Marketing and Marketing Environment What is Marketing?
The term marketing has changed and evolved over a period of time, today marketing is based around providing continual benefits to the customer, these benefits will be provided and a transactional exchange will take place. The Chartered Institute of Marketing define marketing as ‘The management process responsible for identifying , anticipating and satisfying customer requirements profitability’ If we look at this definition in more detail Marketing is a management responsibility and should not be solely left to junior members of staff. Marketing requires co-ordination, planning, implementation of campaigns and a competent manager(s) with the appropriate skills to ensure success. Marketing objectives, goals and targets have to be monitored and met, competitor strategies analysed, anticipated and exceeded. Through effective use of market and marketing research an organisation should be able to identify the needs and wants of the customer and try to delivers benefits that will enhance or add to the customers lifestyle, while at the same time ensuring that the satisfaction of these needs results in a healthy turnover for the organisation. Philip Kotler defines marketing as ‘satisfying needs and wants through an exchange process’ Within this exchange transaction customers will only exchange what they value (money) if they feel that their needs are being fully satisfied, clearly the greater the benefit provided the higher transactional value an organisation can charge. P.Tailor of www.learnmarketing.net suggests that 'Marketing is not about providing
products or services it is essentially about providing changing benefits to the changing needs and demands of the customer’ (P.Tailor 7/00)'
Business Objectives All businesses need to set objectives for themselves or for the products or services they are launching. What does your company, product or service hope to achieve? Setting objectives are important., it focuses the company on specific aims over a period of time and can motivate staff to meet the objectives set.
A simple acronym used to set objectives is called SMART objectives. SMART stands for: 1. Specific – Objectives should specify what they want to achieve. 2. Measurable – You should be able to measure whether you are meeting the objectives or not. 3. Achievable - Are the objectives you set, achievable and attainable? 4. Realistic – Can you realistically achieve the objectives with the resources you have? 5. Time – When do you want to achieve the set objectives?
Some Business Objectives: There are a number of business objectives, which an organisation can set: Market share objectives: Objectives can be set to achieve a certain level of market share within a specified time. E.g. obtain 3% market share of the mobile phone industry by 2004. To increase profit: An objective maybe to increase sales 10% from 2003 – 2004. To survive: The hard times the business is currently in. To grow: The business may set an objective to grow by 15% year on year for the next five years. To increase brand awareness over a specified period of time.
Marketing Environment - PEST Analysis View a powerpoint slide PEST Analysis | Take a excercise here Introduction An organisation’s success is influenced by factors operating in it’s internal and external environment; an organisation can increase it’s success by adopting strategies which manipulate these factors to it’s advantage. A successful organisation will not only understand existing factors but also forecast change, so that it can take advantage of change within the environments in which it operates. PEST & Micro environmental Factors The following type of forces influence an organisation’s operating environment: • Pest Factors – These are external forces which the organisation does not have direct control over these factors. PEST is an acronym and each letter represents a type of factor (Political, Economical Social and Technological). • Micro environmental factors – These are internal factors, which the organisation can control. PEST & PESTLE analysis
A PEST analysis is used to identify the external forces affecting an organisation .This is a simple analysis of an organisation’s Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors is called a PESTLE analysis. Political The first element of a PEST analysis is a study of political factors. Political factors influence organisations in many ways. Political factors can create advantages and opportunities for organisations. Conversely they can place obligations and duties on organisations. Political factors include the following types of instrument: - Legislation such as the minimum wage or anti discrimination laws. - Voluntary codes and practices - Market regulations - Trade agreements, tariffs or restrictions - Tax levies and tax breaks - Type of government regime eg communist, democratic, dictatorship Non conformance with legislative obligations can lead to sanctions such as fines, adverse publicity and imprisonment. Ineffective voluntary codes and practices will often lead to governments introducing legislation to regulate the activities covered by the codes and practices.
The second element of a PEST analysis involves a study of economic factors. All businesses are affected by national and global economic factors. National and global interest rate and fiscal policy will be set around economic conditions. The climate of the economy dictates how consumers, suppliers and other organisational stakeholders such as suppliers and creditors behave within society. An economy undergoing recession will have high unemployment, low spending power and low stakeholder confidence. Conversely a “booming” or growing economy will have low unemployment, high spending power and high stakeholder confidence. A successful organisation will respond to economic conditions and stakeholder behaviour. Furthermore organisations will need to review the impact economic conditions are having on their competitors and respond accordingly. In this global business world organisations are affected by economies throughout the world and not just the countries in which they are based or operate from. For example: a global credit crunch originating in the USA contributed towards the credit crunch in the UK in 2007/08.
Cheaper labour in developing countries affects the competitiveness of products from developed countries. An increase in interest rates in the USA will affect the share price of UK stocks or adverse weather conditions in India may affect the price of tea bought in an English café. A truly global player has to be aware of economic conditions across all borders and needs to ensure that it employs strategies that protect and promote its business through economic conditions throughout the world. Social The third aspect of PEST focuses its attention on forces within society such as family, friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s and opinions. These forces shape who we are as people, the way we behave and ultimately what we purchase. For example within the UK peoples attitudes are changing towards their diet and health. As a result the UK is seeing an increase in the number of people joining fitness clubs and a massive growth for the demand of organic food. Products such as Wii Fit attempt to deal with society’s concern, about children’s lack of exercise. Population changes also have a direct impact on organisations. Changes in the structure of a population will affect the supply and demand of goods and services within an economy. Falling birth rates will result in decreased demand and greater competition as the number of consumers fall. Conversely an increase in the global population and world food shortage predictions are currently leading to calls for greater investment in food production. Due to food shortages African countries such as Uganda are now reconsidering their rejection of genetically modified foods. In summary organisations must be able to offer products and services that aim to complement and benefit people’s lifestyle and behaviour. If organisations do not respond to changes in society they will lose market share and demand for their product or service. Technological Unsurprisingly the fourth element of PEST is technology, as you are probably aware technological advances have greatly changed the manner in which businesses operate. Organisations use technology in many ways, they have 1. Technology infrastructure such as the internet and other information exchange systems including telephone 2. Technology systems incorporating a multitude of software which help them manage their business. 3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops,
Bluetooth devices, photocopiers and fax machines which transmit and record information. Technology has created a society which expects instant results. This technological revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit businesses as they are able to react quickly to changes within their operating environment. However an ability to react quickly also creates extra pressure as businesses are expected to deliver on their promises within ever decreasing timescales.. For example the Internet is having a profound impact on the marketing mix strategy of organisations. Consumers can now shop 24 hours a day from their homes, work, Internet café’s and via 3G phones and 3G cards. Some employees have instant access to e-mails through Blackberrys but this can be a double edged sword, as studies have shown that this access can cause work to encroach on their personal time outside work. The pace of technological change is so fast that the average life of a computer chip is approximately 6 months. Technology is utilised by all age groups, children are exposed to technology from birth and a new generation of technology savvy pensioners known as “silver surfers” have emerged. Technology will continue to evolve and impact on consumer habits and expectations, organisations that ignore this fact face extinction. PESTLE A PEST analysis is sometimes expanded to incorporate legal and environmental factors; this is known as a pestle analysis. There are many statutes books containing company law as almost every aspect of an organisation’s operation is controlled through legislation from treatment of employees through to health and safety. Legal factors are important as organisations have to work within legislative frameworks. Legislation can hinder business by placing onerous obligations on organisations. On the other hand legislation can create market conditions that benefit business.
Diagram: PEST analysis and the marketing mix.
Micro Environmental Factors These are internal factors close to the company that have a direct impact on the organisations strategy. These factors include: Customers Organisations survive on the basis of meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy. Employees Employing the correct staff and keeping these staff motivated is an essential part of the strategic planning process of an organisation. Training and development plays an essential role particular in service sector marketing in-order to gain a competitive edge. This is clearly apparent in the airline industry. Suppliers Increase in raw material prices will have a knock on affect on the marketing mix strategy of an organisation. Prices may be forced up as a result. Closer supplier relationships is one way of ensuring competitive and quality products for an organisation. Shareholders
As organisation require greater inward investment for growth they face increasing pressure to move from private ownership to public. However this movement unleashes the forces of shareholder pressure on the strategy of organisations. Satisfying shareholder needs may result in a change in tactics employed by an organisation. Many internet companies who share prices rocketed in 1999 and early 2000 have seen the share price tumble as they face pressures from shareholders to turn in a profit. In a market which has very quickly become overcrowded many havel failed. Media Positive or adverse media attention on an organisations product or service can in some cases make or break an organisation.. Consumer programmes with a wider and more direct audience can also have a very powerful and positive impact, hforcing organisations to change their tactics. Competitors The name of the game in marketing is differentiation. What benefit can the organisation offer which is better then their competitors. Can they sustain this differentiation over a period of time from their competitors?. Competitor anlaysis and monitoring is crucial if an organisation is to maintain its position within the market.
Micro Environmental Factor/Stakeholder Analysis
The marketing concept
The concept of marketing has changed and evolved over time. Whilst in today’s business world, the customer is at the forefront, not all businesses in the past followed this concept. Their thinking, orientation or ideology put other factors rather then the customer first. Let us examine these below. Production Oriented: The focus of the business is not the needs of the customer, but of reducing costs by mass production. By reaching economies of scale the business will maximize profits by reducing costs. Product Orientation: The company believes that they have a superior product, based on quality and features, and because of this they feel their customers will like it also. Sales Orientation: The focus here is to make the product, and then try to sell it to the target market. However, the problem could be that consumers do not like what is being sold to them. Market Orientation: Puts the customer at the heart of the business. The organization tries to understand the needs of the customers by using appropriate research methods, Appropriate processes are developed to make sure information from customers is fed back into the heart of the organisation. In essence all activities in the organisation are based around the customer. The customer is truly king! In today’s competitive world putting the customer at the heart of the operation is strategically important. Whilst some organizations in certain industries may follow anything other then the market orientation concept, those that follow the market orientation concept have a greater chance of being successful.
Competitor Strategies Any organisation that wishes to succeed and survive in their market, needs to analyse their competitors strategies. Competitor analysis is a vital part of the marketing planning process. Competitor analysis enables an organisation to:
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Collect information on competitors that will directly influence the firms’ strategy. Help the firm anticipate what the actions of their competitors will be, to their entry within the marketing. To exploit the competitor’s weaknesses so the firm can gain an overall competitive advantage. If you were to enter a market, some of the information you would need to know about your competitors islisted below.
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Who are your competitors? What is the size and dominance within the market. Which customer base are they aimed at? What is their positioning within the market? What are their objectives? What are their strengths and weaknesses? Data from an array of sources can be collected on your competitors. Examples of data sources include:
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Competitors websites. Annual reports. Observation. News articles on TV or press. Talking to customers or sales staff. Covert operations including pretending to be a customer at your competitors store, or phoning their telephone sales line. A complete understanding of competitors will help the organisation in preparing their overall marketing plan. As suggested, Porters Five Forces model is one model that helps the company identify competitors and potential competitor within their market and should be used in conjunction with a general competitor analysis. A competitor can easily slow down your companies progress, competitor analysis should allow you to anticipate and react effectively to their move.
Porters fives forces model : Industry analysis model Porters fives forces model is an excellent model to use to analyse a particular environment of an industry. So for example, if we were entering the PC industry, we would use porters model to help us find out about: 1) Competitive Rivalry 2) Power of suppliers 3) Power of buyers 4) Threats of substitutes 5) Threat of new entrants. The above five main factors are key factors that influence industry performance, hence it is common sense and practical to find out about these factors before you enter the industry. Lets look at them below. Competitive Rivalry
A starting point to analysing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if: • There is little differentiation between the products sold between customers. • Competitors are approximately the same size of each other. • If the competitors all have similar strategies. • It is costly to leave the industry hence they fight to just stay in ( exit barriers) Power of suppliers Suppliers are also essential for the success of an organisation. Raw materials are needed to complete the finish product of the organisation. Suppliers do have power. This power comes from: • If they are the only supplier or one of few suppliers who supply that particular raw material. • If it costly for the organisation to move from one supplier to another (known also as switching cost) • If there is no other substitute for their product. Power of buyers Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when: • There is little differentiation over the product and substitutes can be found easily. • Customers are sensitive to price. • Switching to another product is not costly. Threat of substitutes Are there alternative products that customers can purchase over your product that offer the same benefit for the same or less price? The threat of substitute is high when: • Price of that substitute product falls. • It is easy for consumers to switch from one substitute product to another. • Buyers are willing to substitute. Threat of new entrant The threat of a new organisation entering the industry is high when it is easy for an organisation to enter the industry i.e. entry barriers are low.
