DMA 501

MARKETING MANAGEMENT

BY
DR JUSTUS M MUNYOKI
SCHOOL OF BUSINESS
UNIVERSITY OF NAIROBI

2008

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INTRODUCTION

THE CORE CONCEPTS OF MARKETING.

Marketing is a social and Managerial process by which individuals and groups obtain what they
need and want through creating, offering and exchanging products of value with others.
Then the core concepts of marketing are
- Needs , wants and demands
- Products
- Value, cost and satisfaction
- Exchange and translations
- Relationships and networks
- Markets
- Marketers and prospects

Needs , wants and demands

A need is a state of deprivation of some basic satisfaction. A need is not created by the marketer, but is a
biological concept, for example hunger, thirst, safety, shelter, esteems.

Wants are desires for specific satisfiers of needs and may be considered a higher level need. For example
when an individual may have a need for food, his / her want will be a specific prepared meal such as
chicken or fish,

Demands are wants for specific products that are backed by an ability and willingness to buy them, wants
become demands when supported by purchasing power. Effective demand is comprised of people who are
willing and are able to buy a product.
Product – Comprises of goods, services and ideas that satisfy human needs and wants. A product is
anything that can be offered to satisfy a need or want.

Value, cost satisfaction - a value is the consumer’s estimates of the products overall capacity to satisfy
another need. To get the value. There must be something he/ she can give up the opportunity cost.
Depending on the perceived value and level of satisfaction, different products cost differently.

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Exchange and transactions.
Exchange is the art of obtaining a desired product from someone by offering something in return.
Kother (1997) identifies five conditions that must be satisfied in order to have the potential exchange.
- There must be at least two parties
- Each party must have something of value to the other party.
- Each party is capable of communication and delivery.
- Each party is free to accept or reject the exchange offer.
- Each party believes it is appropriate or desirable to deal with the other party.
Exchange must be seen as a process rather that an event, because the two parties go through negotiations
as they move towards agreement.

A transaction is a track of values between two or more parties and has several dimensions.
- At least two things of value
- Agreed upon conditions
- A time of agreement
- A place of agreement
It is usually supported by a legal system in order to make it binding. A transaction is different from a
mere transfer, because in a transfer the party transferring a product to the other party does not get
anything in return.

Relationships and networks.

Relationship marketing is the practice of building long term satisfying relations with the key
parties (customer and supplier) I order to retain their long term preference and business.
Serious marketers try to build very strong relationships with their customers, suppliers and
distributors by promising and delivering high quality, goods and services and fair pries to the other parties
over time. It results in strong economic, technical and social ties among parties and cuts down on
transaction costs and time. The ultimate outcome of relationship marketing is the building of a unique
company asset, a marketing network.
Such a network consists of the company and all of its supporting stakeholders (customers,
suppliers, employees, the government etc) with whom it has built mutually profitable business
relationships.

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 Markets – the concept of exchange leads to the concept of a market, which consists of all the
potential customers sharing a particular need or want who might be willing and able to engage in
exchange to satisfy that need or want. Initially, a market was viewed as the ‘place’ other buyers and
sellers gather to exchange their goods.

Economists is the term to refer to a ‘collection of buyers and sellers’ who transact over a
particular product of product class. Marketers on the other hand, use the term market to refer to a
collection of buyers as opposed to and industry ( collection of sellers ). Business people use the term ‘
market’ to cover various groupings of customers, hence we have product market ( such as maize market)
demographic markets ( e.g ladies market ) , or geographical markets ( such as European market) .
A market is therefore a complete term that involves various stakeholders such as sellers and buyers
involved in carrying out business / marketing transactions.

Markets and prospects.

A marketer is that party in an exchange process that is more actively seeking an exchange than
the other party. While the other party is the prospect. A marketer is someone seeking one or more
prospects who might engage in an exchange of values.
A prospect is someone whom the marketer identifies as potentially willing and able to engage in an
exchange of values.

A marketer can be a seller or a buyer. E.g. when two or more prospective buyers are trying to
convince a seller to sell a car to them, each buyer tries to present him/herself as the best buyer. In this
case the buyer is actually the marketer because they are marketing themselves to the seller.

Considering all these concepts, marketing may therefore be defined as ‘ a social and managerial
process by which individuals and groups obtain what they need and want through creating, offering and
exchanging products of values with others.

MARKETING MANAGEMENT
This is the process of planning and executing the conceptions, pricing, promotion and distribution
of ideas, goods and services to create exchangers that satisfy individual and organizational goals.

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 Marketing management is therefore a process involving analysis, planning , implementation and
control is as far as exchange of goods and services is concerned, with the goal of satisfying the parties
concerned.
Marketing management is practiced by all levels of staff in the organization including sales
managers, promotion managers, brand managers and so on.
It has the task of influencing the level, timing and composition of demand in a way that will help
the organization of demand in a way that will help the organization achieve its objectives. It is therefore
essentially demand management. ( Kotter 1997).
By carrying out the various managerial functions of planning enables managers to make decisions
on target markets, market positioning, product development, pricing, distribution, communication and
promotion.

COMPANY ORIENTATION TOWARDS THE MARKET PLACE

All marketing activities should be carried out under a well thought out philosophy of efficient,
effective and socially responsible marketing. There are 5 competing concepts under which organizations
can choose to conduct their marketing activities:

The production concept , the product concept, the selling / sales concept, , the marketing
concept, the marketing concept and the sociable marketing concept

The Production Concept: Holds that consumers will favour those products that are widely
available and at low cost. Managers of production oriented organizations concentrate on achieving high
production efficiency and wide distribution.

The Product concept: Holds that consumers will favour those products that offer the most
quality, performance or innovative features. Managers in product oriented organizations focus their
energy on making superior products and improving them over time.
The Selling concept/ sales concept: holds that consumers if left alone will ordinarily not
buy enough unless the organization undertakes an aggressive selling and promotion effort.

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 The Marketing concept: holds that the key to achieving organizational goals consist of being
more effective that competitors in integrating marketing activities towards determining and satisfying the
needs and wants of the target market.

The societal marketing concept : holds that the organizations task is to determine the needs,
wants and interests of target markets and to deliver the desired satisfactions more effectively and
efficiently that competitors in a way that preserver or enhances the consumers and society’s well being.

THE RAPID ADOPTION OF MARKETING MANAGEMENT

Marketing is increasingly becoming an important aspect among all types of organizations. Both
individuals as well as consumer goods companies have found it necessary to practice modern marketing.

This is evident from the way companies are engaged is aggressive advertising, both indoor as well
as outdoor. Marketing has also attracted the interest of insurance and stock brokerage companies which
are also beginning to practice effective marketing. The banking industry has not been left behind either.
Almost all banks in Kenya have improved their service delivery and introduced many new products to
take care of the desired needs of the customers.
Marketing is also increasing attracting the interest on non- profit organizations such as colleges,
hospitals and churches. In the wake of declining government support, universities, hospitals and colleges
have had to engage in aggressive marketing of their services in order to attract more customers.
Competition within the domestic market has also made companies to focus on global market.

SCANNING THE MARKETING ENVIRONMENT

<<>>

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 MANAGING THE MARKETING PROCESS AND MARKETING PLANNING

(THE MARKETING MANAGEMENT PROCESS)

WINNING MARKETS THROUGH MARKET-ORIENTED STRATEGIC PLANNING

In order to understand marketing management, we must understand strategic planning. In large
organizations, strategic management is practiced at four organizational levels:
- Corporate Level
- Divisions Level
- Business Unit Level
- Product Level

The Corporate and Divisional Level:

The Corporate level establishes the overall strategic plan to oversee the entire organization and
makes decision on how to allocate resources to each Division. Each division develops a division plan
covering the allocation or resources to the business levels. Four main activities are undertaken at the
corporate level.

1. Defining the Corporate Mission:

A company’s mission specifies what the company is formed to do, and it must be
Very clear from the beginning. A company’s mission is based on five elements.
- History (Must be based on the company's history, aims, policies and achievements).
- Current preferences of the owners and management.
- The market environment.
- The available resources
- The companys distinctive competencies – the organization should base its mission on what it
does best.
Good mission statements have three main characteristics
- They focus on limited numbers of goals.
- Stress the major policies and values that the company wants to honor.
- They define the major competitive scopes within which the company will operate.

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2. Establishing the strategic business units.
Large companies normally manage quite different businesses, each requiring its own strategy,
these businesses need to be managed separately as they have different requirements and often seek to
satisfy specific customer groups.
3. Assigning resources to each SBU
Once the SBU’s have been identified, they need to be allocated resources accordingly. There are two
main models for evaluating business portfolios.
- Boston Community group model
- General Electric model.
Boston Community group model The BCG Matrix
This focuses on three aspects of a particular business unit (i) Its sales (ii) Growth of the market (iii)
whether it generates funds. It tries to balance up between those units that generate funds and those that
spend funds, so that their units support one another. The matrix is based on two dimensions: namely
market growth rate and the relative market share of each particular unit. These gives rise to four types of
business: The question marks (?) (Problem children), the stars, the cash cow, and the dog . The question
marks (?) (Problem children), and the dog both have low market share, but while the question mark is in
a market with a high growth rate, the dog is in a low growth market. On the other hand, the stars, and the
cash cow, have a high market share, and whereas the star is in a market with a high growth rate, the cash
cow is in a low growth market Figure 7.2 demonstrates the BCG model.

*
Market Growth Rate

Problem Children
High

The Star Question Marks

Cash cow The dog

Low

High Low
Relative Market Share
Figure 7.2 The BCG model.

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The Question Marks: The business has a low relative market where but is in a rapidly growing market.
It is an uncertain business and requires heavy investments in order to reap from the existing market
opportunities. Profits may be low or negative. Today’s question marks, if successful, become the
tomorrows star’s.

The Star: This is a very profitable business which has a high market share in a rapidly expanding market.
It requires an extra investment in order to keep up with the market’s rapid growth. It may consume more
cash than is currently being earned by it. Today’s stars are tomorrow’s cash cows. Examples of stars
include provision of internet services when they were started in Kenya, and mobile phone services ‘Simu
ya jamii’.

The cash cow: This is characterized by high market share in a slowly growing market. Very profitable
and major source of funds for other businesses it does not require heavy investments, but should be
sustained to continue generating funds. Tusker beer may be considered a cash cow by the East African
Breweries, just as are the module II programs for self sponsored students in the University of Nairobi. A
cash cow is usually the highest income earner in any company.

The Dog: This is characterized by low market share in a slowly growing market. It should be slowly sold
off to cut further losses. There is no need to spend money investing in the dogs, as they are not profitable.

The success sequence of the BCG model involves harvesting the cash from cash cows and investing it in
selected question marks to become stars by enhancing their market share. When the rate of market growth
slows, the stars become cash cows and generate funds for another generation of promising question
marks.

Limitations of the BCG Model

1. It is very difficult to clearly define a market, and so measuring market share and market growth
rate can be a problem.
2. It considers only the extremes – low or high and therefore leaves no room for firms with average
growth rates or businesses with average market shares.

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 3. It assumes that firms with large market share must enjoy unit cost advantages while those with
low market share cannot be profitable. This may not necessarily be true for sometimes.
4. It is not very useful in comparing relative investment opportunities across business units in the
corporate portfolio.
5. It is rather over simplified and the strategic missions recommend do not reflect the diversity of
options available.

After plotting its various businesses in the growth share matrix, a company must determine
whether the portfolio is healthy. An unbalanced portfolio would have too many dogs or questions
marks and too few stars and cows.
The company then needs to determine the best strategy, objective or budget to assign to each SBU
few strategies can be pursued.

Build – This aims at increasing the market share and is appropriate for question marks whose market
share must rise for them to become stars.

Hold – The objective is to preserve the SBU’s market share. This is appropriate for strong cash cows
if they are to continue yielding a large positive.

