matrix This matrix successfully combines the product life cycle concept with ideas from the BCG matrix. A commonly made criticism of the BCG matrix is that new products and declining products are ignored. This model overcomes this problem as illustrated in Figure 2.11:

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GROWTH

MATURITY

DECLINE

Cash cows high market share: low growth

War horses high market share: negative growth

SALES Stars high market share: high growth

Infants

Problem children low market share: high growth

Dogs Dogs (or (or cash cash dogs) dogs) low low market market share: share: low growth growth

Dodos low market share: negative growth

Entry

Exit TIME

Figure 2.11 Barksdale and Harris combined portfolio The assumptions inherent in the model are that products have a finite span of life, that cash generated and profit margins are positively related to share of market and that costs of production are related to volume, and unit costs decrease as volume increases. Each category listed is now explained. Infants appear in the pioneering stage and they carry risk. Their profits will be very little or negative because they consume a lot of promotional costs informing customers of their function and existence at this early stage. Problem children are the same as for the BCG matrix with a low market share but high growth, so they are costly to maintain. Stars are products to nurture, but they are probably high cost in marketing terms. Although they have a high market share and high growth rate,

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marketing expenditure in the form of informative promotion in a new market will be high. Cash cows as with the BCG matrix are steady income earners with a high market share in a low growth mature market. Dogs are sometimes called ‘cash dogs’ as they are placed in a low (or even zero or marginally negative) growth sector of a saturated market. Even though their market share is still low, they might make a marginal amount of money for the company; hence the term ‘cash dogs’. The term ‘true dogs’ relates to SBUs in this situation that make losses. War horses are sustainable products that are in a declining market, but possess a high share of that declining market, often on the basis that most competitors have exited. They have probably been cash cows, but the overall market trend has worked against them. They should receive the attention of management in terms of sustaining them for as long as possible in this declining market, but little should be expended on promotional expenditure. Once the time is right they should be withdrawn from the market place before they become ‘stale’ as this could adversely affect company image. Dodos have a low share of the total market in a market that is in decline with little opportunity for cash generation. The only way they could be made profitable might be if many competitors exit from the market and they are turned into ‘war horses’. They should be pruned at this stage. Figure 2.12 illustrates the combined matrix with respective positions of the various product or service groups and explains the characteristics of each group:

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Infants Negative cash flow

MARKET GROWTH

LOW

MEDIUM

Stars Modest positive or negative cash flow

Problem children Large negative cash flow

NEGATIVE

War horses Positive cash flow

Dodos Negative cash flow

HIGH

LOW

RELATIVE MARKET SHARE Figure 2.12 Characteristics of product categories in Barksdale and Harris combined portfolio

Segmentation, targeting and positioning strategies Extending knowledge Segmentation, targeting and positioning are far-reaching areas of marketing. This book serves to introduce you to key concepts and approaches, so research wider for more comprehensive examples. One of the most important elements of marketing plans is target marketing. This comprises the sub-elements of market segmentation, targeting and positioning. Target marketing is central to contemporary marketing planning. The notion of target marketing is an extension of the basic concept of marketing discussed in Chapter 1. It is a recognition that the marketer

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needs to meet specific requirements and needs of customers as closely as possible. This is especially true where competition for customers is intense and where customers are better informed and more demanding. Put simply, the company that comes closest to meeting the precise needs of customers through the marketing mix gets the business. Customers have different needs. This means that rarely can a company succeed by mass producing a standardized product aimed at the whole market. Put another way, a modern day Henry Ford offering customers ‘any colour so long as it was black’ would find difficulty when marketing. The fact that customers have different needs within a market means that the marketer must break down the market by identifying what these different needs are and the customer groups with which these different needs are associated. This stage of target marketing is known as ‘market segmentation’. Having identified different market segments, the marketer can evaluate these segments and decide which to cater for and on what basis. This next step is ‘targeting’ when the marketer must decide the ‘product positioning’ strategy to be used in serving selected target markets. This final stage is where we see the impact of the process of target marketing on the marketing mix. In positioning products and services within selected target markets, the marketing mix is designed to meet specific needs to secure a competitive advantage. Exam hint Examiners use the terms ‘target marketing’ and ‘market segmentation’ interchangeably. In fact, segmentation is only one step in the targeting process. If the examiner asks you to discuss market segmentation, it is likely that they are asking you to discuss all three steps in target marketing. Be careful to read any question on this area carefully to ascertain precisely what is being looked for. Study tip There are a number of strategies to which reference is sometimes made. These are: ‘Flanking attack’ where a competitor sees an opportunity to enter a market that is inadequately protected; ‘Bypass attack’ that evades the defending company’s position; ‘Encirclement attack’ that comprises tackling the defending company from all sides

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and a ‘guerrilla attack’ that harms the defender by small incremental strikes at vulnerable parts of the defending company. We now discuss the elements of target marketing:

Market segmentation At this stage of target marketing the marketer assesses the extent to which there are different customer groups in the market with different requirements and needs. The marketer must determine the bases on which the market segments. Virtually all markets for products and services, both consumer and industrial, usually segment into clusters of customers on some basis. You probably already have a good idea of the variety of bases on which different markets might be segmented. Some of the major categories of segmentation bases used by marketers are shown in the following activity: Activity 2.5 We have listed the main categories of segmentation bases used to segment markets. We have distinguished between bases commonly used in consumer markets and those commonly used in industrial markets. To make sure you understand each of these main categories for segmentation you should note examples of variables used to segment markets within each major category. Consumer bases x x x x x x x x

Demographics, e.g.? Socio-economic, e.g.? Geographic, e.g.? Personality and lifestyle, e.g.? Purchase occasion, e.g.? User status, e.g.? Usage rate, e.g.? Benefits sought, e.g.?

Industrial bases x Demographic, e.g.?

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Geographic, e.g.? Purchasing organization, e.g.? User status, e.g.? Usage rate, e.g.? Benefits sought, e.g.?

Examples of variables used to segment consumer and industrial markets are: x Consumer bases Demographics: e.g. age, sex, race, religion Socioeconomic: e.g. income, occupation, social class Geographic: e.g. country, region, type of housing Personality and lifestyle: e.g. extrovert, introvert Purchase occasion: e.g. regular, special, distress User status: e.g. first-time, non-user, regular user Usage rate: e.g. heavy, light, medium Benefits sought: e.g. quality, service, economy. x Industrial bases Demographic: e.g. industry type, end use, company size Geographic: e.g. country, region Purchasing organization: e.g. centralized, decentralized User status: e.g. nonuser, first-time, regular Usage rate: e.g. heavy, light, medium Benefits sought: e.g. delivery, quality, service, economy. There are many potential bases for segmenting markets and that at least some of these are common to both ‘consumer’ and ‘industrial’. Identifying effective bases for segmentation is one of the most dynamic areas of contemporary marketing. Marketers are constantly looking for new and improved ways to segment markets. Often new approaches to segmenting markets reflect the constantly changing nature of markets and customers, e.g. in many economies new lifestyle segments have emerged due to changes in demographic structures such as the large growth of the 55–75 year old age group in many developed economies. Often referred to as the ‘grey market’ this represents a substantial and growing market segment. Other new approaches to segmenting markets reflect and rely upon developments and improvements in the technology of marketing and in particular something we shall explore in much more detail in Chapter 8, but have already considered in Chapter 1, namely developments in information technology in general and more specifically databases in marketing. An example of the emergence of new bases for segmenting markets as a result of improved data collection and analysis has been the growth of geodemographic bases for segmenting markets.

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Key definition Geo-demographics is identification of market segments based on where people live and their lifestyles. This definition belies the potential complexity of many of the geodemographic segmentation techniques. This approach to segmentation often necessitates a huge amount of complex data on markets and customers to identify and profile geodemographic segments. The fact is that this approach to segmentation has emerged as a result of improved data collection and analysis techniques. Several commercial systems of geodemographic classifications exist whereby marketers can buy in geodemographic segmentation information and systems. Acorn is a powerful consumer classification that segments the UK population (It stands for ‘A Classification of Residential Neighbourhoods’). By analysing demographic data, social factors, population and consumer behaviour, it provides precise information and understanding of different types of people. Analysis of the data in CACI’s ACORN system suggests that customers in different ACORN categories have quite distinct and different lifestyles and purchasing patterns to other ACORN groups. Because of this, ACORN groupings can be used to identify and target distinct groups of customers with, for example, different propensities to buy specific products and services. As a result, and indeed the reason for the growth in popularity of geodemographic segmentation bases, marketers are able to identify distinct groups of customers together with their needs, wants and buying habits which in turn can then be used to develop targeted marketing programmes aimed at each geodemographic segment. Geodemographic segmentation bases such as ACORN have proved extremely powerful in marketing applications such as: x x x x x

Selecting new retail sites, Targeting direct mail, Media selection, Sales-force organization, The allocation of marketing resources.

Often marketers combine bases for segmentation purposes. How do we know which bases to use in segmenting a market? The answer to this is to use bases that enable us to identify distinct and different clusters of customers with respect to the product or market in question. For example, we know that in segmenting the market for clothing the variables of sex,

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income, social class and age are all related to differences in purchase requirements. There is no one right way to segment a market. Ideally segmentation bases should allow us to reveal segments that have the following characteristics: x Measurable segments revealed should be easy to measure, x Substantial segments revealed should be large enough to serve, x Accessible marketers should be able to reach the segments revealed.

Activity 2.6 Remembering that there is no one right way to segment a market, suggest what might be appropriate basis/bases for segmenting these markets: 1. 2. 3. 4. 5. 6.

Holidays, Cars, Cigarettes, Restaurants, Industrial abrasives, Office-cleaning services.

Targeting strategies Having identified market segments, the marketer must decide which of these segments to target i.e. market to, and on what basis. This decision will be affected by a number of factors, but the marketer will need mainly to evaluate the relative attractiveness of the different segments in the market and the company’s ability to serve the different segments. Ideally we are looking for attractive segments we can serve well. There are three broad alternative targeting strategies: undifferentiated targeting; differentiated targeting and concentrated targeting. Key definitions Undifferentiated targeting is targeting the whole market with one marketing mix; Differentiated targeting is targeting several market segments with a different marketing mix for each segment;

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Concentrated targeting is targeting one segment within the total market. There are advantages and disadvantages to each targeting strategy with the choice being dependent upon many factors such as company size and resources, market risks and competitors and. Even if you are unfamiliar with these three alternative targeting strategies, you should be able to assess some of the advantages and disadvantages of each. Activity 2.7 For each of the targeting strategies see if you can assess what might be some of the advantages and disadvantages. Complete the following: Undifferentiated targeting 1. Advantages, e.g.? 2. Disadvantages, e.g.? Differentiated targeting 1. Advantages, e.g.? 2. Disadvantages, e.g.? Concentrated targeting 1. Advantages, e.g.? 2. Disadvantages, e.g.? Advantages and disadvantages of each targeting strategy are: Undifferentiated targeting x Advantages, e.g. low cost, economies of scale, simple, x Disadvantages, e.g. not customer oriented. Differentiated targeting x Advantages, e.g. customer oriented, spreads risk, x Disadvantages, e.g. potentially high cost.

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Concentrated targeting x Advantages, e.g. customer oriented, specialized skills, x Disadvantages, e.g. high risk/vulnerable to market change. Positioning strategies You will have noted in our discussion of targeting strategies that we are beginning to see the influence of target marketing in planning the marketing mix. Remember that the marketing mix comprises the tools or ingredients at the marketer’s disposal to develop effective marketing plans by creating customer satisfaction. You will recall that this mix comprises the original 4Ps of Product, Price, Place and Promotion with the extended marketing mix including three further Ps: People, Process and Physical evidence. The target marketing steps serve to influence and effectively delineate how these elements of the marketing mix will be used. Of all the stages in target marketing, it is in the positioning step that this influence can be seen most directly. Having segmented the market, and decided on the targeting strategy, the marketer must ensure that the targeted segment is reached and its needs served by designing the marketing mix so as to position it in the segment against the competition. For example, if we are targeting the higher income segment of a market that is looking for high quality products, can pay premium prices, reads up-market magazines and shops at exclusive outlets, to a large extent our marketing mix decisions are made for us. This is the advantage of solving the positioning problem, and this is why positioning, though only the final step in target marketing, is so important in planning the marketing mix. Activity 2.8 Look out for examples of brands that are clearly targeting different market segments within the same product market, e.g. different washing powders, different coffee brands, different cars. Take note of how they are positioning themselves in the market place against competition and in particular how the brands differ in terms of their marketing mix. Exam hint In collecting examples of positioning of brands it can be useful to use ‘positioning maps’ to illustrate the relative position of brands in a

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market. The use of such ‘maps’ to illustrate the relative position of brands in a market can also be very useful in the examination to make your points quickly and visually. An example of a simple positioning map might show taste (sweet and sour) as a semantic differential scale on one axis and strength (light and heavy) on the other axis. It is only possible to show two dimensions or elements of the marketing mix.

Marketing tactics/marketing mix decisions Having determined the key elements of marketing strategy, we are in a position to develop more detailed marketing tactics. This involves planning how the different marketing tools will be used in the marketing plan. It is therefore concerned with planning a co-ordinated marketing mix for each target market. By this stage of the planning process, the previous steps will effectively dictate these marketing mix decisions. It is in this stage that these elements are brought together to form an integrated and cohesive whole. You were introduced to the notion of the marketing mix and the elements in Chapter 1. To remind you, the marketing mix represents those controllable factors or tools which the marketer can make decisions about with a view of developing effective marketing programmes. Within each of four major tools and three extra ones of service marketing of the marketing mix there are many variations and ways marketers can use each to satisfy customer requirements and compete effectively e.g. taking the promotional element of the mix, we can identify the following subelements within this marketing mix tool: x x x x x

Advertising, Sales promotion, Personal selling, Publicity and PR, Sponsorship and exhibitions.

Each of these tools can be used in many ways. For example, when it comes to advertising the marketer can aim advertising at distributors or consumers or both. Similarly, advertising programmes and spends may be run over an extended period of time with short bursts of advertising spend or with large advertising spends concentrated in short bursts. The content of advertising can be factual, emotional, or informative. Advertising media can be one or a combination of press, television, trade publications,

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magazines, newspapers or the internet. Put simply each marketing mix tool encompasses a wide range of techniques and approaches which are available to marketers.

The context for the marketing mix Planning marketing mix stems from earlier stages and decisions in the planning process. A major consideration in such decisions is their contextual setting where marketers apply marketing mix tools and techniques in different ways. A key element affecting marketing mix tools are different stages in the life of a product and market which we consider in Chapter 3. Contextual factors also relate to different organizations with respect to whether they are profit seeking or the size and resources of the organization and differences between markets and customers e.g. marketing to consumers and marketing to businesses. These different contextual settings determine the appropriateness or otherwise of the different mix elements and how they are combined. Understanding the context for marketing mix decisions is vital.

Combining and co-ordinating the marketing mix: concept of synergy A distinguishing characteristic of effective and ineffective marketing is the extent to which individual elements of the marketing mix are co-ordinated and combined to give a consistent and planned approach to the market. Each tool of the marketing mix calls for wide-ranging and complex decisions. Often other functions input to these decisions, e.g. in the case of pricing a key input is information on costs from Finance. Similarly, new product development decisions may require inputs from research and development, design and production. It is important that marketing takes responsibility for ensuring that these individual decisions hang together in a co-ordinated manner. If marketing does not take on this responsibility, it is inevitable that decisions about marketing mix on issues like product and price will be taken unilaterally, and there will be little consistency between elements of the marketing mix.

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Key definition Synergy is where the outcome of combining individual elements together is greater than the simple sum total of each of the elements. It is sometimes expressed as 2 + 2 = 5. An example of synergy is where the marketer ensures that a high price is set to reflect a quality product sold through exclusive distribution outlets with costly and quality sales promotion. Each marketing mix element acts in concert to give a marketing presence which is consistent and where each element serves to support and enhance other elements in the marketing mix. One sometimes comes across examples of prestige/quality products being retailed in down market outlets. Similarly, we see examples of marketers charging premium prices for basic products. We find examples where the mix is consistent and was initially targeted at appropriate customer groups; over time customers and their needs can change. Competitors are always looking for new ways to compete. What this means is that planning the marketing mix is a continuous activity in a dynamic market place. Activity 2.9 Find examples of marketing programmes exhibiting problems just outlined. Try to assess why you think this problem occurred and what, if anything, could/should have been done to avoid/resolve it. The marketer has to ensure that mix elements are combined and coordinated in an effective manner which is largely down to common sense. The most important aspect in co-ordinating the marketing mix is to ensure that it is consistent with the intended target market and positioning strategies determined earlier in the process. Although we have suggested that one of the most important factors affecting how the marketing mix elements are utilized and combined is what is termed the ‘contextual setting’ in which marketing mix tools are used. Contextual means the different types of market and marketing settings in which marketers operate. These different contexts encompass fast-moving consumer goods settings, business-to-business settings, large or capital project-based settings, services settings, voluntary and not-for-profit settings and small to medium enterprise settings such as those found in sales support organizations. These different contexts have such an important influence on the selection and emphasis given to the marketing mix tools and how

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they are co-ordinated and combined that we consider the effect of these different contexts throughout the text. We now return to the final stage of the marketing planning process, namely implementation, monitoring and control.

Implementation, monitoring and control of marketing mix programmes Implementation consists of steps and activities required to bring plans to life involving detailed scheduling for planning activities and areas such as budgets, staffing and detailed timetables. Organizational structures and systems must be designed in order to ensure that plans are effectively implemented. The marketer must act to ensure that the necessary structures, people, budgets and processes are in place to effectively implement marketing plans.

Marketing budgets and the marketing plan Broad objectives and strategies must eventually be translated into detailed action programmes to bring the plan to life. These detailed action programmes encompass activities to be performed, by whom, when and at what cost. It is this final detail of action programmes that raises the issue of marketing budgets. Budgeting is a key aspect of implementing marketing plans. But what exactly is a marketing budget?

Key definition A marketing budget represents the amount of resources allocated to support marketing activities over a period of time. Within this straightforward definition we have potentially complicating issues when we consider marketing budgets. Resources include manpower, facilities and time. There are two related sub-facets when it comes to marketing budgets. The first concerns how decisions are made with regard to the determination of the overall marketing budget covering all marketing activities in the marketing plan. The second concerns how the overall budget will be allocated between different elements of marketing activity within the marketing plan. For example, we have to determine how much of the budget will be allocated to sales or selling activities, how much to branding and packaging and

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how much to distribution. We should consider both overall budget determination and the issue of allocating budgets to the different elements of marketing activity. There are different time horizons with regard to budgets, including marketing budgets. We can distinguish between annual and longer term budgets in marketing. Both are necessary to encompass different planning horizons within marketing plans. Long-term marketing strategies aimed at pursuing long-term marketing objectives require long-term budgeting procedures. With these considerations in mind, we consider the annual marketing financial budgeting process. We start by considering the alternative approaches to determine the overall annual marketing plan budget.

Alternative approaches to determining annual marketing plan overall financial budgets There are a number of approaches to determine the overall amount to be allocated to marketing activities in the annual marketing plan.

Affordable method The simplest way of determining the overall annual marketing budget is to base the budget on what the company can afford. You will recognize that although a simple approach, there is little merit in adopting this approach to setting the annual marketing budget. It ensures that the company does not ‘overspend’ with regard to its financial resources but it means that in the case of a company which is making little profit it will allocate relatively little to its annual marketing budget and hence remain stuck in its low profit situation.

Percentage of profits This variation on the affordable method approach on setting the marketing budget is based on setting the budget according to some percentage of the company profits. Sometimes the profits used are the previous year’s profits, or in other cases can be based on forecast profits. Either way, the problem is that it assumes that budgets are a function of profits and not the other way around. As with the affordable method, it can condemn the low profit or low profit forecast organization to remaining in the marketing

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wilderness. Even if we accept that this method is simple and is at least related to some objective measure, it does not of itself tell us what percentage of profits is appropriate to allocate for the marketing budget.

Percentage of sales This popular budgeting process in this approach usually starts with a sales forecast which is then used to determine what activities will be needed to support the sales levels forecast which in turn results in not just marketing budgets but production budgets, manpower budgets and so on. One can see why this is a widely used method of budgeting. It does appear to have an inherent logic and indeed many activities and costs in a company stem from and are directly related to the level of sales achieved. However, like the percentage of profits approach, this is essentially a negative way to determine the overall marketing budget. If sales are forecast to decrease, for example, then so are marketing budgets. This in turn can lead to a further drop in sales.

Objective and tasks This approach is the most rational and defendable approach. Here, budgets are determined by establishing what tasks need to be performed in order to achieve the marketing objectives set out in the marketing plan. These activities can then be costed and the total of these costs represents the required total budget to support the marketing plan. The downside to this approach is that it requires substantial effort, time and information. It requires, for example, detailed costings for the marketing activities in the marketing plan, or in some cases detailed estimates. The advantage is that it forces the marketing planner to think about the costs of the various marketing activities in the marketing plan, how these costs relate to the achievement of marketing objectives and therefore if they are cost effective, and how costs might be controlled.

Allocating budgets to marketing activities Major alternative ways of determining the annual financial budget for the marketing plan are outlined. Decisions must be made with regard to the allocations of this overall budget to various marketing activities in the plan. In a multi-product company, these allocation decisions must be made with respect to the different products or brands of the business, and where appropriate, to different strategic business units. All three methods

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described can be used to allocate the budget between products, brands and businesses. We can allocate the budget between different products on the basis of forecast sales for each. Often, however, these allocation decisions are made on the basis of which brand or product manager in the organization is most persuasive. As with the overall budget allocation to support the marketing plan, the objective and task method is the only defendable way of allocating the budget between various marketing activities. For example, in determining the promotional budget the marketing manager must assess what tasks the promotional element of the marketing mix will be required to perform in the context of the overall marketing objectives in the plan. These can then be costed and the budget allocation to this element of the mix determined. In principle, determining and allocating marketing budgets is straightforward. In practice, it can be complex. In addition to ensuring that the necessary financial and other resources have been allocated for the effective implementation of marketing plans, there must be suitable organizational and management structures in place for their effective implementation.

Management and organizational structures for implementing marketing plans Plans are implemented by people, and particularly by managers, and in turn require appropriate organizational structures for their implementation. Companies use a myriad of different management and organizational structures to implement their marketing plans. Management structures include product manager systems where marketing plans are organized and implemented around products. An example of this type of structure is shown in Figure 2.13:

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Marketing director

Sales manager

Advertising manager

Product group manager

Manager: product group A

Sales manager

Manager: product group B

Figure 2.13 A product based marketing organization A variation on the product-based approach, often found in business-tobusiness marketing organizations, are organizational structures which are based on brands and utilize brand managers in place of product group managers. This type of structure is common in companies marketing fast moving consumer goods with a range of individual brands. Another structure commonly found is based around customers and/or markets. An example of this type of structure is shown in Figure 2.14:

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Marketing director

Marketing manager: Retail customers

Marketing manager: Industrial customers

Marketing manager: Export customers

Sales manager: retail

Sales manager: industrial

Sales manager: export Advertising manager

Figure 2.14 A customer based marketing organization These are just two ways of organizing marketing activities and functions. With variations on a theme, there are alternatives including category management structures, simple functional structures and matrix type structures which are based on organization structures combining, say, product and market-based structures together. The reason for such a myriad of alternative approaches is that there is no ‘perfect’ method of organizing the implementation of marketing plans which is always superior. Many factors affect what is an appropriate management and organizational structure for implementing plans including: x x x x x x x

Organizational size and complexity, Organizational resources, Spread/diversity of product markets, Speed of market and technological change, Competition and competitive market structure, Geographical spread of organization and markets, Organizational culture,

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x Managerial skills and expertise, x Requirements for control. Irrespective of precise management and organizational structures and systems, these should be selected and designed so as to provide: Company-wide customer orientation, Organizational flexibility and speed of response, Innovation, Co-ordination and integration between different functional areas of the business and outside organization, x Effective communication, x Motivation and leadership.

x x x x

In practice, most management and organizational systems and structures are a compromise, but if organizational and management structures are not appropriate and supportive of marketing plans and activities, this can be a problem. Our final element of the marketing planning process involves monitoring and control of marketing plans.

Importance of monitoring and control Monitoring and control comprises comparing actual performance against desired performance objectives and taking any necessary action to correct differences. Because of this, the control process in marketing stems from marketing objectives and strategies. Without monitoring and control it is not possible to assess the extent to which marketing objectives have been achieved and strategies have been effective. Markets are dynamic, and the environment changes; customers change; competitors change; the company can change over time. This means that the marketing mix needs to change to reflect and cope with these outside changes. Monitoring and control of the marketing mix facilitates the planning of such changes, for without monitoring and control marketing strategies can become outmoded and no longer fit the market situation.

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Types of control in marketing 1.

Customer feedback/customer tracking, e.g.: x x x x

2.

Customer surveys, Customer complaints, Sales-force reports, Customer panels.

Sales analysis and control, e.g.: x Sales volume/value, x Sales trends, x Breakdown of sales by product, customer, sales person, etc.

3.

Market share analysis and control, e.g.: x As per sales analysis above, but based on percentage of market.

4.

Profitability analysis and control, e.g.: x Analysis of costs and margins, x Net profits, x Return on capital.

5.

Strategic control This is the most wide-ranging and comprehensive of control techniques used in marketing, covering control of the strategic planning process itself. Two main tools are used in strategic control, and both call for a wide-ranging review of the effectiveness of marketing activities, namely: x Marketing-effectiveness rating reviews; x The marketing audit.

Activity 2.10 Interview a senior marketing manager to establish what types of controls are being used to evaluate marketing performance.

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Outcome of the marketing planning process: the marketing plan We have covered all of the major steps in the marketing planning process, but remember that this is the process and not the marketing plan itself. The marketing plan represents the outcome of this process, so what does a marketing plan look like and what are the main contents of a marketing plan? We have listed the main content areas of a ‘typical’ annual marketing plan illustrating the structure and outline content of an annual marketing plan. The specific layout and structure of a marketing plan, as suggested in Figure 2.1, can vary slightly according to the situation and the company.

Management summary This part of the plan summarizes the main points covering key objectives, major strategies and outline marketing mix programmes.

Product market situation This part of the plan covers analysis of the market for the product(s)/services; included would be data on target markets, market size, market trends and projections. This section will include information on customer needs and buying behaviour. The product part of this section of the plan should contain information on prices, contributions and net profits for each of the major product lines encompassed by the plan and the competitive and distribution situation.

Strengths, weaknesses, opportunities and threats analysis This section encompasses external marketing audit PEST factors, forecast changes which will give rise to opportunities and threats. It should also contain the internal marketing audit encompassing company strengths and weaknesses.

Marketing objectives This element details broad objectives, which the plan is intends to achieve. These stem not only from the analysis encompassed in the first sections of the plan, but also corporate objectives. Objectives should be stated in

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SMART terms and encompass financial, marketing and any other objectives pertaining to stakeholder and social responsibilities.

Marketing strategies The marketing strategies component of the plan encompasses decisions regarding core target markets, decisions relating to product market expansion plans (Ansoff’s matrix), the basis for competing, i.e. competitive advantage and desired product/brand positioning.

Action programmes These involve preparation of detailed programmes for each of the marketing mix elements encompassing as a minimum the Ps, but increasingly the additional ‘People’ element of the mix, and in the case of service industries and markets, the further two Ps of ‘Process’ and ‘Physical evidence’. Action programmes should contain plans for implementing these including the allocation of tasks and responsibilities, and required marketing structures and systems.

Budgets/financial implications This part of the plan should encompass a delineation of costs and required budgets for marketing programmes. These budgets should be allocated to various marketing activities as appropriate, and should also contain projected sales which will enable, in turn, projected profit and loss statements.

Controls and evaluation This contains information on expected standards of performance as the basis of control; it should also contain information on how results will be measured and control mechanisms to be used.

Contingencies The contingencies part of the plan details what actions will be taken should there be any problems. For example, if the marketing plan is based on a set of assumptions, say, regarding levels of inflation/interest rates, etc., and should these materially alter during the period of time that the plan is in operation, requiring changes in elements of the plan, then this

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contingency section is aimed at encompassing any potential changes in plans of action.

Appendices Appendices should contain most of the detailed background analyses carried out in the production of the marketing plan. The plan itself should be as brief and focused as possible and the appendices provide an opportunity to include more detailed background analysis and information in a separate appendix to the plan.

Further issues in marketing planning and budgeting In this final part we consider two further issues with respect to marketing planning and budgeting. First, we consider the issue of the use of marketing research and information in marketing planning. Secondly, we look at some of the ways in which marketers are making use of technological advances and new technology in the marketing planning process.

Marketing research and information in marketing planning Marketing research is treated in greater detail in Chapter 8. At virtually every stage of the marketing process, the marketer must make use of the most accurate and up-to-date information available within time and cost constraints. A way of illustrating how marketing research and information can help in this respect is to examine the most common areas or problems given by marketers as the focus for marketing research activities. These are: x x x x x x x x x x

Market share analysis, Market size potential analysis, Sales analysis, Business and market trends, Short- and long-range forecasting, Competitor analysis, Pricing analysis, Analysis of products, Communication analysis, Distribution and logistics analysis.

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Many of these areas of analysis relate to areas or aspects of the marketing plan and the marketing planning process. Implicit in the areas of research listed is analysis of customer and market segments. A key part of marketing research activities in marketing planning is this analysis and understanding of customers and market segments. Marketing research and information has several uses and advantages in the context of marketing planning. Among some of the main advantages and uses are: It improves the marketer’s ability to make decisions, The changing values and behaviour of customers can be monitored, Competitors’ development of their strategies can be identified, It can be used to continuously evaluate the current effectiveness of an organization’s strategies and tactics such as a television advertising campaign, x Research in the form of environmental scanning can help to identify the changes in social, legal, political and technological advancements.

x x x x

Marketers must make use of the tools and techniques of marketing research in preparing marketing plans. Sometimes this marketing research will be one-off research aimed at addressing a specific and identified research problem and objective such as establishing the potential market size for, say, a new product. In addition, the marketing planning process is aided through marketing information system.

Marketing information systems and marketing planning Often supported through improved information technology marketers have extended their concept of the scope and uses of information for marketing decisions. Marketing research is seen as just one element of a total system of marketing information. Traditionally, marketing research is carried out to solve specific marketing problems. In this sense it is ad hoc. Information is needed on a continuous basis. The marketing information system is designed to generate and disseminate a flow of information to marketing management. The collection of data to solve one-off marketing problems through marketing research is one element in this system. The three other elements in a marketing information system are: x A marketing intelligence sub-system; x An internal information sub-system; x A decision support sub-system.

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The marketing research and marketing intelligence sub-systems feed into the marketing information database, which in turn feeds into the analysis and decision support system part of the marketing information framework. All these elements combine to provide information for marketing decisionmaking.

Extending knowledge Data brought into the organization through marketing research becomes just one element in a company’s marketing databank. This is a file of data collected through both the marketing information system and marketing research projects. The marketing databank allows researchers to retrieve information and this is useful for addressing problems quite different from those that prompted the original data collection. Often a research study developed for one purpose provides valuable information for developing a research method for further studies. The marketing information system (MkIS) should be designed around the marketers’ decision-making needs and should produce information required to take more cost-effective marketing decisions. Activity 2.11 Make an assessment of current information provided for marketing decisions internally in your organization, e.g. information from accounts. How could such internal information provision be improved (if at all) in your organization?

Technological developments and the marketing planning process We have provided an indication of some ways in which the planning process utilizes IT:

Marketing audit E-commerce and new technology is used in the marketing audit. The internet, on-line sources, and internal databases help in analysing and investigating the economic environment, competitors, customer requirements and dynamics.

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Marketing objectives Both internal and external analysis using databases and on-line sources can be used. For example, using databases to identify current rates of loyalty and retention of current customers may help to formulate objectives.

Marketing strategy Databases are particularly useful in identifying and analysing market segments. In addition technology can be used as a driver to underpin marketing strategy in terms of differentiation from competitors.

Marketing tactics E-commerce and advances in technology affect every element of the marketing mix: x Product Computer aided design (CAD) systems for product design and packaging, x Pricing Analysis of current database of customers and reaction to pricing variations, x Place Use of the internet as a direct channel of distribution such as home shopping and e-tailing, x Promotion Use of DRTV, databases and direct mail and websites as a promotional driver to link with current sales promotions and advertising. The website can be used as a communication tool for crisis management and media relations, x Process Improved communications with sophisticated databases and automated customer-handling operations, x People Interactive CD-ROMs, internet-based company training for staff, use of the intranet for internal communications, x Physical evidence The website as a ‘window’ of the organization, to allow the customer to enter the organization and delve into areas which they would otherwise not have access to (e.g. a virtual tour of the factory).

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Evaluation and control Analysing the effectiveness of the marketing plan by identifying the number of web ‘hits’ and interrogation of the database to check the effectiveness of direct campaigns. E-commerce and e-technology affect every facet of marketing.

Summary x In this chapter we have looked at the central key activity in marketing, namely marketing planning, x We have examined each of the steps in the planning process beginning with identification and formulation of overall business and corporate objectives through to evaluation and control of marketing plans, x We have looked at the marketing planning process and introduced key models that describe various stages of this process and analytical tools including the marketing audit, PEST and SWOT analysis, the Ansoff matrix, portfolio models, and the notion of generic strategies, x The importance of objectives and influences on these has been explored, x We have observed at the concept of market segmentation and how this relates to the essential elements of targeting and positioning and the notion of creating an integrated and coherent marketing mix, x Key issues in implementing marketing plans have been examined including the various management structures available and the setting of marketing budgets, x The structure of an outline marketing plan has been described and we have identified its various components, x We have seen the need for monitoring and controlling marketing activities and the way in which marketing plans make use of marketing research and information, x We have witnessed that like every other area of marketing activity marketing planning is being influenced by developments in technology.

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Further Study and Examination Preparation Question 2.1 Identify the elements of a PEST and SWOT analysis and explain their importance for marketing planning purposes. It is important that marketing managers are able to understand the environment in which they are operating. This means that a systematic PEST analysis will need to be undertaken on a regular basis. The PEST analysis includes: x Political factors such as a change in government and the ramifications of their strategies, e.g. tax levels, pollution policies and education issues, x Economic factors such as the impact of the trade cycle, disposable income and inflation, x Social/cultural issues such as the ageing consumer, increases in one-parent families, changing values and attitudes and beliefs to smoking, x Technological factors such as the increased rate of computer capability production methods. The environmental scanning or PEST analysis should help to identify the opportunities and strengths of an organization and its products/services. It is also important that a SWOT analysis is undertaken to help plan the marketing mix, which includes: x x x x

Strengths of the product/service/organization, Weaknesses of the organization, Opportunities available to the organization (external factors), Threats which may come from the competitions or other external factors.

This analysis helps the marketer understand the environment in which the organization is operating and the marketing plan can be devised taking account of the issues identified.

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Question 2.2 Briefly identify the steps involved in the marketing planning process. In order to plan the marketing mix effectively, a systematic marketing planning process must be undertaken on a regular basis. The steps involved are: x Identification of corporate mission and objectives, x Marketing audit analysis: marketing opportunities/trends; customers’ needs and perceptions; the marketing environment and trends; competition and competitors’ strategies, x SWOT analysis, x Marketing objectives, x Determine marketing strategy: growth strategies; overall competitive strategies; segmentation, targeting and positioning strategies, x Tactics planning the marketing mix, x Implementation, x Monitoring and control. Question 2.3 What are Porter’s three generic marketing strategies and how could these be implemented? These issues have clear implications for marketers when considering the marketing mix. Porter identified three core marketing strategies: x Cost leadership Companies can implement a cost leadership strategy by driving down their own costs such as production and transportation. Investment in technology is one of the key ways in which cost can be kept low and economies of scale achieved, x Focus strategy is where the organization considers focusing on very specific segments. The strategy can be coupled with cost leadership or differentiation. To implement this strategy, there must be good information about the specific segments and strong relationships will need to be achieved. The creation of a specialist reputation will be necessary, x Differentiation strategy This relies on an ability to offer some unique and different benefits, such as the creation of a strong brand.

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The marketing mix should reflect and support the broad thrust of these generic marketing strategies and a company pursuing cost leadership, for example, would probably have a very different marketing mix to one pursuing differentiation. Question 2.4 Explain the relevance of the Ansoff product market expansion grid in identifying opportunities for growth. Ansoff has proposed a useful framework for detecting new intensive growth opportunities called a product/market expansion grid: The company first considers whether it could gain more market share with its current products in their current markets; a market penetration strategy, A second possible strategy is the development of new markets for current products; a market development strategy, A third strategy that the company can consider is the development of new products for its current markets; a product development strategy, A diversification strategy may be considered where it might develop new products for new markets. Question 2.5 Comment upon the essential nature of marketing planning and strategy formulation. Illustrate your answer with appropriate industry and product examples. Start by defining the purpose of a formal marketing plan, and then go on to explain different planning horizons. In addition, point out how the marketing plan fits into the company’s general strategic plan. Ensure that through your answer, that you understand the practical implications. The main body of your answer should then relate to the following key marketing elements. 1. 2.

Situation analysis; Statement of marketing objectives;

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Summary of strategy and actions programmes.

Question 2.6 Segmentation is at the heart of marketing strategy. Explain its importance and choose two markets (one from a consumer and one from an industrial market) and show how these may be segmented. The fact that a statement is made suggests that you should agree with it. The question is seeking to test depth of knowledge insofar as segmentation is concerned, and as such is not seeking a detailed definition, as this knowledge can be taken for granted. Application is, therefore, important, and it is through the examples chosen that this can be demonstrated. The question is also seeking to examine how strategy follows segmentation in terms of target marketing A brief explanation of segmentation should precede the main body of the answer. It should not cover basic detail, but should discuss the contention in a positive way. The bulk of the answer should then concentrate upon the two examples: one from consumer and one from industrial perspectives.

CHAPTER THREE THE MARKETING MIX: PRODUCT

Learning Objectives By the end of this chapter you will: x Appreciate the role of the product in satisfying customer requirements, x Understand the notion of products as bundles of benefits that deliver customer value and have different characteristics, x Recognize the notion of the different levels of a product, x Be familiar with the product lifecycle concept and realise its effects on marketing mix decisions, x Comprehend the principles of product policy: branding, product lines, packaging and service support.

Introduction This chapter covers the first of the elements of the ‘marketing mix’, the elements of which you were introduced to in Chapter 1. Remember that the marketing mix comprises those ingredients which marketers use to develop marketing plans and programmes. You will recall that the original four elements of the marketing mix comprise what E. Jerome McCarthy termed the ‘four Ps’: i.e. Product, Price, Place and Promotion. The focus of this chapter is Product. Neil Borden included McCarthy’s four Ps in his ‘marketing mix’ that added ‘target marketing’ to his definition. The four Ps have since been extended to include a further three Ps: People, Process and Physical evidence which is particularly suited to service industries. It is vital to remember that ultimately each of the individual elements of the mix must be co-ordinated and integrated to provide a cohesive and balanced overall mix of the elements in marketing strategy.

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Having noted the importance of combining and co-ordinating the marketing mix, this introduces the most critical element in the marketing mix, for without products and services there would be nothing to market and no need for other marketing mix decisions. You will learn about different categories of products and the notion of the product mix. One of the most widely used concepts used in marketing is introduced, which is the product life cycle concept underpinned by the product adoption process. The important areas of branding and packaging in product management are considered, together with the increasingly important augmented product level element of service support. Product/service decisions are the most important decisions in the marketing mix. Throughout this chapter when the term ‘product’ is used it includes services. It is possible to have the most effective product decisions and fail to price, distribute or promote these products effectively, the likely outcome being marketing failure. Marketing mix elements stem from, and are affected by, the core decision of products. Study tip Much of what has been said about product decisions applies to both physical or tangible products and service products. Where this is not the case, or where it is felt it would be appropriate to distinguish between products and services, needs highlighting. Service products and issues and problems they give rise to with regard to their marketing are discussed in more detail in Chapter 7. We now examine what is meant by a product or service. Activity 3.1 What is meant by a product or service? Describe what you think these are in terms of customers and those who offer them to customers, then compare your answer with the one shown in the debriefing. Clearly, there are two different views: customers are seeking to derive some kind of satisfaction whereas those who sell to customers seek to provide that satisfaction. In return for this they require some kind of recompense. Although customers pay money for something specific and identifiable, they are in fact paying for something incorporating promotion, availability and perceived value. This is termed a ‘bundle

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of satisfactions’, which can be tangible or intangible and Figure 3.1 explains this more fully. The product as a satisfaction

Tangible attributes:

Intangible attributes:

Design;

Image;

Availability;

Value;

Performance;

Perception.

Price. Figure 3.1 Product dimensions Marketing people should consider this broad view of the product/service to present customers with satisfactions that have been identified as being appropriate to their needs. The marketing mix creates the product/service in this broader sense, and marketing efforts should be devoted to delivering something that matches defined customer needs and wants. These needs and wants are determined through the medium of marketing research that is covered in Chapter 8. What has been explained relates to the product or service in its broadest context. This is referred to as the extended product. In effect it considers the product as all marketing effort and not merely a single physical object. Services too are regarded as products, e.g. a special non-interest-bearing bank account for young persons who receive full time education. To consumers, products or services represent need satisfactions. Key definition A product is anything that can be offered to a market for attention, consumption, acquisition or use.

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The five levels of product In addition to considering tangible and intangible attributes that relate to a product, it is useful to think of the product as comprising a number of levels. These different levels are shown in Figure 3.2: Potential product Augmented product Expected product Actual/Basic product Core product

Figure 3.2 Five levels of the product

Level 1 – Core product This level of product is the most fundamental level and consists of the core benefit(s) which the product or service provides. In the case of a car this might be transport.

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Level 2 – Actual or basic product This comprises features offered in a product. It could include the design of the product, packaging and quality levels.

Level 3 – Expected product This is a set of attributes that buyers normally accept and agree to when they purchase. Where these attributes exceed buyers’ expectations we have satisfied customers: where they do not come up to expectations we have dissatisfied customers. When a customer purchases a car it is expected to start, accelerate, steer and stop. Much less obvious are psychological expectations of buyers regarding the extent to which a product will confer status or credibility for the purchaser.

Level 4 – Augmented product This refers to aspects or elements which support the core and actual product features like customer service, delivery, credit and after-sales support. In many ways this is where a product can meet and exceed customers’ desires beyond their expectations. Competition mainly takes place at this level. Product augmentation requires the marketer to look at the buyer’s total consumption system and such a strategy might be costly, so augmented benefits can soon become expected benefits. Many products are essentially marketed at the augmented product level which distinguishes the offering from that of competitors, thereby bestowing a competitive edge. It can be these aspects which are most influential in customer choice.

Level 5 – Potential product This level encompasses augmentations and transformations that the product might ultimately undergo in the future. It is important because it raises the possibility of future product improvements to keep the product competitive. Some products have more potential than others, and the marketer must be creative in seeking to do this.

Functional, physical and symbolic issues A useful concept in looking at the anatomy of a product is to consider the product/service portfolio from the point of view of benefits related to

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functional, physical and symbolic issues. The customer may also be looking for psychological benefits of status or perhaps a feeling of safety from choosing a particular car. It is important to distinguish between features and benefits. If we are marketing a two-speed drill for use in the home, the marketer needs to sell the benefits of a wide range of possible applications and uses which stem from this feature of having a two-speed motor. Advertising and promotion need to identify and stress the benefits of the product or service rather than features. The distinction between features and benefits underpins the marketing concept and the idea of looking at the business through the eyes of customers and their needs. Functional benefits related to the product/service portfolio relate to the core and actual product levels of the five levels of the product. The product must be functional and fill essential core needs with regard to what the customer is actually looking for. In fulfilling functional needs, physical attributes of the product are important. Decisions regarding appearance of the product, materials it is made from and design and packaging need to relate to functional benefits. In addition to these physical attributes, it is important to understand symbolic issues of the product which may derive from and be related to many aspects of the product. Given the nature of symbolic issues, their nature and importance derive from perceptions and needs of the customer. They are essentially socially or psychologically driven. For example, alcoholic drinks have strong symbolic connotations associated with aspects such as hedonism, excess, virility, sexual attractiveness and so on. In other words, a product is much more than its physical and functional attributes. A lot of marketing as evidenced in promotional campaigns centres on symbolic issues. These can be linked to brand attributes in terms of positioning them in the market. Understanding symbolic connotations can provide the marketer with important insights into the behaviour and perceptions of customers. Activity 3.2 What do you consider to be the need satisfactions of buyers of each of these products/services? x A householder who has ordered some made-to-measure curtains for the living room. x A buyer for a large multiple grocery chain who has placed a longterm order with a yoghurt producer to manufacture and supply a range of products under the grocery chain’s own label.

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x x x x

An 8-year-old child who has just purchased an ice cream. A 17-year-old who has just purchased a first motorcycle. A newly married couple who have just purchased their first home. A couple who have just completed their weekly shop at the local supermarket.

There are obvious answers here, e.g. fitted curtains ordered by the householder are for privacy at night. However, curtains are also part of the furnishings of a room and in most cases they are purchased to co-ordinate with the decoration of the rest of the room. The décor of the room might then produce a feeling of ‘homeliness’. The fitted curtains might come from a good quality yet expensive store, and if this is the case, the householder might well be able to impress friends with the purchase. There are more possible ‘bundles of satisfactions’ that might be considered, depending upon the motives of the householder. A simple satisfaction might be in the case of the 8-year-old who has just purchased an ice cream, which might be potential delight of what is to come! It is important to remember is that satisfaction will differ according to the buyer behaviour of the individual making the purchase. Buyers’ purchasing motives will be different, and this is what makes marketing interesting in terms of considering the complexities of human behaviour. You should be able to work out many and varied need satisfactions for the other examples.

Product and service classifications As products and services have intangible and tangible attributes, we can consider them in identifiable groups, and can use a formal classification system whereby we ascribe to each group a customer view of products and assess why and how they might be purchased. We distinguish between consumer and industrial goods and services. Industrial goods and services are purchased by manufacturers who use them to make products that are sold to make other products. Consumer goods/services are sold to the ultimate user.

Consumer goods These goods divide into a number of categories:

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‘Convenience goods’ are simple items whose purchase requires little effort on the part of the purchaser, e.g. routine items like bread, detergents, toothpaste and shampoo. A primary aim of manufacturers is to attempt to predetermine the purchase decision by promoting it as a branded product, so the consumer looks for a certain brand rather than merely going for a generic non-branded product. Convenience goods are further classified into ‘staple’ and ‘impulse’ purchases. Staple goods are those consumed by most people every day, e.g. fruit and vegetables, and product differentiation tends to be minimal. Impulse purchases, on the other hand, mean that there is no preplanning in their purchase, and supermarket displays and merchandising are often designed to promote such sales. ‘Shopping goods’ include major durable or semi-durable items. They are generally more expensive than convenience goods and their purchase is less frequent. Much preplanning goes into their choice in searching for information and price comparisons. For instance, the purchase of a new bedroom suite calls for extensive consideration of the relative merits of different bedroom suites on offer, and consumers consider price along with credit terms, delivery arrangements and guarantees. The quality of sales staff is basic to success. Promotional strategies aim to simplify the decision process by ensuring purchasers have a high level of brand awareness even before purchase planning begins. Shopping goods can be further classified as ‘homogeneous’ or ‘heterogeneous’. Homogeneous goods are not really exclusive. In terms of their market appeal they are broadly similar to each other in technical performance and price, examples being refrigerators and washing machines. Certain brands in this category attempt to differentiate themselves from other brands through image or technical or design superiority. Heterogeneous goods tend to be non-standard, and price is often of secondary importance to the customer after image. Here behavioural factors play an important role in purchasing decisions. ‘Speciality goods’ are characterized by extensive market search and a reluctance to accept substitutes once the purchase choice has been made. Consumers are usually prepared to pay a premium price for the prestige associated with the product or service, and it is important that companies marketing such products create and preserve the correct image. Examples of such products are expensive perfume brands, designer label clothes, expensive restaurants and exotic cars.

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‘Unsought goods’ are those the customer has not considered buying before being made aware of them and promotion is often done through the ‘hard sell’, which has served to dent the image of marketing in general and selling in particular. Unsought goods often satisfy a genuine need that the consumer did not recognize existed; double glazing is an example of this in that it helps to obviate condensation and assists in insulating the home from heat loss. Security systems and funeral plans are other examples, but consumers rarely recognize a need until they have been approached by a salesperson.

Industrial goods Certain goods within this classification are essential to the manufacturing process, as seen in the classifications: ‘Installations’ are critical and usually expensive items. They are major items of plant and machinery required for the production of an organization’s products. Their purchase is often critical to the economic well-being of the company, for it often commits the company for a long time into the future. Purchase is often the result of an extensive search process, and although price must be viewed as important, it is rarely the single deciding factor. Much emphasis is placed on the quality of sales support and advice, and subsequent technical support and after-sales service. ‘Accessories’ are goods that are usually less expensive than installations, and their depreciation is normally over fewer years. Although their purchase is important, it is not as critical as for installations. Accessories include ancillary plant and machinery, office equipment and office furniture. ‘Raw materials’ account for much of the work of a purchasing department, and here quality, consistency of supply, service and price are important considerations. ‘Component parts and materials’ include replacement and maintenance items for manufacturing machinery. They should not be confused with accessories as they include products that facilitate or are essential in the manufacturing process, but do not form part of finished products. Examples are adhesives and packaging materials.

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‘Supplies’ are the convenience goods of industrial requirements. They include such items as office stationery and cleaning materials. Their purchase is routine and undertaken by less senior employees. Most supplies tend to be homogeneous in nature, and price is usually the major factor in purchasing decisions. ‘Industrial services’ Some companies find it is less expensive to employ outside agencies, with their attendant specialist expertise, than attempting to carry out these functions themselves. As long as suppliers can match standards required by the company the company can then concentrate upon its own areas of expertise in producing and marketing its products. Maintenance, catering and management consultancy are examples of specialist services.

The product mix The product mix or product assortment consists of all the products or services that a company offers to its customers. Three considerations are: 1. Length of product mix, 2. Breadth or width of product mix, 3. Depth of product mix. Before we consider these, we should understand that consistency among different products in the product mix is a prerequisite to successful marketing. In other words, decisions on one product should not be taken without having due regard to other products in the product assortment. For instance, it would be unlikely that Rolls-Royce Cars would consider producing a family saloon car, because of the detrimental effect this would have upon their image as producers of one of the most prestigious makes of car in the world.

Length of product mix The length of a company’s product mix is the total number of individual products or services. The length can be stretched downwards or upwards (depending upon where the company’s products are located in the eyes of customers in terms of being up-market or down-market) or the stretch can

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be in both directions (termed a two-way stretch). Such line stretching happens when the company decides to increase its present product line. Activity 3.3 Consider why a company might engage in: 6. Downwards line stretching; 7. Upwards line stretching; 8. Two-way line stretching.

Breadth of product mix The breadth or width of a company’s mix relates to the number of product lines that the company possesses. For instance, a company producing coffee might have ground coffee in one product line, instant coffee in another, coffee bags in another and coffee beans in a fourth.

Depth of product mix The depth of a company’s product mix refers to the number of products in each product line. In the coffee producer example it might be that the instant coffee line consists of powdered coffee, granulated coffee, premium blend granulated coffee and Brazilian blend granulated coffee. In considering the structures that have been described, their organization is sometimes referred to as a product manager type of structure where a product (or products) manager is in charge of a product line and a brand manager is in charge of a specific product (or brand) in that line. These terms are not altogether clear because quite often the term product manager is interchangeable with the term brand manager. In industrial goods marketing the term product manager is more prevalent, whereas in the marketing of fast-moving consumer goods (FMCGs) the term brand manager is more common.

Product life cycle This concept is based on the idea that a new product enters a life cycle once it is launched on the market. It has a birth (introduction) and a death (decline). By thinking of product in this manner it is possible to devise different marketing strategies for relevant stages in the product’s life. This is perhaps an oversimplification, because in reality very few products fit

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neatly into the theoretical curve, so there is a danger of taking the concept too literally. Figure 3.3 shows the course of the product life cycle from the developmental pre-introduction stage to decline and a profit and loss curve is superimposed:

Loss

Sales

Introduction

Sales/revenue

Development

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Growth

Maturity

Profit

Saturation

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Decline

Sales

Time

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Figure 3.3 The product life cycle Polli, R. and Cook, V. (1969) Validity of the Product Life Cycle, Journal of Business, October, pp 385-400.