An organisation will look at how loyal customers are to existing products, how quickly they can achieve economy of scales, would they have access to suppliers, would government legislation prevent them or encourage them to enter the industry. So to summaries porters five forces model is essential to carry to help you understand your industry in depth before you enter it.
Competitor analysis: Sources of competitor data There is much information available in the public domain that allows a company to analyse its competitors. In 1997 Davidson suggested that the sources of competition information could be placed into three groups. 1. Recorded data. This is data on competitors that already has been published. This data could be internal to the organisation e.g. annual reports or external e.g. newspaper articles or magazine reviews of competitor products. 2. Observable data. This is data collected through observation of your competitors. This could include looking at your competitors marketing mix strategy, product or service ranges.
3. Opportunistic data. This data involves the firm talking to those who have or have had contact with the competitor’s suppliers. These people could give inside information on the company. The company could also actively recruit people who worked for their competitors, or head hunt others. Competitor analysis is crucial if the firm wants to stay ahead. Competitor analysis may give a firm new ideas and help formulate new business strategies for growth and profit. Competitor analysis should stimulate innovation, beneficial for both the firm and the customer. Marketing Research and New Product Development
Marketing Research Research is the only tool an organisation has to keep in contact with its external operating environment. Inorder to be proactive and change with the environment simple questions need to be asked:
How are customer needs changing? Can you meet these changing needs? What do your customers think about existing products or services? How are competitors operating within the environment? Are their strategies exceeding or influencing yours? What should you do? How are macro and micro environmental factors influencing your organisation? Again how will you react?
As witnessed with the UK retail clothing group C&A , failure to react to the changing needs of its customers within its environment has resulted in C&A closing all their UK retail stores. Marks and Spencers also faces an uncertain future. Research tells them that customers feel that the stores and clothes are outdated. M&S are now rushing out new lines and experimenting with new concept stores to retain existing and attract potential new customers. In the world of credit it is just recently that M&S are excepting credit cards! Market Research and Marketing Research a difference. A common mistake by many students, lecturers and textbooks is that there is no understanding of the clear distinction between market research and marketing research. Market Research: Involves researching specific industry’s or markets. Researching the computer industry to discover the number of competitors and their market share will be an example of market research. Marketing Research: Marketing Research goes further. Marketing Research analyses a given marketing opportunity or problem, defines the research and data collection methods required to deal with the problem or take advantage of the opportunity, through to the implementation of the project. In essence marketing research aims to discover the root cause for a specific problem within an organisation ( eg declining sales) and put forward solutions to that problem. Data Types There are two types of data to be collected: Qualitative Data: Focuses on people’s opinions and attitudes towards a product or service. Quantitative Data: Focuses on collecting data for numerical analysis.
Sampling methods Before an organisation conducts primary research it has to be clear which respondents it wishes to interview. A company cannot possibly interview the whole population to get their opinions and views. This simply would be to costly and unfeasible. A sample of the population is taken to help them conduct this research. To select this sample there are again different methods of choosing your respondents, a mathematical approach called 'probability sampling' and a non- mathematical approach, simply called 'non-probability sampling'. Lets look at these in a little more detail.
Probability Sampling Methods – A mathematical chance of selecting the respondent. Simple Random Samples With this method of sampling the potential people you want to interview are listed e.g. a group of 100 are listed and a group of 20 may be selected from this list at random. The selection may be done by computer. Systematic samples Out of the 100 people we talked about above, systematic sampling suggests that if we select the 5th person from the above list, then we would select every 5th, 10th, 15th, 20th etc. The pattern is the every consecutive 5th. If the 6th person was selected then it would be every consecutive 6th. Multi-Stage Samples With this sampling process the respondents are chosen through a process of defined stages. For example residents within Islington (London) may have been chosen for a survey through the following process: Throughout the UK the south east may have been selected at random, ( stage 1), within the UK London is selected again at random (stage 2), Islington is selected as the borough (stage 3), then polling districts from Islington (stage 4) and then individuals from the electoral register (stage 5). As demonstrated five stages were gone through before the final selection of respondents were selected from the electoral register.
Non Probability Samples Convenience Sampling Where the researcher questions anyone who is available. This method is quick and cheap. However we do not know how representative the sample is and how reliable the result. Quota Sampling Using this method the sample audience is made up of potential purchasers of your product. For example if you feel that your typical customers will be male between 18-23, female between 26-30, then some of the respondents you interview should be made up of this group, i.e. a quota is given. Dimensional Sampling
An extension to quota sampling. The researcher takes into account several characteristics e.g. gender, age income, residence education and ensures there is at least one person in the study that represents that population. E.g. out of 10 people you may want to make sure that 2 people are within a certain gender, two a certain age group who have an income rate between £25000 and £30000, this will again ensure the accuracy of the sample frame again. To summaries there are two types of sampling frames - probability and non-probability, and within this six types of sampling methods as discussed above. Sampling methods Before an organisation conducts primary research it has to be clear which respondents it wishes to interview. A company cannot possibly interview the whole population to get their opinions and views. This simply would be to costly and unfeasible. A sample of the population is taken to help them conduct this research. To select this sample there are again different methods of choosing your respondents, a mathematical approach called 'probability sampling' and a non- mathematical approach, simply called 'non-probability sampling'. Lets look at these in a little more detail. Probability Sampling Methods – A mathematical chance of selecting the respondent. Simple Random Samples With this method of sampling the potential people you want to interview are listed e.g. a group of 100 are listed and a group of 20 may be selected from this list at random. The selection may be done by computer. Systematic samples Out of the 100 people we talked about above, systematic sampling suggests that if we select the 5th person from the above list, then we would select every 5th, 10th, 15th, 20th etc. The pattern is the every consecutive 5th. If the 6th person was selected then it would be every consecutive 6th. Multi-Stage Samples With this sampling process the respondents are chosen through a process of defined stages. For example residents within Islington (London) may have been chosen for a survey through the following process: Throughout the UK the south east may have been selected at random, ( stage 1), within the UK London is selected again at random (stage 2), Islington is selected as the borough (stage 3), then polling districts from Islington (stage 4) and then individuals from the electoral register (stage 5).
As demonstrated five stages were gone through before the final selection of respondents were selected from the electoral register.
Non Probability Samples Convenience Sampling Where the researcher questions anyone who is available. This method is quick and cheap. However we do not know how representative the sample is and how reliable the result. Quota Sampling Using this method the sample audience is made up of potential purchasers of your product. For example if you feel that your typical customers will be male between 18-23, female between 26-30, then some of the respondents you interview should be made up of this group, i.e. a quota is given. Dimensional Sampling An extension to quota sampling. The researcher takes into account several characteristics e.g. gender, age income, residence education and ensures there is at least one person in the study that represents that population. E.g. out of 10 people you may want to make sure that 2 people are within a certain gender, two a certain age group who have an income rate between £25000 and £30000, this will again ensure the accuracy of the sample frame again. To summaries there are two types of sampling frames - probability and non-probability, and within this six types of sampling methods as discussed above.
Internal Research (also known as internal secondary research) Secondary research is research already published, and is the cheapest form of research because the data already exists for your acquisition. Secondary research can be split into internal and external research. Internally an organisation has access to a wealth of information, which can be a useful tool for decision making for managers. Information available may assist the organisation in discovering why sales are decreasing, why customers are not satisfied, customer usage rates and so on. Sources of internal research may include: • • • • • National product sales. Regional product sales. Customer usage rates. Guarantee cards. Customer comments or complaints.
Sales people, research and development staff. Past research conducted.
Clearly as this information can be generated internally the only cost implication will be of staff time obtaining the data. External Secondary Research Sources of external secondary data include: • • • • • • • • Periodicals. Specialist marketing reports i.e Mintel Industry magazines. Chamber of commerce. Government statistics. Internet. Professional bodies. Trade associations.
Limitations of secondary research. It is easy to find and collect secondary data., however, you need to be aware of the limitations the data may have and the problems that could arise if these limitations are ignored. • • • • • Secondary data can be general and vague and may not really help companies with decision making. The information and data may not be accurate. The source of the data must always be checked. The data maybe old and out of date. The sample used to generate the secondary data maybe small. The company publishing the data may not be reputable.
Secondary Research Links
www.mintel.com www.statistics.gov.uk www.businessmonitor.co.uk
Primary Research Primary research is research used to collect data for a specific task. Types of primary data collection methods include: • Personal Observation: The observation of the respondent by a trained observer or by electronic equipment (camera). The aim is to observe consumer responses and behaviour to a product or customer service.
Personal Interviews: Face to face interview between an interviewer and the respondent at home or in shopping centres.
Advantages of personal interviews • • • • In-depth answers possible. Qualitative data obtained from small sample. Observation improves accuracy. Rapport leads to fewer refusals.
Disadvantage of personal interviews • • • • • • Cost: Professional Interviewer expensive. Interviewer bias. Can be slow and time consuming. People not at home. Invasion of privacy. Postal surveys: Mailing or distributing door to door a written questionnaire to a sample of buyers for their completion at home or at work.
Advantages of postal surveys • • • • No travel expenses so economic if good return rate. No interviewer Bias Anonymous returns Can be completed at respondents’ leisure.
Disadvantages of postal surveys • • • • Low response rate approximately 3% Take longer Have to be short. Questions may be misinterpreted, and there is no interviewer their to guide the respondent. Telephone Surveys: Involves the interviewer contacting the target respondent and asking them questions and recording responses.
Advantages of telephone surveys • • • • Easy to administer Quick. Allows for reaction and some in-depth interviews. Questions can be modified.
Disadvantages of telephone surveys • Professional interviewers are expensive.
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Invasion of privacy. Telephone charges can be high. Not everyone has a telephone, so not representative of the population. High non-response rate because of engaged/no answers, plain refusals. Focus Groups: A discussion between six – eight individuals with the aim to produce qualitative data (opinions and attitudes) on the topic being discussed. The topic may be their opinions on a new product the organisation wishes to introduce. The person who monitors the group is called 'the moderator'
Advantages of focus groups • • • Generates information helpful in structuring consumer questionnaires. Provides background information on product. Secures impressions on new product concepts.
Disadvantage of focus groups • • • The group may have one or some dominant people within it who may actually dissuade some other group member to make a full contribution. Difficult for moderator to interrupt once a discussion gets going. Bias from moderator.
New Product Development
Why develop new products for your business? Every business needs to innovate to stay ahead of the competition. No business can continue to offer the same unchanged product, if they did so, profit would not be maximized and sales would start to fall. Here we will look at some of the reasons why a company may introduce new products into its portfolio.
Consumer needs may change, forcing the company to adapt with these changing needs. If we look at food sectors around the world, consumers are becoming more health conscious, forcing companies to introduce low sugar and fat versions of their existing brands. Coca Cola Zero is a classic example. The product maybe at the end of its life cycle, so the company may introduce new and improved updated versions. Microsoft has done this by moving from the Xbox to the Xbox 360. The product might be at the maturity stage of its life cycle and might just need to be re-modified to stimulate an increase in sales. Sony PlayStation have done this with the original PlayStation by offering a smaller version called PSOne, and a slim version of the PlayStation 2.
There maybe environmental changes which the company may want to capitalise on. Music companies are now selling more music via downloads then through traditional shops, originally being forced to change the way they deliver their product by Napster. Competitors may force change. New products maybe introduced because of competitors.