Harvest – The objective is to increase the SBU’s short term cash flow regardless of long term effects.
It aims at finally withdrawing from a business by implementing a program of continuous cost
retrenchment. The cost retrenchment must be done very carefully and less visibly lest it begins to raise
unnecessary anxiety and concern among employees, distributors and importers.

Divert – The aim is to sell or liquidate the business because resources can be better utilized
elsewhere. The strategy is appropriate for dogs and question marks that are upcoming.

THE GENERAL ELECTRIC MODEL.

The GE Nine –Cell planning gird
This was developed by the General Electric company as an adaptation of the BCG matrix in order to
overcome limitations of BCG. This was achieved by

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 - Using multiple factors to assess identity attractiveness and business strength.
- Expending the matrix from 4 to 9 cells, thereby provide for the average (medium) industries.

The General Electric’s screening grid is based on two main dimensions – business strength and industry
attractiveness. It considers several market characteristics (such as size, growth, and location), industry
trends and structure, key competitors, and environmental influences. A strategic business unit is placed on
the gird in terms of identity attractiveness and business strengths as shown below.

Invest/grow
Business Strengths

Selectivity/earnings

High Medium Low Harvest / Direst

Industry attractiveness

According to this grid, Strategic Business Units (SBUs) lying in the low -low category in terms of
attractiveness and strength should be considered for harvesting/divesting, while SBUs lying in the high-
high category should be considered for investment and growth. Those in the intermediate range require
selective use of resources and emphasis on earnings. Although the strategic recommendations generated
by the GE grid are similar to those generated by BCG, it improves on BCG in three fundamental ways.
1. The terminology used by GE is less offensive and more understandable.
2. It taps many factors relevant to business strength and market attractiveness besides market share
and growth.
3. Provides for broad assessment during the planning process, thus enabling planners to consider the
importance of both strategy formation and strategy implementation.

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 Critique of Portfolio Models
They have helped managers to think more strategically, understand the economics of their
businesses better improve the quality of their plans, eliminate weaker businesses, and strengthen their
investments in more promising businesses.

However the models must be handled with care because they mat make companies place too much
emphasis on market share growth or to neglect the current businesses. Further use of averages may result
in businesses that are totally different in ratings being placed in the same cell.

Finally the models fail to differentiate the averages between two or more businesses, making it
risky to make decisions for one business at a time.

4. Planning new businesses.

For many cases the projected sales and profits are lower than what the corporate management wants
them to be. The company therefore tries to bridge the gap by developing or acquiring new businesses to
fill it.

There are three systems

- To identify opportunities to achieve further work within the companys current businesses
( intensive growth opportunities)
- To identify opportunities to build or acquire businesses that are related to the companys
current business ( integrative growth opportunities).
- To identify opportunities to add attractive businesses that are related to the company current
businesses ( diversification growth opportunities ) this gives the figure below

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 Sales

0 5 10 years

1. Intensive growth :
The company needs to review whether any opportunity exits for improving its existing business
performance. Ansoft has proposed a useful framework for detecting new intensive growth
opportunities called the product/ market expansion grid which gives 4 options depending on the
market and products as show in the figure:
Current product New product

1 2
Current market

3 4 New market

1. Market penetration strategy

2. Market development strategy
3. Product development strategy
4. Diversification strategy

2. Integrative growth
Sales and profits can be increased through backwards, forwards or horizontal integration within
the industry
( More notes)

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3. Diversification growth
This makes sense when good opportunities can be found outside the present businesses.

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 BUSINESS STRATEGIC PLANNING
This consists of several steps as show below.
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Business illusion – Each business unit needs to define its specific mission within the broader company
mission.

External environment analysis ( Opportunities and treats )

Opportunity – An area of buyer’s need in which a company can perform profitably

Threat - a challenge posed by an unfavorable trend or development that would lead to the absence of
defensive marketing actions, leading to deterioration in sales and profits.

Once management has identified the major opportunities and threats facing a specific business
unit, it can characterize that business overall attractiveness giving possible outcomes.
- An ideal business is high in major opportunities and low in major threats.
- A speculative business is high in both major opportunities and threats.
- A mature business is low in major opportunities and low in threats.
- A troubles business is low in opportunities and high in threats,

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 INTERNAL ENVIRONMENT ANALYSIS ( strengths / weaknesses)
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Goal formulation
Once the company has performed its SWOT analysis it can proceed to develop goals for the
Planning period. Goals are those objectives that are specific with respect to magnitude and time. Forming
reasonable goals facilitates management planning, implementation and control.

Strategic formulation
Goals indicate what a business unit wants to achieve, while strategy is a game plan for how to get
them. Although many strategies are available, they may be condensed into three.
- Overall cost leadership
- Differentiation
- Focus – business focuses on one or two more narrow market segments rather than going after
a large market.

Program formulation
Management must design detailed supporting programs to support the various strategies choose
for example a company that want to attain technological leadership must have a program to strengthen its
R & D department, gather technological intelligence and train technical sales force.

Implementation
A good strategy even with a well laid out program may be useless unless it can be implemented.
The firm must have a clear plan of implementation.

Feedback and control

This allows the company to track the results and monitor new developments in the internal and
external environment. The firm should be able to review and revise its implementation, programs
strategies or even objectives according to changing environmental conditions.
Micheal E. [orter (1980) Competitive strategy, techniques for analyzing industries and competitor ( NY
Free Press).

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Ansoft. L (1957) Diversification : Harvard Business Review (Sept – Oct) P114

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THE MARKETING PROCESS
Planning at all levels is an internal parts of the marketing process. This process consists of
analyzing marketing opportunities, developing marketing strategies, planning marketing programs and
managing the marketing effort.

Analyzing marketing opportunities:

This involves analyzing the long run opportunities in order to improve performance. This requires
that the company operates a reliable marketing information system. In this case, marketing research
becomes a very useful tool for collecting analyzing information about the micro as well as the macro
environment, the consumer market and the business market.

Developing Marketing Strategies:

The company must develop relevant strategies to deal with the opportunities identifies.

Planning marketing programs:

To transform marketing strategy into marketing programs, marketing managers must make
decisions on marketing expenditures, marketing mix and marketing allocation. Of particular importance is
the marketing mix which requires decisions based on the 4Ps ( Product, place, price, promotion). The 4ps
must be matched with the 4C’s to deliver customer satisfaction.

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 4Ps 4C’s
Product Customers need & wants
Price Cost to the customers
Place Convenience
Promotions Communication

Managing the marketing effort.

This is the final step and involves organizing the marketing resources and then implementing and
controlling the marketing plan.

Product Planning : The Nature And Contents Of A Marketing Plan

It has been seen that each product level ( product line, brand) within a business unit must develop
a marketing plan for achieving its goals. The market plan is one of the most important outputs of the
marketing process.

The components of a marketing plan are:

1. Executive summary and table of contents
Provide a brief overview of the marketing plan.
2. Current market situation
This provides relevant data on the market, product, competition, distribution and macro
environment.
3. Opportunity and issue analysis
Identifies the main opportunities threats, weakness and strengths and issues facing the product
line.
4. Objectives
Defines the plans financial and marketing goals in terms of sales volume, market share and profit.
5. Marketing strategy
Presents the broad marketing approach that will be used to achieve the plans objectives.
6. Action programs
Presents the special marketing programs designed to achieve the business objectives.
7. Projected profit and loss statements

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 Forecasts the plans expected financial outcomes.
8. Controls Indicates how the plan will be controlled.

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 2b
MARKETING INFORMATION SYSTEMS & MARKETING RESEARCH.
MIS and its components.
A marketing information system consists of people, equipment and procedures to gather, set,
analyse and evaluate and distribute needed timely and accurate information to marketing decision makers.
It is designed to assist managers to assess the managers information needs, develop the needed
information and distribute the information in a timely fashion to the marketing managers.
Its main components are:
- Internal records system
- Marketing intelligence system
- Marketing research system
- Marketing decision support system

These components are interlinked and work together in a coordinated manner within the context of the
prevailing marketing environment, to generate information that enable marketing managers to carry out
their management activities.
MIS

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INTERNAL RECORDS SYSTEM

This involves marketing information on orders, sales inventory levels, receivables and payables
within the organization that is useful to managers in making decisions.
The company needs to maintain good records in order and how they are processed, current sales and
inventory levels.

MARKETING INTELLIGENCE SYSTEM.

This is a set of procedures and sources used by managers to obtain their everyday information
about pertinent developments in the marketing environment.
Marketing intelligence enables managers to easily spot problem areas that need to be addressed urgently.

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 The company needs to have a good system of market intelligence which may include buying
information from outside suppliers and using established internal marketing information centers to collect
and circulate marketing intelligence obtained from major publications , abstracts if the internet.

MARKETING RESEARCH SYSTEM.

Marketing research helps an organization to gather and analyse data on various issues. This is
often applied research which aims at specific marketing problems.
Marketing research is the systematic design, collection , analysis and reporting of data and
findings relevant to a specific marketing situation facing the company.

MARKET RESEARCH
Involves collection of data , recording, analyzing and evaluating data on all facts affecting the
products or services. It should be done objectively.

Market research – the means used by those who provide goods / services to keep themselves in touch
with the needs and wants of those who buy and use their goods / services ( AMA Definition)

Factors Market research Marketing research

Concern Market research is an About planning, problem solving and
element of marketing control in the whole target market
research about a particular behavior, opinion, motivation
target market
Source & Data Two sources : External and Utilizes both primary and secondary
internal secondary data data with more emphasis on primary
( Concentrating on data
secondary data)
Output Customers profile, Interested on textural interpretation of
Competitive profile, data usually supported by use of tables
And market profile and designs
Users Forms the foundation of To predict TM reactions to alternative
marketing plan, provides a marketing alternatives.

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 benchmark for setting Also helps to select strategies of
measurable objectives, and marketing and also to provide a
also to trace progress in benchmark for setting measurable
achieving the objectives objectives and track the progress of
objectives.

CONTRIBUTION OF MARKTING RESEARCH

- Provides information useful to reduce risks involved in decision making process relating to
pricing, advertising target market etc.
- Provides an opportunity to greater monitoring and controlling the activities and thereby minimizes
the areas of uncertainness.
- Very viral for the planning process and building the foundation for the market process.

MIS is useful if the MR can be used as a tool of marketing for monitoring the process of planning
and other activities. But MR cannot make decisions but can be useful in decision making.

PROFILES IN MIS
These profiles should be drawn for the whole national market and these profiles customers, market
and competitive profiles.

1. Customer profile
Looks at data from internal records, surveys, customers accounts, credit application forms etc
The information must be categorized into customer markets and industrial buyers. For
consumers you consider the demographic factors.
For industrial companies you consider the size interms of turnover, number of products handled
etc and also details of directors if possible.

2. Market profile

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 Purely on the market we are covering. Mist be defined in terms of geographical location, size
population etc.

3. Competitive profile
The company must study the competitors form the regional and national levels
Who are the ? how do they distribute? Who is the market leader in each strategic business unit
(SBU) ? does any of them have any unique selling proposition (USP) achieved through their
positioning etc.

MARKETING RESEARCH AGENCIES

Many organizations today have inhouse research units and do not use agencies, but other have
agencies , while others use both.
MR agencies are very useful in case
- You want to have new information on specific projects. This is because they do not disclose the
firm for which they are researching and so competitors do not know the firm.
- MR requires personalized skills and it may be economical to engage the agencies when necessary
that to engage a full time specialized researcher.
- Useful to avoid bias internal researchers may be biased

The Research Process.