During the development phase there are of course no sales, but the product is picking up costs of development, including marketing-research costs. The introduction phase witnesses a slow growth as the product ‘catches on’. Once it has caught on, sales grow rapidly and the product becomes profitable. The product then matures as the market reaches saturation. In fact the terms ‘maturity’ and ‘saturation’ are sometimes used interchangeably, although saturation follows maturity. This phase tends to be longer than Figure 3.3 infers. Decline is the final phase, when the product eventually drops out of the market, usually at the point when losses begin to be incurred. The product life cycle is influenced by the nature of the product itself, changes in the macro environment, i.e. outside the control of the company, and changes in consumer preferences and competitive actions. These factors also influence the time span of the life cycle, which can range from a few months or even less to decades.

Characteristics of the different product life-cycle stages Understanding these characteristics is useful because it helps the marketer to develop strategies for different life-cycle stages as illustrated in Table 3.1:

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Development

Introduction

Growth

Maturity

Decline

No sales

Low sales

Rapidly rising sales

High sales

Declining sales

High cost of R&D

Negative profits

Rising profits

High profits

Declining profits

Test marketing

Innovative customers

Early adopters

Middle majority customers

Laggard customers

Few competitors

More competitors

Competitors start to decline

Smaller number of competitors

Table 3.1 Characteristics of each product life-cycle stage

Strategies at different life-cycle stages Development takes place before product launch and marketing research in the form of testing out the product’s potential acceptance takes place. (Marketing research is discussed in more detail in Chapter 8). Some companies attempt to ensure secrecy during this phase so competitors cannot pre-empt the product’s launch, while others use this period as a time for informing the public that the new product is forthcoming. Introduction is when the new product is launched, and the goal is to create awareness. This can involve a disproportionate level of marketing expenditure relative to sales revenue, and it must be regarded as an investment in the product’s future. Promotion tends to be informative at this stage, and the principal aim of selling is to communicate the product’s benefits to customers. Pricing is considered in the next chapter, but for innovative products a skimming strategy is often employed at this stage. If the product is innovative, then it is likely that it will be only available in a limited number of outlets at this early stage. Growth is where competitive products enter the market and there is less product distinctiveness. Rising sales generally mean more profitable returns, and company or product acquisitions sometimes feature. Promotional expenditure still features highly, but the type of promotion

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moves from informative advertising to advertising to achieve brand superiority. For FMCGs finding shelf space is important, and efforts are made to persuade retailers to stock. In non-FMCG examples suppliers are in competition with each other to acquire dealerships and distributive outlets. During growth a company must attempt to optimize the product’s price. At the end of the growth period prices are sometimes reduced because the full effect of economies of scale can be passed on to customers. As growth tends towards maturity, market shares will begin to stabilize and a hierarchy of brand or market leaders will have emerged. Maturity is where most products are situated, and much marketing activity is devoted to this stage. The major characteristics are that sales continue to grow, but at a much decreased rate; attempts are made to differentiate and re-differentiate products; and there is increased brand and inventory rationalization among retailers and distributors. Promotion tends to reinforce brand loyalty, and there is a need for sustained promotional activity, even if only to retain existing customers. Distribution strategies are designed to retain outlets. ‘Price wars’ are common, and the aim of price cutting is usually to increase purchases sufficiently to offset any revenue losses. Saturation follows, and this sees marginal manufacturers retiring from the market when faced with severe competition and reduced margins. As prices begin to fall there are battles to retain market share, and profits fall correspondingly. In some cases the major thrust of promotional effort moves away from consumers to distributive intermediaries in that maximum display at point of sale is regarded as being important to support brands, so ‘below the line’ activity features more strongly than ‘above the line’ which is dealt with in Chapter 6. Decline is where consumer preferences may have changed or innovative products may have displaced existing products. Characteristics are intensified price cutting and producers deciding to abandon the market. Some firms find it worth extending the product’s life cycle well into decline, while the number of competitors is falling. During this period management is likely to move from active marketing to strict cost control as the main means of maintaining profitability.

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Applications of the product life cycle The ability to accurately identify the transition from one stage of the product life cycle to another is a key issue. Such prediction requires the use of marketing research and market intelligence. Once these are in place, marketing management has the basis for long-term marketing planning, with appropriate strategies duly budgeted to meet changing conditions. Normally an extension of the product life cycle can be found by finding new uses for the product or by finding new markets, but such extensions should not call for too many product modifications. It should also be remembered that although Figure 3.3 shows the maturity/saturation as a short continuum, this period can last for months, years or decades, depending upon the nature of the product being considered.

Product life cycle marketing mix stages The marketing mix will need to be modified in each stage of a product’s life cycle. We have outlined in indicative terms the likely focus and thrust of the combination of marketing mix elements at each of the stages.

Introductory stage Spending on the promotional element of the mix will be high compared to sales. This is necessary to create awareness and interest. Within the promotional mix the emphasis will tend to be on advertising backed by special sales promotions to the trade. Selling will emphasize missionary selling. The product element of the mix is likely to be basic, with few (if any) variations or added features. Distribution and logistics (place) will centre on securing initial channels of distribution and ensuring that products are in stock to coincide with the launch plans. Price may be set either to skim or to penetrate the market according to circumstances.

Growth stage Spending on promotion will still be heavy to expand the market and strengthen competitive position. Product quality may be improved,

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together with the addition of special styling features. The product mix may be widened. Emphasis will be on securing new channels of distribution. If price skimming has been used in the introductory stage, prices will be reduced to bring in the next price-sensitive layer of the market.

Maturity and Saturation stages Promotion will be aimed at maintaining market share. Emphasis is likely to be on sales promotions aimed at both trade and consumer. Advertising is likely to take the form of reminder advertising. Further product modifications may take place to try to maintain sales. Further features and alternative product variations may be added. Distribution decisions will stress the importance of ensuring that costs are kept to a minimum compatible with desired levels of customer service. Price, although needing to be competitive, may be less price elastic, owing to brand loyalty.

Decline stage At this stage both the total market, and for many brands their market share, will gradually be eroded. Those customers still buying will tend to be core customers that have bought the product or brand for a long time and still remain loyal. Any new customers buying at this stage will come from the laggard group of adopters, i.e. those who do not seek market innovation and older members of the community who tend to be behind in current developments. Competition is intense but will gradually reduce as companies leave the market. Some competitors may attempt to regrow the market and/or capture market share by introducing product improvements or technological advances. Promotion will tend to be reduced to minimum levels. Emphasis within the promotional mix will tend to be on sales promotion. Unprofitable products will be phased out. Similarly, unprofitable/marginal outlets will be phased out. Price elasticity will be high, so prices and company margins may be cut to maintain sales and dealer loyalty. Trying to maintain sales as long as possible is essential. The organization may seek to cut costs by, for example, reducing the number of product features.

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Price should be carefully monitored, but at this stage the product may be a cash cow and prices should be kept steady if possible so as to maximize this cash flow. Activity 3.4 Reflect on examples of products and services in different stages. Try to establish the extent to which the marketing mix for these different products and services corresponds to the indicative use of the mix suggested for each stage of the life cycle.

Criticisms of the product life cycle The concept of the product life cycle, particularly as a planning tool for marketers, is not without limitations. The main criticisms are: x Identifying where one stage ends and another begins is difficult in terms of basing marketing plans upon the identification of each stage. x Not all products go through each stage. For example, fad products leap from introduction to maturity to decline like a pyramid. x The life cycle is not inevitable, but rather strategic decisions can change the cycle. In other words, product life cycles may be a function of strategies and not the other way around. For example, the repositioning of a product can have an impact on the length of stages. x The length of life cycles differs and makes the concept difficult to use. The life cycle varies between different industries. In electronics, for example, life cycles are relatively short, whereas in traditional industries like steel, production life cycles can be extremely long.

Product life-cycle patterns It is suggested that the product life cycle can take a number of shapes, depending upon the type of product or market being considered. Certain patterns are suggested in Figure 3.4:

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(example a)

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(example b)

Time Sales

Time

(example c)

Sales (example d)

Time Sales (example e)

Time Figure 3.4 Different patterns of the product life cycle

In example (a) sales grow rapidly after initial launch, followed by a sharp drop as the novelty wears off. Eventually this decline will be arrested and

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the product will enter a relatively long period of sales stability as late adopters purchase and early buyers purchase again, and become replacement buyers. Example (b) shows a truncated pattern, which shows that sales grow steeply from the start. Here we find products for which there is a large market appeal and for which there is little perceived risk. Example (c) shows a rapid growth followed by a rapid decline, with little maturity. In this category we see fad products, like many children’s toys. Example (d) shows a pattern with a relatively short introduction followed by rapid sales growth, a short maturity and then decline, only to be followed by a repeated process once the product goes so far down the decline curve. This type of cycle is typical for seasonal or fashion products. Skiing holidays and Christmas cards are examples. In example (e) we see a scalloped pattern as sales pass through mini life cycles. Such mini life cycles might be new adaptations of the original product that add value or represent an updating in styling. An example is televisions, where manufacturers and marketers continually adapt the product with new features to extend the life-cycle. Activity 3.5 Consider each of the five life cycles suggested in Figure 3.4 and think of a product or service example that equates to each. The product adoption process It is essential to consider the product life-cycle concept in conjunction with the product adoption process. From the product adoption process we learn something about users or consumers who are the targets of marketing efforts. Its nature is illustrated in Figure 3.5:

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Number of first time adopters

34%

34%

13.5%

2.5%

Innovators Early adopters

16%

Early majority

Late majority

Laggards

Figure 3.5 The product adoption process Rogers, Everett, M. (1962) Diffusion of Innovations, New York, The Free Press. The rate at which the product moves through the adoption categories is the function of a process called the diffusion of innovations. It should be noted that this measure is for first-time adopters only; once the product has been purchased, successive purchases do not count. In other words, what we are looking at is the extent to which each adopter category successively influences another towards adoption. Percentages relate to standard deviations from the mean and innovators are 2 from the left of the mean;

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early adopters 1 from the left of the mean; laggards are 1 from the right of the mean. Each adopter category is now discussed. Innovators are likely to be younger, better educated and relatively affluent, with a higher social status than other customers. In terms of personal characteristics they are likely to be broad-minded, receptive people, with a wide range of social relationships. Their product knowledge relies more upon their efforts to gather objective information from the internet and other sources, rather than on advertising and sales people. Early adopters possess many of the characteristics of innovators, but tend to belong to more ‘local’ systems. Although their social relationships are less broadly based, they tend to be opinion leaders and are influential within their group. They are a major target for marketers, whose aim is to have their product accepted as quickly as possible. The early majority group is slightly above average in socio-economic terms. They rely on marketing, especially internet sources, for information and are influenced by opinion leaders of the early adopter category. Late majority adopters are more likely to adopt innovations because they have become generally accepted by previous groups. Social pressure or economic considerations are more influential than innate personal characteristics. Laggards make up the cautious group. They tend to be older, with a relatively low socio-economic status. The innovator group may be considering another newer product before laggards have adopted the original innovation. Innovators and early adopters are important to the success or failure of new products. Marketers need to understand who they are and how to reach and influence them. The characteristics of innovators and early adopters suggest they tend to come from higher income and socioeconomic groups and tend to be more extrovert and cosmopolitan in their personalities and lifestyles and their behaviour involves more risk taking than later adopters. They seek out new products and part of their consumption pleasure is involved with being among the first to try out new products and services. There is a high degree of symbolic element attached to the consumption of new products and innovations for this group. They desire to be seen as

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being innovators in the market and essentially wear new products as social badges which serve to confer status. The following characteristics affect the diffusion and adoption process for new products and services: x Communicability The easier it is for potential benefits of a new product or service to be communicated to the market, the more likely the product is adopted. If a new product can be shown to reduce costs to the customer substantially, and where these cost savings can be readily communicated and understood, then the quicker and more extensive would be the acceptance of the new product. With many products the potential benefits are sometimes difficult to communicate to the customer because, for example, they are technical in nature or perhaps entirely new benefits which about which the customer has to be educated. x Trialability The easier it is for customers to try a new product on a limited basis or before making a major commitment to purchase, the more likely that product is to be adopted. Adopting a new product or service can represent substantial risk. For example, the customer risks whether the product will be satisfactory or not, or perhaps whether the new supplier will continue to be in business. Anything the marketer can do to reduce such perceived risks by making it easier to trial the product before making a purchase or long-term commitment is likely to help adoption. Allowing customers to use a vehicle through an extended test drive period when launching a new car is an example of making it easier to trial. Similarly, invitations via the internet and sending samples through direct mail make it easier for customers to try out a new product. x Relative advantage Customers are buying benefits. In the case of encouraging the adoption of new products, the marketer must ensure that the target market understands and appreciates the relative advantages of the new product compared to existing/established products. There is a risk element for the consumer with regard to adopting new products, so the consumer must feel, or the marketer must be able to persuade the customer to feel, that relative advantages offered by the new product are enough to overcome these risks and the inbuilt inertia which is normal for customers. New products which only offer marginal extra advantages to customers and those which are essentially ‘me too’ products which offer no advantages are less likely to be adopted.

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Activity 3.6 Consider the ‘home personal computer’. Analyse how this has spread through the market and different groups of consumers who have adopted it at varying stages of diffusion. Taking the United Kingdom as the market, the home personal computer is now into the late majority stage of its diffusion. In the early stages, innovator categories were a relatively small group of consumers who had a high degree of technical knowledge and interest in computers. As the product has moved through the market place we have seen the emergence of the early adopters and early majority groups. Early adopters were technically oriented customers but many of this group were interested in the games aspect of PCs. The early majority, although still interested in these entertainment aspects, use computers as tools to help them in their family and business lives, and are more interested in everyday uses for their computers. The late majority began to enter as prices continued to drop and uses expanded. Laggards will enter when eventually, probably still with some reluctance, as they see the benefits of the home PC. Activity 3.7 Consider Figures 3.3 (The product life cycle) and 3.5 (The product adoption process). They are quite similar in shape. Do you feel that there is a relationship between the two? Needless to say, there is a relationship. The adoption process effectively underpins the diffusion process and hence the product life cycle. The product adoption process, however, relates to the steps and stages which an individual passes through en-route to either accepting or rejecting a new product. Diffusion on the other hand represents a summary or collective view of the individual adoption processes. The more individuals who adopt a new product or service, and the quicker they do this, the greater and speedier would be the rate of diffusion in the market. The diffusion process represents adoption over time and the product life-cycle model represents this on a cumulative basis. As marketers we are interested in consumer behaviour as it relates to new products. Figure 3.6 shows a sequential model of the adoption process for an innovative new product.

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Awareness

Interest

Evaluation

Trial

Adoption

Post adoption confirmation Figure 3.6 Adoption process It is the task of marketer to create awareness and guide the consumer through subsequent stages of the process. Without awareness, consumers cannot begin to consider it as a solution to need-related problems. To be worthwhile, innovative products should always be problem solving in nature as far as the consumer is concerned. Awareness can come about by word of mouth communication or from marketing efforts of the company. The individual is exposed to the innovation and becomes aware of its existence. Interest is aroused and information will be sought. At the evaluation stage the consumer weighs the relative advantages of the new product against existing products. The consumer decides to make a trial through a test run or purchasing a small amount. For this reason many new FMCG products are sold initially

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in ‘trial sizes’ or are distributed as free samples. If a trial cannot be made, the likelihood of adoption will decrease. At the adoption stage the consumer decides whether or not to adopt, i.e. begin to buy and use the product on a regular basis. Post-adoption confirmation comes when the product has been adopted and the consumer seeks assurance and reassurance (unconsciously) that a sensible decision has been made. New information has been accepted and prior information has been rejected. Often, after an important purchase, a phenomenon called ‘post-purchase dissonance’ is present; this is a feeling of unease that the goods purchased may not represent good value. The product itself may be perfectly acceptable, yet the consumer may feel that the purchase was not as good as it could have been. Despite these uneasy feelings, consumers frequently rationalize and reinforce their purchase decisions and will not voice dissatisfaction and thus appear poor judges to their peer group. With this in mind, companies should attach as much importance to after-sales service and general customer care as they do to making the sale. Activity 3.7 Think of a major product you have purchased. Remember how you purchased this product and the formal and informal information sources you consulted. Try to match your various stages of purchasing behaviour to the elements of the adoption process in Figure 3.6. Did you have any feeling of post-purchase dissonance afterwards?

New product development How new product development is managed is critical in relation to potential success or failure. There are a number of different organizational alternatives in this respect: x New product managers are given the sole task of developing new products. Sometimes this task is part of the duty of a product manager or brand manager in a smaller organization. x New product committees receive new product ideas from marketing or research and development or indeed from any other source within the organization and assess their viability in terms of potential success.

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x New product departments exist in large innovative companies and their work cuts across a number of departments. When a new product idea looks to be viable they appoint a ‘product (or project) champion’ to see the development through from its design and development to its launch. x New product venture teams comprise people from different parts of the organization who are brought together on an ad hoc basis in order that different views can be incorporated in new product decision making. Their task is to develop products within predetermined budget and time constraint parameters.

The process of new product development American consultants, Booz, Allen and Hamilton first put forward the notion of the decay curve of new product ideas. The process of new product development goes through a logical series of steps from the inception of the idea to the launch of the product. These steps are illustrated in Figure 3.7:

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1968 study Ideas or concepts

1981 study Evaluation/screening

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Business analysis

2

Development

3

Market testing

4

Commercialization

5

1

2

3 4

9%

16%

59%

5 79%

Cumulative/100%Time Figure 3.7 Decay curve of new product ideas Booz, Allen, Hamilton (1982), New product management for the 1980’s. New York: Booz, Allen & Hamilton, Inc.

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x Idea generation can come from a variety of sources. In innovative companies, such ideas tend to be research driven. The notion of marketing orientation tells us that we should look to our customers first (through marketing research) before embarking upon new product development. In the case of companies producing ‘breakthrough’ products this might be difficult as customers will not necessarily be able to envisage what they require. However, as we shall see later in this section, ideas are not simply generated and made into products that are then marketed. Marketing research does come into the equation, but more through procedures like product testing come later in the process. A culture should exist within the organization that encourages new product ideas amongst more than simply the Research and Development function. The sales force should be a regular source of new product ideas, and such data can be gathered from the company’s marketing information system. Brainstorming is a good method of producing new product ideas as long as it is chaired competently, but regular meetings of planning committees should have this at the head of their agenda. Venture teams can then be set up to progress likely ideas. x Screening is the first stage of sifting viable ideas from less viable ones and obvious issues are addressed at this stage in terms of potential demand, the company’s capability in terms of development and production and the profit potential. This is an important stage at which ‘Go’ or ‘Drop’ decisions are made. This screening process should have due regard to whether or not the new product will fit into range of products that the company markets. To start a completely new venture might mean expensive investment in not only production capacity and skills, but a completely new marketing team might be required. x Business analysis is where the new product idea’s financial viability is appraised. By this phase only ‘serious’ contenders will remain and here a critical stage has been reached. Such analysis needs to take into consideration total costs rather than simply development and production costs. x Product development is the point at which the company has committed itself and indeed this is when costs start to increase sharply. Where appropriate, prototypes will be developed and these can be assessed by marketing research through product appraisal tests. It is also here that product refinement and modification will be possible through feedback from marketing research. It might also be the point at which the product is abandoned if expectations

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do not match up to reality, rather than risk a ‘high exposure’ failure in the marketplace. x Test marketing is the penultimate stage. This might be appropriate where the product is a fast-moving consumer good when it can be tested in test towns or a television test area before going ‘national’, but this is not always appropriate for more durable products. Here, product placement tests with members of the general public are probably more appropriate. The only problem with full scale test marketing is that it allows you competitors to see what you are doing, so clearly this disadvantage must be weighed against the advantages of simulating a National launch before full scale commitment. This indeed is why product testing, rather than higher profile test marketing, is better in terms of confidentiality. x Commercialization is where the product is to be launched on the market. All of the various filters have taken place, but even at this stage success is not guaranteed. However, there is a far greater likelihood of success if the procedure just described has been undertaken. In their original research Booz, Allen and Hamilton found that it took 58 new product ideas to produce one potentially successful product. However, even during the ‘commercialization’ stage there was still a 50/50 chance that the product would not be successful. Later research that they undertook suggested that it took considerably fewer new product ideas to produce a successful product.

Packaging Packaging is covered in more detail in Chapter 6, but in the context of ‘product’ it is appropriate to introduce it here. Packaging has now become so important in competitive marketing and customer choice that it is sometimes referred to as the fifth ‘P’ of the marketing mix. Packaging is needed for containment, but it is also an effective marketing tool, as products are sold on a self-selection basis at supermarkets. We have seen the growth of ‘copy-cat’ packaging where companies attempt to mislead customers by making their packaging similar to market leaders which leads consumers to assume that the contents are identical to branded contents but at a cheaper price. In fact Kellogg’s make the point that ‘The only Kellogg’s you eat is in a Kellogg’s pack’.

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The first consideration under packaging is ‘outers’ or outer containers. Industrial products are usually packed in plain boxes for protection while goods are in transit. For consumer products, outers form part of a product’s display. The example of potato crisps comes to mind, where the outer has a serrated round hole. The retailer then presses the serration through and sells individual packets of crisps from the bulk box. For consumer goods, the package around the goods forms part of the communications process. This is important for goods that are sold in selfservice outlets. Here the goods themselves must form part of the selling process, and if the goods in the package are not prone to attractive display, then the package must attempt to ‘sell’ the goods. Sometimes such packaging is referred to as the ‘silent salesman’. Study tip Examiners will certainly be looking for examples even where they do not request them. This is show that you understand and can apply fundamentals of marketing. In the case of packaging, it is easy to collect examples in the process of everyday shopping and consumption. It is easy to observe so look for examples of new/innovative packaging, and look for packaging which you feel is particularly good or bad. In terms of good packaging you are looking for packaging which, for example, makes the product stand out, easy to handle and use, or has some other benefits such as storage and reuse. Considerations under the heading of packaging are: x x x x x x x

Size and range of sizes, Protection and preservation, Convenience for the customer, Information in terms of instructions for use or contents, The relationship between packaging and promotion, Ease of handling for the intermediary, Innovation opportunities.

Development of better packaging materials and technologies has added to the arsenal of tools with respect to packaging design e.g. cans and some drinks bottles are easier to open with ring-pull designs. In addition, packaging has been an area that has been affected by increasing concern for the environment and ‘green issues’. Packaging is increasingly

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recyclable and in most countries, there are stringent regulations concerning packaging and its recyclability, with some countries imposing substantial fines for it not being degradable. There has been a movement towards ‘less being more’ in packaging. Consumers do not want to feel they are paying excessive amounts for packaging apart from wrapping articles for gifts. Activity 3.8 Consider the functions of packaging for an industrial product, a nonfood consumer product and a processed food item for sale in a supermarket. Consider their packaging functions. Your answers will depend upon examples you have selected, but in the case of an industrial product, the major functions are likely to be more closely related to functional aspects of the package such as protection and ease of use. In the case of a non-food consumer product such as clothing, the functions of packaging will again be protection and ease of use, but in addition the packaging will have to facilitate handling of the product before purchase, and possibly information in terms of fabric care. For the processed food item, packaging must protect and prevent tampering, and facilitate stacking and display and serve to differentiate the product to act as the ‘silent sales person’.

Branding Branding and brand management is an important issue that we return to in Chapter 6 as part of the promotional element of the marketing mix. In the context of product, brands perform a strong communication role in marketing and are often supported by heavy spends on promotion. Building and managing successful brands is important in contemporary marketing. Some of the most significant reasons are: x Brands represent one of the most powerful of ways for a company to create and maintain differential advantage, x Brands represent ease of choice and psychological comfort for consumers, x Prestigious brands confer status and legitimacy, x Successful brands are a major company asset not only in marketing but in financial terms,

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x Successful brands give the marketer substantial power and leverage when dealing with intermediaries with regard to issues like securing shelf space.

What is a brand? Branding is an approach to distinguishing one supplier’s product(s) from another in the market place. This is best illustrated by the fact that one of the decisions regarding building and managing brands relates to the basis of such distinctions. In its simplest sense a brand is distinguished through its name. In the Cola market we have Coca Cola, Pepsi Cola, Virgin Cola, and so on. Alternatively, brands may be distinguished through their appearance such as packaging. A brand may be distinguished through image which may comprise of a combination of factors including design, after-sales service and company reputation. A brand is more than simply the physical characteristics of a product. In essence it represents a product which has a set of values that meet certain psychological needs leading to a perception of added values and feelings of confidence on the part of customers. It is these added values and emotional and perceptual effects they have on customer choice that constitutes a brand.

The importance of brands in customer choice In FMCG markets in particular, brands and brand values are among the most important influences on buying decisions. In markets characterized by numerous alternative offerings, the task of choosing between competing products has become difficult, time consuming and expensive. Customers are subjected to a variety of competing claims and promotional messages. Reputable brands allow customers to choose with confidence and reduce risks. Brands are strongly associated with, and bought for, emotional and status reasons as well as function. Brand image conveys as much psychological functionality as the product itself. Most Colas refresh so why is Coca Cola the world’s leading brand in this market? Most watches tell the time accurately, so why do some choose Rolex or Omega? Psychological and emotional reasons associated with brand values reflect the fact that in many societies consumers have moved from merely buying products and services to fulfil basic physical needs and requirements, to buying products to satisfy higher needs like self-actualization and esteem. What

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are the elements of developing and managing successful brands and what are key decisions that the marketer must consider?

Elements of branding and brand management Among the major elements of branding and brand management decisions are: x Branding versus no branding The marketer must decide whether or not to brand products and services or market them unbranded as commodity items. Marketers usually opt to brand, hoping to build better value and stronger market positions. However, some products are difficult to brand in the sense of being difficult to distinguish from their competitive counterparts. Examples include many raw materials and industrial commodities. Even here, an element of branding can be introduced through developing a corporate approach to branding via corporate image. Some marketers do not brand, but leave this to distributors who have retailer as opposed to company brands. x Brand names If a marketer decides that branding is the best option, then brand names must be selected. There are legal issues to be considered with regard to ensuring that other manufacturers’ brand names are not infringed, language issues when it comes to international marketing and cultural issues associated with the choice of brand names. There are well-documented mistakes that are amusing when taking the brand name from one language to another, but ideally the name should have the following characteristics: distinctive; legal; protectable; user-friendly, and match the desired image and positioning of the company’s brand. When it comes to naming there are strategic aspects to consider. Some organizations rely principally on company brand name establishing this as the dominant brand identity across a range of their products. Examples include Heinz and Mercedes Benz. Companies such as Unilever and Procter and Gamble prefer a strategy of individual brand names and identities for each product. Other companies adopt an approach either using both company and individual brand names like Kelloggs, or using range branding where groups of products, for example product lines, are marketed under their own brand family names.

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Establishing and supporting successful brands Although decisions regarding whether or not to brand, naming brands and generic or individual naming brand strategies are important, perhaps the most important element of branding and brand management is how to establish, build and support successful brands. The following are key steps in building and supporting successful brands: x Establish target market and customer needs with respect to what constitutes important aspects of brand choice and values; x Determine the brand values to be established in relation to these needs, considering competitor offerings and brand perceptions; x Position brands so as to occupy important value positions in the market with regard to customer needs and perceptions; x Ensure that brand values are communicated to customers; x Ensure that brand values are supported over time; x Monitor changes in company and competitor brand positions and update brands as appropriate. It is not easy to build successful brands from scratch. Many leading brands have taken years to develop to this position. The often-dominant position of leading brands can make it difficult and often impossible to displace them. The life-cycle concept seems to suggest that brands in particular have finite lives. The lesson is that the marketer can, through attention to revitalizing, repositioning and rationalizing brands keep the longest established brands fresh and exciting. Activity 3.9 Find an example of a brand which has been long established is still successful in today’s market place. In what ways have marketers of this brand maintained its successful position? There are many examples where marketers have prolonged the life cycles of brands and kept them fresh, exciting and successful. A good example is the Lucozade brand. Initially positioned as a glucose drink primarily for the infirmed, eventually as consumers became more informed, the brand waned in this market. Recognizing this, the brand management team began to position and promote the brand as a ‘pick-me-up’ drink for the tired housewife midway through her morning chores. As lifestyles changed, and in particular as health and fitness became particularly important in the lifestyles of many consumers in developed economies, the brand was

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positioned even more strongly as an energy drink. Using well-known sports people in their advertising, the brand managers of Lucozade have managed to establish the brand as one of the leading ones in the energy drink market.

Service support Alongside branding, the other major issue with regard to consumer choice is that of service support. In some ways many reasons for the emergence of brands as an important element in customer choice underpins the growth in importance of service support. As with branding, customers look for more than simply basic functional products to satisfy their needs and requirements. They are looking for value in the product over and above its functional performance. They are looking for additional elements of backup and service. These add value to the product and generate higher levels of customer satisfaction, generating brand loyalty, leading to long-term relationships. Service support lies at the augmented and potential levels of the product as outlined earlier. Some products comprise only services, but here additional levels of service support over and above that of competitors can be a primary reason for customer choice. The marketer must consider whether or not to offer additional levels of service support that these service support elements comprise of and how to distinguish these offerings from competitors. Service support can be provided by technical support; marketing support (e.g. supplying intermediaries) and after-sales support. Within these approaches to offering service support there are many ways in which product support can be provided. Technical support can be offered through technical sales staff or through a telephone service. Marketing support can be provided through promotional tools or financial support like the provision of credit facilities. After-sales support can be provided through customer help-lines, a website or support systems such as return and exchange. Service support is a vital element in customer choice in contemporary markets. This is expanded Chapter 7 under the role of people, customer care and service as elements of the marketing mix.

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Summary In this chapter you have seen that: x Product decisions lie at the heart of the marketing mix tools; x Products can be usefully viewed as a collection of tangible and intangible attributes that combine to provide bundles of benefits underpinning customer satisfaction; x It is helpful to distinguish between the different levels of a product ranging from the inner-most core product or basic benefits through to the augmented and potential product levels; x A valuable concept of the anatomy of a product is to consider the functional, physical and symbolic issues associated with product benefits; x Useful concepts in managing products include the notion of the product mix which in turn is based on product lines and individual product items; x The product life cycle suggests that products have finite lives and pass through definitive and identifiable product life-cycle stages; x Different strategies exist for different phases of the product life cycle, and the curve of the product life cycle itself can assume a variety of shapes; x The product adoption process consists of a number of discrete adopter categories that each behave in a different way to a new product offering; x Packaging, branding and service support elements have become very important elements of the product area of the marketing mix. Question 3.1 Explain the principal functional elements of marketing management. Illustrate your answer with reference to a product or service with which you are familiar. This question assumes knowledge of the meaning of marketing. Here you are required to expand on the functional elements of marketing, and by means of a product example show how these are applied in practice. Although there are certain basic areas which should not be omitted, there is considerable scope in this answer to use your imagination, say in the choice of media for advertising. The examples you choose must of course

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be sensible and appropriate, but for many of those you choose there will be no ‘right’ or ‘wrong’ answers, provided you can justify your reasoning. As you are asked to deal with all the functional aspects of marketing, you are really concerned with the ‘marketing mix’. Once you have decided upon a product, you could approach your answer from the perspective of designing a ‘mix’ strategy. When your illustrations and explanations are complete, you could sum up by discussing the marketing functions as a ‘mix ratio’ since different products require a different functional emphasis. It would be acceptable to expand your answer to include a product line and product mix if necessary. You might want to include a deliberate ‘mismatch’. Your product choice can be as restrictive or expansive as you wish, provided that you can show how it relates to the functional elements of the marketing mix. Take care to make it quite clear from the outset what product you have chosen with which to illustrate your answer. Question 3.2 Describe the assembly of a company’s product mix, giving reasons for mix optimization and ways in which this may be achieved. The answer to this question should be concise and straightforward and should include a description of how a product line forms part of the total ‘mix’. As is true for all answers, any reference to actual products and real situations will add to the marks that you will be awarded. In terms of both industrial and consumer markets it is unusual to find a company which markets only one product. More usually firms market a range of products. The experience and capabilities of a company (both in marketing and manufacturing) usually combine to produce products that are in some way related to each other in the physical or market sense. Of course, if a company continues to expand, there is likelihood that any such relation between products will become more tenuous. Whatever the relation between products will become more tenuous. Whatever the relation between products, their sum total constitutes the ‘product mix’ of a company. The idea of regarding a group of products as a ‘mix’ gives form to the company’s activities, allows analysis to be carried out, and so permits the products to be optimized in terms of profitability, conformity

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to the company image and in terms of how the products relate to each other. Question 3.3 Packaging can be said to have two functions: (i) Product protection (ii) Product promotion Discuss the function of each in relation to a product range of your choice. The obvious approach would be to take a product range and discuss each of the problems set in isolation, and there is nothing wrong in doing this. However, a more imaginative way might be to start with a philosophical overview of packaging to show that the problem has been appreciated and then go on to discuss the functions. The question does not ask for each of the functions to be discussed separately, so a more intelligent way might be to attempt to integrate them within the body of the answer. Many textbooks tend to give a checklist approach to the above problem, so merely to reproduce this smatters of ‘rote’ learning. Better that your answer should, through your chosen example, attempts to show an understanding of the problem. Packaging forms an inseparable part of the marketing mix, coming under the ‘promotional P’. The objective of packaging, especially in today’s fastmoving consumer goods society, is to increase sales of the goods inside the package. The package should thus confirm and enhance the perceived value of its contained product and impart that impression to the potential customer. Thus, part of its function is that of communication. The pack design itself should also support and reinforce the brand name of the product tor the brand image of the company. Many industrial products are packaged in simple, plain boxes for protection during transit and storage, and clearly the context of packaging here is for product protection. Sometimes this is merely referred to as ‘packing’ rather than packaging: the latter has wider marketing connotations.

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Question 3.4 Outline the different adopter categories in the product adoption process. When considering the launch of a new product it is important to distinguish between the different categories of consumers with respect to the stage in the life cycle of the product at which they adopt the new product. We call these adopter categories as outlined below: Innovators These are likely to be younger, better educated and relatively affluent with a higher social status than other customers. They are likely to be broad-minded receptive people with a wide range of social relationships. Innovators are important because they are the first to adopt new products. Early adopters Early adopters are the next group after innovators to adopt new products. They possess many of the characteristics of innovators but tend to belong to more ‘local’ systems. They tend to be opinion leaders in their groups and are highly influential. Early majority The first group in the mass market to adopt new products, this group is slightly above average in socio-economic terms. They are heavily influenced by opinion leaders from the early adopter category and make extensive use of marketer provided information in their adoption decisions. Late majority As the term implies, this group adopts only towards the end of the life cycle. They are generally more conservative and are heavily influenced by social pressure and economic considerations. Laggards These are the most cautious of all the groups and hence adopt last. They tend to be older, with a relatively low socio-economic status, conservative in their tastes and risk avoiders. Question 3.5 Explain the characteristics of the different phases of the product life cycle. Each product has a life cycle, which portrays distinct stages in its sales; each posing different challenges to the marketer and usually includes the development, introduction, growth, maturity and decline stages. The PLC

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concept is used to interpret product and market dynamics and is often used as a strategic planning tool. The following characteristics apply to each stage: Development

Introduction

Growth

Maturity

Decline

No sales

Low sales

Rapidly rising sales

High sales

Declini ng sales

High cost of R&D

Negative profits

Rising profits

High profits

Declini ng profits

Test market

Innovator customers

Early adopters

Middle majority customers

Laggard custome rs

Few competitors

More competit ors

Competitors start to decline

Smaller number of competi tors

CHAPTER FOUR THE MARKETING MIX: PRICE

Learning Objectives By the end of the chapter you will: x Understand the role and importance of price in the marketing mix, x Appreciate the process of making pricing decisions and the range of internal and external factors affecting these, x Understand different pricing policies, strategies and tactics.

Introduction This chapter covers a key element of the marketing mix: the one that generates revenue. In profit- and not-for-profit-making organizations pricing decisions are central to an organization’s effectiveness as they have a major impact on levels of profits. It is a vital element of marketing, as price helps position a product/service in a market and ultimately in the mind of the customer. Marketers sometimes leave key inputs to pricing decisions to accountants. As accountants are not always aware of the relationship between price and demand and factors such as ‘price elasticity’, they are not able to make informed pricing decisions based upon marketing criteria. The intention is to help you understand the contributions and jargon of these disciplines in making pricing decisions.

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The role and importance of price in marketing Study Tip Because pricing decisions are among the most visible parts of a company’s marketing strategy, in that prices need to be communicated to potential customers, you will be able to observe and reflect upon pricing approaches and strategies in your everyday role as a consumer. Look for examples of pricing strategies used by marketers and things like special offer pricing, price-lining and loss leaders when you shop. ‘Price’ can take several forms, depending upon circumstances. For example, in the case of a credit card we pay a monthly ‘rate of interest’; at the end of the month we may pay a landlord ‘rent’; an agent may charge us ‘commission’. All are variations on the word ‘price’. In the case of many not-for-profit organizations there is no price for the product, but the customer may, instead, may be required to give up time, or vote, as opposed to paying over a monetary sum. The word ‘price’, whose meaning we take for granted, is more complex and varied than we first imagined. In addition, price plays a vital role in marketing as follows: x Price is the major basis for generating revenue and, where relevant, profits in an organization; put simply: o Revenue = price × quantity o Profit = revenue – costs x Prices connect customers and suppliers at the point of exchange, x Prices send signals to customers about factors like product quality and exclusiveness. There are behavioural and psychological aspects to the price element, x Price is used as a competitive weapon, sometimes to drive other competitors out of business, prevent new ones entering, and forcing those that remain to follow prices that have been laid down. Activity 4.1 There are various understandings for the word ‘price’. Look for different examples that mean the same thing as price used by different industries and for different products.

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Perspectives on pricing decisions We can distinguish between three different approaches to pricing decisions, each with its own perspective and emphasis. These concepts and techniques correspond to three disciplines: those of the economist, the accountant and the marketer. Each suggests a different approach to pricing decisions. Exam hint Comparing and contrasting approaches and perspectives of these three disciplines is a popular area for questions. We continue by outlining each perspective and the contributions of these disciplines to pricing decisions.

The economist’s perspective Pricing is viewed as the mechanism whereby demand and supply are brought into equilibrium. The operation of this mechanism varies according to market structure, ranging from perfectly competitive markets to imperfect competition and monopolistic market structures. The economist looks at price on the assumption that companies are ‘profit maximizers’. The major contribution of the economist to price planning in marketing is the idea surrounding relationships between demand and price. This approach commences with the notion of supply and demand where these are expressed as a demand and supply schedules or curves as in Figure 4.1(a) and 4.1(b):

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Price per unit

D

S

D

S Demand

Demand Figure 4.1(a) Demand curve

Figure 4.1(b) Supply curve

In Figure 4.1(a) the lower the price, the greater the amount demanded. Conversely, the greater the price the lower is the amount demanded. In Figure 4.1(b) the lower the price, the lower the amount suppliers will produce and the higher the price, the more they will be prepared to supply. In Figure 4.2 we superimpose one over the other, and where the two curves intersect will be the market price. Price per unit D

S

P

S

D Demand Q

Figure 4.2 Law of supply and demand

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In economic terms, where the two curves intersect will be the market price, so at price ‘P’, quantity ‘Q’ will be the amount demanded. Companies market their products in a market situation which ranges from what economists call ‘perfect competition’ to ‘monopoly’, each representing an extreme on the continuum. Perfect competition is a market in which there are a large number of fully informed buyers and sellers of similar products, and where there are no obstacles to exit or entry on the part of companies. Monopoly is where there is a single producer of a product for which there are no substitutes. Economists maintain that what has great relevance to marketers is the notion of ‘oligopoly’ which falls between the extremes of monopoly and perfect competition, towards the monopoly end of the scale. This concept has particular relevance for marketers of FMCGs. Here we find a market dominated by few sellers where each company must weigh the effects of its own policies on the behaviour of its rivals. More specifically, the theory maintains that these few sellers are interdependent and goods they produce are basically similar (or homogeneous). Companies competing in this situation are sensitive to price changes between the various players. Since goods are similar, customers will tend to purchase at the lowest price, so if one company lowers prices then the remaining players have to do the same to market their products. Therefore, price as an instrument of competition tends to be less effective than competition that is based upon such non-price factors as branding through advertising and sales promotional activities. All players produce below their maximum. The price of entry to the system can be prohibitively high through either the amount of promotion that must be done to establish a foothold or because of the costs of setting up manufacturing activities in terms of investment in plant and machinery and research and development costs. Therefore, in perfect competition, which is typified by a preponderance of small companies, each player is striving to perform at a personal best, whereas in oligopoly the actions of each player very much depends on the actions of other players. Views put forward by economists are useful in terms of being able to relate to in marketing terms because these theoretical positions tend to relate to certain kinds of marketing behaviour. With this in mind, an industry or service provisions that more or less equates to perfect competition, oligopoly and monopoly are:

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Perfect competition - the restaurant trade; Oligopoly - motor cars; Monopoly - the coal industry;

Figure 4.3 explains the theory of oligopoly: Price per unit D

P

P1 D D1 Q

Q2

Q1

Demand

Figure 4.3 Oligopoly At price P the law of demand states that quantity Q will be demanded. If the price is then reduced to P1, then Q1 will be demanded, so Q-Q1 will be the additional amount demanded. However, in a situation of oligopoly where price as an instrument of competition is less effective, then the demand curve will kink to D1 and the dark area covered by Q-Q2 will be the additional amount demanded. A price reduction in these circumstances is less effective as customers will have been ‘pre-sold’ their existing products through non-price factors like advertising and branding, and indeed this is termed ‘non-price competition’.

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Elasticity and inelasticity of demand are terms used by economists to describe how price changes affect levels of demand. The term elasticity is better described as ‘responsiveness’. ‘Inelastic demand’ is less sensitive to price changes and ‘elastic’ demand is very responsive to price changes. The concepts are shown in Figures 4.4(a) and 4.4(b):

Price per unit P

Price per unit D

P

D D

P1 P1 D Q Q1

Figure 4.4(a) Inelastic demand

Demand

Q

Q1 Demand

Figure 4.4(b) Elastic demand

In Figure 4.4(a) we can see that a large reduction in price from P to P1 will hardly affect demand that only moves from Q to Q1 and this is known as inelasticity of demand. In fact, when the demand curve is vertical then this is known as infinite inelasticity. In the case of Figure 4.4(b) a small reduction in price from P to P1 will have a big effect on demand which moves from Q to Q1. It can then be seen that the incline of the demand curve, or the elasticity of demand for the product, will very much affect pricing decisions. However, in practice, measures of total elasticity or inelasticity of demand are unrealistic. Even when demand is elastic, there is usually some point on the demand curve where a further price reduction makes little or no difference to demand. Determining the exact position of this point is important in demand analysis, as it would make little sense to reduce the price if this would not result in an increase in sales sufficient to offset this price reduction.

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Key definition Price elasticity of demand = Percentage change in quantity demanded/percentage change in price. The steeper the demand curve, the less sensitive demand is to changes in price, i.e. relatively price is ‘inelastic’. Similarly the flatter the demand curve, the more sensitive demand is to changes in price, i.e. relatively price elastic. Examples of products which are relatively price inelastic are those which are essential necessities such as salt, pepper, electricity, gas and water, or where the customer has developed a high degree of brand loyalty to a particular supplier which serves to desensitize the customer to changes in price (which highlights the value of effective branding). Examples of products which are relatively price elastic are those where there is considerable choice and discretion in product selection on the part of a customer and when immediate purchase is not essential, and/or where brand loyalty is relatively low. Products like new carpets and lounge suites fall into this category. Information on the demand curve can be gleaned from market research including customer surveys and test marketing. The shape of the demand curve and price elasticity is influenced by many factors. Three of the most important are: marketing strategies of the company; the product life cycle; marketing strategies of competitors. In this section we have attempted to put the economist’s view of pricing. This view is devoid of sociological and psychological influences that might influence purchasing decisions, but it is an essential starting point when attempting to understand the market. The next approach to pricing is the accountant’s approach.

The accountant’s perspective Information on costs is the key contribution of the accountant to setting prices. Costs determine the lower limit to the prices a company can charge. The following represent information and analysis on costs we need when setting a price for the first time:

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x x x x x x x

Total costs, Average costs, Fixed costs, Variable costs, Marginal cost, Relation between volume and cost: ‘scale economies’, Relation between experience and costs: ‘experience curves’. Key definitions

Total cost: The sum of all fixed costs and variable costs times the quantity produced. Average cost: Total cost divided by number of units produced. Fixed costs: Costs that do not vary with the number of units produced or sold. Variable costs: Costs that vary directly according to the number of units produced or sold. Marginal cost: The addition to total cost of producing one additional unit of output. Scale economies: The potential reduction in average costs as a result of increasing output/sales. Experience curves: The potential reduction in average costs as a result of learning/experience based on cumulative output. By providing this type of analysis and information on costs, the accountant plays a key role in contributing to pricing decisions. A variety of accounting tools of analysis are useful. The best example is breakeven analysis, but before we consider this you should undertake the following activity.

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Activity 4.2 Examples of types of cost Using an organization with which you are familiar, list examples of various kinds of cost: x x x

Fixed costs, Variable costs, Neither of the above.

Your examples may be specific to your own organization, but here are typical examples of the different types of cost: x x x

Fixed costs, e.g. rent and rates, leases, cost of capital, Variable costs, e.g. raw materials, labour, power, transportation, Neither of the above. If you were puzzled by this category, it is because some costs are neither truly fixed nor variable, i.e. they are semi-fixed/variable. These are costs that vary to some extent with output/sales. For example, in the lease of some equipment there may be both a fixed and variable element to the cost, e.g. a photocopier.

Using this concept of different costs enables the accountant and the marketer to explore relationships between costs and prices. Two of the most useful tools of cost analysis are the related notions of ‘contribution’ and ‘breakeven’.

Contribution Contribution is calculated in the following way: Selling price – variable cost = contribution Contribution is the amount, if any, which is left after deducting variable costs from a selling price and which therefore ‘contributes’ to covering fixed costs. By calculating contribution, the marketer can assess if it would be worthwhile, at least in the short run, to sell a product at less than total cost. As fixed costs by definition would be incurred irrespective of how much is produced or sold, then we might decide that if we can cover variable costs, we should continue to produce the product. In the long run of course, all costs must be covered.

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Breakeven analysis The breakeven point represents the level of output at any given price where total revenue is exactly equal to the total costs of production and marketing. The breakeven quantity (BEQ) can be calculated. Figure 4.5 explains:

£ Costs/revenues

Total revenue @ price = £20

Total costs (fixed + variable) @ £10.00/unit

Fixed costs BEQ = 10,000 units

0

2

4

6

8

10

12

14

16

18

20 Sales/output (‘000s)

Figure 4.5 Breakeven chart Activity 4.3 Contribution and breakeven calculations; calculate: 1. 2.

Contribution, Breakeven point.

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From the following information: Selling price = £20.00 Variable cost = £10.00 Fixed costs = £100,000.00 Compare your calculations with those shown. 1. 2.

Using the information provided, Contribution = selling price – variable costs = £20 – £10 = £10 Breakeven point = fixed costs/contribution = 100000/10 = 10000 units.

Breakeven analysis can be done graphically as shown in Figure 4.5 which is easy to interpret, but we can also use the chart simply to examine the effect on breakeven quantities of different prices. Activity 4.4 Using the information from the previous activity, calculate the effect on breakeven point of: 1. 2.

Increasing the selling price to £25.00 Reducing the selling price to £15.00.

The effect on breakeven point is: 1. 2.

= 6667 units = 20000 units.

We can see how the accountant can make a valuable contribution to pricing decisions by providing information and analyses on costs. However, it is dangerous to base pricing decisions on cost information alone. As mentioned earlier, costs set the lower limit to the prices the marketer can charge. The upper limit is determined by demand or customer considerations. We now turn our attention to this second input to pricing decisions.

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The philosophy underlying the accountants’ approach to pricing is to achieve a targeted rate of return on investment from a given level of sales. Once total costs have been determined, the company then decides on the percentage of profit it requires. To accomplish this objective consistently, the company must be a market leader otherwise fluctuations in demand will affect the value of profits made. In such a situation, companies have a clear idea of the volume of surplus they wish to achieve and can then estimate the profit margins needed to realise this. This approach is termed ‘cost-plus’ pricing. This, however, is a rather mechanistic approach that is not usually used in practice, although mark-up pricing which simply adds a fixed percentage onto the cost of goods and services, is still used a lot in more traditional sectors of the retail trade. The reality is that overall profit margin is normally the result of several pricing strategies applied to a variety of products in response to changes in the market place. Therefore, the percentage of ‘plus’ that is applied in respect of each contract or product line is a function of market conditions and individual customers which means that it is more a decision that marketing should make rather than for finance. However, the target rate of return that is expected in such circumstances should equate to the overall percentage that has been agreed with finance. If certain contracts are agreed with customers at less than this target rate of return, then this shortfall should be made up on other contracts which will be priced at more than this target rate of return. This technique is more flexible than simple cost plus pricing in that it allows marketing more flexibility when dealing with customers and for obvious reasons this pricing technique is termed ‘target pricing’. In a manufacturing situation where the company has to make and perhaps install something that is unique and purpose designed a cost plus or target pricing approach might be appropriate. Such a product might be for the design, manufacture and commissioning of an oil refinery. Here the client usually asks for tenders from a number of companies so what the company must do is to estimate likely costs of such a project and then add a margin on top for profit. The accountant also has to control the flow of cash in an organization and there is normally a need to recoup the often high costs of development as early as possible in the life cycle of a product. However, it is through the financial function that a balance is kept between various demands on the company’s limited resources. This means that a balancing act has to be performed when attempting to meet often conflicting demands and

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requirements of, for instance, production, research and development, training and marketing. The accountant’s view of pricing is more governed by the internal workings of the company than with the vagaries of the market place. It can be seen that variable costs increase in direct proportion to the volume produced or sold, and the sum of these is total cost. The breakeven quantity (BEQ) occurs when a certain number of units sold at a given price, generates sufficient revenue to exactly equal total costs. Total revenue is the amount of money that the company receives and this will increase with output. Therefore, the gap between total revenue and total costs prior to the break-even point will represent a loss to the company and the gap between these after break-even will represent profit. Figure 4.5 represents a straight ‘cost-plus’ approach to pricing which assumes a balanced fixed and variable cost element and an unchanging profit margin. In reality things do not work as neatly as this, as there are elements of extra costs and reduced revenues that must be considered. As output and sales increase to a certain level there will be additional costs like the commissioning of a new production line which will incur a ‘step cost’ such as the provision of an additional factory or production line. As sales grow there will be a tendency to trim profit margins to attract more customers. Demand orientated pricing might be viewed as being preferable to costbased pricing, but we should be aware of certain practical limitations when it is related to break-even analysis. It assumes that costs are static, whereas realistically they can vary both up and down. Revenue is over-simplified as market conditions can change rapidly, and even if they return to the condition on which the analysis was originally based, the actual revenue may not be as predicted. With these provisos taken into account, breakeven analysis related to demand can be an effective price computational technique, especially if costs and demand levels are comparatively stable, even if only in the short term. It should, however, be appreciated that accurate demand estimation is difficult to achieve despite an organization’s best efforts when attempting to provide accurate forecasting. Now that we have considered economists’ and accountants’ orderly views of pricing we are in a position to look at the marketer’s approach. It should be emphasised that the purpose of theoretical constructs is to enable the world of reality to be viewed in a more methodical and disciplined manner. In reality, if an accountant and an economist were faced with

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price making decisions it would be unlikely that they would take their respective concepts too literally.