New Product Development (NPD) Improving and updating product lines is crucial for the success for any organisation. Failure for an organisation to change could result in a decline in sales and with competitors racing ahead. The process of NPD is crucial within an organisation. Products go through the stages of their lifecycle and will eventually have to be replaced There are eight stages of new product development. These stages will be discussed briefly below: Stage 1: Idea generation New product ideas have to come from somewhere. But where do organisations get their ideas for NPD? Some sources include: • Within the company i.e. employees • Competitors. • Customers • Distributors, Supplies and others. Stage 2: Idea Screening This process involves shifting through the ideas generated above and selecting ones which are feasible and workable to develop. Pursing non feasible ideas can clearly be costly for the company. Stage 3: Concept Development and Testing The organisation may have come across what they believe to be a feasible idea, however, the idea needs to be taken to the target audience. What do they think about the idea? Will it be practical and feasible? Will it offer the benefit that the organisation hopes it will? or have they overlooked certain issues? Note the idea and concept is taken to the target audience not a working prototype at this stage. Stage 4: Marketing Strategy and Development How will the product/service idea be launched within the market? A proposed marketing strategy will be written laying out the marketing mix strategy of the product, the segmentation, targeting and positioning strategy sales and profits that are expected.
Stage 5: Business Analysis The company has a great idea, the marketing strategy seems feasible, but will the product be financially worth while in the long run? The business analysis stage looks more deeply into the cashflow the product could generate, what the cost will be, how much market shares the product may achieve and the expected life of the product. Stage 6: Product Development Finally it is at this stage that a prototype is finally produced. The prototype will clearly run through all the desired tests, and be presented to the target audience to see if changes need to be made. Stage 7: Test Marketing Test marketing means testing the product within a specific area. The product will be launched within a particular region so the marketing mix strategy can be monitored and if needed, be modified before national launch. Stage 8: Commercialization If the test marketing stage has been successful then the product will go for national launch. There are certain factors that need to be taken into consideration before a product is launched nationally. These are timing, how the product will be launched, where the product will be launched, will there be a national roll out or will it be region by region? Marketing Tactics Marketing Mix
The marketing mix principles (also known as the 4 p’s.) are used by business as tools to assist them in pursuing their objectives. The marketing mix principles are controllable variables, which have to be carefully managed and must meet the needs of the defined target group. The marketing mix is apart of the organisations planning process and consists of analysing the defined: • • • •
How will you design, package and add value to the product. Product strategies. What pricing strategy is appropiate to use Price strategies. Where will the firm locate? Place strategies. How will the firm promote its product Promotion strategies.
Please click on the above links to learn more about the marketing mix
Introducing the marketing mix
The marketing mix principles (also known as the 4 p’s.) are used by business as tools to assist them in pursuing their objectives. The marketing mix principles are controllable variables, which have to be carefully managed and must meet the needs of the defined target group. The marketing mix is apart of the organisations planning process and consists of analysing the defined: • • • •
How will you design, package and add value to the product. Product strategies. What pricing strategy is appropiate to use Price strategies. Where will the firm locate? Place strategies. How will the firm promote its product Promotion strategies.
Please click on the above links to learn more about the marketing mix Introducing the marketing mix
Product strategies When an organisation introduces a product into a market they must ask themselves a number of questions.
1. Who is the product aimed at?
2. What benefit will they expect? 3. How do they plan to position the product within the market? 4. What differential advantage will the product offer over their competitors?
We must remember that Marketing is fundamentally about providing the correct bundle of benefits to the end user, hence the saying ‘Marketing is not about providing products or services it is essentially about providing changing benefits to the changing needs and demands of the customer’ (P.Tailor 7/00) Philip Kotler in Principles of Marketing devised a very interesting concept of benefit building with a product For a more detailed analysis please refer to Principles of Marketing by P.Kotler.
Kotler suggested that a product should be viewed in three levels. Level 1: Core Product. What is the core benefit your product offers?. Customers who purchase a camera are buying more then just a camera they are purchasing memories. Level 2 Actual Product: All cameras capture memories. The aim is to ensure that your potential customers purchase your one. The strategy at this level involves organisations branding, adding features and benefits to ensure that their product offers a differential advantage from their competitors. Level 3: Augmented product: What additional non-tangible benefits can you offer? Competition at this level is based around after sales service, warranties, delivery and so on. John Lewis a retail departmental store offers free five year guarantee on purchases of their Television sets, this gives their `customers the additional benefit of ‘piece of mind’ over the five years should their purchase develop a fault.
When placing a product within a market many factors and decisions have to be taken into consideration. These include: Product design – Will the design be the selling point for the organisation as we have seen with the iMAC, the new VW Beetle or the Dyson vacuum cleaner.
Product quality: Quality has to consistent with other elements of the marketing mix. A premium based pricing strategy has to reflect the quality a product offers.
Product features: What features will you add that may increase the benefit offered to your target market? Will the organisation use a discriminatory pricing policy for offering these additional benefits? Branding: One of the most important decisions a marketing manager can make is about branding. The value of brands in today’s environment is phenomenal. Brands have the power of instant sales, they convey a message of confidence, quality and reliability to their target market. Brands have to be managed well, as some brands can be cash cows for organisations. In many organisations they are represented by brand managers, who have hugh resources to ensure their success within the market. A brand is a tool which is used by an organisation to differentiate itself from competitors. Ask yourself what is the value of a pair of Nike trainers without the brand or the logo? How does your perception change? Increasingly brand managers are becoming annoyed by ‘copycat’ strategies being employed by supermarket food retail stores particular within the UK . Coca-Cola threatened legal action against UK retailer Sainsbury after introducing their Classic Cola, which displayed similar designs and fonts on their cans. Internet branding is now becoming an essential part of the branding strategy game. Generic names like Bank.com and Business.com have been sold for £m’s. ( Recently within the UK banking industry we have seen the introduction of Internet banks such as cahoot.com and marbles.com the task by brand managers is to make sure that consumers understand that these brands are banks!
Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organisation. The remaining 3p’s are the variable cost for the organisation. It costs to produce and design a product, it costs to distribute a product and costs to
promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organisation. Pricing should take into account the following factors: Fixed and variable costs. Competition Company objectives Proposed positioning strategies. Target group and willingness to pay. Pricing Strategies An organisation can adopt a number of pricing strategies. The pricing strategies are based much on what objectives the company has set itself to achieve. Penetration pricing: Where the organisation sets a low price to increase sales and market share. Skimming pricing: The organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer. Competition pricing: Setting a price in comparison with competitors. Product Line Pricing: Pricing different products within the same product range at different price points. An example would be a video manufacturer offering different video recorders with different features at different prices. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximising turnover and profits. Bundle Pricing: The organisation bundles a group of products at a reduced price. Psychological pricing: The seller here will consider the psychology of price and the positioning of price within the market place. The seller will therefore charge 99p instead £1 or $199 instead of $200
Premium pricing: The price set is high to reflect the exclusiveness of the product. An example of products using this strategy would be Harrods, first class airline services, porsche etc. Optional pricing: The organisation sells optional extras along with the product to maximise its turnover. This strategy is used commonly within the car industry. . Marketing Mix: Place
Place strategies Refers to how an organisation will distribute the product or service they are offering to the end user. The organisation must distribute the product to the user at the right place at the right time. Efficient and effective distribution is important if the organisation is to meet its overall marketing objectives. If organisation underestimate demand and customers cannot purchase products because of it profitability will be affected. What channel of distribution will they use? Two types of channel of distribution methods are available. Indirect distribution involves distributing your product by the use of an intermediary. Direct distribution involves distributing direct from a manufacturer to the consumer e.g. For example Dell Computers. Clearly direct distribution gives a manufacturer complete control over their product.
Above indirect distribution (left) and direct distribution (right).
Distribution Strategies Depending on the type of product being distributed there are three common distribution strategies available: 1. Intensive distribution: Used commonly to distribute low priced or impulse purchase products eg chocolates, soft drinks. 2. Exclusive distribution: Involves limiting distribution to a single outlet. The product is usually highly priced, and requires the intermediary to place much detail in its sell. An example of would be the sale of vehicles through exclusive dealers. 3. Selective Distribution: A small number of retail outlets are chosen to distribute the product. Selective distribution is common with products such as computers, televisions household
appliances, where consumers are willing to shop around and where manufacturers want a large geographical spread. If a manufacturer decides to adopt an exclusive or selective strategy they should select a intermediary which has experience of handling similar products, credible and is known by the target audience Promotion Strategies - Click here if you want Edward to read this bit.
A successful product or service means nothing unless the benefit of such a service can be communicated clearly to the target market. An organisations promotional strategy can consist of: Advertising: Is any non personal paid form of communication using any form of mass media. Public relations: Involves developing positive relationships with the organisation media public. The art of good public relations is not only to obtain favorable publicity within the media, but it is also involves being able to handle successfully negative attention. Sales promotion: Commonly used to obtain an increase in sales short term. Could involve using money off coupons or special offers. Personal selling: Selling a product service one to one. Direct Mail: Is the sending of publicity material to a named person within an organisation. There has been a massive growth in direct mail campaigns over the last 5 years. Spending on direct mail now amounts to £18 bn a year representing 11.8% of advertising expenditure ( Source: Royal Mail 2000). Organisations can pay thousands of pounds for databases, which contain names and addresses of potential customers. Direct mail allows an organisation to use their resources more effectively by allowing them to send publicity material to a named person within their target segment. By personalising advertising, response rates increase thus increasing the chance of improving sales. Listed below are links to organisation who's business involves direct mail. www.royalmail.co.uk/atwork www.dmis.co.uk www.dmconcepts.co.uk www.marketline.co.uk Message & Media Strategy - Click here if you want Edward to read this bit. An effective communication campaign should comprise of a well thought out message strategy. What message are you trying to put accross to your target audience?. How will you deliver that message? Will it be through the appropiate use of branding? logos or slogan design?. The
message should reinforce the benefit of the product and should also help the company in developing the positioning strategy of the product. Companies with effective message strategies include: Nike: Just do it. Toyota: The car in front is a Toyota. Media strategy refers to how the organisation is going to deliver their message. What aspects of the promotional mix will the company use to deliver their message strategy. Where will they promote? Clearly the company must take into account the readership and general behaviour of their target audience before they select their media strategy. What newspapers do their target market read? What TV programmes do they watch? Effective targeting of their media campaign could save the company on valuable financial resources. Push & Pull Strategies - Click here if you want Edward to read this bit.
Above a pull strategy (left) push strategy (right). Communication by the manufacturer is not only directed towards consumers to create demand. A push strategy is where the manufacturer concentrates some of their marketing effort on promoting their product to retailers to convince them to stock the product. A combination of promotional mix strategies are used at this stage aimed at the retailer including personal selling, and direct mail. The product is pushed onto the retailer, hence the name. A pull strategy is based around the manufacturer promoting their product amongst the target market to create demand. Consumers pull the product through the distribution channel forcing the wholesaler and retailer to stock it, hence the name pull strategy. Organisations tend to use both push and pull strategies to create demand from retailers and consumers.
Communication Model - AIDA
AIDA is a communication model which can be used by firms to aid them in selling their product or services. AIDA is an Acronym for Attention, Interest, Desire, Action.. When a product is launched the first goal is to grab attention. Think, how can an organisation use it skills to do this? Use well-known personalities to sell products? Once you grab attention how can you hold Interest, through promoting features, clearly stating the benefit the product has to offer? The third stage is desire, how can you make the product desirable to the consumer? By demonstrating it? The final stage is the purchase action, if the company has been successful with its strategy then the target customer should purchase the product.
Promotion through the Product lifecycle. - Click here if you want Edward to read this bit.