Has four main stages:
1. preparation stages
2. execution stages
3. summation stages
4. application stages

1. Preparation Stage
One has to be careful in analyzing all the processes involved to avoid wastage of money and time.
a. Review of market objectives:

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 Review them to ensure that every step in the research will take care of the whole
companys objectives.
b. Problem definition identify the problem and define it through situational analysis through
and informed investigation or exploratory research or pilot survey.
c. Select the source of information - primary and secondary sources. The sources will be
influenced by the type of data cost involved etc.
d. Data collection methods – Research projects vary and so data collector’s methods also
vary . the methods is influenced by the time available, budget allocated, type of market and
type of data needed.
e. Define the market research objectives- help in monitoring and ensure a focused and
directional approach.
f. Design the sample and data collection materials. The sample has to be representation.
g. Pre-test the data collection materials to identify any misunderstandings.
h. Research proposal ( survey brief) lays down a clear picture of the objective of the research
and identify an existent data gap, and how the gap is going to be filled. The idea is to avoid
unnecessary waste in time and money in what has already been done. The proposal should
be distributed t all the executives and has to be approved.

2. Execution stage
Deals with collection of data and analysis.
Collection of data – administer the questionnaire or performs the interviews of the targeted
sample.
You may use observations which may be done secretly in which the target customer should not be
aware that anybody is studying it. Telephone interviewing can also be done. Both observation and
telephone.
Analysis of the data – tabulate the data on the computers, or analyse the key statements in the
question.

3. Summation stage

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 The data and results are summarized to gibe a clear picture of the whole exercise. These are the
methods of presenting ( reporting)
a. present the results and recommendations
b. present the results without recommendations
The first method is better.

4. Application of results
Reminds us that the research is an expensive affair and so the report should be useful to the
organization.
The report should be implement able with good monitoring and control systems.
Post research tests may also be done to see the success of the implementable plan.

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 CHAPTER 4
ANALYSING CONSUMER MARKETS AND BUYER BEHAVIOUR

“ You never really understand a person until you consider things from his point of view until you climb
into his skin and walk around in it”
(Atticus finch in Harper Lees to kill a mocking bird)

There is an old saying in Spain : To be a bullfighter you must first learn to be a bull ( Anonymous)

In order to satisfy a consumer ( which is the principle objective of a marketer) , it is important to

first seek to understand the consumer. The marketer needs to understand the consumer behaviour ( how
individuals, groups and organizations select, buy, use or dispose of goods and satisfy their needs and
wants. Marketers must study their target customer needs, wants perceptions, preferences and shopping
and buying behaviour.

Inorder to understand the consumer we present a model of consumer behaviour. This explains the
various aspects of the consumer characteristics and the decisions process that lead to certain decisions.
The basic model of buyer behaviour shows that marketing stimuli and environmental stimuli enter the
buyer’s characteristics and processes leading to buyers decisions as shown below.

Marketing stimuli Environmental stimuli

Products Ecomomic
Price Technological
Place Political
Promotion Cultural

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 Buyers characteristics Buyer decisions
Cultural process
Social problem recognition
Personal information search
Psychological evaluation
Decision
Past purchase behavior

Buyers decision
Product choice
Brand choice
Dealers choice
Purchase timing
Purchase amount
Fig. Basic model of buyer behaviour

Several theories have been developed to explain the consumer and buyer behaviour. They attempt to
answer the question ‘ why do consumers behave the way they do?”. A model is a representation of
reality , ( a replica of what it attempts to explain) usually reduced in scale and simplified. Its primary
function is to force systematic and logical thinking. Models are sometimes used synonymously with
theory. Thus human behaviour has been explained extensively by use of models. These models are
categorized into two:
1. traditional ( simple) Models of human behaviour
2. Contemporary ( Complex) Models of consumer behaviour

Basic Concepts
A consumer and a buyer do not necessarily mean the same thing. Presented below are some distinctions.

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 a. Consumer - person or organization that buys and or/ consumers products for an
industry.
b. Buyer - purchaser. May be defined as the person who actually procures
goods and services, and may not necessarily consume.
c. User - consumers of goods and services, and do not have to have bought
them.
d. Consumers - people who buy from a given seller.

2.1 TRADITIONAL MODELS OF HUMAN BEHAVIOUR

These models are described under single element aspect and ignore most other factors that
influence buying. Each model describes only one part of the consumer buying behaviour – economic,
social, learning and so forth. Thus each model is an incomplete description of human beings, and different
models may be appropriate for different marketing situations. Philip Koter, who has described 5
traditional models asserts.
Depending on the product, different variables and behavioral mechanisms may assume
particular importance. A psychoanalytic behavioral model might throw much light on the factors
operating in cigarette demand, while an economic behavioral model might be useful in explaining
machine tool purchasing. Sometimes alternative models may shed light on different demand aspects of
the same product ( Kotler, 1967)
The five traditional models as given by Kotler are:
Marshallian ( economic ) model
Parvlopian ( Learning ) model
Freudian ( psychoanalytic ) model
Veblenian ( social ) model
Hobbesian ( organizational) model

2.1.1. Marshallian ( Economic man ) model

The Marshallian model asserts that purchasing decisions are the result of largely ‘rational’ and
conscious economic calculation. The buyer seeks to spend his income on those goods that will deliver the
most utility according to his tastes and relative prices ( Kotler, 1965) . In other words, the consumer uses

29
 economic cues of price and income and makes a fresh utility calculation before each purchase. The model
uses the ‘ measuring for of money’ as an indicator of the intensity of human psychological desires. The
theory has been refined into economic man (under the modern utility theory) who is bent on maximizing
his utility (satisfaction) and does this by carefully calculating the ‘expected pleasures and pains’
consequences of any purchase.

2.1.2. The Pavlovian learning model

This theory holds that learning is largely an associative process and that a large component of
behavior is conditional ie the stimuli – response. This implies that man behaves in a habitual manner
rather than thoughtful way. In this case, certain cues will set off the same behavior because of rewarded
learning or punishment in the past.

The pavlovian is based on four central concepts thus :

a. Drives (needs and motives) : this refers to strong stimuli internal to the consumer which implies action.
The needs may be:
i. Primary physiological (biogenic) needs such as hunger, thirst, cold and so on or
ii. Learned drives ( secondary needs) which are derived form society such as co-
operation , prestige.
b. Cue : This is a stimuli in the environment and or in the individual which determines when, where and
how the consumer responds. For example, an ad (cue) may stimulate a need (drive) as a coca cola ad
stimulating thirst drive in a customer. The response will depend upon the cue and others such as time of
the day, availability of other thirst quenchers, and the cues intensity. Thus, if the cue is presented during a
hot and sunny day the consumer may respond immediately to quench the thirst.
c. Response: This is the organism’s reaction to the configuration of cues. For example, a purchase of coca
cola to quench thirst after an ad featuring coca cola as a good thirst quencher. Whether the consumer
responds immediately of not will depend on the degree to which the experience is rewarding ie drive-
reducing.
d. Reinforcement: This refers to the strengthening of a response. For example, when an experience (gained
through consuming a product) is rewarding, a particular response is reinforces ie it is strengthened and
there is a tendency for it to be repeated when the same configuration of cues appears again (Kotler 1965).

30
Thus if a consumer’s need is satisfied by a particular product, he will moist likely buy the same product
since from experience, the consumer has come to associate it with satisfaction ( ie it rewards him).

Freudian Psychoanalytical Model

The Freudian approach to consumer behavior relies on a psychoanalytic or conflict view of human
behavior. The conflict model portrays primitive human constant inner struggle between good and evil.
According to Sigmund Freud, the human behavior cannot be consciously explained. Instead most
consumer behavior is mostly unconscious in nature. Thus the personality structure can be explained
within the unconscious framework and therefore Freud identified three interrelated but often conflict,
psychoanalytic concepts, the id, the ego and the super ego (Luthans 1981)

The Id concept
This is the core of the unconscious. It is the unleashed raw, primitive instinctual drive which is
constantly struggling for gratification and pleasure. It is manifested mainly through the libido (sexual
urges) or aggression. The libido strives for equal relations and pleasure, but also for warmth, food, and
conform. Thus, libido may account for a consumer’s purchase of food, clothing or shelter.

The ego
This represents the conscious part of a consumer. It represents logic in the Freudian approach and is
associated whit the reality principle. The ego keeps the id in check through the realities of the external
environment (Luthans, 1981). The ego interprets reality for the id through intellect and reason. This
concept can be equated to the parent whereas the id is the child. It is therefore the responsibility of the
parent to control the child.

The superego.
This concept can best be interpreted as the conscience. The superego provides the norms that enable
the ego to determine what is right or wrong. The conscience is developed by absorption of the cultural
values and morals of a society. The superego aids the consumer by assisting the ego combat the impulses
of the id.

Veblenian social – psychological model

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 This model, developed by Thorstein Veblen, seeks to explain the consumers behaviour as being
influenced by both social and psychological factors.
At the level of social factors, Veblen sees man as primarily a social animal and therefore conforms
to the general forms and norms of his larger culture and to the more specific standards of the subcultures
and face to face groupings to which his life is bound (Kotler 1965). Veblen hypothesizes that much of
economic consumption is motivated not by intrinsic needs or satisfaction so much as by prestige –
seeking (Kotler,1984) thus a consumer may purchase a product simply to show off rather that to satisfy a
specific need. Among the social variables that influence consumer behaviour are his social class,
reference groups, culture and subcultures as well as his family.
Veblen saw man’s behavior as being influenced also by psychological factors. Even though a
consumer may buy a product to impress, he may be at the same time be buying it because of
psychological factors such as his personality, motivation, perception, and attitudes towards the purchase.

Hobbesian (organizational) model

This considers organizational buyers as opposed to individual buyers. Organizational buyers buy
not for the purposes of consumption but for further production and distribution. The buyer is guided by
both personal as well as group goals, and must make specific considerations very carefully because he has
to satisfy his own needs as well as those of the organization.
The importance of this model is that buyers can be appealed to on both personal as well as organizational
grounds. The buyer has his own drives, but still tries to do the best for his organization and would
therefore try to secure the best terms for the organization.

CONTEMPORARY MODELS
• Andreason Model
• The Engel – Kollat – Blackwell Model (EKB)
• The Howard – Sheth model
• Sheth – Family decision making model
• Bettman’s Information Processing Model of Consumer Choice
• Sheth – Newman – Gross Model of Consumption Values

Andreason Model

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 This is one of the earliest models that attempted to construct a theory of consumer bahaviour by
Alan Andreason in 1965 (Horton, 1969). The model addressed the problem of how a consumer decides
whether or not to purchase a new product ie the role of attitudes on buyer behavior process. The model is
shown in figure 1. Andreason gave explicit recognition to the importance of information in consumer
decision making and provided a forerunner of the current information processing theories especially by
Bettman. The heart of the Andreason model is attitudes (Horton, 1969).
Information in the context of wants of the consumers, prior to purchasing experience, the
consumers personality, and the social norms and expectations of significant others such as friends, give
rise to attitude. Attitude, which is seen as a predisposition to act toward the attitude object ( a particular
brand), gives rise to behavior. Thus behavior may be changed by changing attitudes. In Andreason’s
model, attitudes can be changed in a number of ways. For example, a consumer who changes group
affiliation ( social factor) is likely to conform to the new group norms eg a sales person, recently
promoted to the position of a marketing manager, joins a prestigious local club because it is expected of
someone in that position.

Field
Field 2 Field Field 4
1(Attitude <>
(Search) 3(Purchase) (Storage)
formation)

Figure: Andreason Model of buyer behaviour (Modified)

Field 1 Between the consumer and the firm in field 1 results in the consumer forming an attitude about
the firm and the product which is the input to field 2.

Field 2 : Search and evaluation. With the information gained in field 1, the consumer makes an
evaluation of the alternative brand choices. This motivates the consumer into field 3.

Field 3: In this field, the consumer makes a decision to purchase a specific brand.

Field 4: This involves storage of the product by the consumer, retention of the experience by the
consumer for future used in buying the product and feedback of sales results to the firm.