The marketer’s perspective An organization should have to hand as much information as possible when setting prices and this will depend on overall marketing strategy. Pricing techniques we have examined pay less attention to demand and concentrate on cost. Marketing techniques place more emphasis on the combined elements of the marketing mix as well as aspects of consumer behaviour in relation to the way price is perceived. Improvement or maintenance of market share is a common pricing objective and this is market-based. When a market is expanding, existing prices being charged by a company may not encourage a corresponding improvement in market share. A downwards price adjustment might increase sales in an expanding market to a level where the return-oninvestment increases in monetary terms although the percentage return on each unit sold might have fallen. Market share is a key to profitability and this is an indicator of an organization’s general health. Price levels and profit margins carry much of the responsibility in a marketing mix designed to maintain or improve market share. Smaller firms generally have little influence over the level of prices in a given market and organise their businesses so costs are at a level which allow them to fall in line with prices charged by market leaders and price leaders. This is termed ‘going rate’ pricing. Prices tend to be market led with little scope for any deviation from established price structures. As long as returns are considered to be adequate, there is justification for keeping things as they are by conforming, using prices established by the leaders. It should be noted that price leadership does not equate to total authority in the market place. Many price leaders are not necessarily market leaders. Non-price competition can improve a company’s market share through manipulation of the marketing mix, so the group with final influence in price setting are indirectly end consumers who react to a company’s manipulation of its marketing mix through their individual purchasing actions. If a company desires rapid growth in sales, then if clear product superiority cannot be sustained, price is the component of the marketing mix that must be manipulated. In such circumstances, the firm must appreciate the competitive conditions in which it is operating and price

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cutting action should be made with caution. This caution is not only in terms of competitors’ reactions, but a sudden price reduction might also affect the balance of other elements in the marketing mix and an example of such adverse reaction might apply in the case of a manufacturer of an exclusive line of branded perfume. Profit maximisation is a natural policy for any business organization to pursue. However, market conditions can make it impossible to maximise profits on all products, in all markets, at the same time. For this reason, companies employ pricing techniques that can promote sales, but reduce profits on certain products in the short term. The overall objective is to maximise profits on all goods that are to be sold over a period of time. The company’s product mix should, therefore, be considered as a complete entity, rather than as a range of products whose profits have to be maximised individually. This idea might run counter to the product/brand manager system, with the premise being that each product or brand manager is in control of a specific Strategic Business Unit (SBU) whose objective is to maximise profits. However, a more global view sometimes has to be taken by the marketing manager which might mean that certain product lines be held back in the interests of maximising the overall profitability of the company. Break-even analysis has already demonstrated that to ensure profitability, prices must ultimately exceed costs. It is logical then to consider cost as the first step when planning price levels. Market based pricing strategy should begin with the consumer and then work backward towards the company. Pricing decisions must be consumer-orientated, for it is customers who will ultimately decide whether the product is purchased or not. When making market based pricing decisions, a number of sequential steps should be taken: x Customer or market identification is to focus the marketing decision-maker’s mind on the market from the beginning. It prevents price from being perceived separately from other marketing mix elements. x Demand estimation or technically speaking, sales forecasting, is a skilled process that should provide the company with a series of potential demand levels at different selling prices. The potential sales volume will directly affect costs, and the price necessary for profit maximisation can then be calculated. The price a company is

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able to charge will vary according to market conditions and the chosen market segments in addition to less tangible criteria like the value customers place on a given product. x Assessing competitive reactions assumes great importance when products are easily inaugurated and markets are easy to enter. Even when a company’s products or services can be differentiated in some way, it is not usually too long before competitive offerings appear. This competition appears from three sources: o Direct or ‘head-on’ competition from similar product offerings; o Competition from substitute products or services; o Competition from products that are not directly related, but which compete for the same funding sources or disposable income an example of which is expensive perfume and jewellery manufacturers who are sometimes in competition as these items are often purchased as gifts. x Market share analysis is to consider production factors against the anticipated share of the market. If a large market share is envisaged then the price will probably need to be competitive. If production capacity is insufficient to meet demand that the anticipated market share will produce there is little point in setting a low price that will bring in orders that cannot be fulfilled. We now examine two pricing approaches developed by marketers and reference is constantly made to them. These strategies are called ‘market penetration’ and ‘market skimming’ and they particularly relate to new products. It is at the start of a product’s life cycle that such pricing decisions should be taken, for that decision will help determine the volume of sales for that product over its life. A market penetration strategy relies on the economies of large-scale production to allow the product to be introduced to the market at a price low enough to attract a large number of buyers as quickly as possible. This will tend to constrain possible competitors by creating a low price barrier to market entry. If product design and manufacture is costly to set up and operate and is also conducted on a large scale, then this too will deter competitors. The aim is to attain a high or even total initial market share and keep this share high during the later stages of the product’s life cycle. Figure 4.6 explains this idea, and it can be seen that the product is introduced at an attractively low ‘penetration’ price at the beginning of its life cycle. As a result, demand for the product is high at the early stages,

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whereas the product life cycle concept shows a slowly rising trend at the beginning which only begins to rise substantially during the growth phase. This policy is particularly suitable for products that have high demand elasticity and where reductions in unit costs can be attained through largescale operations. Indeed, where a large volume of sales is essential from the outset to keep production levels high, as high production is a function of the manufacturing process. Production/sales

Time Figure 4.6 Penetration Pricing An example of a type or class of product where a penetration pricing strategy tends to be used is mass produced models of motor cars. A market skimming policy infers that a company will initially charge the highest price that the market will bear, and promotional effort is directed at a small percentage of the potential market. These customers are likely to be the innovators who will purchase during the introduction stage of the product’s life cycle, followed closely by the early adopters who are also more receptive to new concepts and products. Their income levels and generally higher social status make them less sensitive to high initial prices. To be able to reach a wider group of customers once the innovators and early adopters have purchased, the company reduces its prices progressively thus

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skimming the most advantageous prices from each successive adopter group. Price reductions are successively brought in as sales slow at each phase, until the product has reached all of the target market. Figure 4.7 illustrates market skimming and here it can be seen that individual ‘skims’ have been taken at certain times. The timing of skims does not necessarily relate to social class, for ‘innovator’ categories for say home computing software will be ‘technically minded people’ whereas the ‘innovator’ category for an expensive new brand of perfume might well be ‘A’ and ‘B’ social grades.

Figure 4.7 Market skimming In Figure 4.7 the new product is introduced at time T0 at a high initial price P1. The product is meant to appeal to the AB social grades or the innovators at this stage. They make their initial purchases and the market then begins to tail off, so prices are reduced to P2 that brings in the C1 social classes or early adopters at time T1. The same thing happens again at time T2 when the C2 social classes or early majority innovators are brought in by bringing down the price to P3. The final skim is brought in as price P4 at time T3. This brings in the DE social grades, or late majority and laggards when the product has reached its maturity/saturation phase.

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A product that has used market skimming as its pricing policy is the example of personal computers. Products like microwave ovens and iPhones have gone through this same process. Skimming might be applied to initially introduce a refined ‘de-luxe’ version of a new product, with simpler versions appearing later at appropriately reduced prices. To be successful, a skimming strategy must relate to a product or service that is distinctive enough to exclude competitors who might be encouraged to enter the market in the early stages through the high prices being attained. Other elements of the marketing mix must assist this skimming strategy by advancing a quality based distinctive image. A skimming strategy is relevant for new products because at the earlier phases of the product’s life cycle, competition is minimal and the uniqueness of the new product can create opportunities for non-price competition. In addition, the market can be effectively segmented or ‘cherry picked’ on the basis of innovator characteristics who will be willing to purchase regardless of initial costs. At a more practical level, high initial prices can lead to quicker recovery of research and development plus production set-up costs, and can keep demand within the capacity of production whilst production levels build up. Three approaches to pricing have been examined and it has been demonstrated that it is the market place rather than the company that exerts the greatest influence in prices determination. Marketing may be faced with a general level of demand for a given product or product type, but inside this level of demand there are opportunities for tactics to be developed which centre principally on the customer. It is upon such tactics that the next section now focuses. Activity 4.5 How are prices set in your company? Who is responsible for setting them?

Inputs and information for pricing decisions Before we look at approaches to making a pricing decision and how to structure these and specific methods of pricing, it is important to ensure that you understand the key inputs or considerations in any pricing decision made by the marketer. The key considerations in most pricing decisions are now outlined and discussed. Lauterborn put forward the

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notion of the 4Cs, namely: Costs, Customers, Competition and Company considerations. Lauterborn, B. (1990) ‘New marketing litany: Four Ps Passé: C Words take over’. Advertising Age, 61(41), p. 26. Key definition 4Cs: Consumer wants and needs; Cost to satisfy; Convenience to buy and Communication

Pricing and the consumer’s purchase decision-making process Marketing decisions should be based on an understanding of customers and their needs. This is as true for pricing as it is for any element of the marketing mix. The marketer must understand consumer decision-making processes and in particular factors related to price and pricing which a customer might consider when deciding to make a purchase. Some of the more important of these factors are: x Competitors’ prices A consumer is likely to shop around for a product and will consider competitors’ offerings and prices, x Discounts offered will have an effect on the buying decision process e.g. an extra 10% off may induce trial, x Quality and image of the product Consumers will consider price in relation to perceived quality and image of the product and packaging and often the distribution outlet. Some consumers will pay a higher price for food in highly perceived outlets as they believe that quality is guaranteed to be of a certain standard, x Disposable income and lifestyle Consumers need to consider their disposable income and lifestyle when considering the price of a product and making purchases, x Personal objectives or utility Consumers will have their own sets of objectives for purchasing a product; it may be for a gift, a personal treat, a necessity or something to make them feel good. These considerations will impact on the purchase decision related to price. For example, a person may buy a more expensive bottle of wine to take to a dinner party. x Value for money The perceived value of the product will often be a prime consideration, especially for essential items such as food products,

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x Personality and culture A person may be more thrifty or generous which will have some bearing on their perceptions of price and purchase of products. There may be cultural differences in the perception of prices and product, for example, in certain countries a very expensive gift might be given as a wedding dowry, x Perceived risk Consumers may consider purchase of a product in relation to perceived risk. For example, the consumer may prefer a higher priced security alarm, considering this to be more effective than a lower priced product, x Previous experience and loyalty about a product which has been purchased previously will inform the decision and loyalty towards that product. We see therefore that ‘getting inside the customer’s head’ with respect to their purchase decision making process and factors which affect it can be useful in providing insights for effective pricing decisions. Marketing in practice: example Often marketers have misconceptions and misunderstand how customers perceive and interpret prices and the role of price in the purchase decision-making process. This can lead them to wrong pricing decisions. In particular, many marketers perceive prices, or more specifically low prices, to be the most important factor in customer choice and competitive success. This is particularly the case in business-to-business marketers. Some years ago Alcan were looking at ways to reduce prices in the very competitive supply of raw materials to the canning industry. To their surprise, when they approached customers about how they might respond to lower prices, they found that price was not as important in the purchase decisionmaking process for their customers as they had thought. Far more important to customers were issues such as reliability of delivery, consistency of product quality and technical and after-sales service. Rather than trying to build market share through lower costs and prices, Alcan set about trying to achieve this through improvements to the areas of the marketing mix which were most influential in the customer’s choice process.

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Price elasticity and marketing strategies of a company The marketer can and does attempt to influence price elasticity through marketing strategies. Very often the marketer will try to ‘desensitize’ the customer to price, i.e. make the customer less sensitive to price in the purchase decision. For example, the marketer may attempt to create brand loyalty through other elements of the mix. Most marketers would like to alter the slope of the demand curve so that demand for their products is less sensitive to price. We have already established that price sensitivity and therefore price elasticity is lower where brand loyalty exists in a market. Similarly, and related to this, where a company has strong relationships with its customers, again, demand is less likely to be price sensitive. The marketer therefore must consider ways of decreasing the customer’s sensitivity to price, and branding and relationship marketing represent two major approaches. Evidence suggests that prices can be as high as sometimes a factor of 2 compared to competitors where strong brand loyalty exists.

Pricing and the product life cycle We discussed the product life cycle in Chapter 3. In general terms price elasticity varies in each stage of the life cycle. Partly because of these differences in price elasticity at various stages in the life cycle, together with other considerations in the life-cycle stages, such as differing degrees of competition, size of market, etc., it is often necessary to have differing pricing policies for each stage of the product life cycle as shown in Table 4.1:

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Introduction

Growth

Maturity

Decline

Skimming policy with high prices, but low profit margin due to high fixed costs

Reduce price to penetrate market further

Price to match or beat competitors

Cut price if not repositioning

Retain higher prices in some market segments

Some increases in prices may occur in the late decline stage

Penetration policy to enter the market and gain a high share quickly or to prevent competitors from entering

Table 4.1 Pricing and the product life cycle Question 4.1 Gauge how price elasticity might change at each stage of the product life cycle. x x x x

Introduction (likely to be highly price inelastic), Growth (more price elastic, due to competition), Maturity (less price elastic, due to brand loyalty), Decline (a return to high price elasticity).

Competitors and prices In all marketing decisions it is important to assess competitors, both existing and potential. This is especially true of pricing decisions. The extent and nature of competition affects prices the marketer is able to charge, as is elasticity of demand. In markets where competitors are numerous and aggressive, and where new competitors can enter easily, price competition is likely to be intense and price elasticity high. On the other hand, where the number of competitors is limited and/or where a company is much more powerful than its competitors, the marketer may enjoy some degree of monopoly power, and price elasticity will be low.

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Monopoly power in a market may derive from several sources. A company can gain a degree of monopoly power from control over resources and raw material supplies in a market. Diamonds occur only in certain parts of the world and any company which controls this supply has potentially a degree of monopoly power. Monopoly power may also stem from government and/or regulatory restrictions. For example, although recently deregulated in many countries, airlines may have some degree of monopoly power due to government protection and regulations which prevent competitors from entering markets. Perhaps the only defensible monopoly is where monopoly power stems from superior performance on the part of a company which in generates loyal customers and makes it difficult for other competitors to enter. Most countries have legislation to protect the customer from the worst excesses of monopoly power. Marketing in practice: example In the United Kingdom unfair trading and the abuse of monopoly power fall within the remit of the Office of Fair Trading and the legislation enshrined in the Monopolies Act. In America, unfair trading legislation is probably more stringent than anywhere else in the world. Microsoft once attracted the attention of the anti-trust legislators and lawyers with regard to its use of marketing and pricing tools. The company had to reconsider some of its approaches to marketing to take account of this. Some factors have tended to increase competition in markets. For example, the World Trade Organization promotes world trade without barriers; many governments have acted to deregulate markets and in the UK we have witnessed privatization in public utilities. Increasing global competition and the Internet have meant greater competition. The marketer must assess prices competitors are charging and/or are likely to charge, and how they may respond to the marketer’s own pricing decisions.

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Activity 4.6 Find examples of the following: x Markets characterized by intense competition between companies and brands, x Markets where, although competition is intense, marketers have been able to lessen the effects of competition by effective marketing, e.g. by building brand loyalty, x Markets where there are few or no competitors and the marketer enjoys a degree of monopoly power. Examples of markets that fit the range of descriptions described are: x Extremely competitive markets, e.g. food retailing, commodity markets, air travel, holidays; x Moderate competition, e.g. alcoholic beverages, coffee, toothpaste, detergents; x Little competition, e.g. privatized utilities.

Company considerations and prices Marketing decisions, particularly pricing decisions, should reflect and be consistent with company objectives and marketing strategies. For example, the pricing decision will probably be different if the company objective is growth as opposed to short-term return on capital. Pricing decisions should reflect wider considerations, such as company resources, target markets and positioning, and desired company/corporate image. It is important to stress that the pricing decision must be consistent and planned in conjunction with the marketing mix. Finally, pricing strategies will differ where price is used as a major element of competitive strategy as opposed to where it is used in a more passive way in the marketing strategy. Some companies decide to be price leaders, others price followers.

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Activity 4.7 Pricing decisions should reflect company and marketing objectives and strategies. For each of the following, indicate whether you think a higher or a lower price would generally be appropriate: The ABC company wishes to achieve rapid market growth

Higher/Lower

The XYZ company wants quick returns on capital employed

Higher/Lower

The LPT company wishes to promote a quality image

Higher/Lower

The NYZ company is targeting socio-economic groups D/E

Higher/Lower

These are broad generalizations, but on the information given the indication for prices would be: The ABC company wishes to achieve rapid market growth

Lower

The XYZ company wants quick returns on capital employed

Higher

The LPT company wishes to promote a quality image

Higher

The NYZ company is targeting socio-economic groups D/E

Lower

Communicational aspects of pricing A major consideration in pricing decisions is the fact that prices have an important communicational role as regards customers and potential customers. In other words, the price set for a product sends signals to customers, the company and its products. This is why we have suggested that pricing decisions must be in line with target markets and positioning and desired company/corporate image. Pricing decisions need to be closely linked to other areas of the mix, but particularly to promotion elements.

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For example, pricing may be linked to promotional objectives so as to encourage trial of a new product. An area where price has a strong communicational aspect is in relation to price as an indicator of quality. Certainly in the absence of experience or objective information about a product offering, customers will often use price as an indication of the quality. This means then that it is possible to price a product too low where price acts as a deterrent to potential customers, particularly new ones, because of suspicions regarding quality.

Other considerations/information in pricing decisions Activity 4.8 List other factors not already encompassed in our discussion that might need to be taken into account in pricing decisions. In addition to costs, competition, competitors and company considerations, examples of other factors are: x x x x x

Legal/regulatory considerations, Dealer and distributor considerations, Taxation, e.g. Value added tax, Government subsidies, Tariffs/duties.

Structuring pricing decisions Pricing decisions should be taken in a planned and systematic way. There is no definitive way to structure this decision. Figure 4.8 represents a logical and acceptable way of structuring the process.

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Company

Set pricing

Assess

Assess

and

objectives

target

costs/cost

Select

Select

Assess

Assess

specific

pricing

competitors

customers’

Figure 4.8 Structured approach to pricing decisions

Selection of a pricing method We examined the perspectives and contributions of the accountant, the economist and the marketer with respect to pricing decisions. The legacy of these different perspectives can be seen in the different methods of pricing. The pricing methods are cost-based methods, competitor-based methods and demand/market-based methods. We now examine each in turn.

Cost-based methods This reflects the accountant’s approach and they are set prices primarily on the basis of costs. There are alternatives for cost-based pricing but the major ones are: x Full cost/cost plus pricing This is the simplest and most widely used method of pricing. Usually a standard percentage is added to the total cost of the product to arrive at a price. Strengths of full cost/cost plus pricing are: x It is a means of ensuring that all overheads (e.g. fixed and product costs) are met. In addition, it allows for a profit return on top, x It is easy to calculate, as the organization is more certain about cost than demand,

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x No need to have to make frequent adjustments to the price as demand changes. Where competitors are using cost plus pricing in the industry prices will tend to be similar and price competition is minimized, x It can be seen to be fairer to both buyers and sellers. Weaknesses include: x It takes no account of other elements in the marketing mix, x It does not reflect consumers’ perceptions. If a consumer perceives a product as cheap, it can be associated with poor quality, x Being a cost-based pricing strategy, it ignores factors such as the going rate for similar products and does not consider different segments, x It does not consider the ‘needs’ and ‘wants’ of customers and does not consider competitors’ prices, x It may be difficult to identify direct costs and overheads for each item, x It does not consider elasticity of demand, x This method only works if price actually brings in expected levels of sales, Marginal cost pricing makes a distinction between variable and fixed costs. With this method the marketer assesses whether or not a contribution to fixed costs can be obtained. Hence marginal cost pricing can lead to prices that are less than full cost. However, it overcomes some of the weaknesses of full cost/cost plus pricing, for example, it allows prices to reflect demand conditions, but is still primarily cost based and not really marketing oriented. In general, cost-based pricing methods are inward looking and neglect marketing considerations.

Competitor based methods This does not mean charging the same prices as competitors; prices may be more or less than competitors. Such pricing is predominant in oligopolistic markets. A larger company may act as the price leader, with smaller companies following this lead. This is called ‘going rate pricing’.

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Advantages of competitor based pricing include the fact that it is relatively simple, and takes account of competitor considerations. A disadvantage is that it is essentially passive in approach, especially when following rather than leading competitors on price. The major disadvantage is that it does not reflect differences in company cost structures, objectives, resources and marketing strategies. A good example of where competition and competitor-based methods of pricing can predominate in a market is in pricing methods used by UK supermarkets. Competitor based pricing are so predominant that price wars are predominant and margins are depressed.

Demand/market-based methods These marketing oriented methods of pricing are set with demand and market considerations in mind. There are alternative methods available that are demand/market based according to circumstances. Some of the most frequently encountered methods are now discussed. When pricing new products, the marketer may choose between market skimming prices and market penetration prices. Activity 4.9 Note what you think is meant by market skimming. Market skimming is where the marketer charges an initial high or premium price for a new product, effectively skimming off the cream of demand, and then lowers the price as demand build up and competitors enter the market. Activity 4.10 Assess the circumstances which suggest price skimming for a new product. x x x x x

Few or no competitors, High barriers to entry, A unique/innovatory product, Price inelastic demand, No substantial potential scale economies.

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Advantages of market skimming are: x It allows for quick recovery on investment in the new product such as R&D costs, x It may confer a prestigious/quality image to customers, x Higher prices are likely to appeal to innovator groups, x It allows for flexibility in reducing prices should the initial price result in too few sales and allows for reduced prices for later stages of the product life cycle to appeal to the mass market. Disadvantages of market skimming are: x It may encourage competitors to enter the market more quickly, x It results in lower levels of sales and fewer economies of scale and experience curve effects, i.e. costs are higher, x It may attract attention from regulatory bodies, or consumer groups where ‘profiteering’ is suspected. We have seen in Chapter 3 that innovators in markets in particular want to be among the first to purchase new products and are willing and able to pay higher prices to achieve this. Many new electronic consumer products are priced in this way. Market penetration pricing is the opposite of skimming and is the setting of low prices to gain rapid market share. Activity 4.11 Assess the circumstances which suggest penetration pricing for a product. x x x x x

Extensive competition, Few barriers to entry, ‘Me too’ type products, High price elasticity, Potential for substantial scale economies.

Advantages of market penetration are: x It should produce larger sales volume,

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x This should lead to an organization gaining a large slice of the market, x It can prevent competitors from entering the market. Limitations of a market penetration pricing include: x It can be difficult to raise price after this policy has been used, x It is less flexible than using a skimming policy, x It may not be appropriate due to the costs of R&D and competitors’ positions. Perceived value pricing is one of the most marketing-oriented ways of setting prices. The price is set on the perceived value of the product to the customer. It is a variation on ‘price the market will bear’. The marketer uses other elements of the mix: product, promotion, etc. to build up the perceived value of the product or service in the mind of the customer. Prices are then set to reflect this value. Perceived value pricing is an indicator of quality. This approach is particularly useful when pricing products for organizational markets or more expensive consumer products where the usage takes place over a long period of time, such as a car. Activity 4.12 Think of a purchase you made in the past where: x You got ‘very good value for money’ x You got ‘very poor value for money’. Reflect on what each of these meant for the prices you paid. Where you got very good value the marketer probably had set the price too low. You might have been prepared to pay more. Where you got very poor value for money, the marketer had probably set the price too high, or at least you paid too much. Psychological pricing has to do with behavioural forces at work in the pricing of products and services. For example, we know that price is used by consumers as an indicator of quality. Similarly, high prices can bestow ‘prestige’ on the purchaser. Some marketers believe that ending the price with certain numbers can influence buyers, e.g. pricing a product at £9.99

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instead of £10.00. This is known as ‘odd’ pricing. Similarly, there is some evidence that rounding up from £9.99 to £10.00 adds to the image of quality in the mind of the customer. This is known as ‘even’ pricing. Psychological, and particularly odd pricing, is used extensively in retailing. Even pricing tends to be used where connotations of quality are important in determining product and brand choice and is often used in pricing in expensive restaurants or theatre tickets. Activity 4.13 Make a note of examples of ‘odd’ and ‘even’ pricing. Promotional pricing is more of a tactical than a strategic approach to pricing, but price is a powerful tactical weapon. This approach to pricing is based on temporary changes in price, usually though not always reductions, in order to boost sales. Examples include: x Cash rebates. There are different types of these, but as the term implies they involve offering some cash reduction or payback to customers. They may be related to, for example, purchasing in quantity or for buying at particular times of the year. Some holiday package companies are beginning to use systems of cash rebates to tempt customers to book early. x Special event pricing. This is where special prices are linked to one-off events. x Loss leader pricing. Used extensively in retail marketing settings, this approach to pricing involves setting very low prices on certain selected products as an attraction to draw customers into the store. x Low interest deals. This type of pricing is useful where a customer is likely to want extended credit on a product. It is used extensively in marketing cars or other high value consumer products where payments are spread over a period of time. x Other promotional deals. Many sales promotion offers are effectively price offers including some of the ones we have discussed. For example, ‘two for one’ offers, ‘buy one get one free’ offers (BOGOF), ‘20% extra’ offers, etc., all widely used by marketers, are promotional pricing offers. Marketers need to be careful how they use promotional pricing. Excessive use can lead to an image of ‘inferior’ products, so customers can come to expect low prices.

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Activity 4.14 Look for examples for odd/even pricing also make note of any special promotional pricing you observe. Product mix pricing Discussion of pricing has centred on making pricing decisions for individual products. However, most companies produce and market a mix of products, and very often there are interrelations between the products in this mix with respect, for example, to costs of production, marketing costs, or customer demand. Often the marketer must set prices that reflect these interrelations so as to maximize sales and profits. There are many examples of such product mix pricing in marketing. Here are just two: x Cheap razors to sell higher priced razor blades, x The use of ‘price points’ in retail sales of clothing, e.g. shirts at £15.00, £20.00, and £25.00 - termed ‘price lining’. Activity 4.15 List of examples of pricing in practice by making note of any examples exemplifying product mix pricing.

Selection of specific prices We have considered pointers to setting prices, for example, inputs to pricing, broad approaches or methods of pricing and so on. The outcome of these deliberations should be setting a specific price on a product or service. Earlier steps in pricing procedure should serve to direct and constrain the selection of the final price. This narrowing of the price range from which to select the final price is intentional and indeed is part of the process of a structured approach to pricing. In this final stage the marketer will still have some flexibility with regard to the price selected which is needed to reflect the marketer’s assessment of any final considerations. Examples include the state of the economy at the time of pricing, any special seasonal factors, unusual competitor activity and so on. Remember that marketing managers are paid to use their expertise and experience in making decisions as well as following systematic frameworks.

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Price adjustment policies Having set prices, organizations will need to adjust their basic prices to account for various customer differences and changing situations. Companies need to establish price adjustment policies. Three examples of price adjustment policies are: x Discount and allowance pricing is where the basic price is adjusted to reward customers for responses such as early payment, or offseason purchases. These can be in the form of cash discounts, quantity discounts for bulk purchases and seasonal discounts for products bought out of season. Trade-in allowances and promotional allowances are price reductions given to encourage purchase. x Segmented/differential pricing (price discrimination) Companies will often adjust their basic prices to allow for differences in customers, products, location and time/season. Essentially, the company sells its products at two or more prices, even though the price difference is not always based on differences in costs. Examples may be where different prices are charged to different age groups, e.g. special prices for senior citizens. Similarly, prices may be charged during different times of the day. Often known as price discrimination, this approach to price adjustments can be effective in maximizing demand and revenue. Care needs to be taken, however, not to alienate the customer groups being charged higher prices.

Marketing in practice: example Segmented/differential pricing is useful and prevalent in services marketing. The marketing issues associated with services including the application of the marketing mix elements to these products are explored in more detail in Chapter 7. The characteristics of service products give rise to an increased importance in matching demand and supply. Obviously price is a key determinant in this matching process and is used extensively to achieve a match. Specifically, the marketer will charge different prices to iron out fluctuations in demand. For example, in the airline industry different prices are charged for customers flying at different times of the day or year, to ensure that airplanes do not fly with empty seats. Similarly, hotels offer different prices at different times of the week and year to ensure maximum occupancy.

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Promotional pricing is also an example of price adjustment procedures which is where companies use price as a tactical rather than strategic approach using temporary changes in prices to generate demand. Usually, prices in promotional pricing are set below list price and sometimes below cost price.

Marketing in practice: example In the UK evidence shows that the most effective method of promotional pricing is that of multiple purchase offers like BOGOF and 3 for 2. It is estimated that up to 60 per cent of consumers feel this is the most important promotional approach in product and brand choice. Multiple purchase offers are followed closely by complementary offers of promotional pricing where customers buy one product and get a related one free.

Overall policies for pricing It is important that pricing decisions are taken within and guided by a policy for pricing. Such a policy should serve to provide an indication of what is acceptable and unacceptable in decision making and action. A pricing policy should encompass the following: x x x x x

Responsibilities and authority for pricing decisions, Discretion with regard to price discounts, special deals, etc., Procedures for responding to competitor price changes, Procedures for changing prices in the company, Credit policy.

Activity 4.16 Try to establish what your company’s policies (if any) with respect to our list of pricing policy areas.

Pricing and the Internet One of the major areas of marketing affected by the growth of Internet marketing is that of price and pricing decisions. At its simplest, the effect of the Internet has been to provide opportunities for customers to compare and contrast competitors’ prices more widely and easily than they have been able to do in the past. This has put extra pressure on conventional suppliers to be cost and price effective. Customers shop around for the

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cheapest prices. Internet suppliers of consumer products do not have expensive retail premises and properties to support so can undercut more conventional competitors’ prices who, because of their costs they cannot compete on price, so have no alternative but to withdraw from markets or develop strong brand loyalty and customer franchises to desensitize customers to the price element of the mix.

Summary x x

x x x x x x

In this Chapter we have seen that price plays a central and unique role in the marketing mix, The economist, the accountant and the marketer each have different perspectives on pricing, but each has something to contribute to the pricing decision. The major inputs to pricing decisions are the 4Cs of Cost, Customers, Competition and Company, Pricing decision should be systematically structured as a series of steps or stages, Pricing methods include cost-based methods, competitor-based methods and demand/market-based methods, Pricing decisions should reflect company objectives and strategies, Pricing strategies may vary over the life cycle of a product, Alternative pricing strategies for new products are skimming and penetration. A company needs to establish policies for pricing, credit and price adjustments, The growth of Internet marketing has increased price competition and shopping around by customers.

Question 4.2 What are the strengths and weaknesses of cost-plus pricing? Cost-plus pricing or mark-up pricing is where businesses determine the cost of producing their product then add onto it a set percentage or margin – for example, 10 per cent. Strengths of cost-plus pricing are: x A means of trying to ensure that all overheads (e.g. fixed and product costs) are met. In addition, it tries to allow for a profit return on top,

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x It should be easy to calculate, as the organization is more certain about costs than demand, x No need to have to make frequent adjustments to the price as demand changes, x This method is used in the industry sector and prices tend to be similar and price competition is minimized, x It can be seen to be fairer to both buyers and sellers. Weaknesses are: x This policy takes no account of other elements in the marketing mix, e.g. product and place, x It does not reflect consumers’ perceptions. If a consumer perceives a product as cheap, it is sometimes associated with poor quality, x It is a cost-based pricing strategy and ignores other factors such as the going rate for similar products. It does not consider different segments. x It does not consider the ‘needs’ and ‘wants’ of customers and competitors’ prices, x It may be difficult to identify direct costs and overheads for each item, x Cost-plus pricing does not consider elasticity of demand for a product, x This method only works if the price actually brings in the expected level of sales. Question 4.3 Identify the type of information required by the marketing department before a pricing strategy can be agreed. There is a range of information required before the decision about a pricing strategy can be decided. The ability to achieve the company’s financial objectives, The levels of anticipated demand, The level of competition and their pricing policies, The impact of price on the perceived positioning of the product or service, x The stage in PLC which the product is currently facing, x Actual costs such as production, distribution, etc.

x x x x

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x The segments and markets which are being targeted and their income, x Any legal constraints, x Positioning strategies, x The communication aspects of pricing, x Tariffs, duties, taxation, x Government subsidies, x Dealer and distributor information, x Economic factors, e.g. current trade cycle, levels of interest rates. Question 4.4 What are the advantages and limitations of a market penetration pricing policy? This policy is where the organization sets a relatively low price for the product or service in to stimulate growth of the market and obtain a large share. Advantages are as follows: x It should produce larger sales volumes, x This should lead to an organization gaining a large slice of the market, x It can prevent competitors from entering the market. Limitations are: x It is often difficult to raise price after this policy has been used, x It is less flexible than using a skimming policy, x It may not be appropriate due to the costs of R&D and competitors’ positions. Question 4.5 How could pricing policy alter for maximum returns at each stage of the product life cycle? There are a number of policies which can be used at each stage of the product life cycle:

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Introduction stage

Growth stage

Maturity stage

Decline stage

Skimming policy with high prices, but low profit margin due to high fixed costs

Reduce price to penetrate market further

Price to match or beat competitors

Cut price if not repositioning

Retain higher prices in some market segments

Some increases in prices may occur in the late decline stage

Penetration policy to enter the market and gain a high share quickly or to prevent competitors from entering Question 4.6

Explain three types of price-adjustment policies which a marketer can adopt. x Companies usually adjust their basic prices to account for various customer differences and changing situations as follows: x Discount and allowance pricing where the basic price is adjusted to reward customers for responses such as early payment, large or offseason purchases. These can be in the form of cash discounts, quantity discounts for bulk purchases and seasonal discounts for products bought out of season. Trade-in allowances and promotional allowances are price reductions given to encourage purchase. x Segmented pricing is where companies often adjust their basic prices to allow for differences in customers, products and locations; the company sells a product at two or more prices, even though the difference in price is not based on differences in costs. Examples may be where different customers pay different prices for the same product, such as rail travel first class and standard fares. Another example is time pricing where prices vary by the day or the hour. x Promotional pricing is where companies will temporarily price

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their products below list price and sometimes below cost prices. Promotional pricing such as loss leaders attract customers, specialevent pricing in certain seasons appeals to certain customers. Cash rebates, longer warranties, free maintenance, low-interest pricing policies are all forms of promotional pricing.

CHAPTER FIVE THE MARKETING MIX: PLACE

Learning objectives By the end of this Chapter you will: x Understand the importance of distribution and logistics in marketing, x Appreciate the process of designing channels of distribution including factors that affect decisions in this area, x Be aware of key trends and developments in distribution including effects of new information and communications technology.

Introduction Referred to as ‘distribution and logistics’, or in the context of the 4Ps, ‘place’, this is as important as each of the other three elements of the mix, and is the responsibility of the marketer, although tactical logistics planning is a task for specialists. The focus for design and planning of distribution and logistics must revolve around customer needs. Because of its central importance to effective marketing plans, we must appreciate the role of the marketing function in the design, operation and control of place.

Role and importance of place in marketing Study tip As with pricing decisions, some aspects of a company’s distribution strategy can be observed every day in your role as consumer. When you have completed this chapter, you should look out for examples to illustrate the use of some aspects of planning logistics and distribution.

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The role of this element of the marketing mix is to ensure that products and services are available to target customers in the ‘right place’ and at the ‘right time’. The marketer’s product and services need to be available: x In the ‘right quantities’, x In the ‘right condition’, x With the ‘right degree’ of advice, installation and after-sales service. Another way of illustrating its role and importance is to consider some of the things that can go wrong and the implications for the marketer and the company. Here are some examples: x ‘Nobody could be persuaded to stock the product.’ Marketing implications are obvious. x ‘Most of retailers who carry the product are out of stock.’ Customers go elsewhere. x ‘At the moment our retailers are carrying too much stock, owing to our unwillingness to deliver in smaller quantities.’ Retailers go elsewhere and do not remain loyal. x ‘Ten per cent of our products are damaged in transit.’ Customers go away. x ‘Our competitors now deliver direct to the customer’s home.’ We lose market share. x ‘Costs of our distribution are high, owing to ineffective warehousing and delivery.’ We lose profits. Ineffective management in this area has a major impact on levels of customer satisfaction and levels of company sales and profits. Effective management of place is a major factor in competitive marketing strategy and company success. Activity 5.1 Recall any bad experiences you have had as a customer or potential customer for a product/service, which on reflection have been due to badly planned and managed distribution. Reflect on the effect of this experience at the time with regard to your attitudes towards the product or brand and its supplier.

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A heightened role for place Its importance to marketing has increased over the past 20 years bringing with it a changing role in marketing and the development of new techniques and approaches to its management. We now explore reasons for these changes. High costs of distribution/potential for savings Distribution and logistics used to be a neglected area for potential cost savings. Given that costs associated with distribution and logistics account for around 30 per cent of a product’s total cost, companies came to recognize that these potential cost savings represented significant opportunities for improving profits. This was triggered by the adoption of lean manufacturing techniques as discussed in Chapter 1. Potential for competitive advantage Effective distribution and logistics designed to increase customer satisfaction can have a tremendous effect on sales and market share. Trends in industrial manufacturing and production have resulted in a premium for marketers who can plan their distribution logistics to meet increased demands placed on them by such developments. Improved techniques for planning and managing place Significant strides have been made in tools and techniques for managing place more effectively. The concept of place has moved from looking at individual elements of the distribution network such as channels, to viewing and planning distribution as a complete interrelated system in which the whole process of moving products and services into, through and out of the organization is scientifically planned. Broadly there are two key and interrelated areas in planning the place element of the mix. Because they are interrelated, they should be planned together. We discuss each area separately before looking at them as two sub-elements in a total system. The areas are: x Planning marketing channels, x Planning physical distribution/logistics.

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Marketing channels Definition A marketing channel comprises individuals and organizations that ensure the flow of products and services from producer to customers. The use of the word channel is appropriate in that in itself it indicates a pipeline and flows as illustrated in Figure 5.1: Flows of goods/services Manufacturer/

Intermediary/

marketer

retailer

Customer

Flows of payments Figure 5.1 Channel of distribution As an example, Kellogg’s manufactures a range of breakfast cereals, packaging products in sizes suitable for the target market. From its production plants the company’s different products are delivered directly to retail outlets throughout the world based on pre-negotiated contracts according to customer demand. Through these retail intermediaries, Kellogg’s’ products are made available to final customers who make payment. Information on demand including responses to new products or special promotional deals is fed back via the retailer to Kellogg’s’ marketing and production teams. Payment to Kellogg’s is made by intermediaries on pre-negotiated terms. The retailer provides stocking and assortment functions for Kellogg’s’ with promotional and other marketing tools often being shared between both parties. Information about customers and demand is fed back by the retailer to Kellogg’s and can be used to adjust marketing tactics and to help develop new products. Activity 5.2

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Using Figure 5.1, list the key elements of Kellogg’s channel of distribution. x x x x x

Supplier(s): in this case the manufacturer/marketer, Customer(s), Intermediaries: in this case retailers, Outward flows: in this case goods and services, Inward flows: in this case payments and information.

Not all channels look like that shown in Figure 5.1. Some are longer, with more intermediaries; some have different types of intermediary; some are shorter. Different flows, outward and inward, occur. The marketer must plan configuration of the channel, using these elements as variables. Key decision areas in planning a distribution channel are: 3. Channel length, i.e. the number of intermediaries or ‘levels’ in the channel, 4. Types of intermediary (if any) in the channel, 5. Channel/market coverage, i.e. the number of intermediaries at any one level, 6. Respective tasks, responsibilities and terms for various channel members.

Channel length In Figure 5.1 there is only one intermediary level between the producer/marketer and the final customer. The channel is relatively short and is a ‘one-level channel’. A ‘two-level channel’ has two sets of intermediaries, a ‘three-level channel’ three sets and so on. Activity 5.3 What do you think a ‘zero-level channel’ is? A ‘zero-level channel’ is a channel with no intermediaries, i.e. the producer/marketer uses ‘direct marketing’. The concept of channel length/levels is shown in Figure 5.2:

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Figure 5.2 Channel length/level Examples of markets where various channel lengths predominate include: x Zero level (direct): e.g. mail order books/CDs, direct flight bookings, Internet sales and bookings; x One-level channel: Many fast moving consumer goods, e.g. branded foodstuffs, clothing, DIY products, cars; x Two or more level channels: Many smaller companies use two or more level channels, as their size means that they have to deal through wholesalers and other intermediaries. The longer the channel, the further the marketer is from the final customer and the marketer exerts less control. Each level of the channel will wish to make a profit; hence final prices to the customer are increased and/or profit margins at each level are decreased. This implies that the shorter the channel, the better, which raises the question as to why a marketer should use intermediaries at all instead of marketing direct. Activity 5.4 On the basis of your own experience/knowledge try to list any reasons why the marketer might use intermediaries in distributing products and services. x x x x

Custom in the industry, Intermediaries control customer contact, Intermediary has superior expertise, skills and resources, Too many customers for the marketer to reach.

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Ultimately, a decision to use intermediaries at one or more levels in a channel is based upon their superior effectiveness in performing the required channel functions and flows. Examples of functions and flows required to be performed in channels include: x x x x x

Storage and movement of products, Transfer of ownership/title, Promotion, Negotiation, Risk-taking.

If the marketer cannot perform these functions and flows more effectively than intermediaries they should be assigned to such intermediaries. If one level of intermediary is not sufficient, then a two or more level channel should be used.

Models of retailing It is unlikely that at a basic level you will be asked about models of retailing. However, for the record, some long standing, often quoted ones, are worthy of mention: Reilly’s law of retail gravitation: Reilly W.J., (1931) ‘The law of retail gravitation’, New York: Knickerbocker Press Customers will travel longer distances to large retail centres and because it is more appealing, the centre becomes a comparison for size and mass in the physical law of gravity propounded by Newton. There is a presumption that geographically the area from which shopping takes place is flat and assumes that customers are indifferent about which towns they prefer to shop in. The point of indifference is the point at which the attractiveness of two retail centres is equal. The retail accordion theory or General/Specific/General theory: Hollander, S.C., (1960), ‘The Wheel of Retailing.’ Journal of Marketing, 25, (July), pp. 37-42. Retail institutions go from outlets with a wide assortment of goods to a specialised narrow range of goods and then return to more general retailers.

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The wheel of retailing: McNair, M.P., (1931), ‘Trends in Large Scale Retailing’, Harvard Business Review, 10 (October), pp. 30-39. This theory contends that new retailers enter the market as low price, low status, low margin operators and then evolve into higher status conventional retailers offering better services at higher prices. The dialectic theory of retail evolution: Brown, Stephen, (1987), ‘Institutional Change in Retailing: A Review and Synthesis,’ European Journal of Marketing, 21 (6), pp. 5–36. A coming together of retailing institutions like mail order houses and direct response advertising through television shopping networks, with traditional retailers; and also home shopping networks and computer networks. It contends that store based and home based direct marketing networks have been converging in recent years and the convergence has resulted in ‘electronic direct marketing’, whereby computers, telecommunication and video are used to reach customers rather than physical shops or print media.

The growth of direct marketing Over the past 20 years there has been a trend towards shorter channels. As the term implies, in direct marketing the marketer sells direct to the final customer. Activity 5.5 List examples of types of direct marketing. x x x x x x x

Door to door selling, In-home marketing, e.g. party selling, Mail-order catalogues, Direct mail, Telemarketing, Marketer’s own outlets, Internet retailers, e.g. Amazon.

Direct marketing can only be justified where it is more efficient and effective than using intermediaries. A number of reasons explain the growth of direct marketing.

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Activity 5.6 List reasons for the growth of direct marketing. x x x x x

Potential for reduced costs/improved profits, Speed of delivery, Increased control on the part of the marketer, Potential for better customer feedback, Growth of internet sales.

Important to the growth in direct marketing have been advances in information technology and particularly databases and developments and advances in direct response media.

Information technology and direct marketing: use of databases Advances in information technology have enabled organizations to develop and use sophisticated databases to identify customers, their behaviour and characteristics, and as a result market to them directly without the need for intermediaries. Databases are central to successful direct marketing activities. Powerful and low-cost computer power has enabled companies to collect and store data on customers which can be used, for example, to determine appropriate segments and target markets, produce mailing lists and store information on customer responses to direct communications. Information is stored regarding transactions in the past, but can also be bought in from list agencies for targeting direct mail and other forms of direct marketing contact. Databases can be used to track, analyse and develop relationships with customers. We examine the use of databases on customers in the development of relationship marketing, together with the meaning and implications of relationship marketing itself, in more detail in Chapter 7, when we consider customer care. Databases include information on customers from many sources which can be layered and amalgamated to give a comprehensive profile of customers. Examples of sources of information for databases which facilitate direct marketing include: census data, postcode data, electoral role data, credit data, transactional data, vehicle ownership data and lifestyle databases.

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Database information is available from commercial sources and there are some companies whose whole business is the provision of data including list companies that specialize in supplying information for direct marketing. An example of a company developing business opportunities through the provision of databases and database information is the Royal Mail whose database centres round address and postcode information. This information is linked to huge amounts of other consumer information in their database. In this way, postcode addresses can be linked to, for example, purchasing behaviour variables and/or lifestyle information to provide insightful information for marketing decisions. Extending knowledge Look further at some of these database providers to see what sort of services they offer and how they can be accessed through company websites. In addition to these commercially available databases, many companies develop their own databases e.g. most UK retailers have developed inhouse databases. The use of loyalty card systems has proved invaluable, e.g. The Boots Company who use their Advantage loyalty card system to build a database which in turn helps them develop effective promotional and other marketing campaigns based on a detailed knowledge of its cardholders and users. An internally developed database has advantages compared to those that are bought-in. There is greater potential for control and accuracy, and a tendency for information to be more relevant to the marketer’s activities. Against the advantages of an internal database are costs and complexity. Examples of information database services include the British Market Research Bureau, CACI, and Nielsen Audits. Problems marketers face is not lack of information and data, but rather a surfeit of it, leading to information overload. Information costs money and a substantial amounts can be wasted building, accessing and using databases if care is not taken in their design and operation. Examples of potential problems which marketers must seek to avoid in their database systems include data which is out of date or inaccurate which cannot easily be accessed and analysed. In the case of direct marketing programmes, the following represents the types of information are helpful in developing and executing direct marketing campaigns:

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x x x x x x x x x

Customer name, Customer address and postcode, Customer status, e.g. user, non-user or lapsed user, Age, Income, Socio-economic group, Purchase history, Geodemographic profile, Previous response profile.

The database should help to ensure that the direct mail campaign is aimed at the right target customers and that the content of the direct mail programme is designed with these target customers in mind. In so doing, there is likely to be a higher response rate and reduction in the number of customers feeling they have been sent junk mail. An important aspect of information kept on databases that the marketer needs to consider is the issue of data protection. In 1998 the UK Data Protection Act became law. This essentially was designed to regulate how information held on databases could be accessed, analysed and used. It not only encompasses marketing activities, but direct marketers in particular are affected as it encompassed so many activities and was far-reaching. Any marketer accessing or holding information on databases must understand and comply with this Act and marketers who utilize this data for direct marketing activities must understand its implications.

Developments in direct distribution technology: electronic methods Although direct marketing represents a zero-level channel, such campaigns make use of promotional tools and media. Indeed they are essential in the development and implementation of a direct marketing approach. Because of this we return to direct marketing, and in particular to some of the main tools used in direct marketing in Chapter 6. There have been major developments over the past 20 years with regard to the technology available for distribution that has facilitated further growth and potential for more direct channels. In particular, the growth in direct marketing has been underpinned by the development of direct distribution via electronic methods which have given rise to a move towards

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convenience driven access such as home shopping. Retail chains have retaliated to this erosion of their market by encouraging shoppers to purchase direct from their websites and guarantee home deliver within agreed time slots. The pioneer of this method was Ocado who initially only delivered Waitrose goods, but as Waitrose decided to launch their own direct delivery system, Ocado then established arrangements with other retailers and manufacturers to sell their products on-line via Ocado’s website. The internet represents one of the most convenient ways of purchasing and customers can shop around from the comfort of their homes. Many traditional marketers were initially slow to realise the potential and impact from a channel and marketing perspective. Even companies that had developed websites were slow to capitalise and simply used this as another way of advertising and presenting information about the company and its products. Many early websites were unprofessional, underutilized and unimpressive and it took them some time to realize that website design requires specialized skills and knowledge. Therefore, companies like Amazon came from nowhere and capitalised on direct marketing. We now appreciate how web techniques such as ‘chat rooms’ and ‘bulletin boards’ can be used in marketing. Extending knowledge Marketers should leave more technical aspects of website design and operation to experts. By the same token contemporary marketers must be familiar with the use of websites and the internet for developing marketing programmes, including the area of direct marketing. Take the opportunity to learn as much as you can about web-based marketing, the internet and e-commerce. Although the growth of the internet is linked to developments in technology and the incidence of computer ownership, this growth is driven by the fact that as a marketing channel the internet offers advantages compared to other channels like mail order and telemarketing: x x x x

Convenience, Potential for lower prices to customers, Potential for customers to shop around, Potential for marketers to build databases based on customer visits and information provision,

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x Flexibility and speed where customer orders can be dealt with immediately, x Customers using/visiting websites are already predisposed towards a product as they have already indicated an interest, x Websites are more interesting than other direct promotional material as they can include movement and sound. There are problems concerning protecting customers’ information and interests, but despite this advantages of the internet as a channel of distribution means that it will continue to grow in importance.

Technology driven advances Although the internet represents the most important technological development affecting channels, it is not the only one. In the context of direct marketing channels, telemarketing is important as a means of directly selling and communicating with customers. Both outbound, where the organization contacts a potential customer, and inbound, where the potential customer is encouraged to contact the organization, are used as in direct response advertising. As with direct mail and the internet, telemarketing is both a promotional tool and a marketing channel. With telemarketing, customers are contacted in their homes and businesses with a view to creating some sort of response. Sometimes the response sought is a direct sale, but more often the response sought will be to encourage interest and to generate sales leads and opportunities including the establishment of appointments for a salesperson to visit. Because customers are being contacted in their own homes or premises and because calls are usually unsolicited there are some who feel that this type of marketing is intrusive and unethical. Certainly, telemarketing can be annoying to some customers and care needs to be used in its application. There are industry codes of practice and regulations which govern its use. For telemarketing to be successful, like direct mail, good lists are important. It is important to ensure that personnel making calls are well trained and polite. Success rates in terms of generating appointments and sales are low with often more than 100 calls being required to generate successes. In addition to the marketer contacting customers via the telephone, customers can contact marketers. Sometimes this contact comprises an enquiry or even sometimes the placement of an order, but in addition customers contact companies in order to sort out problems, pay bills and

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make complaints. Increasingly, organizations have discouraged face-toface contact with customers as this is expensive in terms of staff time and facilities. A major trend has been the establishment of call centres to deal with customer enquiries and complaints in a central location. This improves customer service and helps develop better relationships because customers can make contact, 24 hours a day, 7 days a week (24/7). Call centres or any inbound telemarketing service needs to be carefully designed and managed if it is to improve customer service and help develop better relationships. Customers having to wait several minutes before a reply or having to hold while they are re-routed through several sub-systems while often at the same time being subjected to background music can be annoying and frustrating. The best telemarketers have developed effective systems for call centres and the management of inbound telemarketing operations to improve levels of customer service. Many call centres are located overseas where costs of staffing are much cheaper than in the UK. A development in the use of call centres in telemarketing is the use of what is termed as ‘V-Reps’. This is where a customer contacts a call centre and is connected to a virtual call centre operator: the V-Rep who can talk to and understand customers. Using state of the art virtual computing technology, V-Reps provide an almost ‘human face’ to the call centre caller. In this way instead of being asked to ‘hold’, the customer can talk ‘face to face’ with a talking V-Rep. This approach is more sympathetic and warm to the caller than simply talking to a telephone operator. V-Reps are linked to company websites where a customer or ‘caller’ has the added advantage of actually being able to see the V-Rep on screen. The use of a robotics simulator for development of a robotics control program allows for robotics programs to be written and debugged off-line. Mobile marketing (M-marketing) has been a fastest growing development in marketing. Essentially, it is another form of telemarketing as it is based on the telephone. It is a promotional tool and an important area of marketing that considered in more detail in Chapter 6. The growth of teleshopping/interactive TV channels and promotional methods has been underpinned by developments in communications technology. Cable and satellite television allied to digital technologies have given rise to significant growth in home-based shopping via television. Many cable and satellite companies offer channels specifically devoted to shopping, but in addition conventional programming includes opportunities for teleshopping during commercial breaks. The familiarity

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of television as opposed to PCs for many people is an advantage. The advantage of marketing products in this way is that there can be extensive and detailed demonstration of products to a live audience. Many will watch simply as a form of entertainment, but many will also make purchases.

Types of intermediary A company may decide that the most effective channel might include distributing through wholesalers and retailers. Although the decision has been made to use these groups of intermediaries, there are often different types of intermediary within each group that the marketer can use, e.g. in wholesaling there are merchant wholesalers, full service wholesalers and cash and carry wholesalers. Similarly, examples of types of retailer might include independent single retailers, chain stores, variety stores, multiples, etc. The marketer must decide which of this variety of intermediaries is most effective and efficient. Activity 5.7 Find out what sorts of intermediary (at various levels in the channel) are available/used to distribute the types of products or services that your, or a company you know, markets. Channel/market coverage (number of intermediaries) A key element of channel design is decisions as to numbers of intermediaries to be used at each level. There are three broad choices: x Large numbers of intermediaries are used, known as ‘intensive distribution’, x Only one or two specially selected intermediaries are used, known as ‘exclusive distribution’, x Between these two extremes comes ‘selective distribution’, where a relatively small number of intermediaries are used at each level. Question 5.9 Which of would probably be best distributed on an intensive, exclusive or selective basis? x Rolex watches;

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Cigarettes; Mid-priced hi-fi systems; Toilet rolls; Haute couture fashion.

Answer : x x x x x

Rolex watches = Exclusive Cigarettes = Intensive Mid-priced hi-fi = Selective Toilet rolls = Intensive Haute couture fashion = Exclusive.