As products move through the four stages of the product lifecycle different promotional strategies should be employed at these stages to ensure the healthy success and life of the product . Stages and promotion strategies employed. Introduction When a product is new the organisations objective will be to inform the target audience of its entry. Television, radio, magazine, coupons etc may be used to push the product through the introduction stage of the lifecycle. Push and Pull Strategies will be used at this crucial stage. Growth As the product becomes accepted by the target market the organisation at this stage of the lifecycle the organisation works on the strategy of further increasing brand awareness to encourage loyalty. Maturity At this stage with increased competition the organisation take persuasive tactics to encourage the consumers to purchase their product over their rivals. Any differential advantage will be clearly communicated to the target audience to inform of their benefit over their competitors. Decline As the product reaches the decline stage the organisation will use the strategy of reminding people of the product to slow the inevitable
Internet promotion. The development of the world wide web has changed the business environment forever. Dot com fever has taken the industry and stock markets by storm. The e-commerce revolution promises to deliver a more efficient way of conducting business. Shoppers can now purchase from the comfort of their home 24 hours a day 7 days a week. However, particularly in the UK the ecommerce revolution is hindered by two factors. Firstly the cost of logging on to the net. Consumers are still weary of the time-spent surfing, the high cost is slowing down the take-up. The number of homes that are linked to the web in the UK is only 25% of all house owner. If ecommerce businesses are to succeed the home penetration rate of internet access must also increase. Secondly, most homes are linked to modems of 56K. As the growth of people signing on-line grows the access speed slows down. In America most consumers only spend 10 seconds browsing on a web page, before they change sites, within the UK it is 2 minutes. The future seems to be with ADSL networks which will speed up access to the Internet dramatically running at 512K per second. However, again whether this format is adapted depends much on the cost. Owning a website is a now a crucial ingredient to the marketing mix strategy of an organisation. Consumers can now obtain instant information on products or services to aid them in their crucial purchase decision. Sony Japan took pre-orders of their popular Playstaion 2 console over the net, which topped a 1 million after a few days, European football stars are now issuing press releases over the web with the sites registered under their own names. Hit rates are phenomenal.
Branding What is a Brand? In Principles of Marketing, by Philip Kotler and Gary Armstrong a brand is defined as ‘a name, term, sign symbol or a combination of these, that identifies the maker or seller of the product’
P.Tailor of www.learnmarketing.net defines a brand as a ‘ Marketing tool that allows consumers to recognize the maker of a product’. Why brand? A brand name helps an organisation differentiate itself from its competitors. In todays competitive world no product can go without a brand. Customers often build up a relationship with a brand that they trust and will often go back to time and time again. For example, some people may only purchase a Sony TV although there are acceptable alternatives on the market, because of a past positive history with this brand. Brand Equity How much is a brand worth? Brand equity refers to the value of the brand. Brand equity does not develop instantaneously. A brand needs to be carefully nurtured and marketed so consumers feel real value and trust towards that brand. Nike, Adidas, Harrods, have high brand equity. These brand command high awareness and consumer loyalty. But how much are these brands worth? It is difficult to put a value on these brands. But how much is a pair of Nike trainers worth without the logo on it? Branding strategies When a company manages its brands it has a number of strategies it can use to further increase its brand value. These are: Line extension: This is where an organisation adds to its current product line by introducing, versions with new features, an example could be a Crisp manufacturer extending its line by adding more exotic flavours. Brand extension: If your current brand name is successful, you may use the brand name to extend into new or existing areas. For example Virgin extending its brand from records, to airlines, to mobiles. Multi Branding: The company decides to further introduce more brands into an already existing category. Kellogg’s for example have a number of brands in the cereal market and the cereal bar market. Multi-branding can allow an organisation to maximise profits, but a company needs to be weary over their own brands competing with each other over market share. New Brands: An organisation may decide to launch a new brand into a market. A new brand may be used to compete with existing rivals and may be marketed as something ‘new and fresh’. Brand Names
How do you name a product? Simply put it, there is no easy option. Depending on how established an organisation is, there are a number of ways to brand a product. Individual name: A product could be branded with an individual name. A firm may decide it wants a brand, which has no association with any of its other brands. Volkswagen in the UK, for example own the brand SEAT and Skoda Family brand: Where a product is part of a family, e.g. Kellogg’s, with Corn flakes, Rice Krispies, and Frosties. The brand is stretched to other products because customers trust it, and the firm is trying to maximize the equity it holds in the brand. Combined brand name: A popular strategy involves the organisation combing the already established family name with a new individual brand name. The idea is to use the reputation of the established family or company name to launch a new associated product. For example Nestle may use their name to launch a new cereal or cereal bar.
Philip Kotler in Principles of Marketing devised a very interesting concept of benefit building with a product For a more detailed analysis please refer to Principles of Marketing by P.Kotler.
Kotler suggested that a product should be viewed in three levels. Level 1: Core Product. What is the core benefit your product offers?. Customers who purchase a camera are buying more then just a camera they are purchasing memories. Level 2 Actual Product: All cameras capture memories. The aim is to ensure that your potential customers purchase your one. The strategy at this level involves organisations branding, adding features and benefits to ensure that their product offers a differential advantage from their competitors.
Level 3: Augmented product: What additional non-tangible benefits can you offer? Competition at this level is based around after sales service, warranties, delivery and so on. John Lewis a retail departmental store offers free five year guarantee on purchases of their Television sets, this gives their `customers the additional benefit of ‘piece of mind’ over the five years should their purchase develop a fault.
Perceptual Mapping/Positioning Map In helping you develop a market positioning strategy for your product or service, perceptual maps or positioning maps as they are sometimes referred to, are often used to help the organisation identify a positioning strategy. When plotting a peceptual map two dimensions are commonly used. Below is a very basic perceptual map. If we plot the UK chocolate market we can identify those brands which are high price and high quality. Belgium chocolates are plotted as high quality and high price, and twix is plotted one low quality low price brand. Once completed the perceptual map could help identify where an organisation could launch a new brand pherhaps at the medium price and quality range. In our basic map, you can see there is not much competition within that particular area. We must remember that perceptual maps are plotted on the basis of someones perception and what maybe a quality product to one person, may not be percieved as quality to another.
Diagram: Perceptual Map UK Confectionery Brands
Positioning. After the organisation has selected its target market, the next stage is to decide how it wants to position itself within that chosen segment. Positioning refers to ‘how organisations want their consumers to see their product’. What message about the product or service is the company trying to put across? Car manufacturer Daewoo in the UK, has successfully positioned themselves as the family value model. The UK car Skoda brand which has been taken over by Volkswagen has been re-positioned as a vehicle which had negative brand associations, to one which regularly wins car of the year awards. The positive comments from the industry and attributes of this vehicle is has changed the perception of consumers about the Skoda brand. Developing a positioning strategy Developing a positioning strategy depends much on how competitors position themselves. Do organisations want to develop ‘a me too’ strategy and position themselves close to their competitors so consumers can make a direct comparison when
they purchase? Or does the organisation want to develop a strategy which positions themselves away from their competitors? Offering a benefit which is superior depends much on the marketing mix strategy the organisation adopts. The pricing strategy must reflect the benefit offered and the promotion strategy must communicate this benefit. Ultimately positioning is about how you want consumers to perceive your products and services and what strategies you would adopt to reach this perceptual goal. For more information please read Peceptual Mapping. Service Marketing Characteristics of a Service What exactly are the characteristics of a service? How are services different from a product? In fact many organisations do have service elements to the product they sell, for example McDonald’s sell physical products i.e. burgers but consumers are also concerned about the quality and speed of service, are staff cheerful and welcoming and do they serve with a smile on their face? There are five characteristics to a service which will be discussed below. 1. Lack of ownership. You cannot own and store a service like you can a product. Services are used or hired for a period of time. For example when buying a ticket to the USA the service lasts maybe 9 hours each way , but consumers want and expect excellent service for that time. Because you can measure the duration of the service consumers become more demanding of it. 2. Intangibility You cannot hold or touch a service unlike a product. In saying that although services are intangible the experience consumers obtain from the service has an impact on how they will perceive it. What do consumers perceive from customer service? the location, and the inner presentation of where they are purchasing the service?. 3. Inseparability Services cannot be separated from the service providers. A product when produced can be taken away from the producer. However a service is produced at or near the point of purchase. Take visiting a restaurant, you order your meal, the waiting and delivery of the meal, the service provided by the waiter/ress is all apart of the service production process and is inseparable, the staff in a restaurant are as apart of the process as well as the quality of food provided. 4. Perishibility
Services last a specific time and cannot be stored like a product for later use. If travelling by train, coach or air the service will only last the duration of the journey. The service is developed and used almost simultaneously. Again because of this time constraint consumers demand more. 5. Heterogeneity It is very difficult to make each service experience identical. If travelling by plane the service quality may differ from the first time you travelled by that airline to the second, because the airhostess is more or less experienced. A concert performed by a group on two nights may differ in slight ways because it is very difficult to standardise every dance move. Generally systems and procedures are put into place to make sure the service provided is consistent all the time, training in service organisations is essential for this, however in saying this there will always be subtle differences. Service Marketing Mix Having discussed the characteristics of a service, let us now look at the marketing mix of a service. The service marketing mix comprises off the 7’p’s. These include: • Product • Price • Place • Promotion • • People • Process • Physical evidence. Lets now look at the remaining 3 p’s: People An essential ingredient to any service provision is the use of appropriate staff and people. Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organisation wants to obtain a form of competitive advantage. Consumers make judgements and deliver perceptions of the service based on the employees they interact with. Staff should have the appropriate interpersonal skills, aptititude, and service knowledge to provide the service that consumers are paying for. Many British organisations aim to apply for the Investors In People accreditation, which tells consumers that staff are taken care off by the company and they are trained to certain standards.