33
 This model has the advantage of being very simple to understand. It also acts as a guide in
decision making when one is dealing with a new product. However it has the weakness of being
unrealistic, as it shows the consumer moving form one field to the next in a very predictable manner. We
know that this may not always be the case.

The Engel – Kollat – Blackwell Model (EKB)

This model focuses on the decision process and has 4 basic components.
1. The Central control unit
2. Information processing unit
3. Environmental influences
4. The decision process.
This is illustrated in figure 3.

Stimuli

Exposure
Attention: Information processing
Comprehension/
perception
Retention

Filter

Information
Experience
Evaluation-
Central
criteria
Personality

Control Unit Attitude

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 Environmental
Problem recognition Influences
Income
Culture
Internal search and alternative Family
evaluation Social class
Physical factors

External search and alternative

evaluation

External search
Purchasing process

Outcomes

Post purchase Further

evaluation behaviour

Figure: Engel-Kollat-Blackwell Model (Simplified)

1. The Central Control Unit

This is the governing unit of the model and has two main roles:
i. It reacts to external stimuli
ii. It initiates and oversees the decision making process.
The unit has both the conscious and unconscious components. In the central control unit, there is
evaluation and attitude formation based on the consumers personality.

2. Information Processing Unit

This is actually the first phase and it is where external stimuli is selectively received through
exposure, attention, comprehension and attention. The information is further filtered and passed to the
central control unit. Thus the incoming stimuli are processed and made part of the central control unit.

3. The Decision process unit

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 This is where the consumer finally makes a decision to buy. It is the part that is activated to
determine whether and how a consumer will react to the incoming stimuli. The decision making process
follow the traditional stages of problem recognitions internal and external search for alternatives and the
purchase process.

4. Environmental influences
This comprises of the culture, income, family, social class and other variables that influence the
decision making process. These may also play a role in filtering incoming stimuli. The outcome of the
decision process is to buy, and these are followed by further buyer behaviour and post purchase
evaluation as shown in the figure.
The EKB and the Howard Sheth Model (H-S) have a lot of similarities as models for decision
making. However the two major differences are:
1. Howard – Sheth model does not directly handle problem recognition, but does it indirectly
through the arousal function of motives.
2. the EKB model has omitted such variables as stimuli ambiguity and confidence which are well
addressed by Howard – Sheth model

Engel – Kollat – Blackwel has the following strengths:

1. It emphasizes on decision making and conscious behavior.
2. Easy to follow, since it doesn’t get overly involved in the interrelationships of vaguely defined
psychological constructs and variables.

The model however has several weaknesses

1. its simplicity is a problem, and it does not clearly explain the central processing unit
2. It is rather mechanical in the way it explains the sequence of steps in the decision making process
thereby ignoring the complexities of human behaviour.
3. Important psychological variables such as needs, motivation and learning are only implied in the
model.
4. The relationship of the environment factors to the central control unit and to information
processing is not clear.

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The Howard – Sheth model
This model recognizes the fact that consumers are involved in continuous search for information
regarding products and product alternatives. There are both product and information cues which help
the consumer in making the right decision.
The learning process involves three levels as shown in the diagram below:
1. Extensive Problem Solving (EPS)
The consumer has very limited knowledge and beliefs about a product and do not have a
specific brand preference (evoked set) . the probability of repeat purchase is low, and much
time is consumed in the choice process.

2. Limited Problem Solving (LPS)

The consumer’s knowledge and beliefs about the brands are partially established. The buyer
has an evoked set and his probability of repeat purchase is medium. Limited thinking is
involved and not much time is required in making a choice.

3. Automotive ( Routenised ) Response Behavior(ARB)

The buyer has a well established evoked set, and his knowledge and beliefs about the brands are
well established. Thus the consumer is predisposed to the purchase of one particular brand and
therefore requires very little if any thinking and time for the decision.

Probability
Of repeat
Purchase of A

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 EPS LPS ARB

0 X1 X2 X3

Fig. Learning curve for brand A

The model consists of four major sets of variables as illustrated in figure 4

1. Inputs
These comprises of three different types of stimuli in the consumers environment. The physical
brand characteristics (significative stimuli) such as quality, price, services and availability, verbal or
visual product characteristics (symbolic stimuli) such as quality, price, services and availability and the
consumers social environments (family, reference groups, social class).
The three stimuli act as sources of information ( inputs) concerning the product class or specific
brands required by the consumer.

2. Perceptual and Learning Constructs

These comprise variables that are psychological in nature and come into play when the consumer
is contemplating a decision as a result of the stimuli received as input.
Perceptual constructs are concerned with how a consumer receives processes information
acquired. For example, stimulus ambiguity occurs when the consumer does not get clear information
about a product, while perceptual bias occurs when the consumer distorts the information so as to fit his
or her established needs or experience. Learning constructs lead to concept formation.
These include the consumer’s goals, preferences, information about brands in the evoked set and
criteria for evaluation alternatives.

3. Outputs

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 These include intention attitude, attention and brand comprehension in addition to the actual
purchase.

4. Exogenous variables
These are not directly part of the decision making process, but include such considerations such as
the importance of the purchase, consumer personality traits, time pressure and financial status. These
variables will influence the decision consumers is likely to make in the purchase of various brands. One
may for example buy a product from a certain supplier because he she has not time to look for
alternatives or buy a very expensive item due to his her financial status.
The main strength of the Howard- Sheth model is in its interactions between the perceptual and
learning constructs, but suffers the weakness of failing to operationalize these variables.

Sheth – Family decision making model

The model consists of 3 variables as shown in figure 5.

Factors
Psychological • Family life cycle
Systems Family stage
Buying • Product
decision importance
• Time pressure
• Social class
• Lifestyle
• Role orientation

Figure: Sheth – Family decision making model

a.Psychological systems that represent the distinct predispositions of the father, mother and
other family members. The psychological system consists of :
- Perceptual bias gained from overt search and sensitivity of information either from mass
media, display or word of mouth.
- Buying motives and evaluative beliefs as a result of perceptual bias. Motives and
evaluative beliefs will depend on the gender, confidence, personality and reference
groups.

39
 b. Family buying decisions
The separate predispositions lead into family buying decisions for products to be consumed
by members family or household units./ the decisions may be either
- Individually (autonomously) determined e.g father making a buying decision or
mother or any other family member.
- Jointly determined as when the father or mother together make a buying decision
for the household unit consumption.
Joint decision making tends to be prevalent in families that are middle class, newly married
and with few prescribed family roles. Similarly joint decisions prevail in situations when
there is high perceived risk or uncertainty about the purchase (product) when the purchase
decision is considered to be important and when there is ample time to make a decision.

c.Factors influencing the purchase decisions. The factors determine whether a decision is
autonomous or joint. The factors are:
- Family life cycle stage eg married, married with children
- Perceived risk in the purchase – low or high
- Product importance ie the importance of the purchase
- Time pressure – plenty or constrained
- Social class eg upper, middle or lower
- Lifestyle
- Role orientation – roles that are played in the family and how many.

Bettman’s Information Processing Model of Consumer Choice

The model portrays the consumer as possessing limited capacity for processing information. When
faced with a choice, he / she rarely undertakes very complex analysis of available alternatives. Instead the
consumer typically employs simple decision strategies ( heuristics – also called consumer decision rules –

40
 procedures adopted by consumers to reduce the burden of making complex decisions by providing
guidelines or routines that make the process less taxing.

The model consists of 7 basic components as illustrated in figure 6

a. Processing capacity
b. Motivation
c. Attention and perceptual encoding
d. Information acquisition and evaluation
e. Memory
f. Decision processes
g. Consumption and learning process

In addition, there are mechanisms that scan the environment and receive and respond to interruptions
( scanner and interrupt mechanisms).

a. Processing capacity
This component assumes that individuals have only a limited capacity fro processing information.
Thus, in making choices, consumers find complex computations and extensive information processing
particularly difficult or burdensome. To deal with these demands, consumers are likely to select choice
strategies or rules of thumb that make product selection an easier and less taxing process. Processing
capacity influences major components of the model.

b. Motivation – the driving force within individuals that impel them to action.
Motivation influences both the direction and the intensity of customer choice stimulates the
consumer to seek the information required to evaluate alternatives and make a choice (eg a purchase).
Motivation provides momentum by means of a hierarchy of goals mechanisms. The hierarchy of goals
mechanism is a dynamic force that takes the form of a series of intermediate sub-goals that lead to a
desired end state-a-choice.

c. Attention and perceptual encoding

These are influenced by the consumers goal hierarchy.

41
 Attention ( act of fixing the mind on something especially by watching or listening ) may be:
Voluntary attention – a conscious allocation of processing capacity
ii. Involuntary – automatic response to disruptive events e.g newly acquired complex information
These different types of attention influences how individuals progress in reaching goals and
making choices.
iii. Perpetual encoding – consumer organizes and interprets perceived stimuli and provides
insights into the need for additional information.

d. Information Acquisition and Evaluation.

The consumer acquires information form external search if information available in his / her
memory is inadequate. The newly acquired information is evaluated against its suitability or usefulness.
The consumer continues to acquire additional information until all relevant information has been
secured or until the consumer perceives any additional effort to be too costly in terms of time and effort.

e. Memory
Component through which all information flows. It is also the first place where a consumer begins
his/ her internal search for information on which to base a choice. If the internal information is
insufficient, then the consumer undertakes external search.

f. Decision processes
This refers to the heuristics or rules of thumb in the evaluation and section of a specific brand. The
decision rules have been broadly classified into two major categories:

i. Compensatory – Consumer evaluates brand option in terms of each relevant

attributes and computes a weighted or summated score for each brand. For example, assume a
hypothetical rating for product X: ( Evaluations on a 10- point scale, where a higher score
indicates a higher rating).
Attribute rating
Durability 5
Price 7
Quality 8

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 A positive evaluation of brand on one attribute is balanced out on a negative evaluation on some
other attributes. For example a positive assessment of a particular brand of automobile in terms of
performance may offset an unacceptable assessment interms of petrol consumption.

ii. Non- Compensatory – these do not allow consumers to balance positive evaluations of a brand
on one attribute against a native evaluation on some other attribute. For example, a consumer may
establish a separate, minimal acceptable level as a cut off point for each attribute. If any particular
brand falls below the cut off point on any one attribute, the brand is eliminated from further
consideration.
The specific heuristic a consumer employs are influenced by both individual factors (eg personality
differences) and situational factors ( eg urgency of the decision).
g. Consumption and learning processes
This deals with future utilization of experiences acquired after the purchase choice has been made
and the selected alternative consumed.
The consumption experience is useful in providing information to be applied to future choice
situations as well as providing the consumer with a basis for developing of refining heuristics.

h. Scanner and interrupt mechanisms

This receives all kinds of messages from the environment. Scanner is open to relevant information
from the environment whereas the interrupt mechanism deals with messages that interfere with the
process of making a choice.

Sheth – Newman – Gross Model of Consumption Values

This model tries to explain ‘ why’ consumers make the choices they do. It concentrates on
assessing consumption – relevant values that explain why consumers choose to buy or not to buy ( or use
or not to use) a specific product, why consumers choose one product type over another and why
consumers choose one brand over another ( Figure 7) . the model is rooted in three central propositions:
a.Consumer choice is a function of a small number of consumption values.
b. Specific consumption values make differential contributions in any given choice situation

43
 c.Different consumption values that are the core of the model, namely functional value, social value,
emotional value, epistemic value and conditional value.

Functional value Conditional Social

value Value

Consumer choice behaviour

Emotional Value Epistemic value

Figure: Sheth – Newman – Gross Model

a. Functional Value – Performance of a product as expected. This

is the perceived functional, utilitarian, or physical performance utility received from the choices
attributes such as reliability, durability and price. For example the decision to purchase price and
promised fuel economy.