Tasks, responsibilities and terms Key elements of channel design are decisions about what is required to be performed in the channel of distribution and who perform these tasks. These tasks and responsibilities should be agreed between channel members. For example, we have seen that one of the functions in the channel is flow of information. Similarly, another channel function is promotion. It is important to ensure that these tasks are allocated and agreed between channel members. In the same way, facets such as ‘territorial’ rights of channel members and other terms on which channel agreements are entered into should be established and agreed.

Factors affecting channel choice and design Ultimately, the rationale underpinning channel design is the need to achieve the most effective and efficient channel possible for the marketer. With this in mind a number of factors will influence channel choice: Organizational objectives and resources; Type of market/buyer, e.g. industrial versus consumer; Marketing objectives and strategies; Customer requirements/expectations; Type of product, e.g. perishable versus non-perishable; Channel availability, e.g. the most ‘appropriate’ channels may simply not be available; x Competitor considerations.

x x x x x x

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Trends and developments in channels of distribution Exam hint Examiners will look for application and examples. Find examples and applications of the key elements and concepts in as they apply to different country situations. Basic fundamental principles apply wherever you are. Among some of the most significant trends and developments affecting channels of distribution are: x Increased power of retailers: In most developed economies, retailing has become very concentrated. Multiples are all-powerful and can usually dictate terms to suppliers; x The growth of own branding: Related to the above, the power of retailers has enabled them to market their own brands in direct competition with suppliers’ brands. Marketing in practice: example About 20 years ago retailers’ own brands were essentially cheaper versions of the manufacturer’s branded version. Down-market packaging, fewer product features, more basic designs, all focused on selling the retailer’s own brand products at lower prices. However, virtually all retailers began to develop and market ‘real’ brands with distinct brand images and personalities and with ‘real’ brand values. These were designed to compete head-on with suppliers’ own brands on a value/quality basis rather than low price. Sainsbury’s was the first retailer to apply this policy, soon to be followed by other major retailers. Sainsbury’s then launched a premium brand: ‘Taste the Difference’ range of food products and a range of products for the health conscious: ‘Be Good to Yourself’. Competitive supermarkets then followed. x The growth of ‘vertical’ marketing channels. These are channels where different levels and members in a channel are co-ordinated or managed by a single channel member to achieve efficient and effective distribution to target market customers to potentially reduce the inherent conflict between different levels and members in a channel. There are a number of ways in which vertical channel

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integration can be achieved. For example, one member of the marketing channel may simply purchase the operations of other members/levels of the channel. This is sometimes referred to as a corporate vertical marketing system. A retailer that purchases, for example, wholesaling and production facilities would be an example of a corporate vertical marketing system (VMS). Working from the other end of the distribution channel, a manufacturer may purchase wholesaling and retailing facilities to consolidate and coordinate this channel. This is known as an administered VMS. Here, the different channel members remain independent with vertical integration and co-ordination being achieved on the basis of informal agreements between members of the channel. Although channel members remain independent, normally one member will effectively control and administer the channel to optimize the operation of the channel as a whole. Often such control will fall to the largest and most powerful member of the channel. The third type of vertical marketing system for achieving vertical integration is the contractual VMS. Under this system, channel relationships and co-ordination are achieved through formalized agreements and contracts. An example of this rapid growth over the past two decades has been franchise organizations such as McDonald’s, Dyno-Rod and Kentucky Fried Chicken. Members of the channel enter into legal agreements that set out duties and rights. x The growth of ‘horizontal’ marketing channels is where institutions at the same level of the marketing channel are combined under one management. For example, an organization may integrate horizontally by merging with another organization at the same level in a marketing channel such as the merger of a college with a university. Horizontal integration is done to achieve efficiencies and economies of scale in areas such as purchasing, promotion and so on. However, horizontal integration can lead to a decrease in flexibility and difficulties in co-ordination. x The growth of direct channels and the use of electronic methods details of which have been covered earlier in this chapter. Activity 5.8 List examples of franchising arrangements.

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Physical distribution/logistics The second element in place decisions of a marketing mix is planning systems and procedures for physically moving products and services from a marketer to the customer. This element is physical distribution. In fact ‘place’ is a convenient word that fits well into the notion of the four Ps alongside the other three Ps, although a better descriptor might be ‘placement’. The scope of planning physical distribution has now widened to include all physical flows of products and services into, through and out of the marketer’s organization. This wider approach to physical distribution is termed ‘logistics’. In examining physical distribution and logistics we cover: x The importance of physical distribution/logistics, x Key planning areas/decisions, x Inputs to planning physical distribution and logistics.

Importance of physical distribution/logistics We referred to the high cost of distribution and the potential for savings in this area. In most companies a large proportion of this cost and potential for saving is associated with the physical distribution element of place. This is easier to appreciate if we think of some of the functions and activities encompassed by physical distribution. Activity 5.10 Note what you think might be types of activity in physical distribution. x x x x x

Inventory (stock) management, Order processing, Warehousing, Transport management, Materials handling.

Physical distribution decisions have a major impact on levels of customer satisfaction (or dissatisfaction) and are a major source of potential competitive advantage.

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This impact centres on levels of customer service, which are directly affected by the design and activities of the physical distribution system. Activity 5.11 Note examples of elements of customer service that might be affected by physical distribution: x x x x x

Order cycle time, Minimum order size, Ability to handle special orders/rush orders (flexibility), Consistency of delivery times, Degree of damage to delivered products.

If a company can improve its level of service in areas like this, it might increase sales and market share. This is especially true in markets where it is difficult to differentiate one’s products and services in other ways. Particularly in industrial markets, many customers are operating just-intime/lean manufacturing systems of production where service delivery is critical.

Key planning areas and decisions Our outline of major activities in physical distribution, together with our discussion of the various areas of customer service affected by the physical distribution system, points us to what are the key decision areas in planning physical distribution and logistics. We must decide the objectives for a physical distribution system which should be couched in terms of objectives regarding desired levels and areas of customer service. These should be specified in advance, preferably in quantitative terms, e.g. ‘All customer orders must be fulfilled within a maximum of 36 hours from receipt of order’. Activity 5.12 Note examples of possible objectives with regard to levels of customer service that might be desirable in a physical distribution system. Once objectives for the output of the physical distribution system are set, the system and its component activities can be planned to achieve specified objectives. Key decisions include:

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x x x x

Inventory levels, Order-processing systems, Methods of transport, Warehousing: numbers and locations.

Inputs to planning physical distribution and logistics Design of a physical distribution system and its component activities should centre about meeting predetermined objectives with regard to elements of customer service. The most important input to planning physical distribution and logistics is ‘information on customer requirements with regard to areas and levels of service’. What we are looking for is to provide the levels of service required, and preferably use improved levels as a basis for competitive advantage. We should find out what customers’ requirements are and what constitutes value in terms of service levels. For example: Would the customer value speedier delivery? Would the customer value ability to deal with special orders? Improved levels of customer service usually cost the provider more. The real issue is the extent to which this ‘value’ to the customer is sufficient to offset potentially higher costs of providing it. Put simply, in designing the physical distribution system a key input is ‘cost’. We must balance competitive advantage against cost. Most physical distribution systems are designed to provide pre-specified levels of customer service at minimum cost. Another consideration is that it should be considered as an actual ‘system’. It is no use minimizing costs in one area, e.g. inventory costs, only to find that this is more than offset by a corresponding increase in costs elsewhere in the system, e.g. delivery. There is now greater emphasis placed on planning the whole of physical distribution and the channel element as a complete system. Another input is consideration of ‘competitors’. Every marketing decision should reflect the levels and types of service being offered by competitors. The final consideration in the design of physical distribution is a dynamic area of management and marketing. Changes in technology, techniques of production and customer needs mean that physical distribution systems

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need to be constantly evaluated and updated and changed to reflect these changes and to remain competitive. Physical distribution and logistics planning has been enhanced and facilitated by developments in information technology. This area of distribution is complex due to the number of elements comprising the physical distribution and logistics system and the interrelationships between them. Inexpensive computing power has enabled marketers to take account of these complexities and interrelationships and design the total logistic system to provide optimum service at minimum cost. Activity 5.13 Think of any changes in physical distribution over the past few years either in the industry with which you are familiar. How have these affected marketing in the industry?

Summary In this chapter we have seen that: x Place decisions have a major impact on levels of customer satisfaction; x Place costs a company a great deal; x Place should be designed to provide pre-planned levels of customer service at the minimum cost for each level of service; x The two broad and interrelated areas of planning place are planning marketing channels and planning physical distribution/logistics; x In planning both these areas the key considerations are customer needs, company objectives and costs, and competitors; x Channels are one of the most dynamic areas of marketing these days with many changes taking place, often underpinned by developments and changes in technology, in particular the growth of more direct channels based on electronic and communication technologies.

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Further study and examination preparation Question 5.2 What are the key benefits of an effective management programme for the physical distribution of products? The main objective of physical distribution is to decrease costs while increasing service to the customer. The manager will need to consider the order processing, materials handling, warehousing, inventory management and transportation issues. Managers strive for a good balance of service, costs and resources. Therefore, effective planning is paramount to ensure that this happens by determining what level of customer service is acceptable yet realistic in terms of costs. As physical distribution affects every element of the marketing mix, it is important that the customers’ needs are at the top of the list. x Customer satisfaction The key benefits of an effective physical distribution programme should be the offer of a high quality service, which should lead to a significant impact on customer satisfaction. Indeed, companies can differentiate their offerings by considering their physical distribution in relation to their competitors and ensuring a good service level. For example, some companies offer guaranteed ‘next day’ delivery. If managed effectively, it could be possible to position the company’s offerings on the basis of the levels of service, which could lead to achieving a sustainable competitive advantage. x Company efficiencies If the programme is managed effectively, there should be opportunities to ensure reductions in the inventory costs, while maintaining a supply of goods adequate for the customers’ needs. This should lead to increased profitability. Question 5.3 Define what is meant by: x Exclusive distribution; x Intensive distribution; x Selective distribution?

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Different levels of market coverage must be considered when considering the company’s objectives and the characteristics/behaviour patterns of the buyers. The marketing manager will need to consider the following issues: x Exclusive distribution is where only one outlet is used in a relatively large geographic area. Using exclusive distribution generally gives a company tighter control of the types of distributors and retailers used. This method is often used when only a limited market is available for products such as Rolls-Royce motor cars. However, when the luxury ice cream Haagen Das was launched this was the distribution policy which was first adopted to communicate the quality positioning of the product, but over time this has changed to intensive distribution. x Intensive distribution is where all available outlets are used for distributing a product. This is often appropriate for convenience consumer products such as newspapers, etc. where sales may have a direct relationship to availability. x Selective distribution is where only some outlets in an area are chosen to distribute a product. This is appropriate for durable products such as electrical appliances, as these products are more expensive than convenience goods and consumers are willing to spend more searching time visiting a number of retail outlets to find the best deal. Question 5.4 What are the key issues which a marketing manager will need to take into account when considering alternative or new distribution channels? Organization’s objectives and resources; Customers’ characteristics, requirements and levels of service; Product characteristics such as the size, weight and durability; After-sale service; Competitors’ channels; Channel characteristics, such as availability; Risk, control, costs involved related to the organization; Logistics management issues such as inventory levels, handling issues, warehousing and transportation; x Impact on other marketing mix elements.

x x x x x x x x

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Question 5.5 Explain what is meant by the terms: x Vertical channel integration; x Horizontal channel integration. Channel members can be combined and this can lead to stabilized supply, reduced costs and increased co-ordination of the channel members. x Vertical channel integration is where two or more stages of the channel are under one management. One member of a marketing channel may purchase the operations of another member or perform the functions of the other members thus eliminating the need for such an intermediary. Total vertical integration covers all functions from production to ultimate buyer, for example oil companies, such as BP, that have their own service station. A vertical marketing system (VMS) is a marketing channel in which a single channel member co-ordinates or manages channel activities to achieve efficient, low-cost distribution aimed at satisfying target market customers. An example may be drawn from franchise organizations such as McDonald’s which are examples of contractual VMSs. x Horizontal channel integration is where institutions at the same level of operation are combined under one management. For example, an organization may integrate horizontally by merging with another organization at the same level in a marketing channel level such as the merger of a college with a university. Horizontal integration may enable a firm to generate sufficient sales revenue to integrate vertically as well. This integration allows efficiencies and economies of scale in purchasing, marketing research, etc. although it can lead to a decrease in flexibility and difficulties in coordination. Question 5.6 Explain reasons for the growth in direct marketing, giving examples to justify your thoughts. Direct marketing has been growing recently with the advances in information technology. Organizations have been able to use sophisticated databases to identify their customers’ behaviour and characteristics and

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thus are able to adapt their offerings to increase satisfaction. The use of relationship marketing concepts and new media such as the Internet, DRTV, telemarketing and digital TV has allowed organizations to build stronger direct relationships with their customers. The ability to communicate effectively and efficiently directly with the customer has allowed a number of organizations to monitor and control their direct marketing efforts thus reducing the use of intermediaries in channels. An example is the Charles Tyrwhitt organization that manufactures and sells quality shirts via the Internet and their direct mail catalogue. This company has grown extensively through the use of new technology. Direct distribution is a growing and important area for all marketers. Question 5.7 Direct marketing has been one of the fastest growing areas of distribution since the nineteen sixties. Describe what is meant by ‘direct marketing’ and account for its success. We have witnessed the development of superstores, hypermarkets, limited line discount stores and direct marketing. Increasingly, customers buy many kinds of products, ranging from clothes, books, electrical goods, wines and food from non-retail outlets, chiefly through the internet. Thus, the conventional retailer is bypassed, and this has driven many small retailers out of business. Various forms of non-shop selling are: Party plan This method was first introduced by the upmarket plastic houseware company, Tupperware, in the 1960s. However, Tupperware is no longer sold through party plan and is sold through the likes of Amazon along with many competing brands. The idea behind ‘party plan’ is that by accepting an invitation to such a ‘party’ upon which the hostess receives a commission from the local organiser, the invitee is then under a moral obligation to purchase. However, since the idea is now so widespread, it is now less of a confidence trick and can be positively viewed as an excuse for a social get together. In fact many such parties are now organised with the view to the profits being given to charity.

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Door to door selling Similar to party plan, this was a phenomenon on the 1960s. Traditionally it has been used by companies employing agents to sell from door to door in a clearly defined locality and Kleeneeze and Betterware are two companies providing household cleaning and other materials that have been in the business for many years. However, most of their sales nowadays are direct through the internet. Door to door selling is a canvassing technique whereby the salesperson walks from house to sell, but many such visits are now used to ‘drum up’ business for a future salesperson to attempt to make the sale. Quite often the first call is to call on the pretence of doing a survey, whereby questions are asked about things like double glazing, home insulation, fascia boards or soffits and insurance policies. If the household is lacking such things, then the salesperson will call later using the lead that the so called ‘drummer-up’ has identified. In fact such a process has been under investigation as some less scrupulous companies selling under the guise of conducting a market research survey (termed ‘sugging’) have been selling things like alarm systems to older more vulnerable people and using the survey to suggest the dreadful implications of not having such a system in place, and then selling such a system at a highly inflated price. Mail-order catalogues This system made its appearance in the 1960s. It relied upon expensively produced glossy catalogues to obtain sales using local agents working among relatives and friends to promote sales and then receiving commission for goods sold. Payments could be spread interest free, over a number of weeks. Early catalogue sellers were Grattan, Littlewoods and British Mail Order Corporation, who were able to achieve economies by bulk purchasing. However, such methods have been largely superseded by internet sales by the likes of fashion retailer ASOS (As Seen On Screen) and of course Amazon. Non-catalogue mail order This method of mail order has become popular relatively recently, especially with the proliferation of the Sunday ‘colour supplements’. Reliance is placed upon advertising a specialist range of merchandise, and bulk purchasing is possible because of this limited range (often only one

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product). A company that started up in this way was Scotcade. In addition to the more prominent type of advertising in the supplements, a great deal of mail order is conducted through specialise small advertisements in national newspapers, often for home-produced craft goods such as toys, individually made clothes, knitwear, etc. Direct mail Here the mailing list is the key to successful market targeting, and it is a well-known fact that if one subscribes to certain magazines, then that magazine is likely to sell your name and address, along with its other subscribers, to anybody who wishes to buy the list. Banks offering charge cards have made widespread use of the names and addresses of holders for this form of merchandising. Television direct-response advertising Often, especially before Christmas, record collections are promoted through a series of single advertisements, with the caveat that they are not available in shops. Many simple methods of ordering and paying are cited at the time of the advertisement, the easiest being to telephone, dial a local number and quote your credit card number, name and address. Although one usually thinks of music in relation to this type of selling, many other categories of goods are now sold in this manner. Clubs Book and music clubs use this method to sell their respective products, normally at ‘below the recommended price,’ with the rule being that one has to make a commitment to make so many purchases within a given period. On-line computer and television When searching the internet for goods that are displayed on screen purchases can be made immediately through an ordering procedure direct to the advertiser. Similarly, some television channels are almost entirely devoted to such methods of purchasing.

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Reasons for popularity of direct marketing Women now account for almost half of the labour force and have less time to engage in leisurely shopping activities. Shopping used to be viewed as a leisure pursuit and this is less the case nowadays, because a wider range of leisure activities is available like swimming, health clubs, dining out, etc. A further reason for the increase in popularity is the fact that shopping, particularly in city centres, is less pleasant and a less secure activity than it was, although the rise of ‘metro-centres’ has changed this. However, traffic congestion, parking expense, cost of fuel and simply motoring into a city centre are causing many people to turn to direct marketing for such items as fitness machines, garden furniture and the like. In addition, nonshop purchasing, especially when the purchase is for one particular specialist product, is often cheaper than purchasing through a retail outlet. Quite often such products have a relatively low turnover and are purchased infrequently, so shops add a relatively high mark-up to such purchases, whereas a specialist direct marketing company is able to buy in bulk and pass saving onto customers who are attracted because of the low price. The popularity of non-shop selling is likely to continue to increase because of the factors already mentioned, and because methods of non-shop selling ae becoming increasingly sophisticated and easy, especially when in many cases all one has to do is to click through on the internet or make a local telephone call and read off a charge card number. This answer has restricted attention purely to retailing goods and services, but it should be remembered that direct marketing also refers to many forms of industrial marketing. Manufacturers sell, direct to their customers, all manner of goods including raw materials, manufacturing consumables and durables like plant and machinery.

CHAPTER SIX THE MARKETING MIX: PROMOTION

Learning Objectives By the end of this Chapter you will: x Recognize the role and importance of communications and promotion in marketing, x Understand the process of communication, x Appreciate the range of tools that comprise the marketing communications mix, x Be cognisant of factors that contribute to the development and implementation of the marketing communications mix, x Be aware of key trends and developments in promotion.

Introduction This chapter covers the fourth ‘P’ of the marketing mix, and encompasses tools available to communicate with customers and others about products and services. Although this is essentially about communication, this particular ‘P’ tool is referred to as ‘promotion’. This wide-ranging area of marketing includes factors as diverse as media selection for advertising through to recruitment and selection of the sales force, sales promotion, e-marketing, public relations and publicity and direct mail.

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The role and importance of promotion in marketing Study tip If pricing and place decisions are readily observable elements of marketing activity, promotional decisions are even more so. We are all exposed to marketing communications, and ask you to use your eyes and ears to observe and learn from what is going on with respect to marketing communications in the real world and note examples of effective and ineffective promotional efforts. Marketing communications are important for many reasons, the first one being to inform people of their existence. Even if customers are familiar with both the product and company, they may require ‘persuading’ to be convinced they need the product. What we are talking about are processes such as creating awareness, generating interest, heightening desire, and ultimately creating action in the form of a sale. Various tools of promotion are aimed at fulfilling one or more of these functions. This important communication role is not just applicable to products and services but to other areas where marketing tools and concepts are applied, for example: x Marketing ‘ideas and causes’ needs effective communications, x Marketing ‘people and celebrities’ needs effective communications. A company can have the best product for the target market, the most effective systems of distribution, and a competitive price, but if marketing communications are ineffective, all this can be negated. Another reason for its importance is that spending on promotional activities by companies and organizations is costly. A single promotional programme for a new product launch can cost several millions; in contemporary marketing, where competition is intense, high levels of promotional spend are often obligatory, and it is essential that the marketer understands the process of marketing communications, the range of promotional tools available and their characteristics, and how to plan promotion so as to have the greatest impact for any given level of spend.

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Another way of illustrating the role and importance of promotion is to consider things that can go wrong if promotion is badly planned and executed. Implications for the marketer and the company are: x ‘We have just launched our new product and dealers did not have any brochures to give to customers who expressed an interest.’ x ‘Because we chose the wrong media for our advertising campaign, the target market is still unaware of the merits of our product.’ x ‘We have still not managed to overcome the damage to our company image from the pollution scare last year.’ x ‘Half our advertising spend is wasted: the problem is we are not sure which half.’ x ‘I don’t know you, I’ve never heard of your product, I’ve never heard of your company, now what was it you wanted to sell me?’ Activity 6.1 Recall ‘bad experiences’ you have had as a customer for a product/service in the past that on reflection have been due to badly planned and managed marketing communications. Consider the effect of this experience at the time with regard to your attitudes towards the product or brand and its supplier.

The process of communication If the marketer is to manage the promotional element of the mix effectively, it is essential to understand the basic process and concepts of what is a communication process. Exam hint Because this part of marketing communications appears to be a little ‘theoretical’, there is perhaps an understandable temptation to skip over this process and its concepts. Not only is a basic understanding of the process and concepts of communication useful in practical terms to the marketer, but, reflecting this usefulness, there are often questions at this level on these aspects. Communication is a vital part of life. We are entertained, informed, and often annoyed by communications. Whole industries are based on

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communicating. Communication and the need to manage it is not something that is only relevant to marketers. Key definition Communicate: To impart; to transmit; to receive; to administer; to collaborate. Key definition Communication: Imparting; access or means of access; connection between places. With such a scope for communication activities and meanings we can distinguish a number of basic elements which, irrespective of the precise message, make up the process. In most types of communication, especially marketing communications, the elements are shown in Figure 6.1: Noise

Sender

The channel Encoding

Decoding

Receiver

Feedback Figure 6.1 Key elements of the communications process

The sender (source, transmitter) There should be a sender from which communication stems. This could be a broadcasting authority, the editor of a newspaper, an employer or the marketer.

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The receiver (audience) This is the party or person with whom we wish to communicate. Unless and until the intended audience receives the message, communication is ineffective. In many cases the target audience for marketing communications is the customer or potential customer. Much marketing communication is aimed at persons or parties other than the customer. For example, it may be aimed at others who influence the purchasing process or aimed at ‘publics’ important to the company, such as shareholders, local communities, and politicians and governments.

The channel (media or medium) If we have a sender and a receiver at either end of the communication process, then we need a channel through which they can communicate. There are many types of channel that are important to marketing planners. A distinction is made between ‘personal’ and ‘impersonal’ channels and an important area is media selection and planning. These are the three basic elements of a communication process. In addition to these building blocks, we have a number of other aspects in a communication process.

Encoding In order to transmit and share messages and information the sender must translate the message or information by means of a variety of signs and symbols appropriate for both the channel and the receiver. This is known as encoding. It is important that the sender should use signs and symbols the receiver can interpret and understand. For example, the marketing communicator must not use words or symbols that make little sense or can be misinterpreted by the receiver. For example, if we are promoting a new product such as a waterproofing agent to householders, it might not be a good idea to use technical terms for the chemicals in the product, as most consumers would probably not understand this. Similarly, the marketer should use signs and symbols the customer can relate to: advertising messages for teenagers, for instance, might be different to those we would use for more mature customers. Encoding and its principles are important when marketing across national frontiers. There are examples of marketers making classic faux pas in their use of language and symbols.

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Activity 6.2 Note any promotion for products you feel are inappropriate for the target market. This might be, for example, advertising an imported product or service you feel the marketer has not got quite right for the intended market.

Decoding If there is an encoding process in communication, there must be a decoding process at the receiver’s end. Comments with regard to the appropriate signs and language about encoding apply here. In the decoding process the target audience tries to interpret and make sense of messages that are being conveyed. Sometimes in the decoding process the intended message becomes changed or distorted. Receivers have their own perceptions and beliefs, which can cause changes and distortions.

Noise Where the message received after transmission and decoding is not the same as that intended, or where the receiver has difficulty even receiving the message, we say there is ‘noise’ in the communication system. One source of such noise is different perceptions and beliefs that can influence the decoding process. There are many sources of noise in communication systems. For example, we are bombarded with selling and promotional messages. In this clamour for our attention much of the information intended for us is simply lost. We suffer from ‘information overload’. Two further sources of noise are the encoding and decoding elements and in particular the use of signs and symbols used to encode and decode including the major one of language. Many overseas marketers have found that words and symbols they have used to encode their messages to reach and influence the receiver are decoded differently in an unintended. For example, Coca-Cola when marketed in China was translated as ‘Bite the wax tadpole’ and Pepsi’s early slogan ‘Pepsi brings you back to life’ was translated as ‘Pepsi brings you back from the grave’. Mistakes such as these in the encoding and decoding process, and often much subtler ones, have to be corrected, so marketers must understand the sources of noise in a communication system and how best to minimize this through detailed and careful planning.

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Feedback Another basic element of a communication system is feedback, or information from the receiver as a result of the communication. Such feedback may be intended or unintended, voluntary or involuntary, personal/direct or impersonal/indirect. In particular feedback enables the sender, e.g. the marketer, to ascertain the extent to which the intended message has been received and interpreted correctly. It will also help to indicate the extent to which it has achieved the desired result. The most obvious form of feedback in marketing communications is where the message is intended to create a sale and whether or not the customer has actually purchased. However, there are many possible objectives for marketing communications, of which creating a sale is only one. The communicator must ensure that feedback is planned for and obtained as a way of evaluating the effectiveness or otherwise of marketing communications. Activity 6.3 Think of ways in which the marketer can obtain feedback from customers regarding the effectiveness of marketing communications. x x x x

Recognition tests, Aided recall tests, Unaided recall tests, Surveys of customer attitudes.

Methods for collecting this information include: x Customer questionnaires, x Sales-force feedback, x Focus groups.

The promotional mix Before we consider the planning of marketing communications, we need to ensure that we are familiar with the major tools of promotion. The selection and combination of these tools in a communications campaign is termed the ‘promotional mix’.

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Key definition Promotional mix is that combination of individual promotional tools selected by the marketer to promote a particular product to a particular target audience. We group these tools into one of five major sub-categories to represent the main constituents of the promotional mix: x x x x x

Advertising, Personal selling, Sales promotion, Publicity and public relations, Direct mail and e-marketing.

Advertising Perhaps the first promotional tool we tend to think of in marketing communications is advertising. Key definition Advertising: Any paid-for type of marketing communication that is non-personal, aimed at a specific target audience through a mass media channel. This definition encompasses a variety of different types and reasons for advertising. For example, advertising may be used in: x Advertising products and services: Jaguar cars, McDonald’s restaurants; x Advertising ideas and issues: Greenpeace, Oxfam; x Advertising people: President Putin, President Trump. Types of advertising may include: x Trade advertising: ‘B&Q warehouses for professional decorators’ x Consumer advertising: ‘Robinsons Barley water – refresh your ideas’ x Corporate advertising: ‘Shell: the caring company’.

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In many markets advertising constitutes the largest spend area for marketing communications, especially in consumer goods markets. Advertising has advantages as a tool of marketing communications. Activity 6.4 List of what you feel are the advantages of advertising as a promotional tool. x x x x

Potentially low cost per target audience contact (reach), Allows repetition of message, Enables dramatization of company and its products (impact), Can be used to build up long-term image.

There are potential disadvantages associated with advertising: x x x x

Potentially high absolute costs, Often difficult to evaluate effectiveness, Persuasive value may be less than more personal promotional tools, The power of advertising means that sometimes creating strong favourable attitudes and feelings among customers can also create strong reactions of dislike towards the advertiser or brand.

Personal selling Key definition Personal selling is a paid-for type of marketing communication that normally calls for personal and often one-to-one contact between marketer and customer. This definition encompasses a wide variety of different types of selling: x Telephone selling is used widely for home improvement products such as double glazing, x Technical selling is particularly prevalent in business-to-business markets involving products such as computers, machinery and consultancy, x Missionary (or pioneer) selling is used widely for selling new products and/or in new markets typically found in international markets where a marketer is selling for the first time,

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x Retail selling. Many retail situations do not involve face to face selling as it is more a matter of self-selection and self-service, so retail selling tends to be associated with more major items and issues like cars, household appliances, cameras, holidays and house purchases. Activity 6.5 List of what you feel might be the advantages of personal selling as a promotional tool. x x x x

Two-way communication with target audience, Facilitation of immediate feedback, Flexibility – can respond to individual customer needs, Allows cultivation of customer relationships.

Potential disadvantages associated with personal selling are: x More difficult to vary spend in short term compared to other promotional tools, x Cost per customer contact high, x Depends on people, so there are potential ‘people problems’ between salesperson and potential customer.

Sales promotion This category represents what has been a fast-growing area of spend in marketing communications. In some markets spending on sales promotion is greater than spending on advertising or personal selling. Key definition Sales promotion is any intermittent and/or short-term incentive designed to encourage purchase or sale of a product or service. It is usually but not always impersonal in nature and usually non-media based. This definition encompasses a variety of different types and reasons for sales promotion. For example, sales promotion may be aimed at: x Trade and intermediaries,

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x The sales force, x Consumers. Types of sales promotion activity and tools include: x x x x x x x x x x x x x x x x

Premiums, Coupons, Self-liquidating offers, Buy-back allowances, Bargain packages, Giveaways, Dealer loaders, Discounts and cash allowances, Merchandising allowances, Sales contests, Exhibitions, Multiple purchase promotions, e.g. 3 for 2 offers, Loyalty cards, ‘BOGOF’ (buy one, get one free), Buy one; get a different one free, Samples.

Many factors affect the choice of the most effective promotional tools, for example, multiple purchase promotions, buy one product, get a different one free, and extra loyalty card points are known to be effective in prompting purchases and particularly heavier purchases by customers. Free samples are more likely to be effective where the marketer wishes to encourage brand switching or brand trial. Consumers have come to expect special promotional offers to accompany brands they purchase and will not purchase or switch brands if these expected promotional offers are not made. The dilemma for the marketer is that in some ways sales promotion can over time lose its ability to achieve the sales and marketing objectives set out for it. There is also danger with regular sales promotions for a brand that the brand becomes ‘devalued’ in the mind of the customer with the image of the brand being cheapened. However, generally public perceptions of sales promotions are favourable in as much as they are seen as offering value for money.

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Push, pull and hybrid sales promotional strategies Push strategies are meant to push the goods to distributive intermediaries in terms of providing display and shelf space and promote the products. Strategies involve discounts, free trials, bigger margins and guarantees of quality. For new products or brands incentives to retailers involve free return if the product is unsuccessful. Such a strategy should be combined with an advertising campaign. Pull strategies target end users and this involves internet, telemarketing and advertising campaigns to end customers who then expect to see the product advertised in appropriate retail outlets. Hybrid strategies are a mixture of push and pull features and can include concurrent initiatives to resellers and end users or uniting with retailers to help them market the product. Network marketing is another hybrid strategy as it recruits persons who operate both as resellers. Question 6.1 What are: Self-liquidating offers? Giveaways? Coupons? Premiums? Dealer loaders? Buy-back allowances? Self-liquidating offers are promotional campaigns where the cost of the sales promotion is covered by payments from the customer, e.g. where a kitchen knife is offered at a ‘special’ price of £1.00 plus proof of purchase of a particular product being promoted, when the cost to the marketer of the knives is £1.00. Giveaways A free gift, e.g. a toy, is included with the product. Coupons The customer uses coupons obtained from magazines to obtain products at reduced prices. Premiums Items offered free or at a minimum cost for purchasing a product, e.g. free soaps with purchase of perfumes. Dealer loaders are trade promotions in which retailers that purchase a certain quantity of merchandize receive gifts. Buy-back allowances are trade promotions. A certain amount of money is allowed to a retailer according to quantities bought during a promotional

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deal. For example, if the retailer has purchased say 100 units on special offer, this will qualify for a further additional premium after the initial deal is over.

Publicity and public relations Key definition Publicity is any type of news story and information about an organization and/or its products transmitted at no charge through a mass medium. Public relations are activities designed to create understanding and goodwill between an organization and its publics. Publicity and public relations are often planned together, frequently using the services of a specialist publicity and PR agency. There are a variety of different types of activity in publicity and PR, for example: x x x x

Press releases, Company open days, Press conferences, Third-party endorsements.

Activity 6.6 What do you feel are the advantages of publicity/public relations as a promotional tool? x Can be used to promote a company as a whole and hence all its products, x Often perceived by target audience as less ‘biased’ than paid for advertising, x Potentially low cost. Disadvantages associated with publicity and PR: x Difficult to control media comments/reactions to publicity and PR, x Difficult to assess impact, if any, on sales/profits, x More difficult to control content and timing of communication. Activity 6.7

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Think of examples in recent years where companies have for one reason or another received ‘bad publicity’. The BP Oil crisis is an example of reputation management failing. This was the biggest offshore oil spill in US history, was a catastrophe and ecological catastrophe worsened by the way the disaster was managed. BP’s lack of seeming understanding and sympathy was personified by former BP Chief Executive Officer Tony Haywood who said in an interview ‘I’d like my life back’, inducing a public reaction of public anger and dislike. This was not the only PR mistake BP made through the crisis. Their website had little news on this with minimal links to Facebook and Twitter. Offering likely plaintiffs $5000 not to proceed with lawsuits showed a simple lack of understanding.

Direct mail Direct mail is part of direct marketing which was discussed in Chapter 5 as part of the ‘place’ element of the marketing mix and is one of the main communicational tools used in direct marketing. This area of marketing has grown substantially in recent years and you are familiar with reasons for this. Direct mail can certainly be considered as one of the most effective methods of communication especially when linked to a company database and loyalty scheme. This method is particularly useful in building consumer relationships and is easy to control and evaluate. We look at these uses of database and loyalty schemes in building effective consumer relationships in the next chapter. Study tip It is important not to compartmentalize areas of study and the syllabus too much, even though for ease of study we have broken these down into individual study units. Direct mail is a personally addressed marketing communication that is delivered direct to targeted respondents through the postal system. Its effectiveness depends on the accuracy and completeness of the list of addresses, together with comprehensiveness of information on individuals or households to which the direct mail is being sent. Provided this

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database and the resulting mailing lists are effective, direct mail can be personalized and targeted accurately. Most direct mail is aimed at generating enquiries and leads, and can be used to build relationships with customers. In part, the growth of direct mail has been a response to increasing frustration and concern of marketers with regard to mass media channels such as television and newspapers with respect to their costeffectiveness in reaching target customers. Although direct mail can appear relatively inexpensive compared to other forms and methods of communication such as TV advertising, the return rates from direct mail can vary enormously but are often as low as 0.5 per cent, which can make this an expensive way of targeting. Study tip Different parts of marketing syllabuses are interrelated and some areas often overlap substantially. For example, direct mail, as well as being a promotional tool, is also a channel. We also discussed developments in direct marketing; in particular the impact of databases and new internet technologies. It would be useful to reread the earlier discussion of the growth of direct marketing, but consider it this time from the perspective of promotional elements of the mix. These are the major promotional tools available to marketers. It is important to stress that virtually everything a company stands for potentially communicates something to the outside world. For example, appearance of employees of an organization can send signals to customers. Similarly, the state a company’s vehicles can communicate images. Other elements of the marketing mix, like the company website, contain signals (planned or not) for customers and publics. Companies need to plan all elements of communication to ensure consistency and co-ordination. Planning promotion should be looked on as planning a total package.

Managing/planning promotional strategies We now turn our attention to the issues, steps, and procedures in planning marketing communications associated with each of our major tools of promotion. In planning promotion we can identify a number of sequential, but interrelated, steps.

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Study tip Examiners will expect you to be familiar with, and understand, each of these steps.

Identifying the target audience The process of communication is about passing messages/information from a sender to a receiver. The starting point in planning marketing communications is to identify who this receiver is to be, or who is the target audience. In many cases the target audience will be the target market, i.e. customers. In other cases, the target audience may be intermediaries, the general public, shareholders and so on. Even this identification of broad target audiences is not sufficient to plan marketing communications effectively. For example, if the target audience for marketing communications is customers, we need to define these more precisely. Parameters that might be useful if the target audience is customers might include customer characteristics (age, sex, etc.); customer attitudes (interested customers, disenchanted customers, etc.); customer behaviour (regular customers, infrequent customers, etc.). Especially where the target audience is customers, details on the profile of the target audience are very closely related to market segmentation and targeting. Identification and profiling of the intended target audience for marketing communications are essential.

Setting promotional objectives Having identified the target audience for marketing communications, we must next determine what we wish to achieve with promotional activities. There is a temptation to think of promotional objectives exclusively in terms of sales and profits, i.e. that all promotion is ultimately aimed at maintaining or increasing sales and profits. However, it is more useful to think of promotional objectives in terms of the communication tasks that promotion is designed to fulfil. After all, communication is what marketing promotion is about. In addition, not all promotional efforts are aimed at increasing sales and profits. In terms of setting promotional objectives in terms other than sales and profits, it is important to remember that promotion is only one factor affecting sales and profits. Certainly in some cases, such as direct response advertising, it is possible to relate sales to promotion. More often, though, promotion works in tandem with other

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elements of the marketing mix with regard to its effect on sales and profits. It is preferable to think of promotion in terms of its desired communication effect of what we wish to achieve with the target audience identified in the first stage of planning. A number of models have been developed to help marketers consider what audience response is being sought as a result of promotional efforts. We describe some of the best known of these models to help you understand how they relate to the setting of promotional objectives. Exam hint Discussion of these various models is a popular area for questions. Collectively, such models are referred to as ‘response hierarchy models’.

Response hierarchy models As the term implies, these models are based on the notion that there are a number of possible responses to marketing communications on the part of the target market. The word ‘hierarchy’ suggests that there is an ordering or sequencing of responses, each one representing a ‘higher level’ of response on the part of the customer in the buying process. These notions will become clearer if we discuss some of the best known of these response hierarchy models.

The ‘AIDA’ model One of the earliest, but still widely used models, that can be used to consider promotional objectives suggests that the buyer, or potential buyer, passes through four key stages in the buying process. Each of these stages corresponds to one of the initial letters of the AIDA mnemonic as illustrated in Figure 6.2: Attention

Interest

Desire

Action

Figure 6.2 The AIDA model Strong, E.K., The psychology of selling, McGraw-Hill, New York, 1925

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The sequence represents the various stages a customer passes through in the purchasing process. It suggests that the marketer must first gain the ‘Attention’ of the customer, and then create ‘Interest’, which can be translated into ‘Desire’, and the final stage is where the customer translates desire into ‘Action’ by purchasing the product or service. It is a simple, but still useful model, although there is now general agreement that this response hierarchy model is too simplistic in as much as it does not consider a range of important issues which are important to the marketer as they affect the purchasing process and the role of communication. These issues relate to the influences on the consumer such as perceived risk, level of involvement, environmental issues such as the economy related to disposable income, the buyer’s experience of the product recently and competitor strategies.

The ‘innovation-adoption’ model This is an alternative model that proposes a slightly different view of the steps in the purchase process compared to the AIDA model. It was specifically developed for the process of purchasing new products. The first two stages are similar to the AIDA model, in that it is suggested that the customer needs to be made ‘Aware’ of the new product or service followed by the development of an ‘Interest’. If the customer is sufficiently interested, then he or she will be prepared to ‘Evaluate’ the product in more detail, followed by ‘Trial’. If the trial is satisfactory, the customer ‘Adopts’ the product or service, and provided the customer continues to be satisfied enters post-adoption confirmation and becomes a regular/loyal customer as illustrated in Figure 6.3:

Figure 6.3 Innovation-adoption model; Rogers, E., Diffusion of Innovation, New York, The Free Press, 1962 Activity 6.8 Think of a product or service where customers or you might have passed through the steps described in the innovation-adoption model.

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Hierarchy of effects model This model is based on the notion that customers passes through a series of hierarchical steps en-route to making a purchase. This model posits six steps in the process as illustrated in Figure 6.4:

Figure 6.4 Hierarchy of effects model Lavidge, R.J. and Steiner, G.A. (1961) ‘A model for predictive measurements of advertising effectiveness’, Journal of Marketing, Vol 25, October. This model links the sequence in the hierarchy to the major functions of the promotional tools, and in particular, to advertising. Awareness and knowledge, relate to information or ideas; liking and preference, relate to attitudes or feelings towards the product, and conviction and purchase, produce action and acquisition of the product. This model can help develop advertising objectives and campaigns and it is useful in measuring effectiveness of advertising.

The DAGMAR model DAGMAR is based on the notion that promotion moves the customer through a number of stages towards purchase as shown in Figure 6.5:

Figure 6.5 DAGMAR model: Colley, R.H. (1961), Defining Advertising Goals for Measuring Advertising Results, Association of National Advertisers, New York. Colley refers to these stages as a ‘marketing communications spectrum’. The successive levels of the spectrum are: x Unawareness/awareness At this first stage we must move those customers who are unaware of the product through to a stage of

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awareness. Without this there is no possibility of moving to subsequent stages aimed at creating awareness. x Comprehension is where the customer moves from simply being aware of and appreciating what the product or brand is about. Marketing communications can play a key role in this process through advertising or the sales person and in-store information. x Conviction is moving the customer towards preferring the brand. This may be based on a number of factors including word-of-mouth communication. x Action is where the customer acts to purchase. It may be felt that advertising and other forms of marketing communication are less relevant at this stage, but customers can change their mind and may need a final impetus or persuasion to purchase. In terms of setting promotional objectives, the value of such models is that they force the planner to consider what type of response is being sought from the target audience. Rarely can a single promotional campaign take a customer through all the stages in the buying process. More realistically, the promotional campaign will nudge a potential customer from one stage to the next, for example, an objective for a promotional campaign might be to make customers who are aware of products and services, more interested in them. Promotional objectives for such a campaign need to be expressed in terms that reflect this intended outcome for promotional spend. An example of promotional objectives set in the context of the notion of response hierarchy models might be to increase customer awareness in the target market from its current level of 10 per cent to 15 per cent over the 12 months of the promotional campaign. Setting objectives in this way helps in planning the next stages of the promotional campaign, e.g. message, channels, etc. Setting objectives in this way facilitates the measurement and control of the effectiveness of a promotion.

Determining the message(s) Having identified the target audience and response sought from the promotional campaign, the marketer can then begin to think about the message(s) that will be needed to achieve this. Of special importance is message content, where the marketer must determine what appeals or themes are going to be used. In promotional terms we refer to the

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identification of the ‘unique selling proposition’ (USP) as the basis for the message content. Key definition A unique selling proposition is a feature or quality of a product/service/company that sets the organization apart from its competitors in the market place and can be used to differentiate the product/service/company to develop a competitive advantage. Activity 6.9 Identify unique selling propositions in promotional messages being used in the market place. 1. ‘The chocolate that melts in your mouth and not in your hand’ Minstrels. 2. ‘The mint with the hole’ - Polo mints. 3. ‘Don’t be evil’ - Google’s informal corporate motto. 4. ‘Everything on earth’ - Amazon’s tag line. 5. ‘Ice bucket challenge’ - raising awareness for motor neurone disease. 6. ‘Share a coke’ - Hashtag campaign of Coca Cola coke bottles with names or titles on them. In addition to USPs as the basis for designing message content in promotion, the following are used as the focus for message design: x x x x x x

Fear, Guilt, Joy, Pride, Morality, Humour.

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Activity 6.10 Find examples of promotional messages based on the types of appeal listed above. Selection of channels There is a wide range of channels for marketing promotion, each with its own characteristics, advantages and disadvantages. We often refer to these as ‘media’. No doubt you can think of plenty of examples, including television, newspapers, magazines, posters, exhibitions, websites, etc. Selection of channels should stem from the preceding stages of promotional planning, e.g. target audience selection. Although there are many specific media available the marketer must choose between one, or a combination of, personal channels, e.g. personal selling, and/or impersonal channels and advertising. Extending knowledge As well as planned/marketer-dominated channels of communication, we know that in many markets unplanned/non-marketer-dominated channels are important. In particular we know that personal influence through ‘word of mouth’ from friends, relatives, etc., is important in influencing customer attitudes and choice.

Setting the promotional budget One of the most debated questions in planning promotion is how much to spend, i.e. the total promotional budget. Question 6.2 List four common methods for deciding the total promotion budget. x x x x

Affordability, Percentage of sales, Competitive parity, Objective and task.

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The first three are self-explanatory. Each method has its advantages and disadvantages but by far the most analytical of the methods is the one that needs a little explanation, namely the ‘objective-and-task’ method. In this method the promotional budget is set up by means of the following steps: x x x x

Establishing specific communication objectives, Establishing tasks required to achieve objectives, Estimating costs of these tasks, Calculating required budget on the basis of first three steps.

Exam hint Setting promotional budgets is a popular area for examination questions. Make sure you are familiar with the common methods of budget setting and their relative advantages and disadvantages.

Determining the promotional mix Having determined the broad division between personal and non-personal channels, together with the promotional budget, we must determine the allocation of this budget between the different elements of the promotional mix, i.e. personal selling, advertising, sales promotion, publicity and public relations and direct mail. Many factors affect what is the most appropriate mix. Activity 6.11 List what you think are the most important factors affecting the choice of promotional mix. 1. 2. 3. 4. 5. 6.

Target market/customer type, e.g. industrial versus consumer Characteristics and cost-effectiveness of each promotional tool Marketing/sales strategies, e.g. ‘push versus pull’ strategies The product life cycle Availability of promotional tools Company resources/budgets.

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Exam hint Ensure that for each of the factors listed you know and understand how they relate to decisions about the promotional mix. For example, you should know how the promotional mix varies over the life cycle of a product. Similarly, you need to know how ‘push versus pull’ marketing strategies affect the promotional mix. This is important, so to help we discuss each of the factors.

Target market/customer type Customers being targeted will affect the choice of the promotions mix. Consider the promotions mix for an industrial versus a consumer target market; for the industrial customer it is more likely that personal selling will predominate. This is because personal selling techniques are usually much more effective for industrial buyers as the products are often technical and the message can be tailored to the needs of the buyer. In addition, because there are likely to be fewer numbers of buyers in the market, mass advertising is rarely appropriate, as what advertising is done will only a small amount conducted in the trade press. Also useful in the promotional mix to industrial buyers are sales promotions, and particularly techniques such as discounts for bulk purchase, free trials, etc. Personal selling helps in this type of market because there are different members of the decision-making unit (DMU). Often the industrial marketer has a smaller promotional budget which restricts the use of more expensive promotional tools. In consumer markets, on the other hand, advertising is likely to predominate in the promotional mix. Personal selling will normally be confined to more expensive consumer products. Sales promotion and direct mail will also be useful in this market, especially for encouraging brand switching, initial purchasing and in the case of direct mail, enquiries. As implied in our discussion of the promotional mix in industrial versus consumer markets above, each of the promotional tools has its own characteristics and relative advantages and disadvantages compared to the other promotional tools. This means that some tools are much more appropriate and cost-effective in achieving certain objectives or reaching certain target customers. For example, advertising is more appropriate where there are large numbers of geographically dispersed customers. It is

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an impersonal form of promotion and is inappropriate where customers require a high degree of personal contact and/or source credibility. Personal selling, on the other hand, although expensive from the point of view of the cost of each sales person, can be a very cost-effective way of communicating with customers, especially where products are technical or complex, and where the customer requires clarification. Sales promotion is particularly useful for encouraging one-off purchasing and short-term interest in a product or service. If used excessively, however, sales promotion can cheapen the image of a product or company.

Company resources, objectives and policies Mass advertising at a regional, national and international level will require substantial promotional resources. Some companies cannot afford to spend on advertising. The objectives of the organization will affect the promotional mix and the extent to which the different promotional tools will be used. For example, if a company aims to develop and launch new products and is required to create extensive awareness, it is likely to use more advertising in its promotional mix. Companies whose objective is to gain market share will often concentrate more on sales promotion efforts. A company may have policies which restrict the use of certain promotional tools, for example, some companies will not use direct marketing because they feel that this does not fit with the overall image they wish to project.

Availability of promotional tools In some countries, direct marketing, particularly, direct mail, is difficult because mailing lists are unavailable. Similarly, mass advertising, particularly the media channels on which it depends are poorly developed.

Product life cycle As discussed in Chapter 3, an important area of promotional mix strategy is affected by the product life cycle. For example, at the introductory stage, advertising may predominate to develop awareness. In the maturity and decline stages, emphasis may switch to the use of sales promotion to try to extend the life and sales of a product.

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Push versus pull policies Overall communications strategy will affect every element of planning a promotional campaign including the choice of promotional tools. Of particular importance is the extent to which a company chooses to use a push or a pull strategy. x A push strategy is where messages are targeted at channel intermediaries (trade channels) like dealers, agents, wholesalers, distributors and retailers. Often with a push policy the producer promotes a product to the next member in the marketing channel, with this member in turn promoting to the next level in the channel, and so on. This strategy should allow the trade channel members to facilitate distribution of products to consumers or end users, thus ‘pushing’ products to consumers. A push policy often uses predominantly personal selling, but also may involve advertisements in the trade press and sales promotion techniques such as discount for bulk orders, dealer competitions for the best sales figures, etc. The idea of a push strategy is shown in Figure 6.6: Manufacturer

Trade channel e.g. distributor

Message

Reseller

Message

Consumer or buyer

Buy

Figure 6.6 Push promotional strategy x A pull strategy is where promotion is directed at end consumers in an attempt to persuade them to demand the product or service and ‘pull’ it through the channel. The promotional objective is to generate awareness, build attitudes and provoke motivation within this group of buyers. With this type of communications strategy examples of promotional tools would be television advertisements, direct mail, and sales promotions such as 50 per cent extra free. A pull strategy is shown in Figure 6.7:

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Figure 6.7 Pull promotional strategy

Measurement and control of promotional effectiveness It is important to measure the impact of promotional programmes and the effectiveness of what can be a substantial spend. We know that measuring promotional effectiveness in terms of its effect on sales and profits is complicated by the wide range of factors that impact sales and profits. This is where setting objectives in communication terms comes into play. It is easier to measure the impact of the promotional programme in terms of pre-specified audience response objectives, such as impact on, say, awareness. Measurement of the impact of the promotional programme is never easy, but every effort must be made to ensure that the programme is cost-effective.

Managing/planning individual elements of the promotional mix The marketer must plan advertising, sales promotion, publicity and public relations and personal selling. At an introductory level, it is unlikely that a marketing examiner will look for detailed knowledge of one single promotional aspect. However, the examiner will realistically expect you to know a little about managing each aspect of promotion. Some of the steps in the framework used here for planning promotion can be used to structure the planning process for each of publicity/PR, sales promotion, and advertising. In planning each of these elements we can use the following steps from our framework: x Identifying the target audience,

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x x x x x

Setting promotion objectives for each tool, Determining the message/theme, Selecting media, Determining budget, Implementing, evaluating and controlling.

Trends and developments in promotion Just as in other areas of marketing, promotion has witnessed interesting changes in recent years. Although the major promotional tools outlined so far still dominate, we have seen the increased use of the following promotional tools: x x x x

Corporate advertising, Sponsorship, Packaging, Websites and e-marketing.

Packaging and promotion We considered packaging as part of the product element of the marketing mix in Chapter 3. In this context, its roles as protection and containment of the product itself were discussed. We also suggested that packaging also plays an important promotional role and is said to act as the ‘silent salesman’. This promotional role for packaging has become more important in recent years a number of factors underpin this growth in importance: x x x x

The growth of self-service, The proliferation of brands and branded products, Increased consumer affluence, Problems associated with differentiating the core product.

These factors have placed packaging decisions at the centre of many promotional programmes. Innovatory packaging can lead to increased sales and market share, giving the marketer a competitive edge at least until competitors catch up.

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Activity 6.12 Give examples of innovation in packaging that at the time of their introduction, led to a competitive advantage for the marketer first using the packaging. x x x x x x x x x x

Ring-pull cans, Plastic/board containers able to hold multiple pens or chalks, Cardboard bottle holders with hand hole for easy carrying, Washing liquid sachets, Pump action toothpaste tubes, Egg boxes, Flip-top cartons for cigarettes, Cardboard containers for milk and juice, CFC-free aerosols. Shower gel containing a handy plastic hook type handle for hanging in a shower.

Decisions about packaging need to be taken at an early stage in product development, and any proposed changes should be carefully evaluated against customer perceptions and competitive activities. In the case of a new product a ‘packaging concept’ should be developed and researched with customers and distributors to ensure that the packaging fulfils its protective and promotional roles. With this in mind, effective packaging usually meets the following criteria from a promotional point of view: x x x x

It is distinctive? Related to the above, it is recognizable by customers? Does it fit with both product and corporate image/ It is appropriate to the needs and perceptions of the target market?