Process Refers to the systems used to assist the organisation in delivering the service. Imagine you walk into Burger King and you order a Whopper Meal and you get it delivered within 2 minutes. What was the process that allowed you to obtain an efficient service delivery? Banks that send out Credit Cards automatically when their customers old one has expired again require an efficient process to identify expiry dates and renewal. An efficient service that replaces old credit cards will foster consumer loyalty and confidence in the company. Physical Evidence Where is the service being delivered? Physical Evidence is the element of the service mix which allows the consumer again to make judgements on the organisation. If you walk into a restaurant your expectations are of a clean, friendly environment. On an aircraft if you travel first class you expect enough room to be able to lay down! Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their sight of the service provision which will have an impact on the organisations perceptual plan of the service. To summarise service marketing looks at: The Characteristics of a service that are: (1) Lack of ownership (2) Intangibility (3) Inseparability (4) Perishability (5) Heterogeneity. The Service marketing mix involves analysing the 7’p of marketing involving, Product, Price, Place, Promotion, Physical Evidence, Process and People. To certain extent managing services are more complicated then managing products, products can be standardised, to standardise a service is far more difficult as there are more input factors i.e. people, physical evidence, process to manage then with a product. New *** Sound Marketing *** New Consumer Buying Behaviour
What influences consumers to purchase products or services? The consumer buying process is a complex matter as many internal and external factors have an impact on the buying decisions of the consumer. When purchasing a product there several processes, which consumers go through. These will be discussed below. 1. Problem/Need Recognition How do you decide you want to buy a particular product or service? It could be that your DVD player stops working and you now have to look for a new one, all those DVD films you purchased you can no longer play! So you have a problem or a new need. For high value items like a DVD player or a car or other low frequency purchased products this is the process we would take. However, for impulse low frequency purchases e.g. confectionery the process is different. 2. Information search So we have a problem, our DVD player no longer works and we need to buy a new one. What’s the solution? Yes go out and purchase a new one, but which brand? Shall we buy the same brand as the one that blew up? Or stay clear of that? Consumer often go on some form of information search to help them through their purchase decision. Sources of information could be family, friends, neighbours who may have the product you have in mind, alternatively you may ask the sales people, or dealers, or read specialist magazines like What DVD? to help with their purchase decision. You may even actually examine the product before you decide to purchase it. 3. Evaluation of different purchase options. So what DVD player do we purchase? Shall it be Sony, Toshiba or Bush? Consumers allocate attribute factors to certain products, almost like a point scoring system which they work out in their mind over which brand to purchase. This means that consumers know what features from the rivals will benefit them and they attach different degrees of importance to each attribute. For example sound maybe better on the Sony product and picture on the Toshiba , but picture clarity is more important to you then sound. Consumers usually have some sort of brand preference with companies as they may have had a good history with a particular brand or their friends may have had a reliable history with one, but if the decision falls between the Sony DVD or Toshiba then which one shall it be? It could be that the a review the consumer reads on the particular Toshiba product may have tipped the balance and that they will purchase that brand. 4. Purchase decision Through the evaluation process discussed above consumers will reach their final purchase decision and they reach the final process of going through the purchase action
e.g. The process of going to the shop to buy the product, which for some consumers can be as just as rewarding as actually purchasing the product. Purchase of the product can either be through the store, the web, or over the phone. Post Purchase Behaviour Ever have doubts about the product after you purchased it? This simply is post purchase behaviour and research shows that it is a common trait amongst purchasers of products. Manufacturers of products clearly want recent consumers to feel proud of their purchase, it is therefore just as important for manufacturers to advertise for the sake of their recent purchaser so consumers feel comfortable that they own a product from a strong and reputable organisation. This limits post purchase behaviour. i.e. You feel reassured that you own the latest advertised product. Factors influencing the behaviour of buyers. Consumer behaviour is affected by many uncontrollable factors. Just think, what influences you before you buy a product or service? Your friends, your upbringing, your culture, the media, a role model or influences from certain groups? Culture is one factor that influences behaviour. Simply culture is defined as our attitudes and beliefs. But how are these attitudes and beliefs developed? As an individual growing up, a child is influenced by their parents, brothers, sister and other family member who may teach them what is wrong or right. They learn about their religion and culture, which helps them develop these opinions, attitudes and beliefs (AIO) . These factors will influence their purchase behaviour however other factors like groups of friends, or people they look up to may influence their choices of purchasing a particular product or service. Reference groups are particular groups of people some people may look up towards to that have an impact on consumer behaviour. So they can be simply a band like the Spice Girls or your immediate family members. Opinion leaders are those people that you look up to because your respect their views and judgements and these views may influence consumer decisions. So it maybe a friend who works with the IT trade who may influence your decision on what computer to buy. The economical environment also has an impact on consumer behaviour; do consumers have a secure job and a regular income to spend on goods? Marketing and advertising obviously influence consumers in trying to evoke them to purchase a particular product or service. Peoples social status will also impact their behaviour. What is their role within society? Are they Actors? Doctors? Office worker? and mothers and fathers also? Clearly being parents affects your buying habits depending on the age of the children, the type of job may mean you need to purchase formal clothes, the income which is earned has an impact. The lifestyle of someone who earns £250000 would clearly be different from someone who earns £25000. Also characters have an influence on buying decision. Whether the person is extrovert (out going and spends on entertainment) or introvert
(keeps to themselves and purchases via online or mail order) again has an impact on the types of purchases made. Maslow’s Hierarchy of Needs Abraham Maslow hierarchy of needs theory sets out to explain what motivated individuals in life to achieve. He set out his answer in a form of a hierarchy. He suggests individuals aim to meet basic psychological needs of hunger and thirst. When this has been met they then move up to the next stage of the hierarchy, safety needs, where the priority lay with job security and the knowing that an income will be available to them regularly. Social needs come in the next level of the hierarchy, the need to belong or be loved is a natural human desire and people do strive for this belonging. Esteem need is the need for status and recognition within society, status sometimes drives people, the need to have a good job title and be recognised or the need to wear branded clothes as a symbol of status. Self-actualisation the realisation that an individual has reached their potential in life. The point of self-actualisation is down to the individual, when do you know you have reached your point of self-fulfilment? But how does this concept help an organisation trying to market a product or service? Well as we have established earlier within this website, marketing is about meeting needs and providing benefits, Maslows concept suggests that needs change as we go along our path of striving for self-actualisation. Supermarket firms develop value brands to meet the psychological needs of hunger and thirst. Harrods develops products and services for those who want have met their esteem needs. So Maslows concept is useful for marketers as it can help them understand and develop consumer needs and wants. For further information on motivation theory please visit www.learnmanagement2.com Types of buying behaviour. There are four typical types of buying behaviour based on the type of products that intends to be purchased. Complex buying behaviour is where the individual purchases a high value brand and seeks a lot of information before the purchase is made. Habitual buying behaviour is where the individual buys a product out of habit e.g. a daily newspaper, sugar or salt. Variety seeking buying behaviour is where the individual likes to shop around and experiment with different products. So an individual may shop around for different breakfast cereals because he/she wants variety in the mornings! Dissonance reducing buying behaviour is when buyer are highly involved with the purchase of the product, because the purchase is expensive or infrequent. There is little difference between existing brands an example would be buying a diamond ring, there is perceived little difference between existing diamond brand manufacturers. To summarise:
• There are five stages of consumer purchase behaviour • Problem/Need Recognition • Information search. • Evaluation of purchases. • Purchase decision. • Post purchase behaviour. • Culture has an impact on the company. • Marketers should take into account Maslows hierarchy of needs. Consumer Goods Classification Consumer goods are products which are purchased for personal consumption. Consumer goods are classified into three areas.. These are: Convenience Goods Convenience products are inexpensive frequent purchases, there is little effort needed to purchase them. Examples may include fast food and confectionery products. Convenience products are split into staples, such as milk, eggs and emergency products which are purchased when the need arises e.g. Umbrellas. Shopping goods Shopping goods are usually high risk products where consumers like to shop around to find the best features and price for that product.. Examples include buying fridges, freezers or washing machines. Specialty Goods There are products that are purchased infrequently. The consumers will conduct extensive research to make sure that their purchase decision is right, because specialty goods are expensive and infrequent purchases. The organization will support the product with an extensive warranty package. Examples include watches and diamonds. There are usually little or no substitutes for these products. Environmental Marketing Mix Introduction An increased focus on environmental issues, has contributed to a rise in the demand for environmentally friendly products and services (EFS). The spotlight on sustaining the environment has created new terminology such as “carbon footprint” and “offsetting”. Many organisations have adapted their marketing strategies to capitalise on the consumer appetite for EFS.
EF marketing strategy takes into account additional factors which arent usually part of the marketing mix. Such a deviation from the academic acceptance of the “marketing mix” components has led Learnmarketing to develop the ‘environmental marketing mix.’ Environmental Product Strategies There are a large number of environmental issues impacting on the production of goods and products. For example: What is the impact of production, sourcing of materials and packaging on the environment? Can minimum levels of packaging and/or environmentally friendly packaging be achieved without compromising product quality or appeal? Supplier practices i.e. are they at least as environmentally friendly as the organisation they are supplying? Environmentally friendly products can increase and decrease production costs; environmentally friendly production may increase costs for organisations and their suppliers but this may be offset by lower fuel bills through energy efficiency measures or an increase in sales caused by a positive product image. An organisation may able to pass increases in production costs (caused by EFS) to consumers. However this will depend on the level of increase, type of consumer, competitor prices for the same type of product and the strength of the economy. For example during times of recession consumers will place price above many if not all of the factors making up the marketing mix. Environmental Place Strategies All organisations will need to “carefully” time when their product reaches consumers; exact time of distribution will depend on the product or service being distributed. Such timing may have an environmental implication. Some products will need to reach the consumer shortly after production for example fresh food in order to retain freshness, taste or nutritional value. The fastest method of distribution may damage the environment. Conversely a more environmentally friendly method e.g. via canals may impact on speed of distribution and consequently quality of the product. A method of distribution that combines speed with “environmentally friendliness” may increase distribution costs as some of these processes are still under development e.g. electric vehicles. In addition to the type of transport used for distribution, an organisation will need to review distribution techniques; For example timing deliveries so that they occur during off peak hours and do not contribute to congestion. Some organisations attempt to make fewer deliveries, whilst others promote concentrated products (e.g. fabric conditioner) as they increase the number of products that can carried in each delivery vehicle. Even if “environmentally friendly distribution” is not at the top of an organisation’s list of priorities, government policies may elevate it to the top. Congestion charging and low
emission zones have been introduced in the London. Apart from the obvious increase in costs emanating from observance of such policies, a failure to observe environmentally friendly rules and regulations will lead to fines and sanctions and consequently negative publicity. After reviewing internal distribution methods an organisation will need to review supplier and subcontractor distribution as consumers and the media expect organisations claiming environmental credentials to only liaise with other environmentally friendly organisations.. For example do the subcontractors use Bio-fuel? Are the subcontractors actively managing their “carbon footprint” or energy use? Environmental Promotion Strategies Due to the consumer, celebrity and government appetite for protecting the “environment” environmentally friendly practices are used as promotional tools. For example the award of ISO 14001 (which certifies that an organisation has certain environmental standards, as certified by an independent external auditing organisation) is often quoted in marketing literature. Product packaging that can be recycled will have a message on the packaging clearly stating the recycling properties for the packaging. Similarly organic products will be labelled, not only on the packaging but also around the shelving displaying the organic produce. Some organisations have sought to reduce costs through the promotion of environmentally friendly strategies. The use of carrier bags has changed dramatically in the UK over the last 2-3 years. Retailers actively promote the benefit of reusable bags as they have many benefits • Lower costs for the retailer • Consumers “feel good” as they believe that the use of a reusable bag is helping the environment • Fewer carrier bags go to landfill Another example is hotels offering guests the opportunity to engage in fewer linen and towel changes. Such strategy is environmentally friendly as it reduces the use of detergents and energy but it also reduces costs for the hotel and improves corporate image. Some organisations providing products and services which may harm the environment have added “off setting” methods to their portfolios and marketing literature. The idea behind “off setting” is that the consumer is offered the opportunity to indirectly engage in an activity (such as tree planting) that benefits the environment and therefore balances/evens out the damage they caused for example through flying. Such schemes attempt to ease the consumer’s conscience and retain a positive image for the organisation providing the environmentally unfriendly product or service. Environmental Pricing Strategies
Throughout this article we have discussed how environmentally friendly strategies can either increase or decrease organisational costs. The ideal marketing mix is a reduction in costs and/or an increased in costs which is exceeded by an increase in profits. Pricing must reflect the demand for the product an incorrectly priced product will reduce demand; this is now further complicated by the impact environmental issues have on pricing. If an organisation is paying more for raw materials because the supplier is “environmentally friendly” it may decide to “pass on” this price increase to the consumer, the amount the ideal amount will be dictated by the target consumer. On the other hand companies cutting costs and increasing profits at the expense of the environment may be risking negative publicity, fines, sanctions or may simply lose out to organisations actively promoting their environmentally friendly practices even if such competitors offer more expensive products and services. Summary The environmental marketing mix is becoming extremely important in today’s business world. Firms will have to carefully manage this mix if they are to successfully operate in a world which is becoming increasingly aware of climatic changes.
Requirements of segmentation. Before an organisation can target a specific segment accurately it must ask itself a number of questions. It is important to evaluate the effectiveness of a targeting strategy and the viability of the segment, if this is not done then money will be wasted. The market which is segmented must meet the following criteria: Measurability of segment: Can you measure the size and growth of the segment. Is the segment growing? In the UK the DVD market is growing at an extremely fast pace. From
January 2002 – June 2002 900,000 DVD’s were sold. The fast growth rate is attracting many players within the market. Accessibility of segment: Is it easy for you to target and reach your segment? Can they be reached with basic communication tools such as radio and TV advertising? If you cannot target your segment effectively with marketing communication then it is not viable. Suitability of segment: Is there enough spending power within the segment for the company to sustain itself.? Will spending within the DVD marketing continue? Actionability of segment: Does the organisation have enough resources to reach their segments?. It is no point in targeting segments you do not have the resources to cater for. If you were a car manufacturer the organisation would not concentrate on the affluent and price sensitive market if they did not have the resources to do so.