44
 b. Social value – The perceived utility acquired because of the
association between one or more specific social group and a consumers choice ie what others
( reference groups) will say about the purchase.

c. Emotional value – Utility acquired from a product’s capacity to

stimulate the consumers emotional value when associated with specific feelings or when it triggers
or sustains those feelings. For example, the anticipation of driving a new car.

d. Epistemic value – Perceived utility acquired by a choice as an

outcome of some particular situation or circumstances facing the consumer. For example some
products are associated with a particular time or event eg wedding dress, others have specific
climate or location benefits eg suntan lotion, yet others are associated with once in a lifetime events.
Eg purchase of a house and others are used only in emergency situations eg dentist services.

e. Conditional value – Perceived utility acquired by a choice as an

outcome of some particular condition facing the consumer. For example a patient may buy a drug
prescribed by a doctor, or a student buys a book that must be used in a course.

MERITS AND DEMERITS OF THE COMPLEX MODELS

Merits
Runyon (1959) gives the following as the values of comprehensive models.
First, the models encourage systematic thinking by forcing the theorist to define the relevant
elements in a behavioral theory.
Secondly, complex models make explicit the interrelationships between these variables, thereby
offering a tentative explanation of behavioral phenomena.
Thirdly, the models provide a framework for testing hypotheses derived from the model and for
incorporating new findings into and integrated system.
Lastly, they sometimes permit computer simulations of behavior, so that the implication of the
model can be observe under different sets of assumptions

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 Shortcomings
Contemporary models are simply empirically – based generalization that may or may not apply to
specific cases. They may not apply because they oversimplify the relationship between the
independent and dependent variables and fail to consider the multiplicity of factors that influence
consumers purchases. Thus according to Runyon the attractiveness of their simplicity is often negated
by their lack of predictive value.
Secondly, the models do not provide adequate methods for evaluating the relative importance of
the variables involved in the so called floe charts.
Lastly, the models borrow heavily and sometimes indiscriminately, from the behavioral science
for their theoretical base ( Runyon ) These sciences are fragmented and lack a coherent integrated
theory of behavior.

WHY DO WE HAVE SO MANY MODELS?

As seen above, there are many models which try to explain the buyer and consumer behaviour.
Perhaps the following reasons would explain this.
1. Human behavior is a complex phenomenon and consumer behaviour , being a component of
human behavior, is also complex, hence cannot be described by just one model. Different models
would thus be necessary to explain specific parts of the behavior\, economic, social, psychoanalytic
and so forth. The Sheth family decision model considers the family. Betman talks of information
processing and so forth.
2. The models were developed by theorists with different backgrounds. For example the ‘ blackbox’
or the human psyche explained in the traditional models use different aspects – economic,
psychological, socio psychological and so forth depending of the background of researcher.
3. Various concepts in buyer behavior are highly abstract and this brings about conceptual
difficulties in defining the concepts. This also creates the problem of operationalisation.
4. The constructs used are highly interdependent and this creates the problem of bridging points.
Different scientists demarcate them at different points and end up describing the models differently.

Kotler (1965) tried to answer the question ‘Why do people buy?’ by explaining the models named above.
He observed that the buyer is subject to many influences which trace a complex course through his
psyche and lead eventually to overt purchasing practices . The buyer’s psyche is a ‘black box’ whose

46
workings can only be partially deduced by use of the models advanced by use of the models named
above.

INPUTS CHANNELS PROCESSOR OUTPUTS

(Buying Influence) (Purchasing responses)

Price Advertising Buyer’s Product choice

Quality media Psyche Brand choice
Availability Salesmen Dealer choice
Service Family Quantities
Style Personal Black Box Frequency
Options Observation
Fig. The buying process conceived as a system of inputs and outputs
Images

CONCLUSION
The models described try to shed some light into the consumer buying behavior. They attempt to
explain why consumers behave the way they do. The traditional models take a single element approach
( eg economic, social ) while the comprehensive models use combinations of the elements and in a way
adopt a system approach.
It is worth noting that the models were developed based on consumer behaviour of the western world
consumers ( America, Europe) and may not necessarily apply to the African ( 3rd worlds) consumer.
There may be need to modify the models to accommodate the African culture. We know for example that
the African family settings is different from that of the western world
Research is thus required to study the African culture and subcultures and incorporate them in the models

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MAJOR FACTORSINFLUENCEING BUYING BEHAVIOUR
FACTORS INFLUENCING CONSUMER BEHAVIOUR
These are classified into internal and external environmental factors.

Internal (Psychological) factors

These factors include motivation, perception, learning and beliefs and attitudes.
Motivation and involvement: Motivation is the force that activities some needs and provides
direction of behaviour towards fulfillment of these needs. Motivation – Inner state that drives an
individual towards the attainment of a need. A need may be biogenic arising from physiological
states of tension like hunger, thirst, discomfort or psychogenic arising from psychological states of
tension such as need for recognition, esteem and belonging. There are many theories that explain
human motivation ( eg Maslow and Herzberg). We consider Maslow’s hierarchy of needs as an
example

Self actualization

Esteem

Social ( love and belonging)

Security

Physiological

Fig. Maslow’s Hierarchy of needs

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Different people have different factors that motivate them and are also at different levels of need,
implying that they may not be motivated by a need outside their level. Physiological needs are the most
basic and include desire for food, water, air, and shelter. People with this need just buy to satisfy these
needs and may not be concerned about quality or prestige. Security needs are also lower level needs, but
slightly higher than physiological needs. One buys an item because he feels secure with the item. For
example, buying a strong door lock for a house, or putting up a steel gate. Social needs such as love and
belonging have to do with association and a feeling of social acceptability. One may therefore buy a
product just to associate with his friends who use the same product. Esteem or ego needs are higher level
needs that go beyond the basics, and include prestige purchases, or purchasing to suit a certain lifestyle,
recognition, and status. For example, building a very expensive residential house (Palatial Home), or
buying a prestigious car. Self actualization occurs when one has attained his/her full potential in life. Such
people are very difficult to motivate, and require custom made products, such as ordering utensils with
one’s names imprinted onto them, owning a ranch, or belonging to exclusive members clubs.
Perception – is the process to which an individual selects, organizes and interprets
information, inputs to create a meaningful picture of the world. It depends not only on the physical
stimuli but also on the stimuli relation to the surrounding field and on conditions within the
individual. People may perceive the same situation differently because of selective attention,
selective distortion, and selective retention. People are exposed to many stimuli daily and cannot
possibly attend to all these stimuli. They selectively choose some stimuli and ignore the rest. This
means that marketers have to work hard to attract consumers notice.
Selective distortion occurs when twist information into personal pre conceptions . There is
very little that marketers can do about selective distortion.
Similarly, people will forget much of what they learn but will tend to retain information
that supports their attributes and beliefs. One is likely to remember only the good paints about a
product and forget about the bad points. This is selective retention and explains why marketers use
multiple Medias of communication to enhance retention.

Learning: involves changers in an individual’s behavior arising from experience. It is produced

through the interplay of drivers, stimuli, responses and reinforcements.

49
These are also called individual determinants and have a direct influence on consumer behaviour. They
include motivation and involvement, attitudes, personality and self concept, learning and memory, and
information processing
Beliefs and attitudes arise from doing and learning, and influence the buying behavior of the consumer.
A belief is a descriptive thought that a person holds about something. Buyers often hold distinct beliefs
about products or brands based on their country of origin. Certain countries enjoy reputation for certain
goods. For example Japan is renowned for automobiles. If the wrong belief towards a product is held,
marketers must launch a campaign to correct these beliefs.
An attitude is a person’s enduring favorable or infavorabe3l evaluation emotional feelings and action
tendencies towards some object or ideas. Attitudes lead people to behave in a fairly consistent way
towards similar objects. Once a person develops a consistent attitude towards a product, it is very difficult
to change the attitude.

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Personality and self concept: This is the sum total of our mental, physical and moral qualities and
characteristics that are present in us and that make us what we are buying a very expensive wrist watch to
enhance your personality as a man, or putting on an expensive suit to enhance your personality as a sales
executive

Learning and memory: People are able to filter and retain only that information that is of interest to
them. For instance, a student may only remember his own mark if read out in class, but easily forget what
his colleague got.
Information processing
Every consumer has a way of analyzing and processing information received. Consumers assimilate and
evaluate selective information and thus reflect on their motives, attitudes personality and self concept.
This differs from consumer to consumer, and so two consumers can evaluate the same information quite
differently.

External Environmental factors

These do not effect the decision process directly but filter through the individual determinant to influence
the decision making process. They include.
• Cultural influences
• Sub-cultural influences
• Social class influences
• Social group influence
• Family influence
• Personal influence

Cultural influence
This is a complex sum total of knowledge, traditional customs and other habits acquired by people
as members of a society, people from different parts of the world exhibit different culture &
values and beliefs. These exert the broadest and deepest influence on consumers behavior. Culture

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 defines the values and beliefs that are held dear by a group or society, and is transmitted through
generations. It is therefore a fundamental determinant of a person’s wants and behavior.
Each culture consists of several subcultures that provide more specific identification and
socialization for its members. They include, religions, racial groups and geographical regions.
Many of these sub cultures make important market segments and marketers, design products that
meet the needs of these subcultures.
Social classes are relatively homogenous and distinct in societies which are hierarchically
ordered and whose members share similar interests and behavior. Members of a particular class
are different from members of another class, in terms of indicators such as income, occupation,
education and residence.
An individual can move from one social class to another (up or down) during his lifetime
but the extent of the mobility depends on the rigidity of the social stratification within the
particular society.

Sub-cultural influence
They are smaller practices found within cultures for example, among Kenyans, we have sub-cultures for
every community on tribe.
Social class
Refer to the group of people who share equal position in socially, defined by parameters such as income,
education, occupation e.tc. people of the same social class seem to share the same values and belief, they
live in the same estates, take children to the same schools; buy the same products and so on.
Social factors
These include reference groups, family roles and status.
A person’s reference group consists of all the groups that have a direct or indirect
influence on the person’s attitudes or behavior. Groups having a direct influence on a person are
called membership groups. Membership groups may be primary (family, friends, neighbors and
co- workers), or secondary (religious, professional, trade unions). Primary groups are less formal
than the secondary groups.
The family is the most important consumer buying organization in society and family
members constitute the most influential primary reference groups. Each member of the family
influences the buyer decision making process.

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 A person participates in many groups throughout life (such as family, organizations, and
the persons position in each groups can be defined interms of the role and status. A role consists of
the various activities that a person is expected to perform. Each role carries a status for example
being a police inspector carries more status than being a corporal, a sales manager has high status
than a store keeper. Similarly, traveling by air has higher status than rail or road transport. Thus
consumers choose products that communicate their role and status in society.

Social group influences

A group is a collection of people who share the same goals, aspiration and interests. They have a lot of
interaction among themselves and so individuals’ members in a group can influence the behaviour of
other members in the group. They may be primary groups such as a family, or secondary groups which
are more formal in their interrelationships, for example, members of a rotary club
Family influence
A family is the most important group and is the strongest source of influence on consumer behaviour. All
family members, husband, wife, and children, have a big influence on consumer behaviour.

Personal influences
1. Personal factors
Personal factors that influence buyer’s decisions include age and stage in lifecycle,
occupation, economic characteristics, lifestyles, personality and self concept.
Age and stage in the lifecycle influence the buyer behavior because people’s tastes tend to be
related with age. A family’s stage in life also affects the consumption patterns of that family.
A person’s occupation can also influence the consumption pattern of that person. A company
manager may buy expensive suits, travel by air and afford expensive holidays for self and family,
unlike an office messenger who cannot afford luxuries.
Product choice is also greatly affected by ones economic circumstances (availability of spendable
income, savings, assets, buying power and attitude towards spending versus saving)
Marketers of income sensitive goods pay constant attention to trends in personal income, savings
and interest rates.