Packaging must appeal to both consumers and resellers. In affluent countries consumers are willing to pay a little more for the appearance and prestige of better packages. If there is no product difference between rival brands, it is essential that the packaging is used with branding strategy to differentiate the product. Decisions about packaging that must directly influence the promotional effect of the packaging include the following:

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The pack should attract attention in helping to promote advertising and brand image, and the logo should be clearly identifiable on the packaging. It should facilitate self-selection. Ferrero Rocher offer their individual chocolate products in a clear box shaped like a pyramid and Toblerone have triangular packages. Shape and colour should relate to customer motivation and positioning of the product such as the distinctively coloured tube packaging with resealable top and foil peel-back seal for Pringles crisps. It is important to conform to social and ethical issues and regulatory requirements. There is much criticism among some consumer groups regarding the ‘wastefulness’ of some types of packaging. Increasingly ‘green’ consumers are looking for recyclable packaging and will make brand choices on this basis. In addition, packaging should not be misleading to consumers by, for example, making them think there is more of the product in the container than there actually is. Packaging may be designed to promote impulse buying. For example, many confectionery products and counter line products are effectively marketed through packaging in this way. Packaging should convey or reinforce the promotional messages related to sales promotion offers, sponsorship or tie-ups. Packaging should be integrated with all promotional elements and the marketing mix. Packaging echoes the quality statements made in the promotional advertisements, pricing strategy and product ingredient quality.

Information technology and promotion Marketing promotions have been affected by advances in communication and information technology over the past twenty years. This has had a major impact for marketers planning their promotional mix. Some key issues are: x The growth of electronic communications initially from fax and then email and of course the internet and this has allowed information to become more rapid and global.

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x The explosion in wireless technologies has led to a massive increase in mobile communications and as a result the growth of mobile marketing and advertising. x The increasing power of the computer has allowed the marketer to gather and analyse information about their customers more effectively. This is one of the major reasons for the increase in direct mail. It has also enabled companies to develop loyalty schemes to build individual relationships with customers. x Digital technology has grown rapidly, with interactive devices allowing two-way communications. The growth of satellite, cable and digital television has allowed marketers to target specific target segments. This has offered marketers the opportunity to evaluate advertisements more effectively. x The internet as a promotional tool for individuals and companies has offered many marketers an effective promotional tool, resulting in more control and evaluation of communications. YouTube is a promotional tool that uses the video host to create trust, authority and recognition. Twitter began in 2006, and is a popular social media website that allows users to post ‘micro-blogs’. Facebook allows small businesses to build relationships with customers, thereby spreading positive word of mouth endorsement. Snapchat is an image and video sharing app and is a popular social platform and marketing tool. A LinkedIn profile can help build connections and obtain the attention of potential clients, customers, jointventure partners and influencers. This wide range of IT advances has allowed the marketer to plan more interactive, two-way messages which ultimately convert into an increased knowledge about the consumer. This increase in information allows marketers to tailor messages to consumer behaviour, which leads to more effective promotional strategies.

The internet as a promotional tool The internet is a promotional tool in its own right, and is a promotional tool which has assumed worldwide popularity. Reasons for the growth of the internet for advertising and promotion include:

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x Internet advertising is very dynamic compared to conventional print advertising, as it has the ability to use powerful graphics and movement and sound. x Given that consumers open websites voluntarily, even though some are reached by accident, at least some consumers are already predisposed to be interested in the product or service being advertised. x The marketer can measure response to the website through the number of hits recorded. x Dependent on the nature of the website and advertising, the customer often responds to the advertising immediately by placing an order. x Carefully designed websites can be used to encourage an element of two-way communication with a target audience with, for example, questions being used to prompt responses from the customer and also being used to respond to customers’ enquiries. x Compared to print and television advertising, internet advertising has a more insistent presence. Conventional advertisers are worried about customers simply ‘turning off’ literally or mentally when confronted with advertising. The internet still has an element of novelty for many users. x Nominal costs for advertising on the internet are substantially lower than using conventional media channels. For many companies the cost of television and other tradition forms of advertising has become prohibitive. x More information both in extent and detail can be provided through an internet site and the customer can pick and choose which elements of the information he or she wishes to receive. The following are some of the major ways in which the internet is being used by companies as a promotional tool:

Electronic store fronts The marketer can use the internet to create an electronic store-front. This can be done by buying space on a commercial on-line service or opening its own website. The most basic is a corporate website which is a way of handling interactive communication and enquiries initiated by the consumer. They are designed to allow the customer to find out about the company and its products and make a direct purchase. They can be linked to other forms of selling if the company does not sell direct (e.g. motor

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cars) where the potential customer can purchase through a third party. These types of websites are initiated by the marketer, often through conventional promotional activities such as advertising and direct mail activities inviting potential customers to access the website. Extending knowledge From time to time to visit a variety of company marketing websites with a view to assessing these sites in a critical way with regard to how effective you feel they are in terms of what they are trying to achieve in marketing terms. If you are not familiar with how to access websites you can visit a popular search engine like: www.google.com, www.yahoo.com, www. excite.com, www.dogpile.com, www.meta crawler.com, www.ask.com

On-line advertising Companies use the internet for on-line advertisements that include classified advertisements in on-line service providers’ websites to advertise in commercial internet news groups using pop-up ads whilst the user is searching.

Internet forums, news groups and bulletin boards The marketer is interested principally in commercial applications. Because forums, news groups and bulletin boards are accessed by individuals with particular interests they can be an effective way of targeting certain groups of customers. For example, a marketer of health foods can target people who have a particular interest in health issues and can achieve accurate target marketing and marketer of, say, slimming products can utilize diet forums, news groups and bulletin boards. This approach is useful because these types of web activities attract consumers with common interests and often well-defined demographics and lifestyles.

E-mail and webcasting Companies can use the internet to access customers via e-mail. Sometimes these will be company initiated based on, for example, electronic mailing lists or customers who have contacted companies through the web and registered interest in a company’s products and services and provided their e-mail details. A variation is where a company or individual signs up to a

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webcasting service and specifies areas they are interested in. The webcasting service can then automatically download information to the subscriber’s desktop. The on-line marketer can deliver internet advertising on the webcast, selecting the webcast and consumer targets likely to be most interested. As with much internet advertising and promotion, the marketer must avoid causing antagonism by sending unsolicited e-mails. There are ways in which a customer or webcasting service can guard against this, but it is still a major cause of resentment among internet users through the transmission of ‘junk e-mail’. The EU introduced regulations that curbed such practices by users sending messages via email and mobile phone promoting goods or services using cookies and third party mailing lists classed as ‘SPAM’.

Extending knowledge Examples of current webcasting services which you may look at to see what services are offered include: www.gotomeeting.com/webinar/features http://www.omnovia.com/exclusive-features www.readytalk.com/products-services/webinars https://secure.clickwebinar.com/order_account.html?item=cw_50 http://webex.com/products/webinars-and-online-events.html http://www.adobe.com/products/adobeconnect.html http://www.onstreammedia.com/webcasting.php http://www.on24.com http://www.inxpo.com/webcasting The internet is now a prime promotional tool although its use is determined by access to and use of the internet by customers. In some other parts of the world access for home shopping is rudimentary although the principle of the World Wide Web is global. Advertising and promoting via the internet involves the same key considerations as in developing promotional and advertising campaigns through conventional channels. The marketer still has to determine campaign objectives, identify the target audience, create the promotional message, develop budgets, implement the campaign and measure and evaluate performance. However, there are some aspects of internet promotion which are different and require different skills and expertise. For example, messages need to be designed with search engines and web

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access in mind. Similarly, there are several technical and regulatory website design conventions which need to be taken into account in addition to things like security for customers and protection of data and information. Unless the marketer is an expert in website design then developing them for use in marketing is best left to experts, guided by, and in the context of marketing objectives and requirements for promotional and other elements of the marketing programme. Key decision areas in using the internet and websites as a promotional tool are: x The website should be designed as an active marketing tool rather than as a trade directory listing on the internet, x Communications objectives must be set for each target audience, e.g. increasing awareness, encouraging on-line sales, educating the market, launching a new product and gathering information for a direct mail campaign, x It should be easy for customers to find the website, x The website should offer the visitor a rewarding and rich experience, x The website should be designed to ‘fit’ with the overall communication strategy, i.e. there should be consistency of message, x There should be a good design and flow of information, x Where appropriate, the website should ensure access to secure ordering systems, x The website should offer added value, perhaps in the form of ‘free downloadables’ or links to mailed sales promotions, x The site should be updated on a regular basis as necessary, x The site should be evaluated and controlled with regard to its efficiency and effectiveness. Several commercially available website-tracking programmes can be purchased for this purpose. Relatively simple measurements such as click-through rates – registered when a person clicks on an advertisement – and impressions – a record of each time a viewer downloads an advertisement onto a browser – have been standard measures for evaluating the response to internet campaigns. It is recognized that these are unsophisticated and potentially misleading measures as they reveal little or nothing about the nature of activity and consumer behaviour after the internet site visitor has clicked or downloaded. Tracking software and measurement services that provide

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more useful insights into the effectiveness of website campaigns have now been developed. In the past, technology underpinning website campaign tracking systems has been based on cookie-based applications, but it is now recognized that these are imperfect and often inappropriate. Modern tracking systems are based on providing more information about people visiting websites by collecting consumer information at the time of the visit. This information is then linked to subsequent consumer activity, e.g. ordering profiles or product usage information. Study tip Visit several company websites and make your own assessment of how effectively you feel they have been designed from a promotional point of view. Keep a record of what you feel are the best and the worst sites you visit which you can use as examples in possible examination questions. Assess factors such as: x How easy was the site to find? x How interesting do you find the site in terms of making you interested in the company or its products? x Related to the above, how creative is the promotional element of the site? x How easy is it to find your way around the site and, for example, find further information? x How tempted would you be to buy from the site? Remember, websites are used in many ways by marketers now and not just as promotional tools. A key issue, perhaps as with all promotional tools, is the extent to which a website is effective, in this case in promoting a company or its products. Needless to say this can be very difficult to assess. Certainly, it is easy to measure the number of visitors to a website but does this constitute effectiveness? There is a growing realization that nobody knows much about the way that consumers behave on-line. The most frequent measures for tracking response to internet promotional campaigns have been the use of click-through rates, which registers when a person clicks on an advertisement, and impressions, which record each time a viewer downloads an advertisement onto a browser. It is now realized that more sophisticated response tracking on customer behaviour on the internet is required. Because of this, there has been a rapid increase in companies developing tracking software and bespoke services that can

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provide more powerful measures of the promotional effectiveness of website campaigns.

Podcast Here, the user can download and listen to digital audio or video files, often for a subscription and new episodes are then downloaded automatically to the user’s PC or other device. Videos which are shared are called video podcasts or ‘vodcasts’. Podcasting is a converged medium bringing together audio, the web, and portable media players and are effectively digital radio shows. It has caused radio executives to reconsider established practices and views about how they traditionally view audiences, consumption, production and distribution. The distributor of a podcast maintains a central list of the files on a server as a web feed that can be accessed through the internet. You access them through the show’s home page and the listener or viewer uses client application software on a computer or media player, known as a’ podcatcher’, which then accesses web feed, checks it for updates, and downloads new files in the series. Most applications allow users to download podcasts or stream them on demand as an alternative to downloading. Podcasts are usually free of charge to listeners and can often be created for little cost, setting them apart from traditional models of media. Podcast creators can be paid by allowing companies to purchase ad time. Podcasting is a horizontal media form, as producers are consumers and consumers may become producers, and both can engage in conversations with each other. Examples of podcasts include: x x x x x x x x x x x

Friday Night Comedy from BBC Radio 4; Athletico Mince; Talking Politics; The Inquiry; Heavyweight; Between the Ears; They Walk Among Us; Tracks; Song Exploder; How Did This Get Made? Dan Snow’s History Hit;

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x x x x

Witness; In Our Time; Story Pirates; Fun Kids.

Customer, media, investor and community relations A well-designed and operated website allows for effective communication with customers. If customers can easily find the website and access information on it, and if they find that these visits are rewarding in the sense of offering more than simply information, the customer is likely to be favourably impressed with regard to the company and its offerings. The website can be dedicated to developing media relations and become a potent public relations tool as reporters can access information they may need, and if prepared carefully, in a format that is ready to use. A corporate website can be important for investors accessing information including annual reports being posted on the site. The site can include information relating to promotion of local joint projects, contributions to arts and culture, invitations to open days and educational pages. Therefore, it can be seen that the design and use of the website is important in the market place and must be considered as part of an integrated communications strategy.

Evaluation of websites and internet marketing communications As with all marketing communications tools, it is vital that the marketer establishes clear objectives and standards for performance for what are often expensive elements of the marketing programme. These objectives and standards can be used to evaluate various tools. In the early stages of the application of some of the website and internet marketing communication tools, evaluation and control was not a strong point. This has changed and evaluation is more important and sophisticated. The following indicates just some of the ways in which websites can be evaluated. The most frequently used evaluation method for the internet site is the analysis of what are known as ‘hit records’ for each file retrieved by the respondent or visitor.

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Key definition Hit is a downloaded file as recorded in a server log. This is a broad measure of the number of people visiting a site via a server. The hit record gives little indication of the effectiveness of a website. Accordingly, more sophisticated software packages or web tracking programs have become available. Using such web tracking programs, a company can identify and evaluate, for example, the following: x x x x x

Where the website visitor came from based on their e-mail domain; On what page the visitor started; What pages were visited and in what order; How long the visitor spent on each page; What the visitor did on each page, e.g. complete a form, download a file, play a game.

Mobile marketing and advertising Growth in this area of marketing stems from developments in mobile communications, particularly WAP or wireless application technology developments. This has led to a growth in the wireless internet reflected in new generations of mobile phones which are based around these powerful wireless technologies. The marketer can now send more information to customers via their mobile phones including sophisticated advertising and promotional messages. Consumers lead increasingly busy and peripatetic lifestyles. They have a great desire and need to stay connected while being on the move. It is in this environment that mobile marketing and advertising has found an increased role. Virtually every mobile phone has a wireless web browser built in which allows customers to contact companies direct and vice versa. One type of mobile marketing is the ‘push’ variety where the marketer contacts the customer’s mobile. Using the short messaging system (SMS) this type of mobile marketing is essentially text-based system, similar to email, in which short messages are sent to the target market’s mobile phone. Mobile phone users utilize text-based messaging systems and are more receptive to receiving marketer sources texts, although as with all ‘unsolicited’ marketing messages and promotions, care should be taken in targeting the right customers so as to not alienate them by filling their message screens and boxes with unwanted messages. The growth of

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‘permissions-based’ marketing is useful, whereby the marketer first seeks permission from the mobile phone user to relay advertising messages to the customer about the organization’s products and brands. The other approach is the ‘pull’ variety whereby customers on the move use their mobile phones to track and access information about products by tapping into the web. Many customers are do this while actively involved in the shopping process, calling up information on, say, competitors’ prices and brands in the act of considering product choice in the retail outlet. In Asia mobile marketing and advertising has proved particularly successful due to the fact that many Asian languages allow the marketer to get more information into their characters and therefore their SMS systems. Marketers have moved towards innovative and creative uses for M-marketing. One development has been delivering electronic coupons to customers’ mobile phones so they can then use in purchasing situations to receive discounts on products and services. Study tip We have introduced some of the major, developments in technology with respect to contemporary promotional techniques, and have concentrated mainly on developments in information technology and promotion. However, with the rapid pace of technological change and development a number of other technological developments have affected and will continue to affect the promotional element of the marketing mix. In the context of the examination and from the point of view of your professional development as a marketer, it is important that you keep up to date with technological developments in the promotional and indeed the other areas of the marketing mix.

Summary x In this chapter we have looked at the role and importance of communication in marketing; x We have examined the key concepts in and process of communication and their implications for the marketer; x We have established what are the key ingredients in the promotional mix; x You should now appreciate the key steps and considerations in planning marketing communications;

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x As in all of the areas of the marketing mix, developments in technology and particularly the growth of the internet are having major effects.

Further study and examination preparation Question 6.3 Explain what is meant by: x ‘Push’ strategies; x ‘Pull’ strategies. 1.

2.

Push strategy is where communication messages are targeted at channel intermediaries (trade channels) such as dealers, wholesalers, agents, distributors and retailers. This should allow trade channel members to facilitate the distribution of the products to consumers or end users, thus ‘pushing’ products to consumers. Communications examples may be advertisements in the trade press, discount for bulk orders, e.g. 500 cases, dealer competitions for the best sales figures. Pull strategy is where communication is directed at the end consumer or buyer. The objective is usually to generate increased awareness, build attitudes and provoke motivation within this group of buyers. Buyers should then demand products from intermediaries or trade channels. Communication examples may be television ads, direct mail and sales promotions such as 50 per cent extra free.

In reality many organizations use a mixture of both of these strategies and apportion different weightings of their communications budget to the push and pull strategy. Question 6.4 Identify and explain the elements of the promotions mix. x Advertising includes a range of different types of advertising: to include the trade, consumer and corporate issues. It is an effective tool for raising awareness about a consumer product or service;

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x

x

x

x

however, it is not as effective for actually achieving sales. Other elements need to be used with advertising to ensure sales increase. Sales promotions Includes incentives designed to encourage purchase such as ‘buy one get one free’ or BOGOF, 20 per cent extra free, free offers, etc. These can be aimed at trade channels, the sales force and consumers. This element is most effective in motivating trials and rebuys. Personal selling is where one-to-one contact between the marketer and customer is made, such as the sales representative in an industrial market, telephone sales to consumers, retail sales assistants and missionary selling. This is one of the most effective methods for industrial products as the message can be tailored to each individual buyer especially if it is a highly complex and technical product or service. Public relations activities are designed to create understanding and goodwill between an organization and its public. A wide range of activities can be classed as public relations such as press conferences, press releases, open days, etc. This method is difficult to evaluate and control. However, press releases are often seen as being more credible than an ad by the consumer and can be used effectively with advertising to raise awareness, especially when launching a new product or repositioning a product/service. Direct mail can be considered as one of the most effective methods of communication when linked to a company database and loyalty scheme. This method can help build consumer relationships and is easy to control and evaluate.

Question 6.5 What issues to be considered about the promotions mix for an industrial/technical product as opposed to a consumer product? The main difference is that usually the industrial product is a technical one, so the communications strategy and promotional mix need to be different. Some key issues about an industrial campaign are: x There may be different objectives such as informing buyers about new uses, gathering customer and competitor information; x There are a range of different target audiences such as the members of the decision making unit (DMU);

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x buyer behaviour characteristics for industrial buyers need to be considered, i.e. annual contracts, minimum order levels, etc.; x Often an industrial manufacturer has a smaller promotional budget; x Appropriateness of media used and reach in targeting the industrial buyer must be considered to ensure that the messages are received. In most cases, it can be stated that personal selling techniques are more effective for industrial or technical products as the message can be tailored to the needs of the buyer. Therefore, the reliance on advertising is reduced with possibly only a very small amount being conducted in the trade press. Sales promotions will also be important, techniques such as bulk purchase discounts, free trials, etc. will be most effective to ensure purchase. Question 6.6 Identify and critically appraise a response hierarchy model. One of the most basic response hierarchy models is the AIDA model. This model suggests that the buyer passes through four key stages in the buying process – attention, interest, desire and action. The model can be used to help plan the communications objectives and ultimately the promotional mix. However, this is an old model, and does not consider a range of issues which are very important to the marketer. Some of these issues which are not considered are related to the influences on the consumer such as perceived risk, level of involvement, environmental issues such as the economy related to disposable income, the buyer’s experience of the product previously, competitors’ strategies, etc. Indeed, this model does not consider a range of important issues that the marketer will need to understand, so AIDA is very limited in helping us to understand the issues involved. Question 6.7 Explain the impact of information technology for marketers planning a promotional campaign. There has been a growth in the advance of information technology within the past twenty years which has had a major impact for marketers planning the promotional mix for their products and services. Some key issues are:

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x Growth of electronic communications has allowed information to become more rapid and global. x Increasing power of the computer has allowed marketers to gather and analyse information about their customers more effectively. Thus, the increase in direct mail and loyalty schemes has enabled companies to build individual relationships with customers. x Digital technology is still growing allowing more ways of two-way communications. Satellite television has allowed marketers to target specific segments with television ads such as pension plans for the over-50s. This has offered marketers the opportunity to evaluate advertisements more effectively. x The increased use of the internet as a promotional tool for individuals and companies has offered marketers an effective promotional tool, resulting in more control and evaluation of communications. It has also had an impact on direct marketing and increases in direct sales. It can be seen that there has been a wide range of IT advances which have allowed the marketer to plan more interactive, two-way messages which convert into an increased knowledge about the consumer. This increase in information allows marketers to tailor messages to consumer behaviour, which has led to more effective promotional strategies.

CHAPTER SEVEN THE MARKETING MIX: SERVICE AND CUSTOMER CARE

Learning Objectives By the end of this chapter you will: x Appreciate the importance of service as an element of the marketing mix, x Understand factors that contribute to the delivery of service quality, x Be familiar with relationships between service quality and the concept of customer care, x Recognize the role and importance of customer care and how to plan and implement a policy, x Realize the importance of people and company staff as contributors to customer care and effective service delivery.

Introduction It is not sufficient for the marketer simply to provide a satisfactory product at a competitive price which is distributed and promoted to make it readily available and known to the customer. Customers demand additional elements of service from the marketer and these can be considered as part of the augmented product and can include any number of factors which the marketer can use to attract and hold customers. Service elements encompass every aspect of marketing including ordering systems and facilities, delivery services, credit and financial services and enquiry lines. Customers have come to expect high levels of service in increasingly competitive markets. From the marketer’s point of view service represents an enduring way of obtaining a sustainable competitive advantage. Even the best protected product designs and technologies can be copied, competitive prices matched and effective promotion and channel arrangements emulated. One of the most difficult elements of competitive strategy to match are those which deliver high levels of customer service,

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as this demands a customer care philosophy to be present throughout an organization. Building such a philosophy takes a long time and requires substantial commitment. This requires effective systems and procedures, and the right staff and attitudes in the organization which take time to build. Because customer service delivery is so strongly linked to the broader concept of customer care, it is to this area we now turn our attention.

The nature of customer care Definition ‘Augmented product’ refers to elements aiming to provide additional customer satisfaction including helpful and well-trained sales people, range of products provided, guarantees of delivery and responsiveness to customer needs. Definition ‘Potential product’ refers to dimensions of customer care including no-quibble refunds, return policies, quality encounters including music, flowers or entertainment in the service environment, and general sensitivity to customer needs, empowerment of staff to deal with them without referring to higher levels of management. These are all aspects of ‘potential product’. Study tip In your role as a customer observe examples of good and bad practice of service or customer care dimensions to help you understand the ideas and concepts outlined later. Use these in the context of examination questions as examples to illustrate this point. Activity 7.1 From your perspective as a customer for a particular product or service, list the most common reasons for feeling dissatisfied with the service you receive. Consider: x How they might be improved; x Possible reasons why problems cannot be addressed.

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Reasons you give will be varied: you might feel there are faults with a particular product (such as component failure) or with the level of help or support available (e.g. buying computing or hi-fi products). Reasons why these might be difficult to address could relate to other aspects of corporate strategy (e.g. improving the quality of components, or paying and training more skilful and well-informed staff may involve unacceptable cost in markets where competition is predominantly based on price). The purpose of the exercise is to make you think about the ways in which these issues are interrelated; keeping customers satisfied is not simply a matter of dealing with individual issues, but formulating policies that take the whole range of ‘marketing-mix variables’ into account. ‘Customer care’ is the term used when we consider activities outside the realm of simple customer service. It can be a critical factor in differentiating products or services to develop a competitive edge. It calls for contacts between companies and customers where a firm’s reputation is at stake. Interaction is still a critical dimension, and focus has moved away from specific activities to look in general holistic ways at customer satisfaction. An important aspect of customer care is attitude, covering every aspect of customer/supplier relationships. It aims to close the gap between customers’ expectations and their experience. Customer care is also a set of activities. Activity 7.2 Summarize what you feel are the main characteristics of the ‘customer-care’ concept. x x x x x

Interactions between a firm and its customers; The ‘image’ of the firm, or ‘perceptions’ customers have of it; Gathering information about customer needs and expectations; Taking action to meet those needs and fulfil expectations; Giving this aspect of the product/service concept a competitive edge.

Remember that the customer-care concept is not simply a matter of responding to what customers perceive to be shortcomings, but it is also a matter of anticipating the ‘delight’ factor, and the difference between this product and competitive products.

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Customer care and corporate culture ‘Customer care’ differs from the traditional notion of ‘customer service’ in the degree of centrality this is given within the process of formulating corporate policies, objectives and strategies. It is part of programmes that set themselves the task of transforming operating procedures of ‘quality’ and ‘customer-orientation’. Various descriptions agree that customer impinging activities in policies or guiding concepts form the core element in the implementation of customer care. Practitioners agree that strategic marketing begins and ends with the consumer, yet customer care may well be overlooked in the pursuit of broader objectives. Activity 7.3 List the ways in which the customer care concept is: x Similar to; x Distinct from: the marketing concept. The marketing concept expresses a particular business philosophy and provides an analysis of the nature of consumption, consumers and markets, placing a central importance on the formulation of strategies that take account of their characteristics. It is focused on consumers as they exist within their environments and as target groups. The customer-care concept is a principle to guide the formulation of processes and practices within the organization that can unify and integrate the activities of all organizational members. In a sense, the customer-care concept expresses the strategic objectives of a marketing orientation.

Importance of quality in a customer care programme Quality is a critical differentiating factor between UK firms and successful foreign competitors, and pursuit of quality is a major preoccupation. The search for higher levels of productivity has resulted in greater commitment and flexibility from the workforce, and a broad ‘culture change’. Perceptions of quality, service and satisfaction in British products up to the late 1970s were poor, and the UK was dubbed ‘the sick man of Europe’.

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Activity 7.4 Using a product with which you are familiar, compare dimensions that differentiate a very good brand from a very poor brand. Use that list to derive a formulation of ‘good quality’. Qualities you select will depend on the product. What you should get from this exercise is the message that when we actually compare good products with inferior competitors, on most occasions the differences between them do not lie in disparities in generic features, but in the care and attention to minutiae involved in choice, purchase and usage processes, e.g. in the helpfulness of service personnel, the range of products available to cater for individual tastes and the details of actual usage. Can the product survive small accidents, or can it be easily cleaned? How are guarantees structured? The list is long, and likely to be product specific. Another byproduct will be the realization that quality is an emergent property of attending to these details, rather than simply a ‘checklist’ of ways of behaving. Quality is a by-product of a particular philosophy of behaviour. One main reason for the success of Japanese and German competitors is an ability to create organizations dedicated to the pursuit of total quality, i.e. organizations focused entirely on the delivery of quality to customers. This goes hand in hand with a customer care concept, to the degree that it makes little practical sense to talk of one without the other being given high priority. Another reason for emphasizing customer needs has been the growing significance of services within economies of advanced societies. Here the consumption of services has become more and more important over the past 30 years, as increasing affluence generates demand for the provision of people based enterprises. In the ‘service age’, competition depends on quality being delivered, whether this is in catering and fast food, leisure provision, hospitality, entertainment or medicine and other public services such as education. Most universities include a customercare element in their organizational mission statements. For example, the mission of the University of Cambridge is: ‘To contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence’. The Open University’s mission is: ‘To promote educational opportunity and social justice by providing highquality university education to all who wish to realise their ambitions and fulfil their potential’.

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Once the sole preserve of commercial organizations, customer care programmes have been adopted in not-for-profit and public service sectors. The total quality management (TQM) approach to such businesses uses customer care to deliver better service to meet customer requirements. Customer care and TQM are closely related and we consider TQM in more detail shortly. Quality programmes cover many topics other than dealing with customers. They focus on gaining deep knowledge of customers, and aim to identify their needs and improve care provided for them. Care is the outcome of this process, and satisfied customers are the focus of customercare programmes. The challenge is to maintain this emphasis throughout a quality process. While customer care should be focused on the way customers experience the delivery of the product or service, it is quality programmes that direct the processes constituting services or products to which they are experiencing and responding. A good example of a company which has put a lot of emphasis on customer care and TQM underpinned by effective quality programmes is Virgin. How quality programmes affect customer care, and what objectives TQM can have and what it can do are important issues for marketers in the implementation of customer care programmes. Activity 7.5 What you would expect to be the common elements in TQM and customer care programmes. x An emphasis on process; x An emphasis on the details of the system; x The need to establish fundamental changes in attitude, focus and orientation; x The idea of a ‘core philosophy’ that transforms practice; x Derivation of the concept of quality for this particular product/service from customer perceptions, attitudes, expectations and needs.

Total quality management Quality in management can be defined as combining the satisfaction of customer needs with the achievement of company objectives. That the two

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are intimately and inextricably connected is an article of faith for all who discourse on the subject. The following areas are connected in systems aiming to achieve success and profitability by placing the customer at the centre of all enterprise activities through providing the right amount of the following: x x x x x x

Quality; Availability (at launch and afterwards); Service; Support; Reliability; Cost/value for money.

By common assent, such programmes must be ‘total’, reaching forward to distributors down the chain, and back to suppliers in the case of manufactured goods, to ensure the quality of raw materials and the condition of the product that reaches the ultimate consumer. Hence, total quality management. TQM is widespread throughout manufacturing. At first it tended to be larger car manufacturing companies such as Nissan, Toyota and Ford which practised TQM, but recognition of the importance of value of TQM in an organization has meant that, irrespective of the type of company, its size, or target market, TQM is now universally practised. The customer/supplier relationship is very important within the TQM philosophy. This is one of a long chain of relationships, with each customer being a supplier to someone further down the chain. Rather than pursuing self-interest, and creating an adversarial relationship, the aim of TQM is concerned with ensuring co-operation. The establishment of such programmes has been the foundation for some startling corporate success stories.

Quality and customer care Satisfying customers is the first principle of TQM. Customers guarantee the organization’s continued existence. Gaining custom means winning the patronage of each individual or corporate buyer, and satisfying the needs of that individual is the competitive edge that ensures prosperity.

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Customer-driven quality is recognized in the USA as a core value of the Malcolm Baldridge National Quality Award that was established in 1987 to raise awareness of quality management and recognize companies that have implemented successful quality management systems. Awards are given annually in six categories: manufacturing, service, small business education, healthcare and non-profit. All products and service attributes that contribute value to the customer and lead to customer satisfaction and preference must be the foundation for a company’s quality system. Value, satisfaction and preference are influenced by factors throughout purchase, ownership and service experiences. Activity 7.6 List companies in which there are avenues for gathering information about customer attitudes and beliefs regarding the company, or which provide readily accessible means to register either approval or dissatisfaction with the companies’ service or products. The purpose of this activity is to force you to think about which avenues provide the company with such information, and how it is used. Handling complaints, for instance, is traditionally seen as ‘firefighting’ or deflecting customers who might cause trouble by placating them, or keeping them quiet. This orientation demands that these avenues be opened up, extended and treated as a serious means of gathering important business information which requires action. Complaints should be the occasion for ‘fault detection’, so that recurrence can be avoided by getting it right first time. Staff should not only be aware of customers as potential sources of trouble, but also as the barometer for their achievements. Three principles guide customer-supplier relationships under TQM: x Recognition of the strategic importance of customers and suppliers; x Development of win-win relations between customers and suppliers; x Establishing relations based on trust. These principles are translated into practice by: x Constantly collecting information on customer expectations; x Disseminating this information widely within the organization;

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x Using this information to design, produce and deliver the organization’s products and services.

Reverse marketing Although buyers have the purchasing power to initiate commercial transactions, it is traditionally the case within organisational buying situations that sellers visit buyers. This is termed transactional marketing where the emphasis tends to be upon a single sale and the time horizon tends to be short-term. Quality is generally seen to be the concern of production and there tends to be an emphasis on product features and price. The notion of reverse marketing is where buyers tend to take the initiative and they source suppliers (sellers in other words). This is particularly applicable in retailing and in JIT or lean manufacturing situations that has proved to be so economical and efficient. Buyers source suppliers whom they will retain for a long period. The main criterion sought rests upon the quality of their goods and reliability of their supplies as and when they are demanded, for in lean manufacturing situations down time on the production line as a result of faulty components or late delivery can be expensive. To discuss contracts for six months or one year is meaningless. Purchasing development costs must be recovered and this has to be done over longer periods of time. Suppliers and buyers form a long-term ‘comakership’ agreement where both parties derive mutual benefits. Service to the end customer can be driven to even higher standards by focussing the whole supply chain towards that goal, rather than diluting the efforts of individual companies through conflicting objectives. This broader vision is termed supply chain integration (SCI). Each company in the supply chain has a different mix of chain with each operating at different levels and the key is to select the right one for the right supply chain. Corporate buyers are extremely professional which is essential in lean manufacturing purchase situations. So how do we cope with their needs once the company is an ‘in’ supplier and a long-term relationship is anticipated? This brings us back to the notion of relationship marketing. Gronroos (1990) argues that implementing the traditional view of

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marketing is unsatisfactory. He quotes the limitations of the ‘four Ps’ by citing that other ‘Ps’ like people and planning have to be added in an attempt to cover new marketing perspectives. He agrees with the concept basing its activities on customer needs and wants in target markets, but he argues that this still smatters of production orientation as these ideas stem from the firm and not from the market place. His redefinition of marketing perhaps sums up the concept of reverse marketing and the resultant cognition of relationship marketing when he cites: ‘Marketing is to establish, maintain and enhance long term customer relationships at a profit so that the objectives of the parties involved are met. This is done by a mutual exchange of promises.’ Gronroos C., 1990, Marketing redefined, Management Decision, 28 (8) pp. 5-9.

Total commitment from staff This is a way of talking about structural or cultural change being essential for the achievement of a quality programme. Often these schemes are presented as ‘a philosophy of life’ or a ‘total way of thinking’ rather than just another technique for management. It is a peculiar feature of these systems that they have a religious, or messianic quality and advocates are spoken of as ‘evangelists’ or ‘gurus’. For this to work it is a practical necessity for all staff to participate. Those best placed to make quality work are the people who actually deliver products or services. Each internal group in the quality chain is composed of a customer and/or supplier to other internal groups, and in some cases to the market. Although programmes can start at any point in this chain, even if the quality of the supply to a group is low, the group should aim to build up its own quality before addressing the shortcomings of its own supplier. Note how a ‘customer orientation’ under TQM focuses not just on the external customer, but on the customer-supplier relation that is a feature of marketing processes. Customer care programmes, although focused on external customers, are important influences on the way in which such processes are conceived and practised.

Defining customer requirements and obligations From the viewpoint of an organization, customers can be thought of as an agglomeration of requirements and obligations. Customers may be external

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customers, employees, shareholders, top management or government. Requirements will be fitted to resource constraints and the objectives of the organization, and must be realistic and attainable. Obligations need to be clearly defined, and requirements need to be quantified and accepted by all sides as reasonable. If a customer-care programme is to be effective, relations must be clearly specified on both sides. An example of an organization which practises this wider view of the range of customers, or perhaps we might say ‘publics’, in addressing customer care programmes is the Open University who realized that customer care encompasses not just students, but also their employers, tutors, local communities and even governments. Activity 7.7 Explain: x The effect focusing on customers and suppliers has on formulation of strategy; x The value of a ‘win-win’ relationship in this context; x The importance of trust in these relationships. This answer should bring out: x The importance of a unified focus in the formulation of strategy and in the design of policies and processes; x The importance of fostering the idea of achievement, of positive reinforcement for effective action, rather than founding good practice simply on the avoidance of complaints, failure and negative feedback; x The idea of building up relationships, rather than relying on formal, contractual obligations. Information is the lifeblood of these processes, and flows freely only under conditions of trust.

Measurement This is important for any quality programme. In relation to customer care, measurements must be continual and ubiquitous. Required performance needs to be specified in terms that can be measured, and mechanisms must be instituted to provide clear indicators that these have been achieved. These must be in place before programmes are instigated. Customer-care

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programmes will require survey data on internal and external customers, on customer behaviour, and on the degree to which customer needs are being satisfied. These should permit the application of techniques such as key ratio and trend analysis, and fit into a cycle of assessment, planning, implementation and monitoring. Management needs to ensure that the programme is delivered, and it provides payoff from improved quality in customer service.

Adherence to standard processes and procedures Processes and procedures that are developed and specified as an end product of a TQM customer care programme should be followed. Such directions are intended to reproduce proven consistent quality, and should specify administered processes, timing, responsibility and areas of expertise, and gathering of feedback data. When these directions are adhered to, the output remains consistent, processes are appropriately monitored, and the data provides the basis for learning and consistent improvement.

Paying customer objectives The end product of any programme must be to satisfy needs of paying customers to accomplish particular commercial, financial or strategic objectives. To that end, all analysis within customer-care programmes, and the development of any processes and procedures within such programmes, must relate to these objectives. Examples of such objectives are: x x x x

Increasing sales and profits; Lowering prices of service provision; Improving customer perceptions of service; Shortening waiting lists and giving priority to customer needs.

The mission of the organization, and the corporate values that underlie corporate objectives, must always be clearly and directly related to the formulation of such objectives. If they are not, then TQM programmes will not accord with the strategic direction that has been agreed.

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Activity 7.8 Using the example of an organization with which you are familiar, identify those parts or aspects of its operational procedures, which seem likely to pose the most problems when TQM is being introduced. Why should managers or workers resist the introduction of TQM? Key aspects of the answer to the question in the activity would be: x Loss of status and power; x Deskilling or disempowerment; x Fear of the unfamiliar. The idea of the activity is to make you think about the contrast between the ideals of TQM and the circumstances within many companies that might wish to introduce it.

Customer care: approaches to working with customers The close relationship between ‘customer orientation’ that lies at the heart of marketing and the notion of customer care is readily apparent. Customer care can be seen as a perspective that focuses on working with customers at every stage of the planning and implementation process. It is a service component and shares the characteristics of service marketing. It is, for example: x x x x x x x

People based, Perishable, Dependent on high customer involvement, Based on perceptions, Sensitive to images, Heavily dependent on consumption context, Delivered over time.

While marketing is fundamentally based on customer orientation, it is possible, in the pursuit of marketing objectives, to lose sight of things that will satisfy customer needs. Following a marketing plan in the delivery of a service can result in customer care shortcomings as follows:

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x As a result of an unrealistic corporate mission. When those in charge of the company are making promises the company cannot possibly deliver, and is aiming to deliver the wrong level of care to the customer, or when the company is, for example, turning customers away. x As a result of poor information about customers and the market. Ignorance of customer needs and consequent mismatch of care levels to needs can produce a lack of customer care. This may come about because the information system fails to identify those areas in which customer needs must be given priority, focusing instead upon general aspects of customer satisfaction. Business priorities, e.g. carrying out the processes of delivering a service, can be out of line with customer priorities. x Poor timing. When information that has been gathered about what it is that customers want is used for too long, a mismatch can occur. Customer priorities change and it may be, for example, that selling on price, or functional product attributes, becomes inappropriate as products become mature, competition increases, and differentiation is more problematic. In addition, good marketing may seek to identify needs of which some customers may not be fully aware; in marketing a product to satisfy these needs we are adding even more value to a product by raising customer awareness of the needs it can meet that they do not initially anticipate. x Poor staff communication. In delivery of services particularly it is vital that staff should be aware of the needs suppliers require them to satisfy. When staff are not fully trained, or inadequately informed of the aims of a marketing programme, they may well fail to deliver appropriate levels of service. Local improvisation will cause inconsistencies, and variations in the quality of product and service delivered will arise. Often staff will react to problems by falling back on a ‘defence’ of the systems they are operating. x Poor staff motivation. When staff are not properly informed, trained or committed to delivering customer care, they will be inadequately motivated. This will invariably be communicated to customers. x Poor control. Systems of control are essential to the establishment and maintenance of customer care standards. When such systems are inadequate, levels of quality of customer care will vary. In some cases such variation may well take the form of damaging inconsistencies, which may well undo the effects of good practice taking place in other parts of an organization, or at other times with

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the same staff or customers. x Confused priorities. When staff follow through delivery of, for example, specific practical aspects of service delivery, such as progressing an order or carrying out a task for the customer, they may find that there are too many priorities for them to pursue effectively. Attention to marketing tasks, or to customer relations, is perceived to be an ‘extra’ in some organizations, and is at risk of being sacrificed. x Organizational confusion. Many structures do not effectively delegate responsibilities for marketing or customer care. In principle, it should be part of everyone’s job, but at the same time it must be expedited, and responsibility for the establishment and delivery of the systems that promote these priorities must be clearly defined within the organization. x Non-acceptance of marketing and customer care. When staff are pressurized into delivering too many difficult practical aspects of their jobs like meeting efficiency or productivity targets, or delivering increased levels of output, they may well feel that concerns over meeting customer needs are not something they should be greatly concerned about. x Short-term emphasis. This is even more the case when the feedback, or the benefits of satisfying such needs, arise in the long rather than the short term. In this case, distortions in the delivery of services or products may arise because only behaviour (satisfaction of needs) which brings short-term rewards to the supplier is being reinforced by positive feedback from the customer. x Power conflict. Inconsistencies occur when there are imbalances between influences of different functions within an organization. Levels of care customers are offered varies according to which parts of the organization customers contact. When customers are required to contact more than one part of the system, they are more likely to experience inadequate service levels. Activity 7.9 Think of the ways in which the implementation of a marketing plan can frustrate delivery of customer care. For each of these areas, think of strategies in which problems could be overcome by modification or replacement of particular aspects of the marketing plan.

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Your answer should bring out the contrasts within width of focus in these plans. Clearly, marketing plans often have implications for customerfocused activities, and may imply conflicting, or contradictory, aims, e.g. over price, quality, or assortment in the product range. The important point to grasp is that company policy requires that these issues should be confronted and resolved by creative tension between these objectives. They must inform each other, rather than be treated as separate and isolated.

Delivering adequate levels of customer care Produce an adequate definition of the corporate mission Without clear definition of corporate goals, the business will waste resources and effort through lack of a clear focus. A mission statement has as one of its fundamental aims the communication of purpose to each member of the organization and must be easily understood by every participant. It must inform individuals how their roles within the organization contribute towards the achievement of this mission. It has a key role in motivation, and if it is not clearly formulated the chance of establishing a customer care ethos within the organization is diminished. Activity 7.10 Formulate a mission statement for: x Yourself; x Your family; x The leader of your country. What is a mission statement for? What is it supposed to accomplish? What are the difficulties in bringing together various and often conflicting aims, and making decisions about priorities and ultimate objectives? This activity should force you to think about the issues that are in play when objectives are formulated.

Use up-to-date and reliable information Assumptions about what it is that customers want, and notions that it is ‘obvious’ which product attributes are most important to the customers, are common causes of dissatisfaction. Such information should come from

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customers, or from those who are closest to them in delivering a product or service. Information about competitive activity, changes in market conditions and performance and perception of the company, should come from sources that are in touch with the recent reality of the situation. Unless the company places a high priority on the gathering, analysis and dissemination of information to inform decision making, and engender a culture in which information flows freely in a form that can be readily used by decision makers, it is difficult to see the organization developing the degree of openness and responsiveness that is an integral part of the customer care concept.

Use information to inform decisions and planning Too much information is gathered ritualistically or simply because it seems like a useful thing to do. When information about customer needs is gathered, it must be used to make effective decisions, and placed at the heart of the planning process. If information being gathered is not used in this way, the organization needs to ask why it is being gathered at all. An important part of this informational system are mechanisms by means of which this information can be gathered, stored, analysed, disseminated and rendered into forms that decision-makers can relate to their particular concerns. Since customer care is essentially founded on ‘listening’ above all else, but also on ‘measuring’ and ‘reacting’, or learning from what our information can tell us about what customers think and want, decisions must be information based. Activity 7.11 Describe what information would be needed by: x The managing director; x The store manager; x A sales person, To meet the needs of customers in a store selling clothes to large men. Are they the same, or are they different? Why? This activity is to make you think about the implications of: x A common focus; x Role differentiation;

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x Power differences; x The role of information.

Act quickly Information decays quickly. Failing to act on the basis of information that is available now, and acting after the information has ceased to be relevant, are damaging and inappropriate. Customer needs and standards change quickly in some markets, so when action is needed it should be taken quickly. Written plans should aim to meet communication objectives, and should aim to provide a basis on which practical action can be taken and effects identified and measured. Plans are counterproductive if those who are required to live by them feel that they cannot realistically be met, or that meeting them engenders no commitment and offers no reward or sense of achievement if their challenges have been met. Arguing against the traditional idea of management by objectives (MBO) many contend that the creation of such objectives inhibits progress and militates against the achievement of high-quality service and products. The objectives set have to be achievable, so the ‘ceiling’ on quality is fixed in advance. Setting such targets becomes increasingly difficult, and has less effect as time goes on, since it depends on setting ‘realistic’ goals, which are built on goals that have just been achieved. In that sense, written plans can provide a brake on potential improvement, or the quality movement’s ‘continuous improvement process’. A system in which excellence, quality and responsiveness to customer needs are ingrained into corporate culture is preferable; in that case striving for quality and seeking to find new ways to add value and satisfy customer needs become a constant, endemic feature of the organization at every level and process. Every employee sees it as a natural feature of the job, which calls for careful analysis of procedures and specifications of what happens in every process, based on observation, description and analysis. In that sense, written plans and clear definitions of procedures are essential bases for any programme seeking to make beneficial change.

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Progress reports/measurement when implementing the marketing plan These must be reliable and detailed, and not simply reports on results. Constant attention to progress, adjustment as necessary to changes in conditions and new customer needs, and changes in perception, require that the marketing plan being followed should form the background to what is done. Systems of measurement provide benchmarks of progress and provide targets. Activity 7.12 Think of trying to improve the customer-care element of the service provided in a travel agency. Which aspects of service encounters can be measured, briefly indicating the kind of instrument used, e.g. a survey questionnaire. In addition, which aspects would be difficult to measure and why. Examples of service encounters that could be measured in our travel agency example include: x x x x x x x x x x

Numbers of customers; Numbers of staff; Types of enquiry; Duration of encounters; Waiting time; Timing and distribution of customers over the working week; Numbers of complaints; Types of complaint; Outcomes of complaints; Customer attitudes.

There are also marketing research tools, covered in Chapter 8, that are appropriate: x Observation; x Experiment; x Surveys.

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Some important aspects of service encounters are difficult to measure. These include variations in personnel responses to customers of different kinds (socio-economic, ethnic, gender, age differences); aspects of ‘body language’ or extra-linguistic communication are critical, but difficult to measure. Disseminate a marketing philosophy, but assign clear responsibility for the marketing function as well as a core commitment to building it into the way in which the organization functions at all levels. Activity 7.13 Describe what activities you believe to be required in order to establish customer care for: x A car salesroom; x A supermarket. The main points are to recognize the importance of the specific features of the business in question, so a good answer would start by making an audit or inventory of the situational/environmental features, and specify informational needs as well as objectives as well as making a fundamental change to cover every aspect of the organization, i.e. apply a set of core principles from which practice can be derived. Marketing calls for a structured approach and applying information about customer needs to achieve strategic objectives; typical steps include: x x x x x x x

Defining corporate mission, corporate objectives and strategies; Analysing the environment; Setting marketing objectives; Developing marketing strategies; Devising action plans; Measuring results; Reacting to results.

Consideration of these issues will materially influence the ways in which the objectives of the marketing process are pursued. We now consider them in more detail.

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Defining the business mission While definition of what business the enterprise is in, who is being served, and how this will be accomplished, seem incontestably essential questions for anyone in business, the simplicity they propose as the foundation of business activity is difficult to achieve. As the size of an organization and its tasks increase, so do their complexity. In defining the business mission, looking at who our customers are, and how we see ourselves as serving their needs, we need to take a large number of factors into account. Initial explorations of what customers want may actually reveal that this cannot be met by what the enterprise has to offer; in which case markets have to be redefined. It is essential that mission statements espouse and promote effective plans to maintain high levels of caring for customers within the operating framework of the enterprise. A good example of where a company’s mission statement explicitly recognizes the importance of customer care and incorporates this into the company philosophy is that of the Interflora worldwide flower delivery company. Their aim as regards customer care, are encompassed in its mission statement: ‘Our mission is to ensure that Interflora will always be the consumer’s first choice for flowers and appropriate gifts. This means: recognizing and responding to our customers’ changing needs; providing a seamless service to our customers; leading our industry in innovation and design; continual improvement in quality, service, processes and costs and enabling our employees and associates to give their best’.

The marketing audit The marketing audit must attempt to identify and define factors within the external environment that promote customer satisfaction and generate loyalty. This calls for comparisons between different policies, evaluations of the different degrees to which they actually promote customer loyalty, and analysis of why differences occur. It should also evaluate the performance of the different factors within the enterprise that promote

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customer satisfaction, and identifying sources of dissatisfaction should play a major part in the marketing process.

Action plans for the formulation of the marketing mix Problems, from the point of view of customer care, arise when such plans focus on short-term objectives, particularly sales and the promotion of improved margins. These often prove antithetical to the main objectives of strategies based on customer care, which aim for the long term, not just winning custom, but winning customers by promoting good ongoing relationships, and looking for substantial long-term profits by sustaining customer loyalty. Problems here have to do with the efficacy and efficiency of marketing procedures, e.g. cost effective and efficient delivery of goods, rather than with the perception and response of customers to the end product. When too much emphasis is placed on tracking sales and profit, rather than customer inventory movements, results may not be providing the most effective form of feedback for the organization to make long-term plans. Activity 7.14 Give an example of a customer-care issue at each of the six stages listed. When this framework is followed, attention is effectively focused on the delivery of customer care. What is also required is a clear idea of what customers want from the organization. This requires a systematic approach to gathering and evaluating information about what may actually be a number of different types of customer, since the product portfolio of many companies extends over different types of market for the same type of product or different brands and product types.

Identifying customer needs and company perceptions To use a strategy based on customer care successfully, two questions need to be answered: x What policy of customer care is most appropriate for our company? x How far should this policy affect our operations?

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To succeed, knowledge of customer needs is vital. What expectations should the company aim to meet? In the real world, these expectations will be related to the way in which the company is perceived. There are limits to the expectations a reasonable person has, and these are related to the realities of what resources a company has at its disposal, and how these must sensibly be employed. The customer believes minimum rights should be respected, independent of such constraints, for they are the sine qua non of customer care. All customers have the absolute right to: x A basic minimum level of customer care; x Common courtesy from staff; x Responsive and effective response to complaints. Customers’ requirements in terms of care are likely to vary according to the significance, as they perceive it, of each transaction with the supplier. When customers perceive a contact with the supplier to be important, they have higher expectations of the level of care they should receive. Many products are bought as a package, of which customer care is a greater or smaller part. Among the factors that may be important are: x Time taken; x The importance of the service element of the package relative to other elements at different times in the relationship; x How important it is for the customer to be in control; x The degree of dependency on the supplier; x The importance of the service to the customer; x The degree of risk that is felt to attach to the supply of the service; x The dependence of the service on staff or equipment; x Contact with staff; x Degree of control perceived in staff; x Contact with other customers; x Skill/expertise expected of staff; x Degree of routine in encounters; x Number and complexity of stages and service encounters; x Emotions anticipated and experienced by customers at different stages.

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The mix of factors is also affected by the characteristics and experience of individual customers. As a consequence, different individuals will view the same service in different ways. What is new and potentially stressful for one individual, is routine to another user of a service or product. Given this important element, it appears likely that the role of the customer in the ‘service-production’ (servuction) system can be increased according to the experience or number of occasions the customer makes use of the service or buys the product. While customers expect minimum levels of care, they probably have a desired level which is influenced by the degree of experience they have of the organization. The greater experience they have, the more likely that they will entertain a perception of the level of care they receive. These perceived levels contrast with actual levels, i.e. the levels the supplier says are provided in terms of customer care activities. Perceptions of the levels of care are the strongest influence on satisfaction levels. It is important to define ‘minimum’ levels of care expected by customers. These can be quantified effectively, e.g. time taken to respond to a request for a repair. Regular users will have a clear idea of desired and minimum standards, but how these are perceived will vary across a group of customers. It is important for the company to identify minimum and ‘optimum’ levels. This avoids wastefulness and potential harm created by overprovision of certain aspects of customer care, e.g. Staff who constantly pester customers with offers of help. Identifying bands within which customer care levels must be provided is important. Experience with the company providing the service or product, or with a competitor, provides a benchmark against which expectations are formed and delivery evaluated. Identifying and analysing customer requirements are based on: x x x x

Choosing customers; Researching and modelling needs; Determining care levels; Building in flexibility.