Market Segmentation An organisation cannot satisfy the needs and wants of all consumers. To do so may result in a massive drain in company resources. Segmentation is simply the process of dividing a particular market into sections, which display similar characteristics or behaviour. There are a number of segmentation variables that allow an organisation to divide their market into homogenous groups. These variables will be discussed briefly below Demographic Segmentation Demographics originates from the word ‘demography’ which means a ‘study of population’. The population can be divided into age, gender, income, and family lifecycle amongst other variables. As people age their needs and wants change, some organisations develop specific products aimed at particular age groups for example nappies for babies, toys for children, clothes for teenagers and so on. Gender segmentation is commonly used within the cosmetics, clothing and magazine industry. All Bar One within the UK have developed their bars to attract the female audience, taking opportunity of the rise in the number of women who now enjoy ‘social drinking’. In the UK we have also seen the introduction of Maxim, (www.maxim-magazine.co.uk) a male lifestyle magazine covering male fashion, films, cars, sports and technology. We have also seen the introduction of unisex cosmetic products like CK1 which works on the similarities between the two genders.
Age & lifecycle segmentation: As people age their needs and lifestyles change.
Income segmentation is another strategy used by many organisations. Stores like Harrods, Harvey Nicohals are predominantly aimed at the affluent market. Daewoo aim their vehicles at price sensitive buyers who require a bundle of benefits for the price. In today's globally competitive environment brands are specifically developed and positioned within particular income segments inorder to maximise turnover. Products and services are also aimed at different lifecycle segments. Holidays are developed for families, the 18-30's singles, and for those in their 50's.
Geographic Segmentation Geographical segmentation divides markets into different geographical areas. Marketers use geographic segmentation because consumers in different areas may display certain characteristics and behaviours in that particular region, for example, in London UK certain parts of the West End of London are more affluent then the East End and you will find particular products sold in these regions based on their affluence. An area can be divided by the town, the region or the country. If you are an organisation working on a global scale you may divide by global regions such as Europe, North America, South America, Asia and Africa. Mcdonalds globally, sell burgers aimed at local markets, for example, burgers are made from lamb in India rather then beef because of religious issues. In Mexico more chilli sauce is added and so on.
Pyschographics Segmentation Although demographic segmentation is useful, marketers can use alternative segmentation variables which aim to develop more accurate profiles of their target segments. Pyschrographics segmentation can be broken down into lifestyle, social class, and personality characteristics. Lifestyles segmentation
The Oxford English dictionary defines a lifestyle 'as a way of life' and lifestyle segmentation aims to examine the way people live. Our lifestyle, our every days activities, our interest, opinions and beliefs on certain issues dictates who we are. Marketers refer to these as AIO’s (Activities, Interest and Opinions), and our AIO’s dictate our everyday behaviour from where we shop to what we buy. Marketers develop and aim products/services at particular lifestyle groups and develop lifestyle profiles on their target market. If we understand the lifestyle of a particular group we can sell them a product/services on the basis that it will enhance their lifestyle. A lifestyle group is a particular segment defined by the organisation that is marketing a product or service. This lifestyle segment is labeled because individual within it display similar characteristics. For example in the early 1980s within the UK as the economy was booming the City of London were increasingly employing young independent staff on very high salaries. The media termed this group as YUPPIES, they were young upwardly mobile professionals, associated with mobile phones, money, expensive cars, and prestigious city jobs. Third agers are another group termed and identified by the marketing industry. They are people in their 50’s retired from a profession, and have a high disposable income with time on the hand. Many of these third-agers are adventurous and experimenters, as they have spent their past lives working hard and they seek enjoyment from their remaining years and have the income to spend on luxury items. In the United States there are 70 million third-agers who are the fastest growing users of the internet, spending more time on the internet then their younger counterpart. www.thirdage.com has a hit rate of 500,000 per month.
Yuppie Associations • • • • Mobile High valued house/flat Good Salary Young branded car.
Third Agers Associations. • • • • 50's Retired early from profession. Time to spare Adventure Seekers
Personality Characteristics. Products and brands can also be aimed at particular personalities. Pigaio motorcycles are aimed at young 18-25 outgoing, independent persons. Often marketers try to develop personalities for their brands and products that mimic that of their target market. Ask yourself if Nike or Levi’s was a person, what type of person would they be? Social Class Segmentation Divides society into 6 distinct groups based solely on occupation. A B Professional staff Middle management
C1 Junior management C2 Skilled manual D E Semi-skilled and unskilled workers. Those dependent on the state.
Social class segmentation works on the assumption that the higher your profession the more you will earn. Thus the more affluent lifestyle you will lead. Marketers use this type of information to sell products and services based on lifestyle behaviour, and your profession does have an impact on the way you behave.
Refers to why people purchase a product or service. Behavioural segmentation can be broken down into the benefit a consumer seeks from purchasing a product. How will the product enhance their overall lifestyle. When purchasing a computer the benefit sought maybe of ‘ease of use’ to the ‘need for speed’. Occasion is another variable. When should a product be purchased? The demand for turkeys increases during Christmas, flowers and chocolates on mothers day and so on. Occasion segmentation aims to increase the ‘reason to buy factor’ and thus increase sales. Usage rate divides customers into light, medium and heavy users. Heavy users obviously contribute more to turnover then light or medium users, the objective of an organisation should be to attract heavy users who will make a greater contribution to company sales.
Requirements of segmentation. Before an organisation can target a specific segment accurately it must ask itself a number of questions. It is important to evaluate the effectiveness of a targeting strategy and the viability of the segment, if this is not done then money will be wasted. The market which is segmented must meet the following criteria: Measurability of segment: Can you measure the size and growth of the segment. Is the segment growing? In the UK the DVD market is growing at an extremely fast pace. From January 2002 – June 2002 900,000 DVD’s were sold. The fast growth rate is attracting many players within the market. Accessibility of segment: Is it easy for you to target and reach your segment? Can they be reached with basic communication tools such as radio and TV advertising? If you cannot target your segment effectively with marketing communication then it is not viable.
Suitability of segment: Is there enough spending power within the segment for the company to sustain itself.? Will spending within the DVD marketing continue? Actionability of segment: Does the organisation have enough resources to reach their segments?. It is no point in targeting segments you do not have the resources to cater for. If you were a car manufacturer the organisation would not concentrate on the affluent and price sensitive market if they did not have the resources to do so.
Targeting After the process of segmentation the next step is for the organisation to decide how it is going to target these particular group(s). There are three targeting options an organisation can adopt. Option 1. Undifferentiated marketing - Sometimes referred to as mass marketing the firm may decide to aim its resources at the entire market with one particular product. Coca Colas original marketing strategy was based on this form. One product aimed at the mass market in the hope that a sufficient amount of buyers would be attracted., although there are now changes in their product line to cater for growing dietary and caffeine free needs of consumers.
Option 2 Differentiated marketing strategy - Where the firm decides to target several segments and develops distinct products/services with separate marketing mix strategies aimed at the varying groups. An example of this would be airline companies offering first, business (segment 1) or economy class tickets (segment 2) , with separate marketing programmes to attract the different groups.
Option 3 Concentrated Marketing: Where the organisation concentrates its marketing effort on one particular segment. The firm will develop a product that caters for the needs of that particular group. For example Rolls Royce cars aim its vehicles at the premium segment, same as Harrods within the UK.
Positioning. After the organisation has selected its target market, the next stage is to decide how it wants to position itself within that chosen segment. Positioning refers to ‘how organisations want their consumers to see their product’. What message about the product or service is the company trying to put across? Car manufacturer Daewoo in the UK, has successfully positioned themselves as the family value model. The UK car Skoda brand which has been taken over by Volkswagen has been re-positioned as a vehicle which had negative brand associations, to one which regularly wins car of the year awards. The positive comments from the industry and attributes of this vehicle is has changed the perception of consumers about the Skoda brand. Developing a positioning strategy Developing a positioning strategy depends much on how competitors position themselves. Do organisations want to develop ‘a me too’ strategy and position themselves close to their competitors so consumers can make a direct comparison when they purchase? Or does the organisation want to develop a strategy which positions themselves away from their competitors? Offering a benefit which is superior depends
much on the marketing mix strategy the organisation adopts. The pricing strategy must reflect the benefit offered and the promotion strategy must communicate this benefit. Ultimately positioning is about how you want consumers to perceive your products and services and what strategies you would adopt to reach this perceptual goal. For more information please read Peceptual Mapping.
Marketing Plans What is it? A marketing plan aims to help organise the strategy for a company, its products or services. Planning is essential in all organisations and company plans should be documented. A marketing plan is not a unique document within an organisation. Production would have a Production Plan, Human Resources a Human Resources plan and so on.
However, all good plans must support the overall corporate objectives of the organisation, the corporate objectives maybe to be global leader in the next five years, all individual plans must support this. Lets look at what an outline of a marketing plan may look like. A common method used to help plan a marketing plan is an acronym called AOSTC. It simply stands for 1. Analysis – Of environment. 2. Objectives – Setting yourself SMART objectives. 3. Strategies – For segmentation and growth, targeting and positioning.
4. Tactics – Used i.e. marketing mix 5. Control. – How you will monitor that you are achieving objectives. Structure of a typical Marketing Plan. 1. Situational Analysis – Where are we now? Every good marketing plans needs to analyse the current business situation and ask a simple question, where is the business now? This involves the business firstly conducting an internal audit. An internal audit will look at: - Past objectives and success rates. - Past marketing mix strategies. - Past budgets. - Past segmentation, targeting and positioning strategies. The internal audit aims to look at what you did in the past, was it successful, if not why not, if so, why so? Simple hey! After the internal audit the next stage is for you to conduct an external audit. The external audit will involve: - Conducting a PEST analysis, and discussing the impact of this on your strategy. - Researching the industry you operate in. What are the trends within the industry you operate in? - Competitor analysis. What are your competitors up to? - A SWOT analysis to help establish your current strengths, opportunities, weaknesses and threats. 2. Set your objectives – Where are we going? Set yourself SMART objectives so you know where you are heading. Remember SMART stands for: Specific – Clearly state what you want to achieve. Measurable – Is it easy to measure the objectives you set by monitoring sales, market share figures? Achievable – Set yourself attainable objectives. Realistic – Can you really achieve them with the current resources you have? Timed – Set a realistic time scale for the objectives. An option is to use Ansoffs model to help you set your objectives,
3. What tactics or methods will you use to get there? How will you get there? - Define your target market. Select your segment, your targeting strategy and positioning strategy. - How will you use the marketing mix to assist you. What will be your product, price, place or promotion strategy? 4. How do I evaluate the strategy? Are we getting there? Are you achieving the objectives you set for yourself? To evaluate your plan some benchmarks may include: - Market share data. - Sales data. - Consumer feedback. - Feedback from staff. - Feedback from retailers. 5. Executive summary – Write a summary of the plan. Finally at the end of this task write a summary of the plan and place it at the front. Why? Well it acts as a quick reference guide to the plan you have just written. Relationship Marketing What is it? Relationship Marketing involves using methods and tactics to develop long term relationship with customers in order to retain them. An organisation must exceed customer satisfaction in order to retain them and develop a healthy relationship with their customers. Traditional transactional marketing involved the organisation focusing all of its marketing efforts on attracting the customer for one off sales. However, customers who are loyal end up spending more in the long-term, so it makes sense, keep existing customers happy! Attracting and retaining customers Relationship marketing involves the organization undertaking a number of important activities. First of all, the company must put into place tactics to attract customers. Methods used to attract customers may include promoting the product and brand, offering good quality products/services and competitive prices. Secondly customers that are attracted to the organisation have to be retained. As we stated above what’s the point of all that hard work of attracting customers if we cannot retain them? Methods used to
retain, may include, loyalty cards, a good customer service section, and an individual account manager if it is a large client, along with product variety and quality. Methods of monitoring customer satisfaction An organisation must continue to satisfy customers, but lets be honest, it is very difficult to keep 100% of your customers satisfied all the time, one reason is because needs and wants of your customers change. So we have to monitor what is happening in our customer environment. Methods used to monitor customer satisfaction include: Focus groups . Personal interviews. Questionnaires. Mystery Shoppers. Customer complaints. Suggestion boxes. Online surveys. General comments. In order to retain customers we must keep up to date with the needs of our customers. Customer needs do not remain static and always change. Adapting and changing along with these needs will help the organisation develop the relationship it wants with the customer. The benefit, well increased profit, market share and brand awareness.