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 A persons lifestyle is the persons pattern of living in the world as expressed in the person’s
activities, interests and opinions. It portrays the whole person interaction with his or her environment.
A person’s lifestyle has influence on his her buyer’s decision making. Marketers need to match
their products to lifestyles of the groups.
Finally, each person has a distinct personality that influences his /her behavior. Personality is a
person distinguishing psychological characteristics that lead to consistent and enduring responses to
his or her environment. It is described interms of such traits as self confidences, dominance, sociality,
defensiveness and adaptability. Once a marketer knows the main personality traits of his her target
consumers, he/ she can design marketing programs suitable for those traits.
Persons self concept of self image is also an n important determinant of buyer behavior. How does
the consumer perceive him/her self? This is a difficult concept to measure, but marketers should
always try to develop, brand images that match the target markets self image.

REFERENCE GROUP
A Group may be defined as any two or more people who share a set of norms, values or beliefs and have
certain implicitly or explicitly defined relationship with one another.
Groups normally have a clearly defined membership and entries and if one needs to join, he must
conform to the standards of the group. Their values and attitudes have to be appreciated and adopted and
one tends to buy and use the products that the group appreciates.
Groups that are highly homogeneous are more prone to attitude change that those that are less
homogeneous.
Sometimes the groups can excert pressure on the members to conform, for example to buy a certain
product. For instance a choir member may be compelled to buy a particular uniform. There are three
levels of group involvement;
1. Compliance
2. identification
3. internalising

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1. Compliance: members have to comply with the norms and standards, e.g. by paying membership fees
attending meeting or putting on uniform. Thus compliance is through overt or open behavior without any
demand & on the change of attitudes

2. Identification: A deeper relationship not only complies to the standards but also maintains a social
relationship and changes its perception to a great extend for example by strongly identifying with the
group.

3. Internalising: One does not only get deeply involved with the group, but makes an effort to force
others to follow the norms and rules of the organization. For example, one may begin to preach the
religious message to others to convert them to his religion.

A Reference group is a group of people who you refer to when making a decision to buy. It influences
consumer behaviour by building aspirations for the individual and helping him to choose a particular
product or lifestyle. Reference groups include family, close friends, workmates, neighbours e.t.c. They
affect consumers by imparting information and by influencing values expressive needs of the consumers.
Reference groups lay down certain norms, roles or status that is followed by members.
Norms – Unwritten codes or standards of conduct that are assigned to individuals within a group.
Roles – The part played by members e.g. initiator, facilitator, decision maker, the purchaser, or the end
user.
Status – Position of authority one holds in the group
Reference groups can be further divided into four categories depending on the functions they perform,
and their degree of influence.
Normative groups
These are groups that uphold the norms of the group. The norms influence the way one dresses, what he
eats or drinks. Normative influence leads to normative behaviour and occurs when an individual fulfills
group expectations to receive a direct reward or to a used sanction. For example, you may refrain from
wearing the latest fashion for fear of being teased by friends
Comparative reference group

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Groups with whom one compares himself and his attitudes. They provide the basis for validation of
beliefs, values, and attitudes. Consumers need not be in direct social contact with reference group to be
influenced by it.
In the case of comparative reference groups, if values are expressed, they can be practiced and one can
come closer to the group and be accepted by it. This is known as value expressive influence e.g where
drinking is prohibited
Dissociative group
Some individuals want to dissociate themselves from a group. You may want to dissociate yourself from
a dishonest group, or a group whose behaviour you do not approve.
Status reference group
An individual may aspire to achieve the status of the people in a group, for example to become a Kadhi or
a priest just because he likes the status held by Kadhis or priests. One may also want to get the status of a
tour guide and so on. These are aspiration groups.

The influence of reference groups as consumer behaviour is felt through the influence of social power,
which has five bases.
• Reward power – Ability to give rewards in the form of money, gifts or psychological rewards
like recognition
• Coercive power – Ability to give threats or withhold rewards for example, by selling products
that one has to have, for example, a mosquito net to protect oneself from malaria or a good recommended
book to pass an examination
• Legitimate power- linked to cultural group or group values. The power one has because of his
legitimate position in an organization.
• Expert power – the buying behaviour is influenced by the expertise of the people in a group for
example a machine may recommend a good car to a buyer or computer expert recommend a certain brand
of computer
• Referent power – One buys an item or a product that matches his status in society. For example
a manager may want to buy a model of a car that his colleagues have.

Factors that affect the influence of reference groups

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 • Level of knowledge and experience of the individual. If the individual is not informed and is
inexperienced, he will rely on the group.
• Credibility of the group – If the group is very credible, it can exert greater influence on the
individuals behaviour. It can then change the attitudes and beliefs of the consumers.
THE FAMILY
A family comprises the nuclear family (father, mother and children )and the extended family (up to three
generations living together, including uncles, aunts, cousins)
A household contains at least two people who are related by marriage or blood. Changes in family
structures such as the issues of divorce often represent opportunities for markets as normal purchasing
patterns become more activated as people make new choices about products and brands.

There have been major changes in family structures since the mid last century. Consumers have migrated
to urban centres largely due to availability of automobiles, while others have facilitated by high rates of
unemployment a mid high levels of education.
In Kenya, many urban families are now engaged in learning at some level, where in some cases, the
parents, are pursuing college education while the children are in high school. This puts pressure on the
family budget and a certain choices like luxury holidays are no longer common.

Another shift has been in the area of age of the family. Many families are now comprised of people used
35 to 44 years. This makes up nearly 40% of the households in the use, although in Kenya, the situation
may be slightly different. Because people have to spent a lot of their time going through the education
system before they settle down many people have to wait longer before getting married, and this again
has implications for business ranging from catering to cutlery.
Family size
Family sizes have been declining over the years and today, family sizes have dropped to almost 2.6
people, especially in the developed countries. Family size is dependent on such factors as education level,
availability of birth control and religion. Fertility rate is also an important factor and marketers keep a
close eye on the populations birth rate to gauge how the pattern of birth rate affects demand for products
in the future.

Sex of the family head

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There has been an increase of households headed by single person in the last decade, paths due to divorce
or deaths. The number of unmarried adults is steadily rising and likely to continue rising. The spending
pattern for single men and women, is quite different, despite single makes grater incomes, single women
dominate many markets because of their spending patterns. Women spent more on housing related items
and furniture, while men spent more in restaurants and on cars

Living together
There is also a growing trend towards, children living with their parents longer than it was before. This is
particular so with urban parents where even the working (sometimes married) children are still housed by
their parents. Many adults also take care of their aged parents longer than it was before. This trend may
affect the housing and rental business as many young people want to be housed rather than rent house.
Effects of family structure on consumption

Family needs and expenditure are affected by such factors as the number of people in the family, ages of
the family members and number of adults in formal employment. How the couple spends time and money
depends on whether the couple has children and whether the woman works. Couples with children
generally have higher expenses. A couple with young children has a different operating pattern from that
with children in college e.t.c. Families where the woman is working also spent differently from where the
woman is not on formal employment and stays at home with the children.
Marketers are interested in family life cycle (FLC) which deals with changing needs and expenditure
requirements of families. It combines trends in income and family composition with the changes and
demands placed upon the income.
This is particularly valuable in predicting demand for specific product categories over time. Although
many models have been proposed to describe FLC stages, their usefulness has been limited because they
have failed to take into account such important social trends as the changing role of women, childless and
delayed child marriages and simple parent house holds
Four variables are necessary to adequately describe these trends:
-Adult head of household
-Marital status
-Presence or absence of children in the home
-Age of the children

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The definition for marital status must be relaxed to include any couple living together who are in long
term relationship

Household decisions
Two basic types of decision are made by facilities:
1. Consensual purchase decision : The group agrees on the desired purchase and only differs on
how it will be achieved. They will engage in problem solving and consider alternatives until the
means of satisfying the groups goal is attained

2. Accumulative decision making: Recognized that members have different preferences and may
no agree on a purchase that will satisfy the maximum expectation of all involved. There is
therefore bargaining, coercion and compromise to achieve the primary goal of agreement on the
purchase.

Family decisions are often characterized by an accommodative rather than a consensual decision
Many conflicts may occur as relates to purchasing in the household due to such factors as.
• Interpersonal need- depends on a persons level of investment in the group
• Product involvement and utility – degree to which the product in question will be used to
satisfy a need.
• Responsibility – who is responsible for making the funds decision
• Power – the degree to which one family member exerts influence over the others in making
decision.
Traditionally, decision making depended on one of the spouses making the decision for example, men had
the sole responsibility for selecting the car to by, the land, cows e.t.c while women concentrated on
clothing house hold furniture and consumable. Food crops harvested from the shamba was the woman’s
property and could decide when to sell what kinds of harvested food crops. Children made very few
purchase decision.
This trend has changed and today members of the family decide together what is to be bought when it is
to be bought where and how much. Even children participate actively, for example by providing their
school or college requirements to the parents to buy

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The family life cycle stages
A family goes through several stages, each with distinct features and requiring different purchase
decisions. These include;
1. The bachelor stage- young single
- Young and unmarried, can go up to 35 years
- very active, care free and with limited responsibilities
- few if any financial responsibilities
- live with parents, although some are independent
- fond of sports and other recreational activities
2. Newly married couples
Young, no children (empty nest). They lead joint life style and share new experiences and
responsibilities.
Usually have dual income part of which is spent on furnishing and household goods, the rest on
outings, vacations and luxuries
3. Full nest 1
- Young, married with children. A good proportion of spending is concentrated on baby food, clothing
and medical care. Life style changes greatly and most activities revolve around the child.
4. Full nest 2
– older married with children, heavy expenditure on school going children, toys bicycles outings with
children is common. Parents start spending less on themselves
5. Full nest 3
- older married with dependent children. Income is high and parents are experienced buyers. Spent
less on new products
6. Empty nest
– Older married with no children living with them. Financial position stabilizes and there is very
little spending on children. Couple is free to enjoy their own pursuits and spent on luxury and self
improvement.

7. Solitary Survivor

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 - Older single retired people often live alone due to death of a partner. Life becomes lonely and
income may reduce due to retirement. This again changes the consumption pattern and living style of
the old people.

These stages are important for marketers because they are related to spare time, available income
education and so on. Households at different life cycle have different consumption patterns and it is
important to understand these.

ANALYSING ORGANISATIONAL MARKETS AND ORGANISATIONAL BUYING

BEHAVIOUR
‘Treat the customer as an appreciating asset’ –Tom Peters
‘Companies don’t make purchases; they establish relationships’- Charles S. Goodman

INDUSTRIAL MARKETS
The term industrial marketing simply implies marketing that involves industrial products, that is
those products that are produced by manufacturing firms and sold to other organizations or firms rather
than to households. These goods are therefore not meant for consumption by the households, but are used
to facilitate organizational productivity. Industrial marketing thus deals with marketing of goods and
services among organizations as opposed to consumer marketing which deals with individuals and
households. Industrial marketing is engaged (internally) in the process of exchanging semi-furnished

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products, component parts, operating supplies and equipment among the constituent manufacturing
establishment.
To be able to understand the concept of industrial marketing, we consider the movement of industrial
goods from the source to the users. This is given in figure 1. The flow encompasses the movement of
materials from mines as well as the return flow of goods to mines, farms, fisheries and other extractive
enterprises. For example soda ash is mined at Magadi in Kenya and sold for further conversion to soda
ash. Similarly, Athi River Mining, Portland Cement and Bamburi Cement are involved with extraction of
stone that is finally processed into cement. Such firms that are involved in the extraction process are
called Extractive industries. They may start the conversion process or sell the materials to other
manufacturers for further conversion. The final products are finally sold to the consuming or the user
units. The flow thus includes the movement of goods to government, non manufacturing business users,
exporters as well as between units within the manufacturing complex itself. This is so because the
manufacturing firms also need some of the materials, and therefore buy from one another.
Extractive Manufacturing Using and consuming
Industries Industries units
Households
Farms Manufacturer
Mines sales to the
Forests manufacturers Government
Fisheries
Other business uses

Exporters

User side
Supply side

Figure 1: Flow of industrial goods from source to users

The flow involves movement from the suppliers to the users, in which the supply side of the industrial
marketing complex involves manufacturing and mining establishments as the major participants, while on
the demand side are households, government and exporters. In most cases, the producer and users of

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industrial products are linked by industrial middlemen, who include manufacturer branches, merchant
wholesalers, or distributors and agents. Merchant wholesalers are independently owned firms that buy
products from manufacturers and resell them on their own account. Agents represent only sellers, whom
they serve on a commission basis. Brokers also come in to provide essential services, for example by
negotiating and facilitating sales for a commission. Other players include advertising agencies, consulting
firms, transportation companies and financial institutions. Thus, the participants in the industrial
marketing system are linked by both direct and indirect channels. For a direct channel, the producer
controls the distribution by being in direct contact with the consumer. An indirect channel involves
independent middle men who limit the control of the manufacturer can exercise over the marketing of the
products.