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Activity 7.15 Outline the issues and the problems that might arise if you were trying to collect information to determine customer requirements with regard to service levels for a cafe in a busy city centre. Examples include: x Where should research be carried out? If information is only collected in the cafe itself, you may not be gathering information about potential customers who are being discouraged by problems you want to address. This raises the issue of how to identify such potential customers in the first place. x What research methods should we use and in particular, what should the balance be between qualitative and quantitative information? x What will be the costs of the research and what resource constraints will affect the information gathering process? x How beneficial will any information collected be in planning customer relations programmes?

Steps in establishing a customer care programme It is important to establish practical processes for achieving desired levels of customer care. The most important practical steps are summarized.

Identify customer needs and perceptions This first step again illustrates that the start point is customer needs. We must clearly establish what these are and how our customer care programme needs to be designed to meet them. We must also evaluate perceptions that current and potential customers have with regard to our company and its standards of customer care.

Establish a mission statement The approach to customer care and its importance in the company must be a key part of this statement. We also need a widely accepted mission statement for the approach to customer care itself.

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Set service level standards and specifications Clear standards must be set for levels of customer care and key elements to be included. Examples include standards for courtesy, credibility, communication, responsiveness, empathy with customer and confidentiality.

Establish management processes and communicate this to staff There should be clear specifications of how jobs should be done with regard to achieving customer care objectives. This should include: x Who does what and when i.e. formal allocations of tasks and progress reviews; x Information flows and systems required to implement customer care programmes; x Motivation, monitoring and control of people in the customer care programme; x Responsibilities and information on processes and procedures to be followed to be communicated to staff.

Define tasks according to time factors These include timing of recurrent work and seasonal factors. This process should be accurately and comprehensively catalogued, and the programme of customer care must create systems by which the work can be handled according to the objectives of satisfying customer needs, and by using resources efficiently and cost effectively.

Establish a basic minimum level Although customer care programmes should be built around customer needs, wherever possible, levels should meet the highest standards. It is important to establish a baseline for standards below which levels of care should not drop.

Ensure systems for effective response to complaints Although the idea of a customer care programme is to reduce complaints, and even remove the need for them altogether, it is unlikely that all

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complaints can be removed in this way. The customer-care programme therefore must have clear systems and procedures for ensuring effective responses to customer complaints. An interesting twist in the idea of customer care programmes being either to reduce or ideally to remove complaints altogether is the notion that a good customer care programme will encourage more complaints. This apparently strange approach to customer care programmes with respect to complaints is based on the plausible notion that the company’s most challenging customers are also the most valuable in the sense that these are customers who are the most demanding and therefore could help encourage a company to raise its standards and/or that they are most valuable in the sense that once satisfied they tend to remain loyal and indeed act as ambassadors for the company and its brands.

Secure management commitment It is important to ensure commitment to customer care programmes and that this is established through all levels of management. There must be systems for measuring and controlling the customer care programme, and it must be supported by objective and rigorously enforced measurement and control systems.

Successful customer care programmes If programmes are to work, the following conditions must be met. Staff must be: x x x x x

Clear about the programme and their role; Committed to the programme; Well trained in programme needs; Sufficiently resourced to carry out their roles; Sufficiently skilled to carry out their roles.

The programme must: x Provide clear benefits for the staff; x Be reinforced by top management action, with effective implementation regimes, clear priorities, and sanctions and rewards.

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Management must be: x Informed about progress and effectiveness of staff performance; x Provided with regular and appropriate information; x The process must support marketing objectives and facilitate the work of staff towards its achievement. There is a range of clear benefits of an effective, long-term customer care programme which marketers and management should appreciate. We have touched on several of these benefits already but again, to summarize, an effective customer care programme provides the following benefits: x Helps to establish standards for customer care; x Minimizes organizational confusion about what is required and why; x Potentially offers a competitive edge; x Helps to establish TQM quality control; x Offers value added to customers; x Promotes better understanding of customers; x Can be very motivating to staff; x Helps build customer relationships and improves customer retention. Although all of these benefits are significant, the role of customer care in the last point, namely building customer relationships and improving customer retention is accepted as being vital. Because customer service delivery and the broader aspect of customer care are so powerful in helping build relationships and retaining customers, customer service and customer care are vital aspects of relationship marketing.

Service delivery, customer care and the extended marketing mix We have touched on the fact that the marketing of service products is different to marketing physical products. We suggested that one of the major differences for the services marketer is the three additional marketing mix elements of ‘people’, ‘process’ and ‘physical evidence’. It is important that marketers understand the implications and the interplay between service delivery, customer care, and these three additional marketing mix elements as now outlined:

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x People (internal staff) It is important that there is commitment from all staff to customer care and that they are motivated. The ‘people’ element is central to effective service delivery and overall levels of customer care and it is vital that there is investment in staff in terms of training and development in order to achieve predetermined levels of service delivery and customer care. Employee selection and motivation become central considerations, not just for the personnel department now, but for the marketer. If staff are badly trained, poorly selected, demoralized and unmotivated they cannot support good customer service delivery and are unlikely to be interested in supporting adequate levels of customer care. More often than not, poor service delivery and customer care can ultimately be traced to weaknesses or problems in the people element of an organization’s marketing mix. For example, staff should be guided into what represents an appropriate level of courtesy to customers. In order to ensure TQM internal quality groups should be devised and managed. Market leaders have recognized the importance of the people element in providing effective customer care and again reflect this recognition in their mission statements. x Process should consider customers’ needs and perceptions with regard to adequate levels of service delivery and customer care. There should be customer support systems, TQM systems and good communications. Specifications should be written to ensure specific responses to customer complaints, to ensure minimal waiting times, minimize bottlenecks, etc. An example of a company paying careful attention to the process element and its effect on customer care is McDonald’s, which has designed its processes to ensure standardization with a view to minimizing waiting times, bottlenecks, etc. x Physical evidence Elements such as good signage, staff uniforms and informative communications must be planned and implemented to ensure that effective customer service delivery is maintained and a customer-care ethos is achieved. Integration of these three extended marketing mix elements is important to maximize the benefits of customer service delivery and customer-care programmes. In turn, and ultimately, these determine levels of customer satisfaction and the all-important levels of customer retention so important to relationship marketing.

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Service delivery, customer care and relationship marketing For any organization it is more efficient to keep customers rather than to keep finding new ones. This is one of the key reasons that make relationship marketing so important. Put simply, a happy customer will come back for more. On the other hand, evidence suggests that nearly 70 per cent will go elsewhere if they feel they are receiving indifferent levels of customer service. There are clear links then between customer service and customer care and the important relationship marketing concept. In particular: x Organizations need to view any transaction as part of a long-term goal; x If the customer is satisfied with the product/service they have received for the price they have paid, they are more likely to return; x A short-term outlook with lower levels of customer service might make higher short-term profits, but in the long run is likely to be less profitable; x Trust is particularly important in relationship marketing, and it should be an important component of customer service. If a customer trusts an organization they are more likely to return. We must not forget that trust is a two-way process. Not only must the customer trust the organization not to take advantage of them, but the business must also learn to trust its customers. Customer service, by underpinning better relationships between an organization and its customers, helps to transform exchange relationships into ‘win-win’ rather than ‘win-lose’ ones.

The SERVQUAL model The importance of adequate levels of service quality, notions of effective customer care and relationship marketing apply to all marketers and products whether physical or service products and markets. Characteristics of service products mean that sometimes what constitutes service quality, the areas that are important in service quality and how to measure and evaluate levels of service quality can be more difficult than for the tangible physical products. For example, with a physical product it is relatively easy to objectively measure its functional performance. With an intangible service this can be more difficult. Recognizing this, models have been

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proposed with regard to criteria for assessing service quality and the sorts of data which would need to be collected and interpreted to make this assessment. One of the most influential models is that developed by: Parasuraman, A., Zeithaml V.A. and Berry, L.L., ‘SERVQUAL: A Multiple-item scale for measuring for measuring model for measuring consumer perceptions of service quality’, Journal of Retailing, Vol 68 No. 1, Spring 1988, pp. 12-40. The main ideas and elements are outlined: Ten criteria or areas for assessing levels of service quality collectively encompass the range of customer requirements from service experience from the customers’ perspective. Five of these criteria relate to the quality of the process between customer and service provider: x Responsiveness To what degree the service provider reacts to customer requirements and needs; x Courtesy The extent to which service provider staff are polite, friendly, considerate, pleasant, etc.; x Competence The skills and expertise of the service provider staff in providing the service properly; x Communication The extent to which service staff listen to customers, explain to customers and suggest solutions; x Tangibles The extent to which the tangible/visible elements of the service, staff appearance, premises, state of equipment, etc. are satisfactory. The second set of quality criteria in the SERVQUAL model relate to the quality of outcomes of the service experience: x Access, i.e. how easy or otherwise it is for the customer to gain access to the service and its delivery; x Reliability The consistency and dependability of the service; x Credibility The extent to which the service provider is seen as being trustworthy and believable; x Security The extent to which the service is seen as being free from risk or danger; x Understanding The extent to which the service provider understands and adapts to the needs of customers. The SERVQUAL model provides a comprehensive framework for identifying what are key criteria from the customer’s perspective when evaluating and assessing the quality of services provision. In turn it suggests the key areas where a service provider has to perform effectively.

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Related to these first two aspects, the SERVQUAL model guides the implementation of quality programmes for services marketers together with systems of evaluation and control. The model emphasizes that a company has service quality problems where there is a gap between what consumers expect and what they perceive they receive with regard to service quality. There are possible bases for such gaps and strategies for their removal. A gap can exist because a company does not understand what customers want and what represents the key service attributes and levels of performance; they simply do not understand their customers’ needs. A company even if they understand customers’ needs and requirements may be unwilling or unable to meet these. The service provider may understand customer service requirements and attempt to meet these but fail to do so because service contact staff or quality support systems are ineffective. Customers may have been led to believe too much about a service provider’s quality performance e.g. the company may have oversold its promises thereby increasing customer expectations.

Service delivery, customer care and new technology Technology is changing marketing and marketing practices. Of particular importance with regard to service delivery and customer care is the fact that many of the technological developments in marketing mean that relationships with customers often take place with no direct physical contact. Rather than thinking about developing customer care through personal relationships with customers, the marketer must think of other ways to ensure adequate levels of customer service and care and to develop long-term relationships with customers. Information on customers and particularly databases can therefore be extremely useful.

Databases and customer care A customer database is a record system of information on customers. This system includes information such as customer purchases, expenditure, credit ratings, complaints, and so on. This can help in developing effective marketing mix programmes, but is particularly useful in developing systems of effective customer service delivery and customer care. The database is central to a customer care programme and in particular where

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relationships with customers are themselves based on the internet, for example: x The database can be used to keep a record of customer contacts and complaints; x It can be used to assess what customers want so marketing programmes can be more closely targeted towards customers; x We can use the database to keep ahead of customers and their needs by forecasting their future requirements; x Data can be analysed to discover any patterns, for example product faults, customer profiles, etc., thereby making it possible to improve the customer’s experience in the exchange process. Access to comprehensive databases enables the marketer to interpret and make sense of the data. This has become the most important facilitating mechanism for developing and improving customer relationship management systems. For this reason, establishing, maintaining and using database management systems is essential to customer relationship management, so much so that we now refer to electronic CRM or e-CRM.

Technological advances Contemporary marketers need to be familiar with key advances in technology. A summary of reasons which capture its importance are: x Competitive success is increasingly based on the applications of IT advances which can help differentiate a company’s products and reduce costs; x Such advances have led to the emergence of new critical success factors and have resulted in new ways of doing business; x IT advances have facilitated the ease with which information, so vital to effective planning and decision making, can be collected and analysed; x It has underpinned the growth of global companies; x Fundamental changes to retailing and shopping have occurred with shoppers now shopping more from home and this has led to the rise of IT based providers like Amazon; x There is greater competition as customers are able to ‘shop around’ on line; x New relationships have been established between members of the value chain;

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x There has been a growth of new entrepreneurial companies.

International aspects of service delivery and customer care Companies that operate internationally need to develop uniform customer service delivery and customer care. The Interflora example illustrates how a company-wide commitment to customer care throughout different world markets can help build company image, develop more effective relationships with customers and serve as a standard for internal operating procedures. Customer care programmes, including the selection of the level of customer care, are challenging areas when standardizing the marketing programme. Reasons for this relate to differences in cultural practice in different parts of the world regarding what is expected. American customers expect and largely get extremely high standards of customer service and care. In Europe customers tend to dislike subservient behaviour which is considered normal in America. When designing customer service and customer care programmes the marketer has to consider these cultural differences and reflect them in the design of appropriate programmes. Notwithstanding, the international marketer should try to ensure consistent approaches to customer service and care in different parts of the world. Again, people, process and physical evidence are important here. In designing an international programme many of the issues and steps for planning a domestic customer care programme are to be found. By way of reminding you of some of these issues and steps, the following should be considered: x Identify customer needs and perceptions for each market; x Establish a mission statement; x Set service level standards and specifications reflecting individual country requirements, guided by an overall customer charter that reflects the mission statement and outlines measurable criteria/standards to be attained; x Establish management processes and communicate these to staff; x Define specific tasks as regards customer care elements for each country; x Establish basic minimum levels of customer care; x Ensure effective response systems for identifying, tracking and responding to complaints;

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x Ensure management and staff commitment to programmes through, for example, effective training and remuneration programmes; x Ensure effective and continuous measurement of the customer-care programmes. Marketing research is addressed in the next chapter, but when conducting international research it can pose problems and issues over and above those encountered when researching domestic markets including: x Because the international marketer is often dealing with environments and customers with which she or he is unfamiliar, information requirements are often greater than those encountered in domestic markets like the provision of accurate information regarding, for example, social/cultural, economic and political facets. Additionally, the marketer will usually require more information on competitors and customers; x Collecting information can be more problematical in terms of secondary data being available, which might be unreliable, and in developing countries there might be little access to databases; x In some countries primary information may be difficult to collect and interpret, e.g. research may raise problems of language difficulties and interpretation when it comes to questionnaires and there might be few experienced market research to conduct interviews; x Access to sophisticated information systems and databases might be more difficult. However, developments in IT have helped marketers to gain more information like the provision of on-line databases including services from such providers as: Reuters, AMR International, AXA PPP International, UK Data Service, Extel and Global Network Management.

Summary In this chapter you have learned about the importance and scope of customer service and the broader concept of customer care of which customer service decisions form but a part. We have seen that: x Customer service is an increasingly important element in customer choice and hence the marketing mix;

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x Customer care is an all-embracing approach, which encompasses customer service but covers activities at the pre-, during, and posttransaction stages of dealing with customers. Customer care needs to be part of the corporate culture; x Total quality management is a key part of customer-care programmes; x Adequate levels of customer service and care should be related to marketing objectives and strategies; x Customer service and care programmes need to be based on information about customer needs and requirements; x Implementation of customer service and care programmes should follow a series of pre-determined steps and stages; x There are substantial benefits to be gained by all parties from the establishment of effective customer service and care programmes; x The extended marketing mix elements are particularly important when it comes to considering customer service and care; x Developing programmes for international levels of customer service gives rise to additional complexities, but in particular the marketer must consider differences in cultural circumstances and factors in designing and implementing customer care programmes internationally; x Effective customer care can be problematical when using internet based processes; x There is considerable overlap and interrelationship between customer service and customer care programmes and the important aspects of customer retention and relationship marketing. Question 7.1 Identify the main reason for poor customer care. There are reasons for poor customer care that can lead to problems within an organization, such as the level of service offered. The main reasons are: x x x x x

Poor planning and lack of commitment by management; Lack of communication to staff; Poor staff motivation; Lack of information about customers and the market; Poor timing and consideration of the other elements of the marketing mix;

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x Poor control of the programme; x Short-term emphasis; x Power conflicts. Question 7.2 What are the main steps involved in planning a customer-care programme? It is important that a customer-care programme is managed effectively and there is an understanding of total quality management. This should impact on the quality of service, availability, service, support and reliability of service. In essence the following issues should be considered: x x x x x x x x x

Identify customer needs and perceptions; Establish a mission statement; Service-level standards and specifications must be specified; Establish management processes and communicate this to all staff; Define tasks to time factors; Establish a basic minimum level; Ensure effective response to complaints; Management commitment; Effective and continuous measurement and control of the programme.

Question 7.3 What are the main benefits of a successful customer care strategy? There is a range of clear benefits of an effective, long-term customer-care programme which marketers and top management should appreciate. The benefits are as follows: x x x x x x x

Helps to establish standards; Minimizes confusion; Offers competitive edge; Establishes TQM quality control; Offers value added to customers; Promotes better understanding of customers; It can motivate staff;

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x Helps build customer relationships and improves customer retention. Question 7.4 Explain the importance of total quality management. Total quality management is the combination of the satisfaction of customer needs with the achievement of company objectives. Therefore, TQM gives central place to the customer and satisfying them is the first principle. The concept involves reaching forward to distributors down the chain and back to suppliers in the case of manufactured goods. This is to ensure the quality of all materials, and the condition of the product that reaches the ultimate consumer. Customer-driven quality is often cited as a core value and it is important that marketers understand the implications that all products and service attributes contribute value to the customer and lead to customer satisfaction. Indeed, customer orientation under TQM considers the customer-supplier relationship as well as the external customer. Therefore, it can be seen that a TQM approach is important for all organizations wishing to truly embrace a customer orientation and it is a key part of customer-care programmes. Question 7.5 What are the three extended services mix elements and what is their significance in relation to customer care? It is important that marketers understand the three extra elements of the marketing mix, which are important for services marketing and the implications for customer care. The three extra elements are people, processes and physical evidence. x People (internal staff) It is important that there is commitment from all staff and that they are motivated. It is important that there is investment in staff in terms of training and development in customer relations, e.g. courtesy from staff. To ensure TQM, internal quality groups should be devised and managed.

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x Process Processes should consider the customers’ needs and perceptions. There should be customer support systems, TQM systems and good communications. Specifications should be written to ensure specific responses to customer complaints, to ensure minimal waiting times, minimize bottlenecks, etc. x Physical evidence Physical evidence such as good signage, staff uniforms and informative communications must be planned and implemented to ensure that the customer-care ethos is achieved. The integration of these three extended marketing mix elements is important to maximize the benefits of a customer-care programme and ultimately customer satisfaction. Question 7.6 What factors must be considered by a firm wishing to establish a level of customer service which is appropriate to its markets? Show how such a service level can be employed to gain competitive advantage. This answer could be presented in three basic sections. The ideas contained in each are: 1. The main areas of service management are concerned with costs, delivery, inventory control and warehousing. These should therefore be the primary factors to be considered in relation to your answer. 2. It is how these factors are deployed which determines a specific level of customer service and its effectiveness. This brings into play the notion of how appropriate the service level is to the markets it seeks to serve. Factors concerning the market (size, type, location, etc.) must therefore be considered. The type of product and the nature of the competition should also be included. To close this section it is worth mentioning that any attempt to establish a customer service level is unlikely to succeed without recognition of the ‘total distribution’ concept. 3. The final part of the question allows you to show that you understand not only the elements of service but also service’s wider implications as a competitive tool. You should discuss such factors as non-price competition, the idea of service as a product in itself, the ‘extended product’ and the ‘total product offering’.

CHAPTER EIGHT MARKETING RESEARCH

Learning Objectives By the end of this chapter you will: x Be aware of the meaning, role and importance of marketing research in contemporary marketing, x Understand how to organize to provide effective marketing data, x Appreciate the value and limitations of marketing information, x Know the steps involved when conducting a systematic marketing research process, x Be familiar with the marketing information system and the part that marketing research plays within this by providing research data input into the marketing planning process.

Introduction The marketing concept maintains that the nature of the marketing orientated organisation, whether product or service based; profit or nonprofit based, is the identification and satisfaction of customers’ needs and wants. In a profit making business the firm has to try and achieve this level of customer satisfaction as a way of staying ahead of the competition and making a profit. In ‘not for profit’ organizations, management substitutes profit for some other criterion such as maximum social benefits; a political party would be likely to substitute maximising votes for financial profit. For organisations to be able to arrange their assets and resources in such a way that they are able to produce ‘bundles of satisfactions’ that satisfy genuine desires of specifically defined target markets better than the competition, they need to know what the market regards as valuable. In a broad sense, marketing management needs to understand the ‘minds’ of their target markets, their attitudes and value systems. They need a formalised, managerial approach to this most important task, which is the fundamental role of marketing research.

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Without the information that marketing research provides, management cannot apply the marketing concept as an overriding business philosophy. This chapter gives you an understanding of the subject and relates to how it fits into modern marketing practice.

Scope of marketing research Given the range of marketing decision that have to be made, the scope of marketing research is wide and varied. To get some idea of this scope, complete the following activity which is intended to highlight the range of information sought by marketing and managers and provided by marketing research: Activity 8.1 Your company is launching a new range of low fat chocolate bars. List the questions that you would like marketing research to provide the answers to in order to help you launch this range successfully. Examples of questions include: x x x x x x

How large is the potential market? Who are the main competitors? What prices should we charge? What sizes and flavours will sell best? What type of advertising and promotion should we undertake? What distribution channels are most appropriate?

These are just examples. The precise types of questions and range of information should vary according to the particular circumstances of the company and its product launch. Not all marketing decisions require this range of information, and collecting research information depends on a number of factors, including: x x x x x

Time and cost constraints; Amount of experience and previous knowledge; Risks; Precise stage of product development; Company resources.

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It is not possible to be definitive about the sorts of information that will pertain to a particular company. Perhaps one of the best ways to appreciate the scope of marketing research is to indicate the most frequently encountered types of activity carried out by marketing managers. Examination hint The following list of the most common marketing research activities is useful for remembering the scope of marketing research activities: x x x x x x x x

Market share; Market potential; Sales analysis; Business and market trends; Short- and long-range forecasting; Competitor analysis; Pricing analysis; Analysis of existing products.

Definition of marketing research The original American Marketing Association (AMA) definition (1961) defines marketing research as: ‘The systematic gathering, recording and analysing of data relating to the marketing of goods and services’. The emphasis is clearly on improvement in marketing decision making. However, a more detailed definition was approved by the AMA in October 2004: ‘Marketing research is the function that links the consumer, customer and public to the marketer through information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyses the results, and communicates the findings and their implications. Many definitions abound, but what has been quoted is detailed enough for our purposes. The UK body that provides academic, training, conference, learned journal, consultancy and practical support in this area is the Market Research Society which was established in 1946, and its geographical spread covers over 70 countries.

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The aim of research is to find, in a systematic way, reliable, unbiased answers to questions about the market for goods or services and to look at ideas and intentions on many issues. Marketing research is concerned with the process of collecting, analysing and interpreting the facts to establish what it is that people want and why they want it. It is employed by marketing management in the planning, evaluation and control of marketing tactics and strategy, but is also of use in helping to make policy decisions in the non-commercial public sector. Research must be carefully planned with a disciplined and systematic approach, and a series of steps should be taken in the development, planning and execution of research. The aim is to give an adequate, but general view of a number of topics without going into detailed methodological technicalities. On a definitions point, there is confusion about the term ‘marketing research’ which is the overall descriptor and ‘market research’ which is a sub-set of marketing research that concerns matters like ‘on street’ interviews. Examination hint Candidates are often asked to distinguish between ‘marketing research’ and ‘market research’. The distinction is relatively simple in that marketing research covers research into all elements of marketing activity i.e. price, product, distribution, customers, competitors, etc. Market research is narrower in its focus and only considers facets of a particular market under investigation e.g. its size, its growth and its structure.

Marketing research and Marketing information systems Formal marketing research may provide a large proportion of information requirements for a firm, but not their total requirements. There are other valuable sources of marketing information beside formal marketing research. Information requirements should be managed in a systematic way in a formal system that will assist in the collection, storage, retrieval and analysis of various forms of marketing information, and not simply consist of information collected using formal marketing research. Such a system is known as a Marketing information system (MkIS) which is sometimes incorrectly shorthanded as MIS. This is incorrect as the MIS is the broader based organisation’s Management information system, of which the MkIS is a component part. The MkIS is made up of four parts.

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Three of these components collect or produce information of various categories in its raw form. These are the ‘Internal data’, ‘Intelligence data’, and ‘Marketing research data’ components of the system. The information from these three component parts of the system are fed in as ‘input data’ to the fourth component part which can be described as ‘Models and Statistics’. This component of the system adds value to the data produced from the other three component parts by altering it or modelling it in some way. Basically the ‘Models and Statistics’ part of the system employs management science techniques to data derived from the other three component parts, and in so doing, makes the information more useable and valuable for strategic marketing planning purposes. Figure 8.1 illustrates how the MkIS operates: Marketing

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Marketing information system

Marketing

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Figure 8.1 Marketing Information System (MkIS) The analytical marketing system receives information from the MkIS, but as the marketing plan unfolds, what was planned for usually differs from reality. Information concerning this differential is then fed back into the MkIS by way of adjustment, so this is a two way flow of information as indicated by the two headed arrow.

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Types of Marketing Research Marketing research activities can be classified by their purpose or objective. Some marketing research exercises are intended to produce results that are purely exploratory in nature. Such research is usually carried out at the beginning of the overall research project. Other research may produce data that are descriptive, predictive or conclusive in nature. These general classifications are examined in more detail.

Exploratory Research This is usually undertaken at the initial stages of the research process. Unless researchers have experience of a particular industry or research area within a particular industry, then they will have to familiarise themselves with the general dynamics of that industry or research area in order for them to effectively carry out the main body of the research. Exploratory research is basically a ‘having a look’ type of activity. It is not designed to enable the researcher to draw firm conclusions about the research situation but rather to enable him or her to establish the general parameters of the situation. The use of secondary data i.e. data already in existence usually in printed or electronic form, is an important part of this process. In terms of primary data collection i.e. those data that are collected for the first time specifically for a particular research exercise, then qualitative research methods are more often employed than quantitative methods. In-depth interviews and group discussions allow the researcher to explore respondents’ opinions and attitudes on key issues. Both of these techniques employ relatively small samples and by their very nature can only hope to provide general information. Nonetheless information gained from qualitative exploratory research enables the market researcher to plan a more effective research program as it lays down foundations enabling the rest of the research exercise to be built soundly.

Descriptive Research This is intended to describe factors that marketing management is likely to be interested in such as market conditions, customers’ feelings or opinions toward a particular company, purchasing behaviour as so forth. Such research is not intended to allow the researcher to establish causal relationships between marketing variables and sales or consumer behaviour, or to enable the researcher to predict likely future conditions.

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Just like exploratory research, it usually forms part of an on-going research programme. Once the researcher has established the present situation in terms of market size, main segments, main competitors, etc., they may proceed to types of research of a more predictive or conclusive nature. Descriptive research usually makes use of descriptive statistics to help the user understand the structure of the data and any significant patterns that may be found in the data. All measures of central tendency such as the mean, median and mode are often used along with measures of dispersion such as the variance and standard deviation. Descriptive research results are often presented using pictorial methods such as graphs, ‘pie charts’, histograms, etc.

Predictive research Predictive research enables the investigator to predict something about future market conditions such as growth or decline, increased competition, greater import penetration, future price levels or changes in consumer taste. Many techniques can be used to generate information that might prove useful in predicting such conditions. When using qualitative research such as depth interviews or group discussions, the researcher can interview individual salespeople or experts in the industry. Group interviews can be held in order to arrive at a consensus as to what might happen within a certain market in the future. Opinions can be elicited from respondents for various time periods like the next few months, year or the next five years. Similarly, questionnaire surveys can be used to elicit responses. For example, the salesforce could be surveyed and asked for their opinion concerning future sales or market conditions. A survey of buyers’ intentions is a popular method of obtaining sales forecasting information. Formal statistical and mathematical techniques specifically developed for forecasting exercises can be used. Secondary data obtained from existing sources as well as survey results or information derived from qualitative interviews can provide the forecaster with valuable input data for forecasting.

Conclusive research When using conclusive research techniques the researcher is attempting to establish causal relationships between marketing variables such as price, advertising or packaging to some other variable such as sales or patterns of consumption. To achieve this kind of test it is necessary to use a formal experimental design to be able to test a specific hypothesis. Let us assume

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that the marketing communications manager wanted to establish which set of merchandising materials, which price promotion and which shelf configuration would be most effective in achieving sales within a grocery store chain. Let us also assume that there are four different versions of each of the marketing variables e.g. four merchandising ‘sets’, four price promotions that could be used in store and four different shelf configurations. The researcher wants to know which permutation of these three marketing variables is most effective. The researcher sets up an experiment where each permutation of experimental treatments is randomly allocated to retail stores. Differences between stores will be accounted for in the experiment. The experiment will be allowed to run until sufficient data has been generated. The results are then analysed and used to see if the hypothesis that one set of experimental treatments has been more effective in generating sales than the others were in fact true or false. Statistically designed experimental methods such as Analysis of Variance (ANOVA) would be used in such a situation. Experimental exercises that enable the researcher to establish causation in tests have a number of factors in common. The researcher starts with the marketing variables that are to be tested, known as the ‘independent variables’. These variables are applied to a given situation and certain effects are monitored. These effects are usually sales, but might be something else such as behavioural changes e.g. store loyalty. These effects are regarded as ‘dependent variables’ because they are dependent on the marketing variables discussed earlier. Experiments are set up with the purpose of trying to establish scientifically, using statistical tests, whether the effects seen in the dependent variables are attributable to changes in the independent variables (i.e. the marketing variables) and if so, what are the nature and strength of these effects. The marketing researcher wants to know whether experimental effects caused by the independent variables acting upon the dependent variables are commercially exploitable.

Defining the research problem Marketing research is intended to provide information to solve marketing problems, so it is important that this is defined which will enable precise objectives for the research to be set. Often marketing research is carried out by an external agency so it is important that research problems and objectives are clear in advance.

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Once the problem has been clarified we move to the development of specific objectives which might involve exploratory research to identify the key areas and types of information needed to address the research problem. By this time you should have an understanding of the nature and importance of defining marketing research problems and the process of setting research objectives. Key elements of the marketing research plan are: x x x x x x

Determination of data sources; Selection of research techniques; Selection of research instruments; Selecting a sampling plan; Selection of contact methods; Collection of information.

The researcher is then able to engage in planning a formal approach to the collection of marketing information which has a number of stages now illustrated.

Stages in the research process 1 Problem definition leading to a preliminary statement of research objectives, making this stage an identification of information needs which are: x x x x

Motivations, values, beliefs, feelings, opinions; Evaluations, attitudes, intentions; Knowledge, facts, behaviour, actions; Demographic and socio-economic about people, stores, companies, brands, products, etc.

This information is required for: x Exploration, description, prediction or evaluation. It comes from: x Secondary data sources, both internal and external to a company; x Primary data sources (i.e. from field work).

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2 Review of secondary data sources such as: x x x x x

Company records, reports, previous research; Trade associations, government agencies, research organisations; Advertising/market research agencies; The Internet; Books, periodicals, theses, statistics, conference proceedings, etc.

3 Select the research approach for collection of new/primary information through a combination of: x x x x

Experimentation; Observation; Surveys - mail, telephone, personal, internet; Motivational research techniques - depth interviewing, group interviewing, projective techniques.

4 Determine details of the research design i.e. methods, sample design 5 Data collection. 6 Analysis and interpretation of data. 7 Evaluation of results and recommendations.

Sample size and plan Most marketing research makes use of a sample when collecting primary information. Sampling can be complicated, but you should appreciate some of the key elements and decisions in the sampling plan, plus some of the terms that are used. Key elements are: x Defining the target population; x Determining the method for probability sampling e.g. true random sample; stratified random sample; cluster sample; x Determining the method for non-probability sampling e.g. quota sampling; judgemental sampling; convenience sampling. True random sampling, where every member of the target population has a known and equal chance of selection, is the most accurate. It is rarely used owing to its high costs. More often stratified or cluster samples are selected where analysis is required, but it is important to remember that

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these are still not truly random samples. Where a statistical analysis is not required, non-probability samples are used. Determination of the sample size is usually a trade-off between accuracy required and costs. Generally speaking the larger the sample size, the greater the accuracy, but the greater the cost. Sample size for any given degree of accuracy can be calculated.

Tools of marketing research Motivational research techniques The aim is to uncover underlying motives, desires and emotions of consumers that influence behaviour. These techniques often penetrate below the level of the conscious mind and there are two approaches: x Psycho-sociological approach which relies on group behaviour of consumers and the impact of culture and environment on their opinions and reactions; x Psycho-analytical approach which relies on information drawn from individual respondents in depth interviews and projective tests. Techniques used include: 1. Depth interviewing and observational methods. Topics for discussion are chosen by the interviewer and indirect questioning leads the respondent to free expression of motives, attitudes, opinions, experiences and habits in relation to advertisements, products, brands, services, etc. Depth interviewing is based on the psycho-analytical principle of ‘free association’ interviewing. The depth interview is not intended to be a formal question and answer session using a structured questionnaire. Such an exercise would merely be the administering of a questionnaire by personal interview. A depth interview is intended to be something more subtle and sophisticated that fall under the heading of qualitative research. They are concerned with collecting information on people’s beliefs, attitudes and opinions rather than more quantitative information that might more readily lend itself to statistical analysis. Depth interviews usually involve small samples. They are expensive and time consuming. Although the interview may only take an hour or so to conduct, the researcher will take much longer

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than this in preparation, making the appointment, making transcripts, and analysing this information. 2. Focus groups or group discussions are where the interviewer stimulates and moderates group discussions. In this method freedom of expression and interaction between individuals are encouraged. 3. Sensitivity Panels are a form of group discussion or focus group where respondents are trained to take part in such groups and the members of the group are used again and again for different research subjects such as different products, packages, or advertisements, etc.

Surveys (using questionnaires) This is the most commonly used method of data collection that can be conducted by mail, telephone, via email, or personal interview. Questionnaires can be self-administered or used in an interview situation, depending on: x x x x x x

Cost; Timing; Type of information needed; Amount of information needed; Ease of questioning; Accuracy required.

The practicability of any survey by questionnaire is best checked by a pilot study. To check the questionnaire: 1. Use a non-probability ‘purposive’ sample as it is not intended to use results in the final data set. At this stage we are only testing the design of the questionnaire, whether or not it is of a suitable length, sequencing of questions, easily understood, etc. 2. It is important to get the questionnaire right as the success of the entire survey depends on it. It is possible that a number of versions of the questionnaire will need to be tested before it is right. The last pre-test should use the final approved questionnaire.

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Questionnaire design Information collected must be accurate, so design of a questionnaire is important. It should consist of questions that have a single meaning intended for everyone. Questions should be numbered and have instructions to the investigator concerning the conduct of the interview. Answer codes should be as near to the right-hand side as possible and lines drawn at intervals can bring clarity to the design. Types of questions most commonly used are: 1. Open-ended questions give the informant a hint of what answer might be expected. A question which begins ‘What do you think of...?’ will bring forth large amounts of data which cannot always be satisfactorily summarised, but is useful at the pilot stage to show the range of likely answers. 2. Unaided recall questions do not mention the nature of the answer material and avoid asking leading questions like: ‘How did you travel to the station to catch this train?’ 3. Dichotomous questions offer two choices of answer: ‘yes’ and ‘no’. 4. Multiple-choice questions (‘cafeteria’ questions) offer a graduated range of possible answers, listed in order from one extreme to the other. 5. Thermometer questions ask informants to rate their feelings on a numerical semantic differential scale, e.g. 0-10. This type of question seeks to minimise the disadvantage of discrete classification in multi-choice type questions. Checklists are a way of prompting the memory of a respondent without being biased by the interviewer. However, for a grocery shopping questionnaire, brand leaders may be selected more frequently because of the weight of advertising.

Rules for question design 1. Use simple words that are familiar to everyone (i.e. shop not outlet, shopkeeper not retailer). 2. Keep questions short. 3. Avoid asking double-barrelled questions (e.g. ‘Have you a PC and notebook?’). 4. Do not ask leading questions (e.g. ‘Do you buy instant coffee because it is the quickest way to make coffee?’).

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5. Do not mention brand names (e.g. ‘Do you consider Sony to be the best audio equipment?’). 6. Do not ask questions that may offend (e.g. ‘Do you work or are you a housewife?’). 7. Avoid using catch phrases or colloquialisms. 8. Avoid words that are not precise in their meanings (e.g. ‘Does this product last a reasonable length of time?’). 9. Direct questions will not always elicit the expected response. Perhaps not all possible answers have been foreseen (e.g. the question ‘Are you married?’ does not cover the possibilities of divorce, separation, co-habitation, etc.) 10. Questions concerning prestige goods may not be answered truthfully. Careful rewording can avoid this (e.g. ‘Have you a smart phone with 64 Gb of storage?’ might be better asked by: ‘How much storage does your smart phone have?’ and then followed by: ‘Do you feel this is sufficient?’). 11. Only questions that the respondent can answer from knowledge or experience should be asked. 12. Questions should not depend on the respondent’s memory. 13. Questions should only allow one thought to be created in the respondent’s mind to avoid confusion and inappropriate answers. This particularly applies to questions beginning with ‘Why....?’ 14. Avoid questions or words with an emotional bias. The first questions asked should gain the interest of the informant, and should be easy to answer in a factual way. More difficult questions should come later, with those of greatest importance being about a third of the way through. Transition from question to question should be smooth and logical. Details of the respondent, if they are needed (age, address, name, occupation etc.) should appear at the end. The questionnaire must have a title and contain cross-references to others if needed, along with the interviewing district identification, the place and date of the interview and the interviewer’s name. Answers should be recorded in one of the following ways: x x x x x x

Writing a number. Putting a cross or a tick in a box. Underlining correct answers. Crossing out incorrect answers. Writing in a predetermined symbol. Ringing a number or letter.

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Open-ended questions should be followed by enough space to allow for answers to be recorded word for word. There are a number of basic questions that should be asked about any questionnaire: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Is each question clearly worded? Does it break any of the basic rules of question design? Is each question concerned with one factor only? Are the questions ones that will elicit the answers necessary to solve the research problem? Is each question unambiguous and will the investigator and the informant have the same understanding of the question? Are all possible answers allowed for? Are recording arrangements fool-proof? Will answers to each question be in a form in which they can be cross-tabulated against other data on the same or other questionnaires? Will answers be in a form that will allow at least some to be checked against established data?

Marketing experiments An experiment is a way of gathering primary data in which the researcher is able to establish cause and effect amongst the variables being experimentally tested. It can be carried out in an artificial ‘laboratory’ type setting or as a field experiment, the best example of which is the test market where researchers choose a representative geographical area or one where they can statistically adjust data to make them representative of a wider market area. The test market is like a ‘model’ of the total market. Test markets can be expensive, but being a field experiment they have the advantage of realism or ‘external validity’ over laboratory experiments. Another experimental technique involves surveying a small sample of consumers and showing them pictures or samples of products and ascertaining their preference as if they were really ‘shopping’. Other techniques include extended user tests, ‘blind’ and ‘simple placement’ tests. In addition, there are techniques used when pre- and post-testing advertising themes and copy. Marketing experiments are one of four main classes of research whereby marketing researchers collect primary information i.e. information collected for the first time specifically for a particular research exercise. The other three classes of

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techniques are interviews, such as ‘depth interviews’ and ‘group discussions’, observation such as ‘retail audits’ and ‘consumer panels’ and surveys such as a ‘postal questionnaire’ of ‘telephone’ surveys.

Observational techniques This may be humans observing humans, humans observing objects (e.g. cars), electro-mechanical devices such as cameras or recording devices observing objects or people. Retail audits conduct product audits in a large number of retail stores every month. Product managers can buy retail sales data and other supporting information on a ‘continuous’ basis. Related information on competitors’ products is also available. The consumer panel is a home audit where a wide range of households are monitored as to their purchasing habits. Respondents are of different socio-economic groups, family size and stage in the family life cycle. They record their purchases using a special bar code reader and send this data to the research company’s headquarters using a coupler. In retail audits, stores use electronic point of sale (EPOS) that sends retail sales information electronically to the auditing company. Observational techniques are a useful source of primary data and this method is often used in conjunction with other research methods.

Selection of research methods This element in the design of the marketing research plan is when a choice must be made as how to contact respondents. There are four main methods: x x x x

Face to face (personal) surveys; Telephone surveys; Internet surveys; Postal surveys.

Each has its own advantages and disadvantages and each differs with respect to cost, speed, accuracy, ease of use and ease of access as shown in Table 8.1:

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CRITERION COMMENTS Cost

Speed

Accuracy

Ease of use

Ease of access

Face to face

High but can be cost effective

Moderate

Moderate to high, two-way communication

Moderate, needs skilled interviewers

Moderately easy; sampling can be controlled

Telephone

Moderate

High

Moderate; verbal communication only

Moderate; needs good telephone skills

Access excellent; respondents can easily end interview

Internet

Low

High

Moderate to poor; restricted to respondents who can be bothered

Easy

Limited to access to email address list

Postal

Low but low returns render it less costeffective

Moderate

Moderate to low, although no interviewer bias

Easy although questionnaire design needs to be precise

Easy to access respondents, but difficult to ensure respondent reads and completes

Table 8.1 Research method selection criteria

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Main research areas Product research This involves design, development and testing new products, as well as improvement and modification of existing products and its activities include: x x x x x x

Comparative testing against competitive products; Test marketing; Concept testing; Idea generation and screening; Product elimination/simplification; Brand positioning; particularly important considering competitive pressures.

Pricing research The buy-response model can be used to: x Assist in establishing a more market-orientated pricing strategy; x Ascertain price consumers associate with different product variations (e.g. packaging); x Establish market segments in relation to price.

Distribution research This is concerned with two interrelated facets: channels of distribution and physical distribution. Marketers attempt to create a competitive advantage by selecting innovative, creative and more effective channels and evolve over time and new channel formats develop e.g. the Internet and ‘non-shop shopping’ like mail order, direct mail and television shopping channels. ‘Out of town’ shopping complexes have grown to the detriment of high street shopping. Marketing research has an important role to play in evaluating the efficiency of existing channels and forecasting likely future retail developments in terms of the channel formats likely to be used in the future and technology used within such channels. Techniques like retail audits can monitor the effectiveness of different types of distribution channels and detect regional variations. They can tell which channels are likely to experience future development and a growth in popularity, e.g. shopping areas within petrol stations. Qualitative research using depth

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interviews and group discussions and larger scale sample surveys using questionnaires, can be used when appraising channel efficiency and predicting likely future developments. New developments in the area of physical distribution can be monitored and predicted. For example, lean manufacturing (just-in-time) has meant that materials handling and vehicle technology is continuously developing with implications for logistics. ‘Tracking systems’ ensure that customers can establish exactly where their order or delivery is in the order processing cycle and establish exactly where a particular consignment is anywhere in the world.

Marketing communications research Marketing communications research is concerned with the appraisal and evaluation of each element in the communications mix. This includes advertising research, evaluation of below-the-line sales promotion, sponsorship and direct mail, trade journals, exhibitions, personal selling, corporate communications, telephone marketing and communication on the internet. An organization will need to research characteristics of customers or potential customers for their product or service. These may form distinct groups or market segments. In terms of marketing communications planning these represent the target audiences for any future campaigns. Once target audiences have been defined it is necessary to establish the most effective media to use to send a marketing message. What television programmes are the target audiences most likely to watch? What newspapers, magazines, journals, radio programmes and social media will be most effective in getting the message across? In business to business communications, personal selling is particularly important. In many industrial firms 90% or more of the overall marketing budget is spent on personal selling. Trade exhibitions, direct mail, sponsorship, transport livery, corporate workwear, telephone marketing and trade journals are also important business-to-business (B2B) marketing communication tools. This activity needs some kind of appraisal research to establish its potential and actual effectiveness. Once target audiences have been identified and the most appropriate communications media have been established, further research is needed at the pre-campaign level to put the communications message together.

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Marketing research thus has an important part to play at every stage of the communications process, identifying target audiences, selecting the most effective communication media, developing the message and evaluating how well the message has been communicated to the target audience and with what effect.

Reporting and presenting research findings Results should be presented in such a way that the marketing manager understands and can use them and ideally reports should: x x x x x x

Be simple and brief; Address the target audience for the report; Summarize major findings; Give an indication of implications for decision making; Where possible, present information visually; Put details, including statistical analyses, in appendices.

Organizing and briefing marketing research Marketing research can be carried out internally by staff in the marketer’s own organization or by an external marketing research agency. It is usually better to employ the latter as they have specialist skills which the organization may not have because of the ad hoc nature of such research. Care should be taken when employing an agency and once the agency has been selected a written marketing research brief should be agreed between both parties encompassing the following: x x x x x x x

The agreed research problem and research objectives; Areas to be researched; The research design, e.g. research instruments, sampling, etc. Analyses required; Timescales and completion dates; Security controls on information; Agreed budgets.

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Summary Marketing is the process whereby organisations strive to create ‘bundles of values or satisfactions’ in the form of products and services their customers will willingly buy. In the value creation process organizations attempt to meet or even exceed customers’ expectations. To remain competitive marketing firms have to create customer value more effectively and efficiently than the competition. Organizations that are market driven and customer focused in this way are marketing oriented. However ‘value’ is somewhat subjective and lies in the minds of individuals and groups of people. Value changes all the time within people’s minds. For example, what is regarded as fashionable in terms of clothing or popular music might not be next year. What might be regarded as unimportant ten years ago may become more important a decade later. To keep up with changing tastes and value systems of customers, activities of competition and changes in the external business environment, the marketing orientated firm needs information. Long-term corporate and marketing strategy and marketing plans at more tactical and operational levels need information. Such information is the life-blood of the marketing orientated firm. Without the right kind of information, effective marketing is impossible. Marketing research provides the organisation with a wide range of useful information, but marketing research on its own is insufficient at a strategic level; it must form an intrinsic part of the wider marketing information system. In this chapter we have seen that marketing research and the information it provides are essential tools for marketing management. Marketing research needs to be planned systematically and care should be taken in choosing an appropriate marketing research agency who must be correctly briefed as to what is required. Understanding and analysing buyer behaviour is central to implementing the marketing concept to make effective marketing decisions. Question 8.1 Give a definition of and state the differences between: 1. 2.

Market research; Marketing research.

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Marketing research is the design, collection, interpretation and reporting of information to help marketers solve specific marketing problems and take advantage of market opportunities. Market research is narrower in its focus and only considers the actual market under investigation. Question 8.2 What are the main reasons for conducting continuous marketing research? The main reasons are: 1. 2. 3. 4.

It improves the marketer’s ability to make decisions; Changing values and behaviour of customers can be monitored; Competitors’ development of strategies can be identified; It can be used to continuously evaluate the current effectiveness of an organization’s strategies and tactics e.g. the effectiveness its use of social media; 5. Research in the form of environmental scanning can help to identify the changes in social, legal, economic, political and technological advancements. Question 8.3 Identify the steps of the marketing research planning process. 1. Definition of problem and setting of objectives; 2. Design of the research - i.e. secondary research from internal and external sources and primary research decisions; 3. Sampling issues - i.e. random or non-random and size of sample; 4. Data collection and pilot phase including qualitative methods (e.g. in-depth interviews and focus groups) and quantitative methods (e.g. postal survey questionnaire); 5. Data analysis; 6. Findings related to the interpretation and completion of the report. Management of this process will need to consider staffing skills and budget issues before such research can be undertaken. These steps should lead to the implementation of the findings for management decisions.

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Question 8.4 Identify the advantages and limitations of: 1. 2.

Qualitative research; Quantitative research.

Qualitative methods

Advantages

Limitations

More in-depth attitudinal information can be gathered

High level skills required by conductors of research

Interviewers can probe and give guidance

Possibility of bias introduced by interviewers Analysis or results more difficult and time consuming Sample size is usually smaller

Quantitative methods

Statistical analysis available through appropriate software Larger sample can be used Often more economical than other methods

Inflexible as questionnaire will need to be short and easy for respondents Difficult to use to identify in-depth consumer attitudes and values Often low level of response

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Question 8.5 Discuss what is meant by secondary research and identify why it is often important to conduct secondary research before primary research. Secondary data is information compiled inside or outside an organization for the purpose of adding to the current research project or investigation. External secondary data can include general reports from data services such as the Government’s Social Trends and research agencies that provide Mintel reports. Internal sources include the organization’s accounting records and marketing databank. It is important to consult secondary sources prior to the primary research as this date has already been collected and stored and will be less costly to research and quicker to collect. It may also offer information and answers which may help in the design of the questionnaire or interview schedule. Question 8.6 Explain what is meant by a pilot study and identify why it is important to carry out such a study. A pilot study should be undertaken before the launch of a major piece of research. This type of study will use the same type of respondents from the population. Usually, if it is a questionnaire that is to be piloted, a small number will be sent out and respondents’ responses will be analysed to ensure that he questions are being interpreted correctly. It is important that a pilot study is undertaken for both qualitative and quantitative data collection. This will serve to ensure that the instruments and methods used will be effective before the major study is undertaken. If a pilot is not completed, then the organization runs the rist of not achieving valid data from the research project. Question 8.7 How does information technology help in the marketing research process? Information technology can help in the marketing research process in a number of ways:

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1. Obtaining information using the internet to identify competitor information; 2. Computer analysis telephone interviewing integrates questionnaire, data collection and tabulations, and provides data to aid decision makers in the shortest possible time; 3. Research tool on-site computer interviewing is when respondents complete a self-administered questionnaire displayed on monitor and responses are entered directly into a computer on-line for immediate analysis; 4. Research tool electronic observation devises such as scanners in supermarkets; 5. On-line information available through the internet and elsewhere for secondary data collection purposes. Question 8.8 Explain the role of marketing research within an organization’s marketing information system. Marketing information systems (MkIS) represent a systematic attempt to supply continuous, useful, usable marketing information to decision makers often in the form of a database. The main difference between marketing research and a marketing information system is that the former is an information gathering process for specific situations, whereas the latter provides continuous data. Data brought into the organization through marketing research becomes part of its marketing databank; a file of data collection through both the MkIS and marketing research projects. This databank allows researchers to retrieve information and this is useful for addressing problems quite different from those that prompted the original data collection. Often a research study developed for one purpose provides valuable information for developing a research method for further studies.

CHAPTER NINE MARKETING IN CONTEXT

Learning Objectives By the end of this chapter you will: x Understand the importance of contextual setting in influencing the selection of, and emphasis given to, marketing mix tools and the additional mix components in appropriate contextual settings, x Appreciate the differences in the characteristics of various types of marketing context, x Be able to compare and contrast the marketing activities of organizations that operate and compete in different contextual settings, x Recognize key contemporary contextual factors affecting the marketing mix including information and communication technology, international and global dimensions and impacts of the virtual market place, x Be able to bring together what you have already learned from earlier chapters, and be reminded of some of the important issues through repetition of many concepts and ideas.

Introduction This chapter draws together key issues and concepts we have considered in earlier chapters. We have considered individual elements of the marketing mix separately, but in practice it is vital that the marketer ensures these elements are combined and co-ordinated in planned marketing programmes. Many factors influence what is an appropriate combination and use of marketing mix elements in marketing programmes including factors considered in Chapter 2: Marketing planning and budgeting, encompassing opportunities and threats, strengths and weaknesses and selection of marketing strategies including choice of target markets and positioning strategies. It is recognized that the use and

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combination of marketing mix elements is influenced by the context in which these tools are applied. These settings for marketing encompass FMCGs, B2B and supply chain, large or capital project-based, services, voluntary and not-for-profit and small and SME contexts. We compare and contrast marketing activities and use of marketing mix tools of organizations that operate and compete in these different contextual settings. We also take the opportunity to explore some of more recent contemporary developments affecting marketing activities and marketing mix decisions. In particular we draw together the main effects of information and communication technology along with impacts of the ‘virtual market place’ on patterns of marketing activities.

Nature and importance of contextual settings for marketing The basic principles of marketing are the same irrespective of the type of organization or market. However, there are differences with regard to the practice of marketing according to the context in which marketing activities take place. This is particularly true with regard to selection of and emphasis given to different marketing mix tools and their use and combination in different market and organizational settings. Suggesting this raises the issue of what are the key types of marketing context, and how can we classify these into different types to be able to explore and discuss how the selection and emphasis given to the marketing mix tools may differ between these different contexts. Although there are various ways of classifying contextual settings the following represent some key and accepted classifications of contextual settings with regard to marketing: x x x x x x

Fast moving consumer goods (FMCG), Business-to-business, Large or capital projects, Small and medium-sized enterprises (SMEs), Voluntary and not-for-profit organizations, Services.