Customer Relationship Marketing (CRM) CRM is about the systems (IT and non – IT systems) that are employed that help an organisation manage its relationships with it customers. CRM employed systems can help an organisation in a number of ways:
• • • •
By using simple databases CRM can help the organisation in segmenting their most profitable customers. Help the organisation in targeting specific products at certain customers groups by looking at their past purchase patterns. Help identify light and medium users, and employing strategies to try and convert them into heavy users. CRM can provide employees with all the necessary information that they need to know about the customer they are dealing with, ensuring that the customer is dealt with in an efficient manner and ensuring personlisation for the customer.
Customer Relationship Marketing tries to ensures that customer information can be accessed at any point within the organisation. A truly marketing oriented organisation would make sure that this would happen and that this system will put the customer first.
Ladder of customer loyalty Relationship marketing is about developing long term relationships with the customer. A company needs to be able to turn a one off sale into a fruitful long-tem relationship where both parties will benefit. The ladder of customer loyalty talks about the different types of customers the company encounters. The aim of relationship marketing is to retain customers, as it can cost a company anything as up to six times as much to attract new customers. There are five steps in this ladder. Starting with: Suspect. A suspect is someone who comes across your companies’ promotion. They are a potential suspect for your company. Prospect If the person is interested in your promotion they become a potential prospect. Customers A customer is someone who purchases either your product or service. Clients Clients are those who come back to you. Advocates Promotes your business on your behalf. They are so happy about your product/service that they tell others.
Diagram: Ladder of Customer Loyalty
You can see from the ladder a company should hope to retain customers to the extent that systems in place help promote the customer to advocate level. It makes sense for the company on spending money to retain customers and keeping them happy so they can become advocates for you, therefore bringing in the business on your behalf.
A common tool used within marketing was developed by Igor Ansoff in 1957. His model gives organisation five strategic business options.
1. Market Penetration: This involves increasing sales of an existing product and penetrating the market further by either promoting the product heavily or reducing prices to increase sales.
2. Product Development: The organisation develops new products to aim within their existing market, in the hope that they will gain more custom and market share. For Example Sony launching the Playstation 2 to replace their existing model..
3. Market Development: The organisation here adopts a strategy of selling existing products to new markets. This can be done either by a better understanding of segmentation, i.e who else can possibly purchase the product or selling the product to new markets overseas.
4. Diversification: Moving away from what you are selling (your core activities) to providing something new eg Moving over from selling foods to selling cars.
5. Consolidation: Where the organisation adopts a strategy of withdrawing from particular markets, scaling back on operations and concentrating on its existing products in existing markets.
A tool used by organisations to help the firm establish its Strengths, Weaknesses, Opportunities and Threats (SWOT). A SWOT analysis is used as a framework to help the firm develop its overall corporate, marketing, or product strategies. Note:Strengths and Weaknesses are internal factors which are controllable by the organisation. Opportunities & threats are external factors which are uncontrollable by the organisation. Strength examples could include: • • • • A strong brand name. Market share. Good reputation. Expertise and skill.
Weaknesses could include: • • •
Low or no market share. No brand loyalty. Lack of experience.
Opportunities could include:
A growing market.
• • •
Increased consumer spending. Selling internationally. Changes in society beneficial to your company.
Threats could include:
• • •
Competitors Government policy eg taxation, laws. Changes in society not beneficial to your company.
A SWOT analysis is an excellent tool to use if the organisation wants to take a step back and assess the situation they are in. Issues raised from the analysis are then used to assist the organisation in developing their marketing mix strategy. A SWOT analysis must form the part of any prudent marketing strategy.
Boston Consultancy Group (BCG Matrix) This product portfolio matrix classifies product lines into four categories. The BCG models suggests that organisations should have a healthy balance of products within their range. The Boston Consultancy Group classified these products as following: Dogs These are products which have low market shares and low market growth rates. The options for many companies is to phase these products out, however some organisation do go for the strategy of re-inventing and injecting new life into the product. (see Heinz Case Study) Question Mark/Problem Child
These are products with low market share but operate in high market growth rates. The company puts a lot of resources in this product in the hope that it will eventually increase market share and generate cash returns in the future. Star Stars have high market shares that operate in growing markets. The product at this stage should be generating positive returns for the company. Cash Cow Cash Cow are products at the mature stage of the lifecycle, they generate high amounts of cash for the company, but growth rate is slowing. There are chances that the product may slip into decline, appropriate marketing mix strategies should be employed to try to prevent this from happening.
Product Life cycle
The product life cycle concept suggests that a product passes through four stages of evolution. Introduction, growth, maturity and decline. As a product evolves and passes through theses four stages profit is affected, and different strategies have to be employed to ensure that the product is a success within its market. Product life cycle stages.
Introduction: As a new product much time will be spent by the organisation to create awareness of it presence amongst its target market. Profits are negative or low because of this reason. Growth: If consumer clearly feel that this product will benefit them in some ways and they accept it, the organisation will see a period of rapid sales growth. Maturity Rapid sales growth cannot last forever. Sales slow down as the product sales reach peak as it has been accepted by most buyers. Decline. Sales and profits start to decline, the organisation may try to change their pricing strategy to stimulate growth, however the product will either have to be re-modified, or replaced within the market.
Listen to a short lecture on product life cyclehere.
Michael Porters Generic Strategies
For an organisation to obtain a sustainable competitive advantage Michael Porter suggested that they should follow either one of three generic strategies. Strategy one: Cost Leadership. This strategy involves the organisation aiming to be the lowest cost producer within their industry. The orgainisation aims to drive cost down through all the elements of the production of the product from sourcing, to labour costs. The cost leader usually aims at a broad market, so sufficient sales can cover costs. Low cost producers include Easyjet airline, Ryan air, Asda and Walmart. Some organisation may aim to drive costs down but will not pass on these cost savings to their customers aiming for increased profits clearly because their brand can command a premium rate. Strategy 2: Differentiation To be different, is what organisations strive for. Having a competitive advantage which allows the company and its products ranges to stand out is crucial for their success. With a differentiation strategy the organisation aims to focus its effort on particular segments and charge for the added differentiated value. If we look at Brompton folding cycles their compact design differentiates them from other folding bike companies. New concepts which allow for differentiation can be patented, however patents have a certain life span and organisation always face the danger that their idea that gives the competitive advantage will be copied in one form or another. Strategy 3: Niche strategies Here the organisation focuses its effort on one particular segment and becomes well known for providing products/services within the segment. They form a competitive advantage for this niche market and either succeed by being a low cost producer or differentiator within that particular segment. Examples include Roll Royce and Bentley. With both of these strategies the organisation can also focus by offering particular segments a differentiated product/service or a low cost product/service. The key is that the product or service is focused on a particular segment. (see diagram below) Are you ‘Stuck in the middle’ The danger some organisation face is that they try to do all three and become what is known as stuck in the middle. The have no clear business strategy, be all to all consumers, which adds to their running costs causing a fall in sales and market share. ‘Stuck in the middle’ companies are usually subject to a takeover or merger.
Porters fives forces model : Industry analysis model Porters fives forces model is an excellent model to use to analyse a particular environment of an industry. So for example, if we were entering the PC industry, we would use porters model to help us find out about: 1) Competitive Rivalry 2) Power of suppliers 3) Power of buyers 4) Threats of substitutes 5) Threat of new entrants. The above five main factors are key factors that influence industry performance, hence it is common sense and practical to find out about these factors before you enter the industry. Lets look at them below. Competitive Rivalry A starting point to analysing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if: • There is little differentiation between the products sold between customers. • Competitors are approximately the same size of each other.
• If the competitors all have similar strategies. • It is costly to leave the industry hence they fight to just stay in ( exit barriers) Power of suppliers Suppliers are also essential for the success of an organisation. Raw materials are needed to complete the finish product of the organisation. Suppliers do have power. This power comes from: • If they are the only supplier or one of few suppliers who supply that particular raw material. • If it costly for the organisation to move from one supplier to another (known also as switching cost) • If there is no other substitute for their product. Power of buyers Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when: • There is little differentiation over the product and substitutes can be found easily. • Customers are sensitive to price. • Switching to another product is not costly. Threat of substitutes Are there alternative products that customers can purchase over your product that offer the same benefit for the same or less price? The threat of substitute is high when: • Price of that substitute product falls. • It is easy for consumers to switch from one substitute product to another. • Buyers are willing to substitute. Threat of new entrant The threat of a new organisation entering the industry is high when it is easy for an organisation to enter the industry i.e. entry barriers are low. An organisation will look at how loyal customers are to existing products, how quickly they can achieve economy of scales, would they have access to suppliers, would government legislation prevent them or encourage them to enter the industry.
So to summaries porters five forces model is essential to carry to help you understand your industry in depth before you enter it.
Value chain analysis
Michael Porter in 1985 introduced in his book ‘ The competitive advantage’ the concept of the Value Chain. He suggested that activities within the organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’.
Primary activities Inbound logistics : Refers to goods being obtained from the organisations suppliers ready to be used for producing the end product. Operations : The raw materials and goods obtained are manufactured into the final product. Value is added to the product at this stage as it moves through the production line.
Outbound logistics : Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers. Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy, any competitive advantage is clearly communicated to the target group by the use of the promotional mix. Services: After the product/service has been sold what support services does the organisation have to offer. This may come in the form of after sales training, guarantees and warranties. With the above activities, any or a combination of them, maybe essential for the firm to develop the competitive advantage which Porter talks about in his book.
Support Activities The support activities assist the primary activities in helping the organisation achieve its competitive advantage. They include: Procurement: This department must source raw materials for the organisation and obtain the best price for doing so. For the price they must obtain the best possible quality Technology development: The use of technology to obtain a competitive advantage within the organisation. This is very important in today’s technological driven environment. Technology can be used in production to reduce cost thus add value, or in research and development to develop new products, or via the use of the internet so customers have access to online facilities. Human resource management: The organisation will have to recruit, train and develop the correct people for the organisation if they are to succeed in their objectives. Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organisation and add value to it over their duration of employment. Within the service sector eg airlines it is the ‘staff’ who may offer the competitive advantage that is needed within the field. Firm infrastructure: Every organisations needs to ensure that their finances, legal structure and management structure works efficiently and helps drive the organisation forward. As you can see the value chain encompasses the whole organisation and looks at how primary and support activities can work together effectively and efficiently to help gain the organisation a superior competitive advantage.
Diffusion of innovation This extension of the product life cycle was developed by Everett M. Rogers in 1962 and simply looks who adopts products at the different stages of the life cycle. Rogers identified five types of purchasers as the product moves through its life cycle stage. He suggested: 1. Innovator who make up 2.5% of all purchases of the product, purchase the product at the beginning of the life cycle. They are not afraid of trying new products that suit their lifestyle and will also pay a premium for that benefit. 2. Early Adopters make up 13.5% of purchases, they are usually opinion leaders and naturally adopt products after the innovators. This group of purchasers are crucial because adoption by them means the product becomes acceptable, spurring on later purchasers. 3. Early Majority make up 34% of purchases and have been spurred on by the early adopters. They wait to see if the product will be adopted by society and will purchase only when this has happened. They early majority usually have some status in society. 4. Late Majority make up another 34% of sales and usually purchase the product at the late stages of majority within the life cycle. 5. Laggards make up 16% of total sales and usually purchase the product near the end of its life. They are the ‘wait and see’ group. They wait to see if the product will get cheaper. Usually when they purchase the product a new version is already on the market. Some may call Laggards, bargain hunters!
International Marketing So you decided you want to sell your product overseas. The world is becoming a smaller place because of technology (the internet) and social mobility, that is, people are travelling more and are seeing familiar brands around the world, and, you can identify similar segment in overseas markets, so, lets go global! So why go ‘Global’? Competition within your national market is becoming too intense so you decide to push sales in overseas markets. Your products within your national markets are reaching the end of the lifecycle so you wish to push it into national markets. Sales and profit are generally declining in national markets. You wish to become a global player. One of Ansoffs strategies (Market development) does looks at exploiting products in overseas markets as an option to plug falling sales. International Marketing Environment Entering global markets. There are a number of steps that need to be taken before you decide to enter international markets.