RESELLER MARKETS
Organizations that buy goods and services in order to resell them at a profit. Usually middle men
such as wholesalers and retailers. These are Very important in the distribution of goods and services.
Functions of the Reseller Markets (Same functions as retailers and wholesalers)<<<<>>>

GOVERNMENT MARKET
These are government agencies that buy goods and services in order to produce public services or to
transfer these goods and services to those who need them.
They include government departments and public institutions such as universities and hospitals.
The government is a major buyer of industrial as well as consumer goods.

(Define nature of government procurement)

CONSUMER MARKETS
Refers to individuals who buy goods and services for household consumption. They buy fully processed
goods and services for final consumption.
Marketers need to understand the unique characteristics of consumer markets. These markets tend to have
- Very many buyers who buy in small quantities
- The buyer are small usually individuals or households
- They tend to have long channels of distribution characterized by middlemen

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 - The demand for consumer’s goods tends to be elastic and direct.
- The relationship believe buyers and suppliers of a consumer goods and service tend to be less
formed that those for industrial goods.

ORGANISATIONAL BUYING
Organizational buying is the decision making process by which formal organizational establish the
need for purchased products and services and identify, evaluate and choose among alternative brands and
suppliers.

BUSINESS MARKET
This consists of all the organizations that acquire goods and services used in the production of other
goods and services for supply to others. Their characteristics include:
- They deal with fewer buyers than consumer markets.
- Buyers tend to be large. For example, buyers of aircraft are few but large.
- Suitably a few large firms buy cranes.
- There is a close relationship between customers and suppliers in business markets.
- Suppliers are often expected to customize their offerings to individual business customers
needs.
- They are concentrated in large towns and cities.
- The demand for business (industrial) goods is derived from the demand for consumer goods.
For example, demand for skins and hides arise because customers want leather products such as
shoes. Demand for steel metal is derived form demand for steel products such as spoons.
- Business buyers often buy directly from the manufacturers without involvement of
middlemen.
- The total demand for most business (industrial) foods is inelastic i.e it is not affected much by
price changes. It is especially inelastic in the short run because producers cannot make quick
changes in their production methods.
Buying situations:
Buying phases are classified into three categories, namely straight re-buy, modified re-buy, and new task.
• Straight Re-buy- In this case, the problem faced is not a new one, and there is minimum
information requirements with no consideration of alternatives. These are highly routinized as the

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 problem arises on a regular or repetitive basis. It is the most prevalent in industrial marketing, and is
also called automatic reordering. The decision is usually decided at the lower level of management.
• Modified Re-buy – This is essentially characterized as a learning problem which has certain new
aspects, but limited importance of considering alternatives. Such situations are located on the
continuum between straight re-buy (habitual) and new task (complex) decision making. It involves
consideration of new suppliers, items or marketing services, buy buyers who have considerable
relevant buying experience.
• New task – This describes a buying situation in which the problem encountered is a new one.
Information requirements are high and the consideration of alternatives is very important. This
requires top management decision making. It involves buying goods that are very expensive and have
many cost implications to the firm, or the firm is buying material that has not been used before, which
will therefore affect the firms operations.

Participants in the Business Buying Process

In the buying process there are many participants who have face-to-face contact with others with respect
to the purchase decision and who realize or perceive both an influence and a responsibility to a purchase
decision. The main participants are purchasing agents, scientists and managers.
1. Purchasing agents – This includes all purchasing department personnel and other staff who are
responsible for vendor section decisions. Although the purchase process may be routine, the role of
the purchasing agent increases as the organization becomes bigger. He becomes a gatekeeper of the
entire process, and is responsible for the maintenance of good relationship with suppliers. The agent
acts as a catalyst in generating alternative solutions to the purchasing problems. He is responsible for
integrating the various skills involved, such as marketing, legal implications, and finance.
2. Scientists – In the context of industrial purchasing, scientists are people with considerable
education, in areas such as engineering, chemistry, physics, biology and so on. They have
considerable technical know how related to the products. They influence decisions by providing
technical expertise, for example by determining the feasible set based on technical criteria and other
attributes. The feasible set can help in selecting the right suppliers.
3. Managers. Managers are crucial in making decisions based on advice by the technical personnel
and the purchasing agents. The top level managers make decisions based on the more complex and

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 important purchases, while lower level managers make decisions related to lower and less important
purchases.

In general, the main tasks played by the participants place them into the following:
1. Users – those who will use the product. They may influence the product development
specifications, because they know exactly what they need in a product.
2. Gatekeepers – These control information to be received by other members of the buying centre.
This may be done by releasing printed information or restrictively authorizing those to release
information.
3. Influencers – They influence decisions by providing vital information on alternatives. This may
relate to technical aspects, quality control and so on. They are very well informed about the market
and know where to get which products and at what conditions.
4. Deciders – those who actually make the buying decisions, whether or not they have formal
authority to do so. The overall authority may lie with the top executive, depending on the product.
5. Buyers – the buyer has formal authority a selecting a supplier and for implementing all the
producers.

To target their efforts properly, business marketers have to figure out

- The main decision makers
- The decisions they make
- Their level of influence
- The evaluation criteria they use.

Major influences on industrial buying behaviour

1. Environmental
- Level of demand
- Economic outlook
- Rate of technological change
- Political and regulatory developments
- Competitive developments
- Social responsibility concerns

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2. Organizations factors
- Objectives
- Policies
- Procedures
- Organizational structures
- Systems
3.Individual factors
- Age
- Income
- Education
- Religion
- Personality
- Attitude towards risk
- Culture

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 ANALYSING COMPETITORS

Competition can have both positive as well as negative effects on a company’s market opportunity. For
example, competition can cause an entire market to flow through market development, which results from
more people becoming aware of the product, and therefore more people buying the product, thereby
increasing total sales for the entire industry.
But competition limits market opportunity for individual companies. Firms try to enhance their
competitive position by using appropriate marketing strategies, and as long as the company has a stronger
competitive position than the others, it will expand its market share while that of the weaker firms is
reduced. It is therefore important for marketers to analyze competitors in the market in which they
operate. A good starting point would be to identify the competitors

IDENTIFYING THE COMPANY’S COMPETITORS

You cannot deal with a competitor you do not know.

Need to know the name of the competitor, the physical location and address, age and size of the
competitor. It is important to know whether the competitor is -multinational
or indigenous, and the ownership status. Strengths and weaknesses of the competitors are also very
important
Competition – this can have both positive as well as negative effects on a company’s market opportunity.
For example, competition can cause an entire market to flow through market development, which results
from more people becoming aware of the product, and therefore more people buying the product, thereby
increasing total sales for the entire industry.
Competition limits market opportunity for individual companies. Firms try to enhance their competitive
position by using appropriate marketing strategies, and as long as the company has a stronger competitive
position than the others, it will expand its market share while that of the weaker firms is reduced.

IDENTIFYING THE COMPETITOR’S STRATEGIES

Competitors use different strategies, and it is impossible to deal with a competitor whose competitive
strategies you do not know. The strategies may depend on the competitor’s strengths, weaknesses,
opportunities and threats . Competitors make many strategies depending on the market situation in which

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they operate. Competitors make many strategies depending on the market situation in which they operate,
the management level, and the life stage of the market

Corporate Marketing Strategies

These strategies try to carry out the organization missions and objectives by specifying how to attain them
thro’ strategic program. They focus on the entire organization and objectives include expanding market
share, entering new market or exiting from the market. The organization, given specific objectives might
come up strategic program with goals as follows.
Gaining initial foothold – the company would introduce new products to gain a foothold.
Penetrating the market – firm would have program directed toward achieving some specified level of
market share.
Vertical integration – A firm would take an activities usually done by others, for example a manufacture
opening do his own retail outlets, or a company marketing products under its own brand name, as is now
happening with most supermarkets in Kenya – while they are branding bread, rice and so on.
Horizontal integration – when a company buys out competitors or opens its own competing divisions in
the same line and level of business.
Exiting from the market – this occurs when products become unprofitable and requires program to
achieve planned exit from the market.

DIVISIONAL MARKETING STRATEGIES

These are strategies developed by the strategic business units (SBUs) typically, each SBU
- Is a single unit with separate and distinct missions
- Controls its as our resources
- Has a top management team in charge of its operations
- Faces distinct markets and competitors
Each SBU therefore develops its own strategies which must not be in conflict with the overall enterprise
goals, and may adopt any of these general types of strategy: maintenance, contraction, expansion .
Maintenance – seek to maintain the status quo, i.e. to retain the current market there, market position,
image, and reputation. This is appropriate when existing markets and products are well defined and the
organizations current approaches only need minor adjustments. The emphasis is on ‘control’ in order to

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get more from the same program, by making only minor adjustments on price, distribution, and enhance
on sales efforts.

Contraction strategies – used when an organization plan to retreat from existing markets and products,
usually through retrenchment, divestiture, liquidation or bankruptcy. Sometimes a maintenance strategy is
adopted before contraction, for example by deciding not to invest further in an SBU but just maintain the
status quo before liquidating the unit.

Expansion strategies – this range from managing existing products better to adding new products, and
from reaching existing markets to cultivating entirely new markets. They are the most popular by far, as
management wants to add products, enter new markets, and generally grow and diversify. Major
expansion strategies are categorized as
- Market penetration
- Market development
- Product development
- Diversification
-

Existing products New Products

Existing
Markets

Market Product
Penetration Development

Market Diversification
Markets

Development
New

Fig: Product/market expansion matrix: source Laser, marketing mgt Pg. 140

1. Market Penetration – refers to existing products and existing markets. The organization tries to expand
by gaining greater dominance in markets it already serves. This may be done by encouraging existing
customers to buy more than before, or by winning customers from competitors. It may also be done by
reaching customers who have not tried the product before.

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2. Market development – an organization sells existing products in new markets. This may include
expanding into geographically new locations, or finding new uses for existing products. For instance, a
manufacturer may slightly modify products to suit new markets, which is less risky.

3. Product development – this strategy involves marketing new or improved products in existing markets.
For example, Boeing followed this strategy in developing its new Boeing 767. It is more risky more
involving and more expensive than the other strategies; yet all firms at one time or another must
undertake this strategy in order to survive and grow. In adopting this strategy, the firm must decide
whether they want to lead or follow, and in which market segments. It must also decide whether to
select the entire market as its relevant market and challenge all the competition, or to start with only
certain segments or narrow market niches before expanding to the entire market.