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Fast moving consumer goods (FMCGs) FMCG consumer goods markets are where the customer is purchasing products and services for their own or family use. The principal motives for purchase are personal in nature. This type of customer may be contrasted with those buyers who are purchasing primarily for their organizations or institutions and hence are business-to-business customers purchasing, for example, raw materials and components, etc. in the supply chain or large or capital project based products and services for organizational motives. FMCG contexts are where customers purchase products or services for personal reasons which generally involve low financial outlays, are bought frequently and are generally non-durable. They include products like toothpaste, confectionery, grocery products and more frequently purchased electrical items like batteries, light bulbs, etc. FMCGs may be contrasted with durable consumer goods such as refrigerators, cars, computers and non-durable consumer purchases which involve large infrequent outlays such as holidays. We have to be careful in discussing how marketing mix tools may vary within the broad category of consumer goods as there are so many different types of context. Within the consumer goods category, FMCG marketing involves probably the most distinct differences in the use and application of marketing mix tools compared to, for example, business-to-business and large or capital project based contexts. FMCG marketing lies at the extreme of consumer goods marketing when it comes to the application of marketing mix tools. Aspects of the product element of the mix which are important in FMCG contexts include branding, packaging, logos and design. Branding and brand image in particular are important as these provide reassurance for a customer and facilitate relatively easy brand choice. With regard to the promotional element of the mix there is likely to be heavy emphasis on advertising rather than personal selling. Advertising will generally be aimed at the mass market and will emphasize brand image and persuasive advertising messages rather than detailed factual messages. The importance and role of price in FMCG marketing varies across different products and markets, but value for money is particularly important and predominant in customer choice. The importance and prevalence of negotiation will depend on the culture in a market. In some cultures negotiation is prevalent even for FMCGs. Availability of credit and payment terms may be important facets of pricing in consumer markets generally, but are less likely to be important in the case of FMCG markets

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due to the relatively low outlays involved. Many FMCG products and brands have short product life cycles, often due to fashion influences or consumers simply becoming bored. New product development and innovation is important in FMCG markets if only by way of repositioning, repackaging, etc. to keep customers interested. Distribution will often need to be intensive and will normally take place through intermediaries, particularly retailers. Although relationship marketing, particularly through the brand element of the marketing mix, may still be important in FMCG markets, the degree of brand switching in this type of market often means that relationships are difficult to develop and maintain. Customer service plays a less important role in FMCG marketing than it does in business-to-business markets, large or capital project-based marketing, or services marketing. In planning the marketing mix in FMCG markets, as indeed in all marketing planning, it is important to understand the nature of the consumer buying decision process and the factors which affect this. Study tip The extent to which customers pass through each stage of the buying process varies considerably. It is useful to remember that there are three types of decision-making or purchasing situation. Extended decision-making involves all the steps in the purchasing process as outlined in Chapter 6 and is normally associated with expensive and/or risky purchases such as the purchase of a new car. The second type of decision-making is limited decision-making. Although the customer may pass through all the stages, they may only spend comparatively little time and effort at some of the stages in the process. For example, the customer may spend comparatively little time searching for information or evaluating alternatives. This type of decision-making often occurs where the customer has some experience of the product or service, or for other reasons is not prepared to spend a long time making the purchase. The third type is routine response behaviour. Usually associated with frequently purchased low cost items, here the purchasing process is almost automatic. Little time is spent searching and evaluating alternatives, rather the customer goes straight from problem recognition to choosing, for example, a favourite brand. In addition to understanding steps in the purchasing decision process for FMCGs, the marketer must understand factors affecting purchasing

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behaviour. The problem here is that many factors can come into play. The most important are: x Personal factors include demographics, e.g. age, sex and income. They also encompass situational factors such as the amount of time available when making the purchase decision and include the level of involvement and commitment the individual has when making the purchase. x Psychological factors include factors pertaining to an individual’s overall and purchasing behaviour. We know that some include perceptions, motives, learning, attitudes and personality. These operate internally, but can be influenced by the marketer. For example, we know that personality influences both product and brand choice. The extrovert personality is more likely to choose a different brand to the introvert. x Social/cultural factors are important in influencing purchasing and brand choice. Among the most important social factors are roles and family influences, reference groups, social classes, culture and sub-culture. We know, for example, that the choice of a newspaper is influenced by social class as are products like holidays, cars, cosmetics, etc. Socio-cultural factors in purchase choice are important, but are particularly so for the international marketer.

Business-to-business (B2B) Here the marketer is targeting other organizations or institutions as customers. The B2B customer differs from the consumer market customer in as much as they are purchasing for organizational purposes and motives rather than personal ones. As with FMCG marketing, in planning marketing mix programmes the marketer can benefit from understanding the nature of the customer; in particular the buying process and the factors which affect this. it is useful for the marketer to understand the behaviour of B2B customers. In contrast to FMCG markets there are often many people involved in the buying decision-making process in business-to-business markets. Of particular importance are the different roles which these different people play. The scope and roles of B2B or organisational buyers vary widely according to the type of service or commodity being purchased and whether purchasing is a centralised or decentralised function. Large retail chains now tend to centralise their purchasing to employ specialist buyers

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who can negotiate keen terms and conditions. Some companies employ buyers who have only superficial knowledge of the products offered and handle only the commercial aspects of the sale. Whatever the buying structure, organisational salespersons know that the buyer is not always the final decision-maker. In 1972 Webster and Wind proposed that there were distinct roles in the purchasing process taken up by different individuals, and sometimes the same individuals combining some of these roles. Webster, Frederick E. (Jr) and Wind, Yoram, ‘A general model for understanding organizational buying behavior’, Journal of Marketing, Vol. 36, April 1972, pp. 12-19. They termed this idea the notion of the ‘buying centre’ or the decision making unit (DMU) members of which are: x Gatekeepers control the flow of information to and from the people who buy (e.g. the buyer’s secretary or an assistant buyer). x Users are individuals who work with, or use the product. Depending upon how purchasing decisions are made, they are sometimes involved in product specification. x Deciders are people who make the buying decision. In many cases this is the buyer, but on some occasions it can be the specifier or in a tightly budgeted situation the accountant. x Buyers have authority to sign orders and make the purchase. They may also help to shape the specification, but their principal role is in supplier negotiation and selection. x Influencers can affect the buying decision in different ways (e.g. technical people may have helped in a major or minor way to develop the product specification). As an aide memoire, the acronym GUDBI will help you to remember these roles. Buying behaviour in B2B settings can involve several individuals and roles which combine to effect what is essentially a group purpose. It is important, therefore, for the marketer to identify the individuals and/or functions comprising this group and performing the range of roles outlined above. B2B marketers should be clear about the members of the DMU and direct their marketing efforts accordingly. As with FMCG purchasing, decisions in B2B markets can be looked at as a series of steps or stages in a problem-solving process and again you should consult Chapter 6 to refresh your memory. Generally speaking, the

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business buyers’ motives are more rational than their consumer counterparts with little or no impulse purchasing. Similarly, because the business buyer is often interested primarily in costs and profit, price and negotiation on price and terms are likely to be more important. The range of factors affecting business buyers is greater and more complex than for consumer purchases. This is principally because, although individual and psychological factors are likely to be less important, the business purchasing process takes place in the context of an organization, thereby introducing new factors into the buying process. The most important factors affecting this process are: x Environmental factors The range of uncontrollable factors which affect marketers also affect their customers. These include political factors, regulations and laws, economic and technological factors e.g. new legislation may affect specifications which customers need a supplier to meet. A good example is the car industry where engine component suppliers must meet increasingly stringent legislation regarding emission levels. x Interpersonal factors means that relationships among people can have a key influence on purchasing. Conflict between marketing and production functions in the purchasing organization may affect the choice of a supplier e.g. the marketer may prefer to use a supplier who can supply the latest technology, which may give the marketer’s company an opportunity to develop a competitive edge over other companies in the market place. On the other hand, production may prefer a supplier who, though not at the cutting edge of technology, can supply products and services using tried and tested technology. x Organizational factors means that the marketer must assess and understand an organization’s purchasing policies and systems. Some may require suppliers to initially tender through a closed tender system for business e.g. Government or institutional buyers that buy for defence-related products where closed tendering is the norm. x Individual factors Although business buying is by its nature more constrained and formal than its consumer counterpart, industrial customers are also individuals and are affected by things such as their education and background, personal preferences regarding suppliers and their sales people.

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Differences in the nature of business buyers and the purchasing process allied to the different motives for purchase give rise to several differences when it comes to applying the marketing mix tools in B2B markets where the following are likely to be more significant in supplier and brand choice: quality assurance, delivery, speed and reliability, price and aftersales and technical service. Reliability of the product, together with the degree of back-up service offered is a critical part of the marketing mix in B2 markets. In terms of promotion, more emphasis is likely to be placed on personal selling as opposed to advertising. Price is always going to be a key factor and is more likely to be vigorously negotiated in B2B markets and it should be borne in mind that contracts are often put out to tender. In B2 markets, although intermediaries are used, particularly in export and international markets, distribution is chiefly direct. Before we discuss other contexts for marketing it is useful to summarize our discussion of FMCG and B2B marketing by reiterating some of the key differences between these contexts and implications of these for the use of various marketing mix tools as shown in Table 9.1: FMCG MARKETS

BUSINESS-TO-BUSINESS MARKETS

Buyer/buying situations Individual/family

Group/organizational

Personal motives

Organizational requirements

Often rational

Planned/rational

unplanned/less

Not specialist buyers

Trained/professional

Less informed

Well informed

Little power

Substantial power

Marketing Mix - product Often standardized

Often customized

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Less technical

More technical

Less service

More service

339

Marketing Mix - price Less important

More important

Rarely negotiated

Frequently negotiated

Few tenders/bids

Often tenders/bids

Marketing Mix - promotion Emphasis personal

on

non-

Emphasis on personal

Marketing Mix - place Less direct

Usually direct

Logistics important

Logistics vital

Table 9.1 FMCG and business-to-business markets compared Activity 9.1 Find an example of a product that is marketed in both business and consumer markets, e.g. a cleaning product, writing paper and envelopes and coffee. Compare and contrast ways in which this product might be marketed to each of these different markets, with particular respect to the use of the marketing mix.

Large or capital project-based contexts A considerable amount of marketing activity centres about marketing large or capital project-based products. Many factors that affect the B2B marketer including the complexity of the DMU, group influences and motives for purchase also affect marketers concerned with large or capital

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project-based products which heightens and emphasizes some of the differences we have described in the marketing mix elements between FMCG and B2B markets. In this context personal selling as an element of the promotional aspect of the mix becomes more important and critical. Most large or capital-based projects require substantial expertise and both technical and commercial skills on the part of the sales person. Although advertising and particularly corporate advertising and PR may play a role, it is personal selling which will dominate, and price negotiation is even more important. The customer is considering substantial outlays which will commit the organization to long time scales. Because of this, the customer will be concerned to ensure long-term continuity of service back-up from the supplier. Related to this, full contract or turnkey services may be expected by the customer whereby the supplier will undertake to make necessary arrangements to plan, install and service and maintain machinery and buildings. The service element will be important even though the customer may be specifying highly technical products. Distribution will be direct.

Small and medium-sized enterprises (SMEs) In many countries the smaller company is the predominant business unit and SME business often represents the large multinational of the future. Until relatively recently SMEs have been slow to take up and use the concepts and tools of modern marketing. The small company needs to be even more marketing oriented than its larger counterpart, and certainly there is nothing in marketing that the smaller organization cannot adopt. The basic concept and tools of marketing are essentially the same whether applied to the one-person business or the large multinational. However, it would be unrealistic to expect that these tools would be used in the same way in both types of organization. Considerations in applying marketing tools and in particular the marketing mix in SMEs follow. We first list some limitations inherent in most SMEs, followed by implications of these limitations for planning and applying some of the tools of marketing we have discussed: x Finance available to the smaller business is often restricted. In turn this means that extensive and expensive market research or advertising campaigns are out of the question.

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x In larger companies specialization is possible, and marketing functions are broken down into more specialized areas, with specialist researchers, corporate planners, distribution specialists and so on. In the smaller business only one person may be responsible for all these functions. x Small businesses simply do not have the resources to compete head on with their larger rivals, particularly when it comes to competing on price and in the range and types of market in which it can compete. Activity 9.2 Think of examples of how the application of marketing tools might have to differ, owing to limitations of the small business.

Market analysis and research Although elements of market analysis and research are similar for the smaller business, both finance and marketing expertise may be restricted. This does not mean that marketing analysis and research should not be carried out: indeed they are vital. Even without expensive and sophisticated research, the smaller business can do much to improve its market intelligence. Here are some useful sources and techniques for the smaller company: x Internal sources: sales statistics, customer information, accountancy information, sales reports, etc.; x Central libraries; x Yellow Pages and trade directories; x Chambers of commerce, local authorities, banks; x Local colleges/universities; x Government sources. In most countries Government sources of information are likely to be the most important and potentially most useful sources of secondary information for the smaller business.

Syndicated research Syndicated research occurs where a group of research buyers share the cost and funding of research among themselves. Because of this,

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syndicated research is of particular relevance to the smaller business that cannot afford its own tailor-made research study but needs information over and above what is available from secondary sources. The majority of such syndicated research services are in fact conducted by larger marketing research agencies, and the results are sold to whoever will buy. In the UK syndicated research services include: x Retail Audits (A.C. Nielsen Company), x Target Group Index (British Market Research Bureau), x National Readership Survey (Research Bureau Ltd). Activity 9.3 These are examples of syndicated research organizations available in the UK. See if you can find other examples of syndicated research services in the UK or another country.

Shared research This can be particularly cost-effective for the smaller company. Some costs and field work are shared by a number of companies but the results are not. ‘Omnibus’ surveys are regular research surveys undertaken by the use of a predetermined sampling frame and methodology. A smaller business can ‘buy a seat’ on the omnibus by adding its own questions. Omnibus research has the advantage of low cost, as the field-work costs are shared by participants. The number of questions that can be added to an omnibus is generally limited to between six and ten, and because respondents will be asked questions about a variety of products in the same interview, questions are best kept short and factual to avoid respondent fatigue.

Product decisions Financial limitations will normally prohibit expensive research and development programmes, but smaller businesses can develop ideas for new products from a number of sources: x x x x

Customers, Competitors, Trade publications, Patent brokers,

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x Product-licensing information services. As with marketing research, Government help is often at hand. For example, in the UK the Department of Trade and Industry will help with innovation or the introduction of new technologies. Question 9.1 Small companies have a number of advantages in the area of new product development and innovation compared to the large company. What do you think these might be? x x x x

Speed, Flexibility, Better communication between management, A tendency to be more creative and entrepreneurial.

Pricing decisions The small business must price its products to achieve long-run marketing and financial objectives. The general consideration and approaches to pricing strategies are the same in small as in large business but the smaller company can neglect basic pointers, namely: x Prices should be related to the market and not solely to costs. Smaller companies often rely too heavily on cost-based approaches to pricing. x Although smaller businesses may have fewer overheads than larger counterparts, under-pricing is dangerous, and evidence suggests that more companies fail from under-pricing than overpricing. The smaller business should look for ways in which to charge a premium price, e.g. better delivery, after-sales service. etc.

Promotional decisions Here we can observe the greatest differences between small and large businesses. These differences stem from the small business’s limited financial resources. In the smaller business all elements of a co-ordinated promotional mix; personal selling, public relations and publicity, advertising and sales promotion, should be used. As previously noted, the

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smaller business has not the financial resources to undertake expensive promotional campaigns. Television advertising and expensive magazine and colour supplements are not possible. Smaller businesses need to use more focused campaigns and media, together with the use of ‘free’ promotion that well-organized public relations can bring. These are more appropriate forms of promotion and media for the smaller business: x x x x x x x x x

Local newspapers, Local commercial radio, Trade magazines and directories, Yellow Pages, Sponsorship of local events, sports teams, etc., Exhibitions, Press releases, Direct mail, Websites.

Place decisions Here small businesses may find they have to make more use of ‘agents’ and ‘dealers’ rather than employing their own sales forces.

Marketing strategies for SMEs There is evidence to show that marketing strategy is dependent on each firm’s size and position in its industry. Understandably, large firms can implement certain strategies not affordable by small ones. As far as the small business is concerned a focus strategy is usually the most effective. Rather than trying to achieve lower costs or highly differentiated products, the smaller business is better focusing on specialist market segments where it can compete effectively. This strategy is called ‘niche marketing’, where the company concentrates on smaller more specialized parts of the market that larger companies are likely to ignore. Such niche marketing allows more efficient operations and development of customer goodwill and loyalty.

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Question 9.2 In what ways, i.e. on what bases, might the SME choose to specialize in niche markets? x x x x

Specialization by end use, Specialization by customer type, Specialization by type of product, Specialization by geographic area.

Voluntary and not-for-profit organizations Marketing is applied outside of the traditional profit-making sector, e.g. hospitals, charities and museums are examples of voluntary and not-forprofit organizations using the tools of marketing. The marketing mix is combined and applied in different ways to profit-making organizations. The obvious difference is the absence of price in the marketing mix. Many do not set prices for their products and services, although there is always a cost and someone must pay for this. Often voluntary and not-for-profit organizations will emphasize organizational or corporate image as opposed to brand image in the promotional mix. Many of these organizations market direct to customers and have different channels of distribution. Such organizations exist to achieve objectives other than conventional objectives of profit, return on capital, etc. This description includes a wide range of diverse organizations, e.g. the army, fire services, local authorities, hospitals, charities, churches and political parties. With this range of organisations, we find differences in their approaches to marketing and use of the marketing tools. Some of the special characteristics of such organizations that need to be considered in developing marketing plans and programmes are: x Like services, products provided by such organizations are often intangible and different when it comes to marketing. x ‘Customers’ may be more difficult to identify than in the profitmaking organization. Often there are diverse groups that need to be targeted and it is more appropriate to define a target public or a range of stakeholders than target customers. x Marketing objectives of voluntary and not-for-profit organizations are generally set in terms of achieving a desired response, such as a financial contribution, increased use of the service, a vote, etc.

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Activity 9.4 Note what you think might be possible appropriate marketing objectives for the following voluntary and not-for-profit types of organization. A national police force, A local charity, A church. A national police force, e.g. ‘To improve public cooperation and support’, x A local charity, e.g. ‘To increase financial contributions from the local community and secure an increased time commitment from local volunteers’, x A church, e.g. ‘To increase the average size of congregations and increase financial contributions’.

x x x x

The following is an outline of how these characteristics of the voluntary and not-for-profit organization give rise to differences in the application of the tools of the marketing mix: x Products are usually intangible and may be an idea or service. x Price is often difficult to define and may often be associated more with the exchange of things such as time and effort to help a charitable cause or a political party rather than financial exchange. x Place is less concerned with the movement of goods and more with the communication of ideas. Marketing channels tend to be short. x Promotion in some ways is the most important element of the mix. All promotional tools are likely to be used, although there may be less emphasis on personal selling.

Services Many marketing concepts are similar for both physical products and service products. Because of the growth and importance of services marketing along with special characteristics of services, the marketing mix for services needs to be extended to include an additional three marketing mix elements, namely the additional 3Ps of people, process, and physical evidence. We look at these additional elements and also consider the application of the conventional 4Ps.

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A considerable number of developed economies can now be termed ‘service economies’, in that the service sector contributes the greater part of economic activity. By 2017 services had grown to account for almost 79% per cent of total UK output, with a decline in the proportion accounted for by manufacturing and agricultural industries. Activity 9.5 Thinking of your experiences as a consumer of services: list examples of service ‘products’. x x x x x x x x x x

Banking, Insurance, Hotels, Restaurants, Air travel, Hairdressing, Medical care, dental care, Home services, e.g. plumbing, Management consultancy, Industrial cleaning.

Key Definition A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Such characteristics set them apart from their physical product counterparts, and may give rise to additional different considerations with respect to planning and controlling their marketing. These ‘special’ characteristics are: x Perishability is one of the most difficult to appreciate. How for example can an airline be considered to be more perishable than fresh food products? The reason is that unlike most physical products many services cannot be stored. If an airline does not sell all seats on a particular flight, then those seats, or rather sales revenue from them, has immediately and irreversibly gone.

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x Intangibility When you visit a supermarket, many products are on open display. You probably picked them up, felt their weight or even sniffed them before deciding whether or not to buy. Compare this with the choice of the services of, say, an insurance policy. You can’t touch, see or smell the product before choosing, although you can make some assessment based on past experience, word of mouth, or even the location and décor of the insurance office. The intangible nature of most services gives rise to special problems both for suppliers and consumers. x Variability in production and marketing of physical products pay attention to ensuring consistency in quality, features and packaging. Customers can be sure that every can of baked beans will not vary. The provision of services includes a large measure of ‘human element’ and effectively you are purchasing the skills of the supplier, so it is often difficult for both supplier and consumer to ensure a consistent ‘product’ or quality of service. x Inseparability A distinguishing feature of service marketing is that the service provision and provider are inseparable from the service consumption and consumer. We cannot take a hotel room home for consumption; we must ‘consume’ this at the point of provision. This has implications for channels of distribution and scale of operations. x Non-ownership Unlike a physical product, the customer does not secure ownership of the service. Rather the customer pays to secure access to or use of the service. The hotel room is a good example as is banking services. Although the basic principles of marketing are essentially the same as for physical products, the characteristics of services give rise to a number of important issues when one considers marketing services.

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Activity 9.6 For characteristics of services just outlined, assess what might be the marketing implications associated with each, e.g. what do you feel might be some of the marketing implications of the fact that services are intangible? CHARACTERISTIC

MARKETING IMPLICATIONS

PERISHABILITY

Matching demand and supply becomes important. Ways in which this matching process can be managed in service marketing include: price discounts/special offers to even out demand fluctuations, e.g. off-peak pricing; bargain break holidays; etc. Wellmanaged booking and reservation systems. Development of complementary service products and/or diversification into new markets in order to equate demand and supply, shared use of facilities/equipment, e.g. hospitals sharing medical scanners, etc.

INTANGIBILITY

Company/brand image is crucial along with an increased need to emphasize benefits rather than features in selling and promotion. Need to look for ways to increase tangibility of the service, e.g. through demonstrations, promotional literature, etc. Difficult to conduct market research for new products. Concept testing becomes very important.

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VARIABILITY

Personnel selection and training are important and systems, procedures, etc., should be standardized. Make a marketing feature out of variability, e.g. stress its ‘customized’ aspect.

INSEPARABILITY

Often means that direct sale is the only possible channel of distribution. Scale of operation may be limited unless the service provider can reduce the need for him/her to be physically present, e.g. use of franchises, agents, etc.

NON-OWNERSHIP

Lack of ownership needs to be turned to advantage by stressing benefits this gives rise to, e.g., an office-cleaning service company might stress advantages to the customer of not having to have its own equipment or staff for this purpose.

The marketing mix and services We look first at the conventional 4Ps and then at the additional three mix elements in services marketing.

The service product The ‘product’ element of the marketing mix for service products requires that decisions be made on: x The type and range of services, x The quality and attributes of the services, x Warranties, after-sale facilities, etc.

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As regards product life-cycle and new product development, tools and concepts of physical product marketing apply, although given the intangible nature of services, concept testing of new ideas for services be difficult to conduct.

Pricing of services Again, basic methods of price determination and alternative pricing strategies, such as market skimming versus penetration, apply equally to services. However, perishability of services means that the careful matching of demand and supply is crucial. Because of this, we should expect to find that a much more flexible approach to pricing and margins is appropriate for services. The intangible nature of services also tends to heighten the use by customers of price as an indicator of quality.

Place and services The perishable nature of services stems from the fact that they cannot be stored. This means that physical distribution is not a key problem. Inseparability demands that many services are sold direct by the producer to the consumer. An agent or broker is often used to market financial or travel services, for example, and franchising has become an important method of widening the distribution and market spread of many types of service, particularly in the fast-food market.

Promoting services The intangible nature of service products raises special consideration for their marketing. The marketer needs to stress benefits rather than features of the service. For example, a college needs to promote job prospects for its graduates as much as details of the courses it offers. Personal selling is particularly important, as often the customer is purchasing the personal qualities and skills of the service provider, so an ability to develop close relationships and win customer confidence is crucial. Some service providers are either reluctant, or prohibited, from advertising their services e.g. in some areas of the UK medical profession, the code of ethics prevents advertising being used.

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Additional marketing mix elements in service marketing In addition to the conventional ‘4Ps’ there are three further Ps, namely people, process and physical evidence: x People: Owing to the intangible and inseparable characteristics of service products, a key factor in how the customer perceives the service and the degree of satisfaction received by the customer is the person providing the service at the point of contact. Often the extent to which a customer is happy with a service is due to the attitude, skill and appearance of people the customer comes into contact with when consuming the service. Very often a customer will purchase a service primarily because of people they deal with. For example, many people use a particular hair salon primarily because of the hairdresser or for teeth care use a particular dentist. Factors such as training, appearance and selling skills are important. x Process: This element is based on the way in which the service is provided and delivered. A number of factors can be included, including systems of order processing, processes for dealing with customer queries and complaints, parking facilities, booking systems, and systems for dealing with excess demand. x Physical evidence: This is an unusual term that relates to those factors that can help shape the customer’s perception and image of the service provider. For example, you may have noticed that many hotels provide writing paper, pens, entertainment, information and so on in their hotel bedrooms, thus producing an image of caring and quality. Similarly, many of fast-food outlets take great care over the design and layout of outlets and how they are furnished and the image and atmosphere this portrays. These are the 7Ps of the marketing mix for services. It is recognized that all products have a service component; indeed for many physical products this service element is the most important element in customer choice. Because of this, some notions of service marketing, including some mix elements, are applied to the marketing of physical products through the development of systems of customer care and quality, covering every aspect of marketing and dealings with customers. This was a theme that was discussed in Chapter 7.

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Contemporary issues marketing Marketing takes place in a dynamic environment. It is through marketing activities to which opportunities and threats are addressed. Important developments affecting the context in which marketing decisions include the application of new technology to marketing practice. We draw together some of the key strands of these developments and underline an increasing move towards the development of a ‘virtual’ market place. In so doing we reiterate key effects of information and communication technology on the development and implementation of the marketing mix. The next relates to the importance of the global dimension in marketing as companies continue to expand their planning and marketing horizons by focusing attention internationally.

The move towards the virtual market place Developments in information and communication technology have rapidly changed the face of marketing, particularly development of marketing plans and application of marketing tools. We now outline the more important issues which a move to the virtual market place have given rise to.

The growth of electronic commerce (e-commerce) Referred to as ‘e-commerce’ or ‘e-business’, e-commerce is a collective term to describe a variety of commercial transactions which make use of the technologies of electronic processing and data transmission. Key definition Electronic commerce: the use of electronic technologies and systems to facilitate and enhance transactions between different parts of the value chain. This definition highlights the fact that irrespective of the type of electronic commerce, its purpose is to improve transaction processes which are so central to marketing and it would not have grown to the extent it has, had it not offered enhancements to the process of marketing. Often these enhancements are in the form of cost reductions for the marketer, but more importantly are those enhancements which accrue to the customer. Put another way, the growth of e-commerce would not have been possible without the growth of the ‘e-customer’. The marketing concept states that

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marketing is about identifying and satisfying customer needs. This definition points to the fact that e-commerce and technologies that underpin it relate to the total value chain including customers, intermediaries, suppliers and other external agencies like advertising and market research companies. The ability to link and co-ordinate all the members of the value chain is one of the major reasons for the growth of e-commerce. The first stages of the e-commerce revolution began over 30 years ago when companies began to use computers for more effective delivery and supply systems. Initially, it was primarily in business-to-business transactions that this development took place, where effective customer and supplier relationships were felt to be particularly important. From manual systems of ordering and supply, gradually the computer enabled automation of these processes. This was built around the ability of the computer to exchange information electronically with regard to supply and delivery between customers and their suppliers. Eventually, this developed into fully automated systems of electronic data interchange (EDI). Such systems enabled an automatic order for components to be sent to a supplier when the computer based stock system in the customer’s company monitored a minimum stock and reordering level. The required order would be sent via direct computer links to the supplier’s computer, which would then automatically check stock availability and delivery schedules. At the supplier’s end the customer’s order would be dealt with electronically and the order confirmed, delivered and invoiced back to the customer. This development together with advances in facilitating technologies spawned a whole new approach to business and marketing incorporating new electronic ways of doing business. Given that e-commerce is a collective term for all electronically based systems and techniques of doing business, it encompasses a huge variety of specific technologies and applications each with their attendant advantages with regard to facilitating the marketing process. With this in mind we now list the advantages which e-commerce technology can give rise to and reasons for its rapid growth.

Advantages of e-commerce Advantages underpinning the growth of e-commerce include: x Better communication between marketers and customers, x Faster and more flexible transactions,

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x Ability to reach and serve geographically disparate customers, x Facilitates better control and co-ordination of all value chain activities, x Improved relationships with customers, x Related to above, increased customer retention and loyalty, x Increased speed of doing business, and ability to anticipate and react to increasingly rapid change. Many of these advantages are those that accrue to the marketer’s organization. E-commerce has only grown to the extent it has because it offers significant advantages to the customer. Examples of advantages to customers include: x One-stop shopping, x More convenient purchasing, e.g. from home, x The ability to compare and contrast product offerings from different suppliers and therefore get the best value, x Faster and more flexible purchasing, x The opportunity to communicate directly with suppliers regarding, for example, needs, terms, complaints. Examples of areas of consumer marketing where e-commerce is applied include: x x x x x x x x x x

Travel/holidays, Financial services – banking, insurance, etc., Music/entertainment, Food/wine, Books, Computer hardware and software, Event tickets, Restaurant bookings, Cars, Toys.

Even from this illustrative list, the range of industries and markets affected by e-commerce is diverse and still growing. From its original B2B market usage, the effect of e-commerce and technologies that underpin it are more widespread.

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Activity 9.7 List examples of products/markets where e-commerce techniques and activities are used. Initially major applications of e-commerce and the internet were in consumer markets in markets such as books, travel and event tickets, etc. where customers do not need to touch or try on the product. Other products/markets where e-commerce techniques and activities are used include: x x x x x

Clothing and footwear, Gifts and fancy goods, Flowers, Garden and outdoor products, Furniture.

In short, there is virtually nothing these days that cannot be marketed using e-commerce and technologies that underpin it. We now consider some e-commerce and new technologies further including the internet, intranet and extranets.

The Internet Key definition The Internet is a network of computers linked together such that the computer user may communicate with the other computers in the system. Originally developed so academics and scientists in different geographical locations could communicate with each other quickly and easily, the internet has now developed into a global network of linked computers through which individuals can perform different activities. An individual can investigate what is on offer to purchase from any company in the world which is connected to the network and offers products and services on this network. Individuals visit company websites, order products from virtual shopping precincts, book tickets for concerts, holidays and aeroplane flights, transfer information, ideas and money electronically and so on. From the point of view of the marketer the internet offers the opportunity to reach customers anywhere in the world. Moreover, it

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increasingly allows the marketer to communicate directly with individual customers, build up a powerful database on customers’ needs and wants, and develop very effective relationships with customers. It means that no longer does a company have to be large to operate globally. The Internet facilitates competition and is changing both consumer and marketing practices and habits. Customers shop for and buy products and services from home. This has implications for every facet of marketing such as product development, pricing, promotion and distribution. The much vaunted ‘dotcom’ companies proved to be disappointing in terms of their lack of success and profitability. An important reason was the fact that customers generally felt safer using the internet to deal with and buy from companies with well-established brand names and longestablished records of trading, albeit using more traditional methods. For example, major retail banks have been among some of the most successful protagonists of the virtual market place. Most conventional marketers in developed economies now at least have websites which customers can visit to find information, but these companies have some facility for a degree of on-line shopping. Study tip Visit the internet and visit a few company websites to find out how they are designing their internet offerings and services. Make notes on those that impress you from a marketing point of view and those that do not. An interesting phenomenon with regard to some of the early dotcom companies is that some of these companies have moved from purely being internet based marketers to developing their own retail distribution outlets, i.e. movement in this area is in two directions – many conventional retailers have become more involved in internet marketing, but at the same time some early virtual marketers have established more conventional marketing channels and techniques. An example of this is the dotcom company ‘Think Natural dotcom’ that was established in 2002. Originally an internet marketer, this company was successfully selling health-related products through its website for two years. Partly as a result of this success, it negotiated a deal with Superdrug, a conventional retailer, to include stocking of many of its products and brands in Superdrug retail outlets throughout the UK.

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We must think of on-line/virtual marketing and conventional marketing not as being dichotomous alternatives but as being a set of marketing approaches and techniques, which are increasingly being used together. The Internet is just another tool in the marketing process, albeit a powerful one. This means that the internet activities of a company’s marketing must be planned as part of the overall marketing strategy and marketing mix of the company and not simply be tagged on as an afterthought. A further facet is that conventional boundaries and structures of markets and the competition within them are changing. By providing direct links with customers, suppliers and distributors and facilitating transactions, processes and information transfer, the internet has radically transformed the way marketing is done. The Internet can be used as an external research tool to access market and competitor information and as a direct marketing channel and a home shopping site. It can be used to raise awareness and support other communication tools for specific campaigns. It is also used by organizations to communicate with other organizations in B2B marketing. As ownership of personal computers has grown, and costs of internet use declines, more consumers are contactable directly via e-mail instead of mailshots.

The intranet Key definition The intranet is an electronic system of internal communication throughout an organization. Similar to the Internet but operating within an organizational system, the intranet connects functions and activities within an organization thereby facilitating rapid and effective internal systems of communication. Intranets allow, for example, employees to access information from other parts of the company though some of this may be restricted. This allows greater management of communication and can be used to advantage for relaying information on important developments from outside an organization such as competitor actions as well as for internal promotional material such as company newsletters.

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The extranet Key definition The extranet is a system of electronic communication which connects members of a value/supply chain network together. The extranet links together value chain companies such as material/component suppliers, producers, distributors and intermediaries, and in some cases customers. The development of EDI networks and marketing is an example of extranet application that allows closer and more sophisticated relationships to be developed between the members of the value chain, and access and use of such information should allow for mutual economies and enhanced communication. This strategy encourages trust and commitment between two organizations such as a supplier and customer, e.g. the extranet may be used to allow a customer on-line access to some of its internal information sources. The extranet is used in a organizations where such access to information has helped in planning sales and logistics down the line. There are problems related to levels of investment required to allow this system to work effectively. One must also consider problem of access to information when one organization wishes to terminate the relationship.

Databases Databases are not a technology but rather bring a number of technologies together to increase and enhance customer information which a company can use in its marketing. Databases are important in contemporary marketing and in the move towards the virtual market place. Key definition A database is a store of customer information which can be used to develop marketing strategies. Central to the marketing concept is the need to know your customers. Developments in information collection, storage, and analysis have been one of the most important competitive assets a company can have. A customer database can be built from many sources. Information can come from customer orders, subscription lists, guarantee return forms, loyalty cards, company sales persons, customer complaints, customer

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enquiries, traditional market research and outside companies that specialize in providing customer information. We see that information on customers can come from a wide variety of sources, both from inside and outside the organization. Coupled with the ability to store and manipulate large amounts of data, the plethora of customer data sources means that all too often it is possible to be overwhelmed by data. To avoid such information overload, while at the same time ensuring that valuable information about customers is not overlooked or lost, database management needs careful planning. The essence of successful database marketing requires careful attention to: x Specific objectives for the database, including types of information required and why, x Effective systems for data capture including strategies for this x Appropriate systems for data storage including effective database maintenance, x Effective systems of analysis and interpretation of data based around providing information for marketing decision making. It is easy to collect data for the sake of it. The marketer and database planner need to work carefully together to determine precisely what data is required in the context of being useful for decision making. Data capture involves systems for providing and collecting data for the database and encompasses sources like market research and loyalty cards. Companies have become better at data collection with sophisticated methods for providing data. It is important to remember that there is considerable legislation relating to the collection and use of data on customers. The most important legislation is enshrined in the Data Protection Act of 1998 which covers both manual and computer systems and protects customers’ rights in several respects with regard to personal data. It is particularly important in building a database that valuable sources of customer data are not ignored. Many companies suffer from the fact that different departments in the organization each have their own databases which are never used by the rest of the organization, so ‘data warehousing’ deals with this problem. Key definition Data warehousing is the process of collecting data on customers and centralizing this into a single pool within a company.

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Activity 9.8 List examples of data on customers which functions, other than marketing, might generate in the course of performing their functional activities. x x x x x x

Prices paid – accounts function, Product requirements – design function, Delivery and out of stock problems – despatch department, Customer complaints – switchboard/reception, Quality requirements/issues – production department, Licensing/brand protection issues – legal department.

Once the database is established, the next step is to use this data to improve marketing. This involves ensuring that data is analysed and manipulated to provide information for marketing decisions. Developments in IT and computing power have facilitated more sophisticated analysis and interpretation of data for this purpose. Sophisticated statistical analysis and modelling techniques allow the marketing manager to look for important patterns of cause and effect between various data elements i.e. data mining. Key definition Data mining is the process of analysing and manipulating data to provide new and more powerful insights into customer behaviour patterns to improve marketing decisions. Such database analysis and manipulation has enabled the marketer to use database information in more powerful ways e.g. segmentation and targeting strategies, development of relationship marketing strategies, customer retention and loyalty strategies, improved promotional and direct mail strategies. In managing the customer database it is important to ensure that it is regularly maintained or ‘cleaned’. Customers and information held on them is changing all the time and inaccurate information means we run the risk of making wrong decisions. For example, there are examples of companies sending out marketing literature to customers on their database who are no longer living. Many companies reference their data against third-party lists to ensure its accuracy. Other companies use external consultants to ensure that the database is maintained.

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Digital communications The growth of multimedia, including interactive television, CD-ROMs and DVD and of course the world wide web have changed advertising and promotion in marketing and led to the development of entirely new products, especially in the music and entertainment industries.

Mobile marketing (M-marketing) Related to developments in digital communications is wireless and mobile technologies and communication associated with them. The marketer is able to communicate with customers and customers irrespective of where they are. Wireless technologies mean that the marketer and consumer are able to communicate via a mobile phone which allows direct access to the internet. Its importance to marketers has been another contributory factor in the move towards a virtual market place.

Effects of information and communication technology (ICT) Developments in ICT have enabled marketers to apply the principles of the marketing to much greater effect. There are many reasons for this but essentially ICT and particularly the marketing research and database elements already referred to have enabled marketer to understand and respond to customer needs and requirements more effectively than before.

The marketing planning process Virtually every element and step in the marketing planning process ranging from the marketing audit to evaluation and control is being impacted by developments in technology.

Marketing research Marketing research is an obvious example of the potential for technological advances. IT has been helpful to researchers and has made the process of international marketing research easier. It has also made secondary research more economical. Some of the ways in which advances in IT are being used in marketing research follow.

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Secondary research On-line format allows researchers to access and manipulate data with appropriate software; the data usually available on a subscription basis. Such sources are often more up to date than printed formats. Internal secondary data sources, particularly databases, are becoming increasingly powerful information sources that enable researchers to identify and analyse customer behaviour in depth.

Primary research In terms of gathering information, quantitative data using a research instrument or questionnaire can be posted on the internet. It can also be emailed to potential respondents. Such information can be collected via online scanners as an observation tool to assess purchasing behaviour. Scanners and electronic equipment can be used to monitor in-store traffic flows. Digital television allows researchers to gather information directly from respondents. As regards qualitative information, chat rooms or discussion areas on the internet are useful. Key definition Chat room is an internet facility whereby individuals can ‘meet’ in cyberspace to discuss issues with other internet users. Often such chat rooms are listed under topic/subject area of interest, e.g. fine wines. Information technology developments help in the analysis stage of market research e.g. during interviews, responses can be entered directly into laptop computers which can ensure that information is ready to analyse instantaneously. This can also be undertaken for telephone interviews. Computer packages can be used to analyse both quantitative and qualitative information.

Promotional campaigns and the promotional mix Advances in technology and particularly ICT developments have had a major effect on the promotional elements of the marketing mix. Consider the following examples:

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Advertising Direct response television advertising (DRTV) has allowed advertising to achieve more than just awareness. Data can be captured and responses can lead to converts. Satellite television and digital technology has allowed for more sophisticated targeting. The use of the internet as an advertising window or banner advertising on other linked sites is now commonplace. Activity 9.9 In what ways does satellite television allow for more sophisticated targeting with respect to advertising? x More specialized programmes, albeit with smaller audiences, can be linked to special interest groups, x Satellite television programmes are often broadcast at times when other, terrestrial based, programmes are not being shown, allowing access to audiences which would otherwise be difficult to reach.

Sales promotions Sophisticated databases and direct mailing of sales promotions are powerful tools for marketers. Use of websites and ‘free downloadable program or screen saver’ has allowed the marketer to become more creative.

Personal selling Automated customer handling technology has eroded some elements of personal selling. The use of call centres by companies has significantly reduced selling costs. New technology has facilitated greater control over sales force activities through the use of mobile phones, e-mail, etc. Intranet technology, by allowing speedier and more flexible communication with sales staff, can increase sales force motivation and effectiveness in dealing with customers. Satellite and digital technology enables video conferencing allowing sales conferences where sales staff are globally scattered. Access to powerful computing enables rapid analysis of sales data.

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Public relations The use of websites as a relationship building tool is effective for both internal staff and external audiences (customers, journalists, community, etc.). For example, internal newsletters can be communicated on the intranet and press releases to journalists can be e-mailed instantly with digital pictures using satellite technology. The web has proved to be a useful communication tool for crisis management such as disasters, accidents, pollution scares, etc. when accurate and rapidly changing information to the public is crucial.

Direct mail The growth in databases and an ability to improve the accuracy and complexity of information held on such databases has allowed marketers to use direct marketing and direct mail more effectively. The marketer can use the database to identify key target customers based on data regarding their purchasing habits, interests, attitudes and opinions. The marketer can target a direct mail campaign to the right people reducing costs and increasing the response rate.

Customer relations A well-designed and operated website allows for effective communication with customers. If customers can easily find the website and access information on it, and these visits are rewarding in the sense of offering more than simply information, the customer is likely to be favourably impressed with regard to the company and its offerings.

Media relations The website is a potent public relations tool as reporters can access well prepared information in a format it can readily use.

Investor relations A corporate website is important for investors accessing information like annual reports.

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Community relations This website can include information relating to promotion of local joint projects, contributions to arts and culture, invitations to open days and educational pages.

Electronic customer relationship management (ECRM) Rather than viewing exchanges between the organization and its customers as one-off individual transactions, RM is based on the notion of building long-term between both parties to the exchange. Customer relationship management (CRM) places increased emphasis on cooperation, coordination, and communication between the members of the value chain with greater emphasis on the importance of developing customer loyalty and retaining customers. Translation of these facets into effective RM programmes has been facilitated by advances in IT, termed electronic customer relationship management (ECRM). The use of sophisticated databases and direct communications enhance relationships. The financial services sector and FMCG organizations are effective users of electronic methods to ensure that relationships customers are robust and effective in securing mutual benefit, thus building lifetime relationships. The extranet coupled with EDI systems allow different members of the value chain accurate and instant information for planning purposes. The extranet not only allows for greater flow of information which facilitates cost economies, but it also communicates trust and commitment between customers and suppliers. ECRM specialists use sophisticated information and database technology in developing and implementing ECRM systems for their clients based on their requirements.

Customer service and customer care Examples of ways in which advances in technology are impacting this area include: x By removing physical distance between customers and marketers the two come closer together. x Improved databases facilitate tracking of customer satisfaction and follow-up of complaints potentially improving customer service.

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x The interactive nature of this technology allows customers greater involvement in the development of marketing programmes to satisfy their needs, and facilitate the ease with which customers can evaluate and purchase products and services such as home banking and shopping to improve levels of customer service.

Automated customer handling operations Such systems enable the organization to handle large numbers of customer enquiries and complaints. Most of these systems are based on automated voice and pushbutton instructions when customers telephone the organization. By pushing a series of numbers in response to automated voice prompts, the customer is directed to the right department or person in the company and to the source of information required e.g. bank customer can access information by keying in on the telephone their membership and pin number, and by pushbutton technology they can access account balances, order cheque books, transfer money, etc. There is concern that far from improving customer service, some of automated customer handling operations lack the human interface many customers seek. In addition, the amount of time lost during what can be often long and laborious push button processes can be annoying. In considering technologies which enable a greater degree of automation in customer handling operations, organizations need to be careful that such systems do not alienate their customer base and erode levels of customer care rather than enhance them. Activity 9.10 List reasons why many customers increasingly feel that automated customer handling operations are annoying and frustrating. x Difficulties in getting through in the first instance, x Having to respond to questions which are not of interest to the caller, x The time taken to eventually get connected to the person/department being sought, x The impersonal nature of many of these systems, x An dislike of piped music, x A feeling that the organization does not want to talk to its customers.

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The whole area of e-commerce and applications technology to commerce and marketing is a hot issue. You can expect to come across considerable amounts of information and reports on developments in this area in newspapers, reports and the internet itself. You should look for information in this area and particularly examples of developments and applications of technology in marketing.

International and global dimensions A second major development in the context of marketing which has given rise to major implications for the nature of marketing undertaken by organizations including their use of the various marketing mix tools is international and global dimensions of marketing practice. Study tip International and global marketing is an area of study in its own right. It is not possible or essential to encompass every facet of this area of marketing at this level, so confine your study to implications in the context of marketing mix tools. Examples of how international and global dimensions impact this area now follow to illustrate their importance in contemporary marketing.

Product and packaging issues in international marketing The international and global marketer faces additional complexities and decisions when it comes to products and packaging. PEST (or STEP) factors are important determinants affecting product and packaging decisions. To the extent to which these PEST factors are likely to differ between different countries the marketer must take these into account in product and package areas of the mix. When it comes to packaging design some countries are very stringent with regard to recyclability regulations. Similarly facets such as the product life cycle stage for a product differ between different countries. Decisions about aspects of product features, design and components of a product have to reflect individual country requirements and the extent to which products needs to be modified or adapted. The more a company can standardize its products, the more economies of scale it will gain. Offset against these gains, however, are the potential barriers to and disadvantages of product standardization. For example, consumers in many African markets simply cannot afford many features and design attributes of products marketed to European or

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Northern American markets. For example, a more basic washing machine or television is more appropriate. The successful marketer must strike a balance between standardization and adaptation. When it comes to branding we have seen the emergence of global brands. This is a result of consumers being more cosmopolitan and exposed to a wider range of global influences and indeed global brands have flourished. The marketer benefits through lower costs of brand support. With regard to the new products being developed with global marketing in mind, it is easier to build in requirements for adaptation to meet the needs of other markets at early stages of product development rather than adapt them later. This means the marketer must be aware of factors in international markets which must be considered when thinking about product specifications for new products. In particular, regulatory and legal factors must be considered. However, it is differences in buyer requirements which are likely to cause major changes to the product development programme.

Pricing in international markets Primary inputs include areas such as costs, demand, competitors, customer and company considerations. Pricing can be cost, demand or competitor based and pricing strategies can involve skimming or penetration. As in other areas of the marketing mix there are additional complexities and considerations when pricing in international markets: x The marketer must consider any additional costs due to tariffs and duties as a result of trading across international boundaries. x International marketers often face the issue of ‘price escalation’ for their products in international markets, i.e. there are forces which drive up prices such as tariffs, but also increased costs of transport and distribution. x The international marketer faces problems of having to take account of different currencies and changes in exchange rates. Even small differences in exchange rates can have a major effect on profitability. x The international marketer has to consider terms and conditions which each party agrees to when considering price and delivery arrangements. For example, prices can be set at a free on board price (FOB) where price includes delivery onto the customer’s ship

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for transport or a price may be set which includes carriage, insurance, and freight (CIF), i.e. all costs included when delivering to the customer’s factory. There are other more specialist quotations as well.

International aspects of channels and physical distribution Principles, issues and management of channels and physical distribution are the same for domestic and international markets. However, these are more complex when planning the place element for international markets. In addition, there are considerations and complications which the international marketer faces in planning place which are simply not encountered when planning for purely domestic markets: x Distances involved for physical distribution are often greater in international channels. This makes planning logistical and physical distribution elements more important. For example, for products travelling long distances, physical protection of products during transit is more important. x International channels involve types of intermediaries often not found in domestic marketing. For example, we have export agents of various types, international forwarders and freighters, specialist government intermediaries, etc. The international marketer needs to be aware of, and work with a variety of intermediaries. x Decisions such as responsibilities and payments between different parties in the chain must be considered e.g. who takes title to goods, and at what point in the channel. x Channel arrangements which are used satisfactorily in the domestic market simply may be unavailable in international markets. The UK has one of the most highly concentrated and developed retailing sectors in the world. Such channel arrangements might not available in developing countries. x Competitive and macro environment factors are often different in international markets, which may have a major effect on the selection of channel and physical distribution arrangements. In the UK, for example, car distribution is still very much controlled by major car manufacturers with things like prices being more manageable from the manufacturer than in other parts of the world due to different distribution arrangements.

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International aspects of promotion The main considerations are: x Because many aspects of promotion, including areas such as message design, media availability, technological considerations such as access to internet and communication technologies, are substantially affected by political, economic, social, cultural and technological considerations. Because these are often different in other geographical areas, it is important to consider these differences when planning international promotional campaigns. x International communications, underpinned by developments in IT, have become more global in nature. It is now easier to plan global promotion and communication campaigns in international marketing. A key consideration for the international marketer when planning international promotion is the extent to which it is possible and advisable to use standardized versus adapted promotional campaigns. Factors affecting this decision include the nature of the product, target market countries, resources available and the similarity or otherwise of customer needs and behaviour. This is particularly so with respect to standardization of some elements of promotional campaigns, in particular elements such as brand names, corporate image and central messages relating to company positioning and business missions. Companies like Coca Cola and McDonald’s have built promotional campaigns which span the globe with only changes in advertising and media due to differences in availability. This has led to the development of a consistent corporate and brand image, potential for economies of scale in the production of promotional material for advertising campaigns and the potential to appeal to what is an increasingly global customer.

International aspects of customer care If a customer has a satisfactory experience with a company in one country it is much more likely that that customer will seek to use the same company when purchasing elsewhere in the world. Differences abound in cultural practice in diverse parts of the world with regard to what is expected in terms of customer care. People, process and physical evidence are all important. By way reminder, the following should be considered: x Identify customer needs and perceptions for each market,

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x Establish a mission statement, x Set service level standards and specifications reflecting individual country requirements but guided by an overall customer charter which reflects the mission statement and outlines measurable criteria and standards to be attained, x Establish management processes and communicate these to all staff, x Define specific tasks as regards customer-care elements for each country, x Establish basic minimum levels of customer care, x Ensure effective response systems for identifying, tracking and responding to complaints, x Ensure management and staff commitment to programmes through, for example, effective training and remuneration programmes, x Ensure effective and continuous measurement of the customer-care programmes.

International implications of technological advances in marketing Technological advances have affected many areas of international marketing operations. It is primarily developments in ICT which have had the most profound and far reaching implications. The speed with which information can be obtained and accessed by customers and companies has led to much greater and increased global competition. When a customer can access information and purchase products from anywhere in the world simply by the click of a mouse and marketers must consider a broader range of competitors and expect customers to shop for the best value and service. Increased global competition can be both an opportunity and a threat. In the case of developing and launching new products, information technology has presented major opportunities and advantages for marketers. It can help cut costs and increase speed for developing and launching global new brands through new technology based marketing research techniques. Marketing managers can be kept informed of company and market developments more easily and intelligence on markets can be shared. In this sense it is probably as much the intranet as well as the extranet which is presenting opportunities and advantages for the global marketer.

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Marketing in practice: case study ‘More than just a number – getting to know your customers’ Literally billions of pounds, euros, dollars, yen, etc. have been spent by companies to develop and implement CRM strategies. Much of this has been on electronic systems and technologies for improving customer relationships including database, internet and marketing automation technologies designed to make it easier to identify customers and their needs. However, many have found that money spent on electronic systems for improved CRM have not produced results in terms of improved relationships that they had hoped for. There are reasons for this. Firstly is a misunderstanding of what CRM and particularly technologies that underpin it are all about. Some companies have felt that simply by purchasing or developing ‘sophisticated’ software and databases that they would ‘automatically’ improve customer relationships. Effective CRM is much more than having extensive database systems. Databases can only provide the start point for effective CRM. More important are the right staff attitudes in an organization towards customer relationships and in particular a desire to improve customer service. Related to this is the fact that many customers don’t want a relationship with the marketer; they simply want good service. Often customer relationship systems, particularly elements such as databases often are not designed and implemented to facilitate improved customer service as a means of developing better customer relationships. An example of a company that has successfully negotiated some of these reasons for the often disappointing results of CRM programmes is that of the Britannia Building Society in the UK. In designing and implementing its CRM system Britannia were quite clear that the system should be built around improved customer service. They took the trouble to identify what service items and levels customers were interested in and valued. The CRM system was then designed to deliver these service items and levels. Britannia placed great emphasis on effective training and motivation of employees regarding the importance and purpose of CRM in the company. They

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were careful to ensure in their selection and use of the technology and database systems which underpinned their CRM activities, that the system improved customer service at key customer and interaction points including branches, telesales units and call centres. This has allowed Britannia Building Society to make their customers feel that they are being treated as individuals rather than as simply a number.