Analyze the international marketing environment. A PEST/STEP analysis needs to be conducted on the market you enter, to assess whether it is worthwhile or not. Lets briefly look at some factors that may influence an international decision. Political factors Consider:
The political stability of the nation. Is it a democracy, communist, or dictatorial regime? Monetary regulations. Will the seller be paid in a currency that they value or will payments only be accepted in the host nation currency?
Economical Factors Consider:
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Consumer wealth and expenditure within the country. National interests and inflation rate. Are quotas imposed on your product. Are there import tariffs imposed. Does the government offer subsidies to national players that make it difficult for you to compete?
Social Factors Consider
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Language. Will language be a barrier to communication for you? Does your host nation speak your national language? What is the meaning of your brand name in your host country’s language? Customs: what customs do you have to be aware of within the country? This is important. You need to make sure you do not offend while communicating your message. Social factors: What are the role of women and family within society? Religion: How does religion affect behaviour? Values: what are the values and attitudes of individuals within the market?
The technological infrastructure of the market. Do all homes have access to energy (electricity)
Is there an Internet infrastructure. Does this infrastructure support broadband or dial up? Will your systems easily integrate with your host countrys?
Market entry methods After assessing the environment in your selected country, how do you decide which are the best countries to enter? Paliwood (1993) suggests that before you enter an overseas market there are six factors that need to be considered: Speed – How quickly do you wish to enter your selected market? Costs- What is the cost of entering that market? Flexibility – How easy is it to enter/leave your chosen market? Risk Factor – What is the political risk of entering the market? What are the competitive risk? How competitive is the market? Payback period – When do you wish to obtain a return from entering the market? Are there pressures to break even and return a profit within a certain period? Long- term objectives- What does the organisation wish to achieve in the long term by operating in the foreign market? Will they establish a presence in that market and then move onto others? Trading overseas There are a number ways an organisation can start to sell their products in international markets. 1. Direct export. The organisation produces their product in their home market and then sells them to customers overseas. 2. Indirect export The organisations sells their product to a third party who then sells it on within the foreign market. 3.Licensing Another less risky market entry method is licensing. Here the Licensor will grant an organisation in the foreign market a license to produce the product, use the brand name etc in return that they will receive a royalty payment. 4.Franchising
Franchising is another form of licensing. Here the organisation puts together a package of the ‘successful’ ingredients that made them a success in their home market and then franchise this package to oversea investors. The Franchise holder may help out by providing training and marketing the services or product. McDonalds is a popular example of a Franchising option for expanding in international markets. 5.Contracting Another of form on market entry in an overseas market which involves the exchange of ideas is contracting. The manufacturer of the product will contract out the production of the product to another organisation to produce the product on their behalf. Clearly contracting out saves the organisation exporting to the foreign market. 6.Manufacturing abroad The ultimate decision to sell abroad is the decision to establish a manufacturing plant in the host country. The government of the host country may give the organisation some form of tax advantage because they wish to attract inward investment to help create employment for their economy. 7.Joint Venture To share the risk of market entry into a foreign market, two organisations may come together to form a company to operate in the host country. The two companies may share knowledge and expertise to assist them in the development of company, of course profits will have to be shared out also The International Marketing Mix When launching a product into foreign markets do you standardise or adapt your marketing mix to the foreign market? A company can adopt to use a standardised marketing mix around the world or an adapted marketing mix in each country. International Product Strategies Standardisation Vs Adaption So what should an organisation do? Adapt or sell a standardised product? Basic marketing concepts tell us that we will sell more of a product if we aim to meet the needs of our target market. In international markets ,we have to take into consideration consumers cultural background, buying habits, levels of personal disposable income etc in order to deliver a tailored marketing mix program to suit their needs. The arguments however for standardisation suggest that if you go through the process of adapting the product to local markets it does little but add to the overall cost of producing the product and weakens the brand on the global scale. In today’s global world, where consumers travel more, watch satellite television, communicate and shop internationally over the internet, the world now is becoming a lot smaller. Because of this there is no
need to adapt products to local markets. Brands such as Coca-Cola, MTV, Nike, Levis are all successful global brands where they have a standardised approach to their marketing mix, all these products are targeted at similar groups globally. In many circumstances a company will have to adapt their product and marketing mix strategy to meet local needs and wants that cannot be changed. Mcdonald is a global player however, their burgers are adapted to local needs. In India where a cow is a sacred animal their burgers are served with chicken or fish. In Mexico burgers come with chilli sauce. Coca-cola is some parts of the world taste sweeter then in others. Yes we can argue that standardisation is better for the organisation because it reduces cost, however many organisations will have to ‘think global, but act local’ if they are to successfully establish them selves in foreign markets. International Promotion Strategy As with international product decisions an organisation can either adapt or standardise their promotional strategy and message. Advertising messages in countries may well have to be adapted because of language barriers or the current message used in the national market may be offensive to overseas residents. The use of certain colours may also need to be thought about. In India red is the colour worn by the bride in weddings, white is the colour for mourning in Japan. The level of media development has to also be taken into account. Is commercial television well established in your host country? What is the level of television penetration? How much control does the government have over advertising on TV and radio? Is print media more popular then TV? Many organisation go for a strategy of adapting advertising messages to local markets to best meet consumer demand. International Pricing Strategies Pricing on an international scale is difficult. As well as taking into account traditional price considerations (see marketing mix pricing) i.e.: Fixed and variable costs, Competition, Company objectives , Proposed positioning strategies, Target group and willingness to pay, the organisation needs to consider the costs of transport, any tariffs or import duties that may be levied on their product(s) when they are sold on the international scale. Also what currency do you expect to be paid in? Will it be home or international currency? Exchange rate fluctuation will also impact profitability and influence pricing decisions.
Other factors to consider include local incomes, what are income and PDI levels. What is the general economic situation of the country and how will this influence pricing? The internet is now making pricing more transparent for consumers. Goods can be purchased online from any overseas organisations at local currency prices, a prime examples is dvd’s which are purchased from sites like www.dvdsoon.com which deliver internationally. International Distribution Strategies A standard distribution channel in the UK may go from a Manufacturer, wholesaler, retailer to consumer or direct from a manufacturer to a retailer. In an overseas market there may well be more intermediaries involved. For example in Japan there are approximately five different types of wholesaler a product goes through before the product reaches the final consumer. In your international market , is it dominated by major retailers or is the retail sector made up of small independent retailers? Is internet distribution common for your product. Marketing Glossary
1. AIDA model of communication: A communication model which aims to obtain Attention, Interest, Desire and Action. 2. Advertising objective: The objective of your communication strategy. To inform of a new development, persuade or remind. 3. Benefit: The gain obtained from the use of a particular product or service. Consumers purchase product/services because of their desire to gain these built in benefits. 4. Benefit Segmentation: Dividing a market according to the benefit they seek from a particular product/service. 5. Brand name: Used for the identification of goods or services. Can be a name, term, sign or symbol. A well managed brand should uphold certain values and beliefs. 6. Brand extension strategy: The process of using an existing brand name to extend on to a new product/service e.g. The application of the brand name Virgin on a number of business activities. 7. Break-even: A point for a business where turnover is equivalent to all costs. 8. Cash cow: A product/service which generates cash for the business, used to finance other areas of the organisation. 9. Competitive Advantage: Offering a different benefit then that of your competitors. 10. Competitor Analysis: Process of understanding and analysing a competitors strengths and weaknesses, with the aim that an organisation will find a competitive positioning difference within the market. 11. Competition pricing: Setting a price in comparison with competitors.
12. Concept testing: Testing the idea of a new product or service with your target audience. 13. Brand repositioning: An attempt to change consumer perceptions of a particular brand. For example VW has successfully repositioned the Skoda brand. 14. Data mining: Application of artificial intelligence to solve marketing problems and aiding forecasting and prediction of marketing data. 15. Dichotomous question: Questions which limit the responses of the respondent eg YES/NO. 16. Direct marketing: The process of sending promotion material to a named person within an organisation. 17. Diversification: A growth strategy which involves an organisation to provide new products or services. The new products on offer could be related or unrelated to the organisations core activities. 18. Demography: A study of the population. 19. Demographic segmentation. Dividing the population into age, gender, income and socio-economic groups amongst other variables.. 20. Early Adopter: Those who adopt a product/service in the early stages of its lifecycle. 21. Early Majority: Those who adopt a product/service after it has been established and excepted as the standard. 22. Engels Law: Suggest that peoples spending patterns change as their income rises. 23. Exclusive distribution: Limiting the distribution of a product to particular retail store to create an exclusive feel to the brand/product. 24. Econometric modeling: Application of regression techniques in marketing analysis 25. Focus Group: A simultaneous interview conducted amongst 6-8 respondents. The aim is to obtain qualitative information on the given topic. 26. Geographic segmentation: Dividing the market into certain geographic regions e.g. towns, cities or neighborhoods. 27. Innovator: Those consumers who are the first to adopt a product/service at the beginning of its lifecycle. They are usually willing to pay a premium to have the benefit of being the first. 28. Intensive distribution: Distributing a product to as many retail outlets as possible. 29. Laggards: Those consumers who adopt the product/service as it reaches the end of its lifecycle. They usally pay a competitive price for the benefit of waiting. 30. Lifestyle segmentation: Analyzing consumers activities, interest and opinion (AIOs) to develop a profile on the given segment. 31. Market Development Strategy: Selling an existing product/service in a new and developing market. 32. Mass marketing: The promotion of a product or service to all consumers. 33. Marketing Mix: The strategy of the organisation consisting of products, price, place and promotion strategy (also known as the 4p's). 34. Marketing Planning: A written document which plans the marketing activities of an organisation for a given period. The document should include an
environmental analysis, marketing mix strategies and any contingency plans should an organisation not reach their given objectives. 35. Market position: The perception of a product or an organisation from the view of the consumer. 36. Market research: Analysing and collecting data on the environment, customers and competitors for purposes of business decision making. 37. Modified Rebuy: Where an organiation has to make changes to a specific buying situation. 38. New buy: Where an organisation faces the task of purchasing a new product/service. 39. Niche marketing: The process of concentrating your resources and efforts on one particular segment 40. Objective to task method: Setting a advertising budget based on the desired goals of the communication campaign. 41. Open ended questions: Questions which encourage the respondent to provide their own answers. 42. Paretos Law (80/20) : A rule which suggests that 80% of an organisations turnovers is generated from 20% of their customers. 43. Penetration pricing: A pricing strategy where the organisation sets a low price to increase sales and market share. 44. Perceptual map: Mapping a product/organisation alongside all competitors in the hope to find a ' positioning gap' in the given market. 45. Personal selling: Selling a product or services one to one. 46. Primary data: The process of organising and collecting data for an organisation. 47. Product Development Strategy: The development of a new product/service aimed at the organisation existing market. The aim is to increase expenditure within the segment. 48. Product Life Cycle: The life stage of a product, includes, introduction, growth, maturity and decline. 49. Product Cannibalisation: Loosing sales of a product to another similar product within the same product line. 50. Public relations: The process of building good relations with the organisations various stakeholders. 51. Relationship marketing: Creating a long-term relationship with existing customers. The aim is to build strong consumer loyalty. 52. Sales promotion: An incentive to encourage the sale of a product/service e.g. money off coupons, buy one, get one free. 53. Secondary data: Researching information which has already been published. 54. Segmentation: The process of dividing a market into groups that display similar behaviour and characteristics. 55. Skimming pricing: A pricing strategy where an organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. 56. Straight Rebuy: Where an organisation reorders without modification to the specification.
57. SWOT analysis: A model used to conduct a self appraisal of an organisation. The model looks at internal strengths and weaknesses and external environmental opportunities and threats. 58. Test marketing: Testing a new product or service within a specific region before national launch. 59. Usage segmentation: Dividing you segment into non, light, medium or heavy users.