Summary x In this chapter we have explored the importance of contextual setting in influencing the selection of, and emphasis given to, the marketing mix tools, x We have explained the differences in the characteristics of various types of marketing context and their impact on marketing mix decisions, x We have compared and contrasted marketing activities of organizations that operate and compete in different contextual settings, x We have seen the effects which information and communication technology and the move towards a virtual market place are having on the development and implementation of the marketing mix, x We have seen that marketers that operate in an international and global context need to take account of this with respect to the use and application of the different marketing mix tools.

Further study and examination preparation Question 9.3 Using examples, explain the importance of contextual setting in influencing the selection of, and emphasis given to, the marketing mix tools. Although the basic principles of marketing apply irrespective of situation or context, the application of these principles and particularly the selection of, and emphasis given to, marketing mix tools will differ in different contexts. There are many variations on contexts, but the main different contexts within which marketing activity takes place are: x Fast moving consumer goods (FMCGs), x Business-to-business,

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Large or capital project-based, Services, Voluntary and not-for-profit, Small and medium-sized enterprises (SMEs), International.

In these contexts, it is possible to demonstrate how marketing mix tools would vary in terms of selection and emphasis e.g. in B2B markets there will be more emphasis on personal selling, provision of technical information and advice, and effective after-sales service. For services the traditional 4Ps need to be extended to include People, Process, and Physical evidence. In international markets the emphasis given to marketing mix tools would need to reflect different environmental and cultural considerations. In large or capital project-based contexts the People and Service elements would be important. Voluntary and not-forprofit organizations would have less emphasis on price and may not set prices at all. In SMEs financial and staff limitations mean that expensive advertising campaigns might be prohibitively expensive and more use is made of intermediaries rather than employing a force to sell and distribute products. Question 9.4

Outline the seven marketing mix elements in services marketing. When considering the marketing mix for services, the marketer must include a further range of mix elements to ensure the effectiveness of the marketing plan. In addition to the conventional 4Ps there are three further Ps: people, process and physical evidence: x Price should be planned in conjunction with overall strategy, e.g. market penetration will lead to a lower pricing policy. x Product In the case of services, the product will be intangible, e.g. a pension policy or education. x Place When considering distribution in services marketing, this can relate to opening times and availability. x Promotion Promotional aspects are often considered as a tangible indication of the service. Use of effective communications is one of the main ways to position the offering.

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x People The service provider or staff of the organization are key factors in delivery of the service and have major ramifications for customer satisfaction and service quality. It is important that companies are able to implement effective customer care programmes to build positive relationships. x Process relates to systems of delivery for the service, e.g. the parking facilities and booking systems. x Physical evidence relates to physical cues about the service, e.g. staff uniforms and reception areas. It is important to ensure that physical evidence, such as signs, is a part of overall marketing planning. Question 9.5 Using examples, explain how marketing mix elements may have to reflect differences between countries when the marketer operates in an international environment. An additional layer of complexities and considerations is introduced when a marketer operates internationally. A major impact of these complexities and considerations is the use of marketing mix elements. Here are some ways in which the marketing mix elements are affected when the marketer operates in an international environment: x Products Different countries have different regulations with regard to, for example, product design and specifications, etc. In addition usage and customer requirements for a given product may differ between countries. Packaging may need to be changed to meet legislative or customer use requirements. Because of cost savings marketers have attempted to standardize products and packaging across countries, but these cost savings have to be balanced against the need to adapt to different country requirements. x Price Marketers face different levels of competition in different countries. Pricing strategies must reflect this. In addition, different countries may be at different levels of economic development and activity so this needs to be reflected in pricing. x Place Different countries may have different channel arrangements, types of intermediaries, infrastructure, etc. Unless the marketer uses direct channels these will affect the distribution element of the mix. x Promotion Cultural differences must be reflected in the promotional mix for different countries. Some marketers have tried

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to standardize the promotion element of the mix but care needs to be taken with regard to, for example, the use of symbols, signs and language. x People, Process and Physical evidence For service products these extended marketing mix elements will need to reflect different country requirements. For example, marketing in the USA requires the marketer to pay considerable attention to levels of service support and process elements for delivery. Question 9.6 How can technological advances be used specifically within promotional elements of the communications mix? Advances in technology have had a major impact on the promotional mix which an organization will be using: x Advertising DRTV advertising has allowed advertising to achieve more than just awareness; data can be captured and responses can lead to converts. Satellite television and digital technology has allowed for more sophisticated targeting. The use of the internet as an advertising window or banner advertising on other linked sites and use of CD-ROMs as a vehicle for advertising has expanded over the past 20 years. x Sales promotions Sophistication of databases and direct mail of sales promotions has been powerful. The use of the website and the ‘free downloadable programme or screen saver’ has allowed marketers to become more creative. x Personal selling has now declined due to the use of automated customer-handling technology. This has cut costs while not eroding service to the customer; however, in this has not always been effective and many customers have become disillusioned. x Public relations Use of the website as a relationship building tool has been effective for some organizations. For both internal (staff) and external audiences (customers, journalists, community, etc.) it has been easier to communicate using the internet and mobile technology. Internal newsletters can be communicated on the intranet, press releases to journalists can be emailed instantly along with digital pictures. The web can be used as a communication tool in times of crisis management such as disasters or accidents when accurate and instantly changing information to the public is crucial.

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Question 9.7 Explain what is meant by the internet; the intranet; the extranet and state how each might be used by marketers at a tactical level. The internet can be used as an external research tool to access market and competitor information and as a direct marketing channel and a homeshopping site. It can be used to raise awareness and support other communications tools for specific campaigns, and can also be used by organizations to communicate with other organizations in B2B marketing. The intranet is the use of the internal system of communication throughout an organization. It allows access to information, some of which is likely to be restricted and permits better management of communication. The extranet is where an organization allows customers on line access to some of its internal information sources. This allows a sophisticated relationship to be developed and access to and use of such information allows for mutual economies and enhanced communication. This strategy also encourages trust and commitment between two organizations, such as a supplier and customer. There are some potential problems which relate to the level of investment required to allow for this system to work effectively and to access of information when one organization wishes to terminate the relationship.

GLOSSARY OF MARKETING TERMS

Above-the-line promotion Paid for advertising Absolute advantage The relative absolute cost differences between two countries which serve to explain the pattern of trade between these countries Accountant’s view of pricing Costs determine the lower limit to the prices a company can charge ACORN A Classification of Residential Neighbourhoods or method of segmentation based on categorization of homes Active Exporting A positive commitment of a company to its exporting commitments Administered vertical marketing A channel where one member acts as a leader and co-ordinator for two or more traditional levels of the marketing channel Adoption The stages a customer passes through en route to accepting and purchasing a new product Advertising platform The primary selling theme that is included in an advertising campaign AIDA model An early model of how advertising works based on the notion that customers pass through four stages from awareness to interest to desire to action when the purchase is made AIO research Lifestyle variables that encompass an individual’s activities, interests and opinions Always-a-share customers Customers who have low switching costs and do not value long-term relationships with suppliers, making them more suited to transactional marketing Analysis of Variance (ANOVA) Used in statistically designed marketing research experimental

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Arthur D. Little’s industry maturity/competitive position matrix A portfolio technique that uses ‘stage of industry maturity’ on the horizontal axis and ‘competitive position’ on the vertical axis ATR model An advertising model that suggests that customers pass through awareness, trial and adoption Augmented product Additional elements that support the marketing of a product e.g. payment terms, service back-up, customer care, etc. Automatic interaction detection (AID) A statistical technique whereby markets can be split successively for segmentation purposes BCG (Boston Consulting Group) growth/share matrix A portfolio planning model based on analysing the relative market share and market growth rates for a company’s products and/or strategic business units Below-the-line promotion Any promotion that does not involve paid-for media channels Benefit segmentation Dividing a market up according to the benefits that customers seek from a product or service Black box models Relatively simple models of buyer behaviour which consider only inputs and outputs and do not purport to explain what goes on in the buyer’s mind BOGOF Buy one get one free Bottom-up forecasting Where a company forecasts sales from its own previous sales data Brand barometers A market research approach which provides quarterly information on brand performance and marketing in specified product categories Brand equity The added value endowed to products and services through individual elements of the communications mix especially advertising Break-even point The point at which total revenue from the sale of a product breaks even and a profit point is reached Business-to-business marketing (B2B) Marketing that involves exchange relationships between two or more business customers and suppliers

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Business-to-consumer marketing (B2C) Marketing that involves exchange relationships between a supplier and its customers Buy Classes The class or type of purchasing decision in organizational buying, there being three of these i.e. straight re-buys, modified re-buys and new task purchases Buy phases The different phases or stages which the organizational buyer may pass through during the purchasing process Buyer behaviour Purchasing decision processes of individual consumers – termed consumer buyer behaviour or those purchasing in behalf of their organization – termed organizational buyer behaviour Buying centre Another term for ‘decision making unit’ (DMU) i.e. the group of people involved in the decision process in organizational purchasing Cafeteria questions Another term for multiple choice questions Call frequency The number of times that any individual customer is visited by a salesperson over a given period Campaign management Managing the communication elements of a specific promotional campaign in terms of communication mix elements i.e. advertising, sales promotion, direct marketing, public relations and coordinating this with the sales function Cash cow A category highlighted in the BCG growth-share matrix Casual exporting A company exporting in response to largely unsolicited foreign orders Category management Organizing marketing activities based on the different categories of products marketed by the company Category team A group of people responsible for a particular category of products Channel captain The leader in a channel of distribution. Conflict may arise when there is lack of agreement concerning who is the channel leader or captain

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Chat room An internet facility where individuals ‘meet’ in cyberspace to discuss issues with other internet users. Often they are listed under topic/subject area of interest, e.g. fine wines Closing That point in the selling process where the salesperson attempts to secure the order Cluster analysis A range of statistical methods whereby data can be analysed to group customers into market segments Clutter or information overload Occurs when the number of advertisements to which an audience is exposed reduces interest in, and the capability to receive, any specific message Cognitive dissonance A feeling of dissatisfaction that sometimes occurs after a major purchase when the customer feels that he or she might have been better served by purchasing an alternative brand Cold calling Where the seller has not obtained or sought the customers permission to call and usually has had no previous contact with the customer Concentrated marketing Targeting only one segment of the market Concept testing The process of testing customer responses to a proposed new product concept Consumer behaviour Purchasing behaviour of end customers Consumer panels A group of consumers who provide continuous information for market research purposes Consumer panels The provision of a continuous check on the market and a record of the behaviour of consumers and their reactions to changes in household products, methods of marketing or advertising Consumerism A movement involved in trying to protect consumers from unscrupulous business practices Contribution The amount contributed to covering fixed costs arrived at by deducting the variable costs from the price charged for a product Control parameters Those elements which the control system is intended to measure and evaluate, e.g. profits, sales and market share

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Copy platform A written statement of creative strategy that specifies work to be done before writing the advertisement Core competencies The core skills and strengths that underpin a company’s overall competitive advantage Corporate mission statement A general statement defining the nature of the business and its overall purpose Corporate vertical marketing A channel where one member owns two or more traditional levels of the marketing channel Cost-plus pricing A pricing method based on adding a profit margin or mark-up to the average costs of a product Coupons The customer uses coupons obtained from the media, etc. to obtain products at reduced prices Cross elasticity of demand A measure for interpreting the price relationship between different products Cross selling Sale of additional goods/services done by looking at the customer’s previous purchases and offering other company goods that fit the customer’s purchasing profile Customer care The term used to describe a raft of techniques to ensure customer satisfaction Customer relationship marketing (CRM) See relationship marketing definition and customer care definitions. This is an amalgam of the two in that CRM is more concerned with tactical issues than with strategy Customer tracking The ongoing and systematic measurement and evaluation of customer feedback and attitudes DAGMAR An advertising model that stands for: Defining advertising goals for measured advertising response Data capture The process of acquiring information to input to the database Data fusion A proactive approach to marketing that takes the product or service to potential customers rather than waiting for them to come to a store or other point of access

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Data mining The analysis of the database in an attempt to find important patterns of cause and effect and related variables Data warehousing The transfer of data from different parts of the organization into one central database Database A store of information held by a company about its customers’ markets and competitors Dealer loaders Trade promotions in which retailers that purchase a certain quantity of merchandize receive gifts Decay curve of new product ideas Put forward by American consultants, Booz, Allen and Hamilton who contend that the process of new product development goes through a logical series of steps from inception of the idea to its launch Decision making unit (DMU) The group of people involved in the decision making process in organizational purchasing (see also ‘Buying Centre’) Decision support system (DSS) That part of the marketing information system which is concerned with translating data into information for decision making Decoding Translating the signs and signals of a message from a sender so these signals make sense to the receiver Delphi forecasting A technique of forecasting using a system of questionnaire based on structures semi-autonomous interaction Demand chain The route through which orders are channelled from customers to suppliers Demand schedule A summary relating different prices to the quantities demanded at each of these prices Depth interview Structured or semi-structured interviews with individual respondents designed to uncover factors underpinning buyer behaviour and choice Derived demand A situation where demand for a product is itself a function of demand for another product

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Dialectic theory of retail evolution This contends that store based and home based direct marketing networks have been converging and the convergence has resulted in ‘electronic direct marketing’ whereby computers, telecommunication and video are used to reach customers rather than physical shops or print media Dichotomous questions Offer two choices of answer: ‘yes’ and ‘no’ Differentiated marketing Targeting several market segments using a different marketing mix for each Diffusion index An index based on a combination of key economic indicators to predict future movements in an economy Diffusion of innovations The speed and extent of take-up of a new product through a market and its movement through adopter categories Direct mail The mailing list is important for market targeting. Lists are purchased from magazines, etc. who sell their subscribers’ names and addresses to third parties so they can canvass potential customers Direct marketing Where manufacturers sell direct to the end consumer through a variety of media including mobile phones, email, websites, database marketing, etc. Also termed ‘non-shop selling’. Direct response television (DRTV) Television promotions designed to encourage the viewer to respond directly to company’s promotion e.g. by placing a telephone order Distinctive competence Those strengths in an organization which enable it to perform marketing activities in certain areas particularly well compared to its competitors Dodo A category highlighted in the combined BCG growth-share/PLC matrix Dog A category highlighted in the BCG growth-share matrix Early adopters People in a market who purchase products after innovators Econometric models Complex models which seek to establish relationships between key economic variables

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Economic order quantity (EOQ) Business logistics costs that include warehouse location and the identification of cost points Economic value pricing (EVP) A technique of value based pricing based on detailed assessments of the value in use of a product to a customer Economist pricing Based on assumption that companies want to maximise profits and considers relationships between demand and price Efficiency control The process of ensuring that the various elements and sub-elements of the marketing mix are being utilized as efficiently as possible Elasticity of demand A measure of the magnitude of the responsiveness or sensitivity of the quantity demanded of a product to a given change in some demand determinant, such as price, income and prices of other products Electronic data interchange (EDI) Computer based systems for exchanging information electronically between customers and suppliers Electronic point-of-sale (EPOS) A self-contained computerised system that performs tasks at a store checkout counter. Encoding Translating a message by the sender into a set of signs and signals which the receiver will understand Enhanced customer response (ECR) The application of logistics management concepts such as JIT and supply chain management to the retail sector Environmental scanning The process of identifying, monitoring and forecasting key environmental forces and factors which will affect marketing plans Ethnocentric orientation A company which is characterized by concentrating primarily on its home markets Exclusive distribution A strategy for distribution based on stocking products through one or two specially distributors only Experience curve effect The reduction in average unit costs as a result of increases in cumulative production

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Exponential smoothing A group of techniques of sales forecasting which involves attaching greater weight to more recent information in the sales forecast Extranet Computer based systems for exchanging electronically between all members of the supply chain

information

Fast moving consumer goods Commonly referred to as FMCGs Fixed costs Costs which do not vary with the level of output Focus groups A market research technique involving a moderator guiding a group of selected respondents through a semi-structured interview to investigate buyer behaviour attitudes Four Ps Product, price, place and promotion of the marketing mix proposed by E. Jerome McCarthy Franchises A type of vertical marketing system based on one channel member licensing other channel members to market a product or service in a particular way Functional structure Organizing marketing activities around the different functions of marketing e.g. market research and advertising Futures research A group of techniques designed to explore possible future needs and wants with a view to developing new or modified products and brands Gap analysis A technique which compares future likely company performance against desired performance outcomes in order to identify any gaps Gatekeepers Individuals and/or functions in an organization which control flows of information and/or access into and through the organization GE (General Electric)/McKinsey matrix a portfolio planning tool that uses ‘market attractiveness’ and ‘business position’ in its axes Geocentric orientation A company which is characterized by a global approach to its marketing with high degrees of standardization

388

Glossary of Marketing Terms

Geodemographic segmentation A variety of approaches to segmenting markets using a combination of geographic and demographic factors such as ACORN and MOSAIC Giveaways A free gift like a toy is included with the product Global marketing Company groups with a single management strategy that guides their operating companies throughout the world Going rate pricing An approach to pricing based on the prices set by competitors in the industry Green consumer/movement Consumers who consider environmental issues as being particularly important in business Hierarchy of effects model An AIDA type model of how advertising works, which posits a similar sequence of stages, but involves awareness, knowledge, liking, preference, conviction and purchase Historical analogy Forecasting future sales patterns of a new product by comparing historical sales of a similar past product Hit A downloaded file as recorded in a server log Horizontal linkages Linkages between primary and secondary activities in a company’s value chain Inelasticity of demand A measure of the inability of price to influence demand Infant A category highlighted in the combined BCG growth-share/PLC matrix Information overload or clutter Occurs when the number of advertisements to which an audience is exposed reduces interest in, and the capability to receive, any specific message Informercial A long form advertisement that is used for products when it is needed to educate and create awareness and it bears a resemblance to a news item

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Innovation-adoption model Developed for the process of purchasing new products. It proposes a slightly different view of the steps in the purchase process compared to the AIDA model Innovator A person in a market who is amongst the first to purchase a new product or service Input/output model A system of forecasting based on analysing inputs and outputs of product materials through the different parts of an economy Intensive distribution A strategy for distribution based on having products stocked in as many outlets as possible Interconglomerate structure A type of structure for international marketing which emphasizes centralised control and planning of the financial but not marketing elements of a business Internal marketing The application of marketing concepts and techniques to the internal staff of a company Interstitial strategy An innovation strategy based on developing new products to fit gaps in the market Intra-firm environment The other functional areas within the organization with which the marketing department must interact and work with to develop and implement effective marketing strategies Journey planning The process of planning sales activities with regard to aspects such as travel time and customer call patterns to as to maximize the return from the salesperson’s time Just-in-time (JIT) A purchasing and manufacturing system designed to deliver inputs to the production or distribution site only as the rate and time it is needed (see also lean manufacturing) Kennedy’s ‘rights’ Set of consumer rights suggested by the late US President John F Kennedy Key account A customer of strategic importance to a supplier Key factors for success (KFS) Those factors in a market which determine competitive success or failure in that market

390

Glossary of Marketing Terms

Law of diminishing returns The notion that increased expenditure in any given area will give rise o ever decreasing returns in terms of revenue Lean manufacturing An approach to planning manufacturing processes such that minimum stocks of materials and work in progress are required (see also JIT) Life cycle stage segmentation A variety of approaches to segmenting markets based on the notion of consumers passing through a series of distinct phases or stages in their lives Lifestyle segmentation Another term for psychographics. An approach to segmentation based on identifying characteristic modes and patterns of living affecting purchasing processes Line depth A number of products in a company’s product line, the more products, the deeper the line Line width The number of different product lines offered by a company Logistics A systems approach to managing the whole of a distribution network, including channels and physical flows, so as to optimize the effectiveness of this Long term forecasting Normally for periods well in excess of one year used for long term capital provision Lost-for-good customers Customers that have been lost, but who have high switching costs and longer term horizons making them suitable for relationship marketing Macro-environment The broader environmental factors which lie outside the organization boundaries and over which the marketer has little or no control e.g. socio-cultural factors, political/legal factors Macropyramid structure A type of structure for international marketing which is characterized by essentially central decision making and planning Mall intercept An alternative term to ‘street survey’ in market research Management by objectives (MBO) The laying down by managers of a clear and precisely defined position. In the sales context, setting realistic sales targets in co-operation with the salesperson makes their achievement

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more likely, and the salesperson has a clearer idea of what is expected to achieve results Management information system (MIS) The over-arching system of information gathering and analysis throughout the organization of which the MkIS is a sub-system Marginal or direct cost pricing The practice of pricing products such as to ensure that variable costs are covered and some contribution to fixed costs is made Market challengers Companies that are actively seeking to become the market leader in the industry Market followers Companies in an industry that do not wish to challenge for market leadership and whose strategies are primarily shaped by the market leader Market leader The company in a market with the strongest competitive market potential with regard to market share Market nichers Companies in an industry that focus their efforts on serving specialist/small segments of the overall market Market penetration A pricing strategy that relies on economies of largescale production to allow a product to be introduced to the market at a price low enough to attract large numbers of buyers as quickly as possible Market skimming A pricing strategy that initially charges the highest price a market will bear, and promotional effort is directed at a small segment of the potential market that desires new products immediately. Gradually, prices are reduced to bring in other market segments. Marketing assets Company strengths that can be specifically used to advantage in the market place Marketing audit A systematic critical and impartial review and appraisal of a company’s total marketing operations, including objectives, strategies, organization and activities Marketing concept The notion that customers form the starting point for all business planning

392

Glossary of Marketing Terms

Marketing information system (MkIS) A sub-system within the Management Information System (MIS) comprised of people, equipment and procedures to gather, sort, analyse, evaluate and distribute information for marketing decision making Marketing management A management function designed to satisfy customer needs through the process of analysis, planning, implementation and control Marketing mix a term coined by Neil Borden that includes the four Ps and segmentation, targeting and positioning Marketing orientation A business orientation that focuses company efforts on identifying and satisfying customer needs Materials management Those elements which facilitate the flow of goods and raw materials into and through an organization Matrix structure Organizing marketing activities using a combination of marketing organization structures such as a combination of products and markets Maverick strategy An innovation strategy that reduces the size of the market for the existing technology Media planning The choice of appropriate promotional media in a marketing campaign Medium term forecast Normally for one year ahead required for business budgeting Merit number systems or profiling Where criteria used for assessment in product screening are given a numerical weighting according to their judged relative importance Meta marketing refers to ‘not-for-profit’ organizations embracing the marketing concept and marketing practices. Micro-environment Environmental factors which lie outside the organizational boundaries but over which the marketer may have some degree of control e.g. competitors, suppliers, distributors Mission statement A general statement defining the nature of the business and its overall purpose

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Missionary selling Where the salesperson does not actually take orders, but builds up goodwill, educates the actual or potential user and undertakes various promotional activities Mobile marketing (M-marketing) A fast growing development in marketing that is another form of telemarketing based on the telephone. Modified rebuy in organizational purchasing situations when the item purchased is slightly different in price and specification as the last purchase Monopoly Where there is a single producer of a product for which there are no substitutes MOSAIC A system of segmentation based on postal or zip codes Motivation research The use of certain psychological techniques in market research Moving averages A statistical technique for forecasting sales based on the arithmetic average of a number of previous consecutive points in a time series MRO The division of suppliers into: maintenance, repair and operating categories Multi-channel systems The use of a variety of different channel arrangements by a company in order to reach their target customers Multi-factor portfolio matrices Strategic planning tools that utilize multiple factors in order to assess the strategic positions of Strategic Business Units and products Multi-level marketing (MLM) See network marketing Multi-national company Companies that do not distinguish between domestic and global marketing opportunities and have a single management strategy that guides their operating companies throughout the world Multi-national marketing A marketer who views the world as the total market for company products

394

Glossary of Marketing Terms

Multiple-choice questions Sometimes termed ‘cafeteria’ questions offer a graduated range of possible answers, listed in order from one extreme to the other Multivariate models Complex models of buyer behaviour that seek to model and explain how the different factors affecting buyer behaviour are interrelated Muting Turning the sound off on the television during advertising slots Network marketing, structured marketing or multi-level marketing A method of compensating direct sellers for marketing and distributing products and services direct to consumers. Unlike ‘pyramid selling’ this is an ethical business practice that uses the principle of team building in terms of stimulating salespeople to aspire to better levels of performance to sell products Neuromarketing The potential for using technologies which literally get inside the mind of customers to understand their buying behaviour New task One of the categories of buy classes where the company is buying a product or service for the first time New-to-the-world products Innovations that perform and entirely new function and potentially create entirely new markets Noise Anything between the sender and the receiver of target messages which interferes and/or distorts message reception and interpretation Non-shop selling Where manufacturers sell direct to the end consumer through a variety of media including mobile phones, email, websites, database marketing, etc. Also termed ‘direct marketing’ Objective and task An approach to setting marketing budgets by determining the costs of the tasks required to be achieved in the marketing plan Objective forecasting Methods of forecasting that use quantitative data in their computation Off-the-peg research Normally syndicated research data which the marketer can purchase from a commercial marketing research company

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Oligopoly A market dominated by few sellers where each company must weigh the effects of its own policies on the behaviour of its rivals On-line advertising Use of the internet for on-line advertisements, including classified advertisements in on-line service providers’ websites, to advertise in commercial internet news groups using pop-up ads whilst the user is searching Open-ended questions Give informants a hint of what answer might be expected Organizational buying behaviour The purchasing behaviour of Institutional, Buying for resale and Industrial buyers Panel consensus The use of panels of experts to forecast the future Party plan Selling a manufacturer’s household products from a hostess’s home who receives a commission from the local organiser. By accepting an invitation the invitee is under a moral obligation to purchase People An element of the service marketing mix – see also physical evidence and process Perfect competition A market where there are a large number of fully informed buyers and sellers of similar products, and no obstacles to exit or entry on the part of companies PEST Acronym in strategy that refers to the external audit i.e. Political, Economic, Socio-Cultural and Technological (sometimes referred to as STEP analysis) PESTLE Acronym in strategy that refers to the external audit i.e. Political, Economic, Socio-Cultural and Technological, Legal and Environmental Physical distribution Elements of a logistics system which facilitate the flow of materials and products from the company to other members of the supply chain Physical evidence An additional marketing mix element for services encompassing the more tangible aspects of the service product offering, such as buildings, facilities and staff appearance

396

Glossary of Marketing Terms

PIMS or profit impact on marketing strategies The use of empirical evidence to establish which strategies are associated with higher levels of profitability in an industry and thereby to advise managers in these industries towards better (more profitable) courses of action Podcast This is where the user can download and listen to digital audio or video files, often for a subscription. New episodes are downloaded automatically to the user’s PC or other device. Shared videos ae called ‘vodcasts’. Podcasting is a converged medium bringing together audio, the web, and portable media players and are effectively digital radio shows. Point-of-sale (POS) Promotional and particularly merchandizing techniques which are designed to encourage sales at the point of purchase Polycentric orientation A company that is characterized by planning its international marketing around each host country with little central control and standardization Portfolio analysis Referred to as ‘product market grids’, these models are based on positioning each business unit or specific product market on a grid according to the attractiveness of the market and the company’s competitive position. Positioning The perception consumers have of a particular product along two individual dimensions; this forms part of segmentation, targeting and positioning Post-purchase dissonance This occurs in marketing if purchasing expectations have not been met Potential product Refers to dimensions of customer care including noquibble refunds, return policies, sensitivity to customer needs, etc. that empowered staff deal without referring to higher levels of management Precision marketing A proactive approach to marketing that takes the product or service to potential customers rather than waiting for them to come to a store or other point of access Price elasticity of demand A measure of the magnitude of the responsiveness or sensitivity of the quantity demanded of a product to a given change in some demand determinant, such as price, income and prices of other products

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Price inelasticity of demand A measure of the inability of price to influence demand Primary activities Those value chain activities associated with the input, throughput and output of goods and services in the organization Primary data Data that is collected for the first time for the specific purpose of a particular market research study Problem child A category highlighted in the BCG growth-share matrix Process An additional marketing mix element in service marketing which encompasses the systems and procedures relating to how the service is provided to customers Product adoption process The rate at which a product moves through adoption categories. This is a function of a process called the diffusion of innovations Product based structure Organizing marketing activities around the different product groups in the company Product item An individual product entity in the company’s product portfolio which normally has a separate designation in the company’s sales list Product life cycle portfolio matrix developed by Barksdale and Harris is designed to deal with criticisms that the BCG matrix ignores products that are new, and overlooks markets with a negative growth rate, i.e. markets that are in decline. Because of this, the product life cycle portfolio matrix includes a specific focus on the growth and maturity stages of the product life cycle in developing this portfolio technique Product life cycle The concept that proposes that products pass through a series of stages in their lives: introduction, growth, maturity, saturation and decline Product line A collection of products in a company that are closely related in some way to one another Product manager A person who has responsibility for promotional activities of one, or a group, of branded items in a company’s portfolio of products

398

Glossary of Marketing Terms

Product mix The sum total of individual product items and product lines which the company markets Product orientation A business orientation that focuses company efforts on product quality and engineering Production orientation A business orientation that focuses company efforts on the production of goods or services Profiling or merit number systems Criteria to be used for assessment of new products are given a numerical weighting according to their judged relative importance Profiling or merit number systems Where criteria used for assessment in product screening are given a numerical weighting according to their judged relative importance Profit control The evaluation of the profitability of different marketing entities e.g. customer groups and territories Profit impact on marketing strategies (PIMS) An empirical study conducted by the Strategic Planning Institute which seeks to identify and isolate the key factors under-pinning profitability and strategic success in an industry Promotional mix The collection of promotional tools which the marketer combines in any given promotional campaign Prospecting The process whereby the salesperson identifies potential new customers and business Psychographics Another term for lifestyle segmentation. An approach to segmentation based on identifying characteristic modes and patterns of living affecting purchasing processes Public relations (PR) A range of techniques that are aimed at promoting and protecting company image and products through press releases, ‘inhouse’ company magazine, company reports, etc. Pull promotion Advertising to end users with the aim of encouraging purchases and thus ‘pulling’ products through the distribution channel

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Push promotion The use of promotional techniques like selling and sales promotion and offers like discounts with the aim of persuading distributors to stock products Pyramid selling An unethical business practice that is banned in most countries. Where an main agent sells to sub-agents and they, in turn, sell to their sub-agents with a percentage profit of each transaction being added at each stage. In the end the product becomes too expensive, so those at the base of the pyramid lose everything Qualitative research Research which is aimed at uncovering qualitative aspects of consumer behaviour e.g. perception, attitudes and motives Quality function deployment Systems for translating customer requirements into technical requirement at an early stage of the product development process Quantitative research Research which is aimed at uncovering consumer behaviour using statistical techniques Question mark A category highlighted in the BCG growth-share matrix Regiocentric orientation A company that is characterized by planning on the basis of specific regions e.g. geographical, political, economic Regression analysis A mathematical technique for assessing the degree of relationship between variables Relationship marketing An approach to marketing based on creating and maintaining mutually satisfying exchange relationships between and organization and its customers through mutual exchange and trust Relevance trees A technique for systematically exploring all the possible alternative routes to achieving a given stated technological objective Research brief A document normally agreed between a company and its market research agency which outlines the objectives, scope, timescale and costs of a proposed research project Retail accordion theory Retail institutions go from outlets with a wide assortment of goods to a specialised narrow range of goods and then return to more general retailers

400

Glossary of Marketing Terms

Retail audit research An inventory is made at regular intervals of the stock and purchases of certain products at selected retail outlets in such fields as food, confectionery and cigarettes. This detailed inventory is carried out by field researchers with the co-operation of retailers Retail gravitation: Reilly’s law contended that customers travel longer distances to large retail centres. Because it is more appealing, the centre becomes a comparison for size and mass in the physical law of gravity propounded by Newton Reverse marketing Where buyers source appropriate suppliers and enter into contracts with them and initiate and often help fund long-term commercial manufacturing relationships Rifle approach A strategy for aiming at a very specific target to whom to market products Sales brick A geographical area in which all known buyers are listed. The bricks are about equal in sales potential Sales engineer An executive whose main task is to ‘build’ territories, and readjust them as situations demand, although they are not engineers in the accepted sense. Sales journey cycle The time it takes a sales representative to visit all his or her customers in a visit cycle Sales negotiation An attempt by two or more parties to vary selling terms in order to reach an agreement Sales orientation A business orientation which focuses company efforts on the disposal of stock through aggressive sales and promotion Sales promotion A collection of promotional techniques designed to encourage a short-terms and immediate response by customers Sales quota The volume and/or value of sales which a salesperson is required to achieve over a given period of time Sales response function An approach to setting marketing budgets by equating marginal sales return with marginal marketing expenditure Sales target A quantitative amount of sales that should be aimed for by an individual sales person

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Scenario writing A technique of helping to envisage likely possible future events Screening Those stages in the new product development process concerned to assess ideas with a view to dropping or retaining them Secondary data Data which already exists, but was collected in the first instance for another purpose Segmentation Dividing the population into sub-categories that display similar purchasing behavioural characteristics Selective distribution A strategy for distribution based on selecting a limited number of outlets in which products will be stocked Self-reference criterion The tendency to use one’s own cultural experience and values when developing and implementing marketing plans in another country Self-liquidating offer A promotional campaign designed to pay for itself through the sale of a special promotional product Sensitivity panel A form of group discussion/focus group where respondents are trained to take part in such groups and members of the group are used again and again for different research topics Service product An intangible product involving a deed, a performance or an effort that cannot be physically possessed Seven Ps The four Ps plus three extra Ps of service marketing i.e. people, process and physical evidence Shell directional policy matrix A portfolio model that has two dimensions ‘company’s competitive capabilities’ (vertical axis) and ‘prospects for sector profitability’ (horizontal axis) Short-term forecast Normally for about 3 months for production planning purposes Shotgun approach A strategy that aims at many market targets Silent languages Those aspects of communication in a culture other than written and oral language

402

Glossary of Marketing Terms

SLEPT Acronym in strategy that refers to the external audit i.e. SocioCultural, Legal, Economic, Political and Technological SMS A type of mobile marketing. A text-based system, similar to email, in which short messages are sent to the target market’s mobile phone identified by the sound of three dots, two dashes and three dots (Morse code for SMS) SPAM e-mail from a company that has not been contacted or asked to send information Spectral analysis A complex mathematical technique for decomposing sales patterns into their constituent sine wave forms SPIN model An approach to selling developed by the Huthwaite Research Group based on questioning and listening techniques Sponsorship Where a company supports in some way something or someone it feels will help in the overall marketing and sales of its products or services, albeit indirectly. Famous people are usually used in such sponsorships Star A category highlighted in the BCG growth-share matrix STEEPLE Acronym in strategy that refers to the external audit i.e. SocioCultural, Technological, Economic, Environmental, Political and Ecological STEP An alternative to PEST analysis - see PEST Straight rebuy in organizational purchasing situations when the item purchased is exactly the same in price and specification as the last purchase Strategic business unit (SBU) A part of a business which has its own customers and competitors and in theory can be operated as a separate individual business with its own resources, identifiable costs and revenues and management team Strategic control The evaluation and control of the strategic marketing planning process Strategic fit The matching of organizational strengths and weakness to environmental opportunities and threats

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Strategic group analysis A method of identifying key competitors based on their degree of similarity with regard to key strategic characteristics Strategic windows Once a company has assessed its own strengths and weaknesses, only then is it in an objective position to evaluate what constitutes a company marketing opportunity or threat. Once this window of opportunity has been presented, the company must act quickly to capitalize on it Structured marketing see network marketing Subjective forecasting Methods of forecasting that use qualitative information in their computation Superordinate goals The agreement and acceptance of an overriding common goal by the different members of a channel Supply chain The route taken by raw materials, components, food, etc. from their source to the manufacturer or distributor Supply chain management The planning and management of the whole of a supply chain with a view to achieving the most effective and efficient system Support activities Those value chain activities which facilitate primary activities Sustainable competitive advantage (SCA) The ways a company creates superior value should reflect customer needs, and needs to be based on marketing assets and strengths which are sustainable and superior to competitors in the market place Switching costs Costs to a customer associated with switching to another supplier SWOT Acronym in strategy that stands for Strengths, weaknesses, opportunities and threats Target marketing A three step process involving identification of market segments, selection of target segments and development of positioning strategies Targeting The selection of specific market segments by a company

404

Glossary of Marketing Terms

Team building The act of stimulating salespeople to aspire to better levels of performance to sell products – see network marketing Telemarketing The use of normally unsolicited direct mail, e-mail and telemarketing through business to consumers (B2C) and business to business (B2B) communications Telesales The selling part of telephone marketing Thermometer questions Ask informants to rate their feelings on a numerical semantic differential scale Three Ps of service marketing (3Ps) People, process and physical evidence Tied indicators The use of observations in the sales of one product to forecast sales of another product which is closely related Top-down forecasting extrapolating company sales derived from macrodata Total cost approach A technique that recognizes interdependence between the demands of logistics activities e.g. minimizing costs in one area like inventory may lead to more than proportional increases in another area like transport TOWS matrix – using SWOT criteria to form the establishment of marketing strategies Transactional marketing An approach to marketing based on the seller offering immediately attractive combinations of product, price and technical support in order to generate an individual sale Trend projection A curve fitting technique of sales forecasting which uses past trends to predict future sales Umbrella structure A type of structure for international marketing which has centralized objective but localized decision making Undifferentiated marketing Often referred to as mass marketing it means targeting the whole of the market using one marketing mix strategy

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Unique selling proposition (or point) (USP) Those aspects of a company’s product or service offerings that are unique amongst competing brands Up-selling Persuading the customer to purchase a better more expensive product or service than the customer originally anticipated VALS Values and lifestyles in segmentation Value Analysis (VA) or Value Management or Value Engineering A technique that is used to reduce the costs of components in the production process by a team approach that critically examines the function and specification of each part in every component and sub-component Value based pricing An approach to pricing based on assessing the perceived value of the product to a customer Value chain This is the demand chain from customers to the manufacturer plus the supply chain from suppliers to the manufacturer Value chain analysis A technique for identifying potential competitive advantages by looking at the various value activities which the organization performs Variable costs Costs that are more or less directly related to the volume of production or sales Variable mark-up pricing A variation of cost-plus pricing where the profit margin or mark-up added to average costs is flexible Vertical linkages Linkages in the value chain of an organization with its suppliers and distributors Vertical marketing systems (VMS) A marketing channel where the channel members acknowledge and desire interdependence Viral marketing Based on the idea that an e-mail sent to one person may, if planned effectively, be forwarded on by that person to their friends and acquaintances so ‘spreading the message’ about a product or brand Virtual marketplace Also called ‘e-commerce marketplace’ that allows third party sellers to sell their goods e.g. eBay

406

Glossary of Marketing Terms

Visionary forecasts Subjective techniques of forecasting based on personal opinion and judgement V-Reps A customer contacts a call centre and is connected to a virtual call centre operator: the V-Rep who can talk to and understand customers. Warhorse A category highlighted in the combined BCG growthshare/PLC matrix WAP Wireless application technology developments Wheel of retailing: A theory that contends that new retailers enter the market as low price, low status, low margin operators and evolve into higher status conventional retailers offering better services at higher prices Wildcat A category highlighted in the BCG growth-share matrix Word of mouth Information from secondary personal sources in relation to proposed purchases X-ll technique A development of spectral analysis which only separates out seasonal and cyclical trends, fitting a time series to the remainder Zapping Changing television channels using the remote control in order to avoid the advertising slots Zero defects Quality control and delivery systems designed to deliver supplies to customers which are totally free of defects Zipping Fast-forwarding a recording in order to bypass the advertising

INDEX

Accessories, 118 Accordion theory, 200 ACORN, 84 Action programmes/plans, 100, 288 Actual product, 113-114 Adoption process, 134-136, 150 Advertising, 230-231, 263-264, 364 Affordable method (planning), 92 AIDA model, 239-240, 265 Analysis, 20-21, 23 Ansoff’s matrix, 64-65, 108 Arthur D Little matrix, 75-76 Augmented product, 113-114, 268 Automated customer handling, 367368 Automated telephone calls, 19 Average cost, 160 Awareness (product adoption), 135 Barksdale and Harris matrix, 77-80 BCG matrix, 65-67 BOGOF, 185, 233, 264 Brand names, 144, 210, 319 Branding/management, 142-146, 271-272, 369 Breakeven analysis, 162-163, 165 Budget allocation, 93-94, 100, 244245 Business mission/analysis, 54-55, 139, 287 Business-to-business (B2B), 27, 332, 335-340, 374 Buy-back allowance, 233, 234-235 Buying motives, 116 Cable TV, 207 Call centre, 19, 207-208 Cash cows, 66, 78-79 Cash dogs, 78-79 Cash rebates/allowances, 185, 233

Channel intermediaries, 199-200, 208 Channel length/level, 198-200 Channels of distribution, 196-211, 370 Chat room, 363 Clubs, 221 Commercialization, 140 Communication strategy, 226, 260 Competitive advantage, 196, 305 Complaints, 292-293 Component parts/materials, 118 Computer aided design (CAD), 104 Concentrated targeting, 86-87 Conclusive research, 312-313 Consumer goods, 116-118 Consumer panel, 321 Consumer rights/consumerism, 3233 Consumers’ Association, 32 Contingency plan, 100-101 Contribution, 161 Control, 21-22, 23, 97-98, 100, 105, 280-281 Convenience goods, 117 Core product, 113 Corporate culture, 270 Corporate objectives/mission, 5455, 280, 287 Cost leadership (Porter), 74, 107 Cost-plus pricing, 164, 180-181, 189-190 Coupons, 233, 234 Customer audit, 47 Customer based marketing, 96 Customer care, 35, 40, 46, 213-214, 216, 267-305, 365, 366-367, 371-372

408 Customer orientation, 10-11, 16, 46, 48 Customer relationship marketing/management (CRM), 19, 299, 366, 373-374 Customer service, 270, 366-367 Customer tracking, 98 DAGMAR model, 241-242 Data warehousing/mining, 360-361 Database marketing, 19, 37-38, 40, 202-204, 298-299, 359-360 Dealer loader, 233, 234 Decay curve (new products), 137140 Decision making unit (DMU), 246, 264, 339 Decline (product life cycle), 125, 127-128, 151, 175, 192 Decoding, 228 Demand orientated pricing, 165,182 Demonstrations, 208 Depth interviews, 316-317, 321 Descriptive research, 311-312 Development (product life cycle), 124, 151 Dialectic theory, 201 Dichotomous question, 318 Differentiated targeting, 85-86 Differentiation (Porter), 75, 107 Diffusion and adoption characteristics, 133-134 Digital communication, 362 Direct mail, 206, 221, 236-237, 264, 365 Direct marketing, 201-202, 218-222 Direct response advertising, 221, 364 Discounts, 172, 192, 233 Distribution research, 323-324 Dodos, 78-80 Dogs, 67, 78-79 Door to door selling, 201, 220 Double-barrelled question, 318 Drop decisions, 139 Early adopters, 132, 150 Early majority, 132, 150

Index E-commerce, 103-105, 205-206, 353-358 Elasticity, 158-159, 174 Electronic data interchange (EDI), 19 Electronic point of sale (EPOS), 321 Electronic store front, 254-255 E-mail, 255-256 Encoding, 227 Evaluation, 100, 105 Evaluation (product adoption), 135136 Even pricing, 185, 186 Exclusive distribution, 216-217 Exhibitions, 233 Expected product, 113-114 Experience curves, 160 Exploratory research, 311 Extended product, 112 Extranet, 19, 359, 378 Fast moving consumer goods (FMCG), 26-27, 143, 156, 332339, 374 Feedback, 229 Fixed costs, 160 Focus group, 317 Focus (Porter), 75, 107 Four Ps (4Ps), 24-25, 87, 276, 346 Franchising, 211 Full cost pricing, 180 Functional benefits (product), 115 General Electric (GE) matrix, 67-72 Generic strategies (Porter), 72-75 Geo-demographics, 84 Giveaways, 233, 234 Glossary of marketing terms, 379406 Go decisions, 139 Going rate pricing, 166, 181-182 Green marketing, 33-35 Group discussion, 317, 321 Growth (product life cycle), 124125, 126-127, 151, 175, 192 Heterogeneous goods, 117 Hierarchy of effects model, 241 Hit, 261

Marketing Study Guide Home based shopping, 207 Homogeneous goods, 117 Horizontal marketing channel, 211, 218 Hybrid strategies, 234 Idea generation, 139 Implementation, 21-22, 23, 91 Industrial goods, 118-119 Industrial services, 119 Inelasticity, 158-159 Infants, 78, 80 Information technology, 18-19, 3840, 46, 103-105, 202-208, 252256, 265-266, 329-330, 362, 363 Innovation adoption model, 240 Innovators, 132, 150 Inseparability (services), 348-350 Installations, 118 Intangibility (services), 348-349 Intensive distribution, 216-217 Interactive TV, 207-208 Interest (product adoption), 135 Intermediary (channel), 208-209 Internal accounting system (in MkIS), 310 Internal audit, 58 Internal marketing, 15-16 International marketing, 300-301, 368-372, 376-377 Internet retailing, 201 Internet, 19, 40, 46, 103, 188-189, 205-206, 253-254, 256, 266, 323, 356-358, 378 Intranet, 19, 358, 378 Introduction (product life cycle), 124, 126, 151, 175, 192 Junk mail, 256 Kennedy’s four consumer rights, 31-32 Laggards, 132, 150 Late majority, 132, 150 Leading question, 318 Lean manufacturing, 275, 324 Logistics, 212-215 Loss leader pricing, 185

409

Low interest deals, 185 Loyalty cards, 203, 233 Mail order catalogues, 201, 220 Management by objectives (MBO), 284 Management organization, 94-97 Marginal cost, 160, 181 Market based pricing, 167-168 Market leaders, 166 Market penetration, 168-169 Market research, 309, 326-327, 341344 Market segmentation, 23-24 Market share analysis, 98 Market skimming, 168-170 Marketing audit, 55-58, 103, 287288 Marketing budgets, 91-94 Marketing communications research, 324-325 Marketing culture, 11-19, 26 Marketing databank, 103 Marketing definition/process, 3, 2526 Marketing experiments, 320-321 Marketing information system (MkIS), 102-103, 309-310, 330 Marketing intelligence, 103, 310 Marketing management, 19-21, 147148 Marketing mix, 24-25, 48-49, 88-91, 166, 288 Marketing myopia, 12-13 Marketing objectives, 62-63, 99100, 104 Marketing orientation/concept, 1-2, 4-10, 14-16, 19, 44-47, 270, 306 Marketing planning, 23, 50-109, 281-282, 285, 327, 362 Marketing research definition, 308309 Marketing research process, 314315, 327 Marketing research, 101-102, 301, 306-330, 326-327, 362-363

410 Marketing strategies, 63-65, 100, 104 Marketing tactics, 88-89, 104 Maturity (product life cycle), 125, 127, 151, 175, 192 Mission statement, 271, 282, 287, 291 Mobile marketing (M-marketing), 207, 261-262, 362 Monitoring, 91-94, 97 Monopoly, 156, 176 Motivation research, 316-317 Multiple choice question, 318 New product development, 89, 136140, 343 Noise, 228 Non-ownership (services), 348-350 Non-probability sample, 317 Not-for-profit/voluntary, 28-31, 47, 272, 306, 332, 345-346, 375 Objective and task, 93 Observational methods, 316-317, 321 Odd pricing, 185, 186 Office of Fair Trading, 176 Oligopoly, 156-157 Omnibus survey, 342 On-line advertising, 255-256 Open-ended questions, 318, 320 Organizational structure, 94-97 Packaging 140-142, 149, 250-252, 368-369 Party plan selling, 201, 219 Penetration (pricing), 168-169, 183184, 191 People, 295, 304, 352 Perceived value pricing, 184 Percentage of profits/sales (planning), 92-93 Perfect competition, 156 Perishability (services), 347-349 Personal selling, 231-232, 264, 364 PEST analysis, 56-58, 60, 99, 106 Physical distribution, 212-215, 216, 370 Physical evidence, 295, 305, 352

Index Pilot study, 329 Place, 24, 194-222, 339, 344, 351 Placement tests, 320 Planning, 21-22, 23, 196, 213-215, 237-239, 265-266 Podcast, 259-260 Porter’s industry/market evolution, 72-75, 107-108 Portfolio analysis, 65-80 Positioning/strategy/mapping, 80, 87-88 Post-adoption (product adoption), 136 Potential product, 113-114, 268 Predictive research, 312 Premiums, 233, 234 Pressure groups, 32 Price, 24, 152-193, 339, 351 Price leaders, 166, 181 Pricing (accountant’s perspective), 159-166 Pricing (economist’s perspective), 154-159 Pricing (marketer’s perspective), 166-171 Pricing communications, 178-179 Pricing decisions/strategy, 154, 172173, 179-182,187-188, 190-191, 343, 369 Pricing research, 323 Primary research, 329, 363 Problem children, 66, 78, 80 Process, 295, 305, 352 Product, 24, 110-151, 368-369 Product adoption process, 130-133, 150 Product based marketing, 95 Product development, 139-140 Product dimensions, 112 Product image, 172 Product life cycle criticisms, 128 Product life cycle, 120-130, 150151, 171, 174, 191-192, 247 Product mix, 119-120, 148-149 Product orientation, 4-6 Product research, 323, 342-343

Marketing Study Guide Production orientation/concept, 4-7, 44 Profit maximisation, 167 Profitability analysis, 98 Promotion, 24, 126-128, 223-266, 339, 343-344, 351, 371 Promotional budget, 244-245 Promotional message, 242-243, 244 Promotional mix, 229-230, 245, 263-265, 363-366 Psychological pricing, 184-185 Public relations, 235, 264, 340, 365 Publicity, 235-236 Pull strategy, 234, 248, 263 Purchasing motives, 116 Purposive sample, 317 Push strategy, 234, 248-249, 263 Qualitative research, 323-324, 328 Quality, 270-274, 276 Quantitative research, 328, 363 Question marks, 66 Questionnaire design, 318-320 Raw materials, 118 Relationship marketing (RM), 3637, 49, 296 Response hierarchy models, 239, 265 Retail audit, 321 Retail gravitation, 200 Reverse marketing, 275-276 Sales analysis, 98 Sales contest, 233 Sales orientation/concept, 4-7, 45 Sales promotion, 232-234, 264, 364 Samples, 233, 315 Satellite TV, 207 Saturation (product life cycle), 125, 127 Scale economies, 160 Screening, 139 Secondary research, 329, 363 Segmentation bases (consumer/industrial), 82-83, 109 Segmentation, 40, 46, 80-85, 109 Selective distribution, 216-217

411

Self-liquidating offers, 233, 234 Selling, 231-232 Sensitivity panel, 317 Service(s), 111, 146, 267-305, 346347, 375 Services marketing, 27-28, 47, 304305 SERVQUAL model, 296-298 Seven Ps (7Ps), 25, 352, 375 Shell directional policy matrix, 7677 Shopping goods, 117 Skimming (pricing), 168-170, 182183 Small and medium enterprise (SME), 332, 340-341, 344-345, 375 SMART objectives, 63 SMS, 261 Social responsibility, 48 SPAM, 256 Special event prices, 185 Speciality goods, 117 Stars, 66, 78-80 STEP analysis, 56-58 Strategic business unit (SBU), 55, 66, 68-72, 93, 167 Strategic marketing/control, 52, 98 Supplies, 119 Supply and demand, 154-156 Supply chain integration (SCI), 275, 332 Surveys, 317 SWOT analysis, 59-60, 99, 106 Symbolic issues (product), 114-115 Syndicated research, 342 Synergy (marketing planning), 8990 Target audience/market, 238, 246247 Targeting, 80, 85-87 Target pricing, 164 Technology, 38-40, 204-205, 206208, 253, 298, 372, 377 Telemarketing, 201, 206-208, 221 Test marketing, 140, 320

412 Thermometer question, 318 Three Ps (3Ps), 24, 87, 294, 346 Total quality management (TQM), 272-274, 276-279, 304 TOWS matrix, 60-62 Transactional marketing, 275 True dogs, 79 Unaided recall question, 318 Undifferentiated targeting, 85-86 Unique selling proposition (USP), 243 Unsought goods, 118 Variability (services), 348-350 Variable costs, 160

Index Vertical marketing system (VMS), 210-211, 218 Virtual market place, 353 V-Rep, 207 WAP, 261 War horse, 78-80 Watchdogs (consumer), 32 Webcasting, 255-256 Website, 19, 257-260 Wheel of retailing, 201 Which?, 32 Wild cats, 66 World Trade Organization, 176 World Wide Web (WWW), 40, 46, 205, 256-258