4. Diversification – Diversification strategies deal with developing new products for new markets. It can
be a high risk strategy especially considering that it involves both new products and new markets. Some
of the goals for diversification are
- To survive - To prompt competition
- To grow - To enter new market segments
- To increase sales volume - To gain market share
- To spread risks
Diversification has application in the following
• Concentric diversification – an organization expands its core business into new but related
products and markets. For example, are motor vehicle insurer may include road rescue services as
is the care with premier road Rescue Company.
Similarly a manufacturer of soaps and detergents may include production of cooking oil.
• Conglomerate diversification – involves adding new product lines and whole new companies
which may not relate to the organization lines and markets, but because they promise increased
opportunities to offset seasonal fluctuations and help spread risks. An example is the Securicor
Company that has added courier services to its services. Most commute services in Kenya e.g.
Akamba and Coast Bus Services also have included Courier services among their services.

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• Horizontal diversification – a business unit adds new products in the same general line or industry.
For example, a fish, chicken and chips cafeteria may add pop corns to its lines of offerings. It may
also be achieved by a company purchasing or controlling companies in the same line of business.

• Vertical diversification – an organization adds new products new markets by moving backwards
or towards in the manufacturing or distribution system. For example when oil refiners mine coal
and produce petroleum based chemicals, they diversify vertically. A manufacturer may also
undertake services previously handled by others, for example, a manufacturer undertakes
distribution and selling of his products instead of rising distributors and wholesalers.
The basic objective is to improve procurement or marketing while lowering the cost of needed
products and ensuring their availability.

The development of marketing strategies is a continuing, dynamic process which entails a

sequence of decisions, assessment of the competitors more, and development of counter strategies.
To be effective strategies should be articulated clearly and precisely enough to give direction.
The appropriate strategies should be carefully selected, taking into new firm’s perceived
opportunities, resources, its missions and objectives, and its markets and competition.
Management should be a firm grasp of the firm’s resources, missions and objectives.
The figure below shows the ranking of the strategies most likely to be used under growing and
declining market conditions and weak and strong competition.
Growing Markets

Concentration
Concentration Vertical integration
Horizontal diversification Concentric
Concentric diversification diversification
Vertical integration Horizontal
diversification
Weak Competition Strong Competition

Retrenchment
Conglomerate Concentric diversification
diversification
Conglomerate diversification
Divestiture
Liquidation Joint venture into new markets
Bankruptcy

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 Declining Markets

MARKET ENTRY STRATEGIES

In entering a new market, a firm can use several strategies.
Pioneer Strategy
This takes a very high risk and probably experiences more failures than other strategies, but if successful,
the reward is very handsome. One can always try to sustain competitive advantage once he becomes the
first to enter a market. Some of the potential sources of competitive advantages available for pioneers
includes:
- First choice of market segments and positions
- The pioneer defines the rules of the game
- Economies of scale and experiences
- Distribution advantages
- Early switching costs for early adapters – those who become first customers find it expensive to
switch to others.
- Possibility of preempting scarce resources and suppliers.
- Influence on consumer choice criteria and attitudes.

Follower strategy
Sometimes a firm may, either deliberately or by default, allow itself to be beaten to a new product by
quicker competitor.
Possible advantages of being a follower include:
- Ability to take advantage of the pioneer’s positioning mistakes
- Ability to take advantage of the pioneer’s product mistakes
- Ability to take advantage of the pioneer’s marketing mistakes.
- Ability to take advantage of the latest technology
- Ability to take advantage of the pioneer’s limited resources.

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Research evidence suggests that a pioneering firm stands the best chance for long term success in market
have leadership when
- There are strong barriers to entry by competitors at least for a while.
- The firm has sufficient size, resources and competences to take full advantage of its pioneering
positions.
Such successful pioneering firms tend to support their early entry with one or more of the following
marketing strategy elements.
- Large entry scale
- Broad product line
- High product quality
- Heavy promotional expectations

STRATEGIC MARKETING PROGRAMS FOR PIONEERS

There are three different types of pioneering strategies.
- Mass market penetration
- Niche penetration
- Skimming and early withdrawal

• Mass market penetration – The primary objective is to capture and maintain a commanding share of
the total market for the new product. It aims at convincing as many customers as possible to adopt the
new product so that units costs are reduced, and to build a large pool of loyal customers before
competitors enter the market.
• Niche penetration – this works for small firms that may not wish to capture the entire market, but
focuses effort on a single market segment. It is particularly attractive when there are few barriers to
the entry of major competitors and when the pioneer has only limited resources and competencies to
defend any advantages it gains through early entry.
• Skimming and early withdrawal – this involves setting a high price and engaging in only limited
advertising and promotion to maximize profits and recover the products’ development costs as
quickly as possible, by the time competitors come into the market, the firm is ready to move into new
segments of the market, or to re-launch the product at a high level of technology.

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 STRATEGIES FOR GROWTH MARKETS
Strategies for pioneers (Leaders)
In a growth market, the market leaders, usually the pioneer, would like to maintain and expand its
market share, and will therefore have three main objectives.
- To retain the current customers
- To stimulate selective demand among later adopters
- To stimulate primary demand to help speed up overall market growth.

The following strategy may therefore be used

1. Fortress (Position defense) strategy
The firm builds up very strong defense to repel attack by current and future competitors. The firm
tries to increase satisfaction, loyalty and repeat purchase among current customers by building on
existing strengths. It also appeals to late adopters with same attribute, and benefits offered to early
adopters.
2. Flanker strategy
This involves developing a second brand (fighting brand) to compete directly against the challenge’s
offering. The purpose of the fighting brand is to shield the firm’s main brand from the competitor, and
is often a lower quality product designed to appeal to a low-price segment. It is always used in
conjunction with a position defense strategy, in which the leader simultaneously strengthens its
primary brand while introducing a flanker to compete in segments where primary brand is vulnerable.
E.g. Toyota introduced the Lexus brand of automobiles as a flanker.
3. Confrontation strategy
This involves taking on a competitor head to head to prevent the competition from taking away the
firm’s customers. With a good intelligence system, the firm can detect competitors and quickly
proactively change its marketing program before a suspected competitive challenge comes. A
confrontational strategy tends to be reactive in that the leader usually lives to meet or beat the
attractive features of the competitor. This may be done by making product improvement, increasing
promotional efforts, or lowering prices. However, this does nothing to re-establish a sustainable
competitive advantage for the leaders. Further lowering prices may depress profit margin the firm
may therefore adopt a penetration pricing policy and try to re-establish the competitive advantage
eroded by the challenges frontal attacks.

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 4. Market expansion strategy
This is a more aggressive and proactive version of the flanker strategy. The leader defends its relative
market share by expanding into a number of markets segments. The primary objective is to capture a
large share of new customer groups who may prefer something different from the firms initial
offerings, protecting the firm from future competitive threats from a number of directions. This may
be done by developing line extensions, new brands, or alternative product forms utilizing similar
technologies to appeal to multiple market segments.
5. Contraction or strategic withdrawal
In some cases, the leader may be unable to defend itself in some segments, especially when the newly
emerging competitors have more resources than the leader. The firm may have to reduce or abandon
its efforts in some segments to focus on areas where it enjoys the greatest relative advantage, or in
areas that have the greatest relative advantage, or in areas that have the greatest potential for growth.

SHARE GROWTH STRATEGIES FOR FOLLOWERS

Followers usually come into the market after the pioneers. Their main objectives would therefore include:
- To eventually surpass the leader by capturing a dominant market share.
- To seek to build a small but profitable business within a specialized segment of the larger market
that the pioneer may have overlooked.
- To attain a share growth and become a major challenges to the pioneer.

Followers may adopt the following share growth strategies

- Frontal attack
- Leapfrog strategy
- Flanking attack
- Encirclement
- Guerilla attack

An important initial decision that must be made is to decide who to attack, especially if more than one
competitor exists. Options include:
- Attacking the market share leaders within its primary target market – either frontal assault or
leapfrog strategy.

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 - Attacking another follower who has an established position within a major market segment –
usually by frontal assault
- Attacking one or more smaller competitors who have only limited resources – involves
eliminating the small competitors one at a time to finally gain market large share.
- Avoid direct attacks on any established competitor – involves either flanking or an encirclement
strategy.

Frontal Attack
In situations when the market is relatively homogeneous with respect to customers’ needs and few
untapped segments, and at least one established competitor. This is likely to succeed when most existing
customers do not have strong brand preferences or loyalties. If the challengers have a cost advantage, it
can cut prices to attract customers from the competitor, or it can maintain the same price but engage more
extensive promotion. This can only work if the challenger has offsetting advantages (otherwise the
competitor will similarly lower prices) such as more advanced technology. The best way for a challenger
to effectively implement frontal attack is to differentiate its products or associated services in ways that
better meet the needs and preferences of many customers.

Leapfrog strategy
This is an attempt to gain a significant advantage over the existing competition by introducing a new
generation of products that significantly out perform existing brands. The challenges seek to attract repeat
purchasers from competitors customers by offering product that are more attractively differentiated than
the competitor. Superior to that of established competitors, and must have the already adopted that the
new products offers sufficient benefits to justify the cost of switching.

Flanking and Encirclement strategies

These seek to avoid direct confrontation by focusing on market segment whose needs are not being
satisfied by existing brands and where no current competitor has a strongly held position.

Flank attack
Appropriate when the market can be broken down into two or more large segments, when the competitors
hold a strong position in the primary segment, and when no existing brand fully satisfies the needs of

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customers in at least one other segment. The challenger may concentrate on one large untapped segment,
by developing product feature tailored to the needs and preferences of the targeted customers, together
with appropriate promotional and pricing policies to quickly build selective demand. A challenger can
sometimes meet the special needs of an untapped segment by providing specially designed customer
services or distribution channels.

Encirclements
This involves targeting several small untapped segments in the market simultaneously. The idea is to
surround the leaders brand with a variety of offerings aimed at several peripherals segments. It involves
developing a varied line of products with features tailored to the needs of different segments. For example
Cadbury Schweppes has avoided direct confrontation with Coca-cola and Pepsi in the soft drinks industry
by offering a wide variety of flavours such as cream soda, ginger ale etc, which lack the color and appeal
to small groups of customers with unique tastes. E.g. BIDCO uses prestige to attack BB of Unilever.

Guerrilla Attack
Involves making a series of surprise raids against the more established competitors, especially when the
competitors are already very well established in all the major segments. The challenger should use
guerrilla attacks sporadically, perhaps in limited geographic areas where the competitor is not particularly
well rooted. This may include sales promotion efforts, or short term price cuts. Sometimes several smaller
competitors may also bring lawsuits against the leader on a number of activities in order to slow down the
leader’s expansion by diverting some of its resources and attention.

STRATEGIES FOR MATURE AND DECLINING MARKETS

Although many managers tend to concentrate on growth related objectives (such as increasing sales
volume or market share), there is a major challenge on how to deal with mature and declining markets.
This is particularly so in the developed countries where many firms have reached maturity.
During transitions from growth to maturity, there is often a shakeout during which weaker businesses fail,
withdraw from the industry, are acquired by other firms. Business that survive the shakeout face new
challenges as the market growth stagnates. A primary objectives of all competitors in the mature markets,
is simple to hold their existing customers – to ensure they are satisfied and loyal. A share leader in such a

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market might build on a cost – or product differentiation and aim at increasing volume by encouraging
current customers to buy more of the product.
In the declining market, the main challenge is whether to divert or liquidate the business. It may be
universe to support a dying product for too long at the expense of current profitability. However, an
appropriate strategy can produce substantial sales and profits even in a declining market.
MARKETING STRATEGIES FOR MATURE MARKETS
The objectives during the maturity should be to sustain the sales by extending the market life cycle, with a
possibility of moving into a period of renewal growth. Thus, stimulating additional volume growth can be
an important secondary objective. The main strategies that can be used include
- Penetration strategy
- Extended use strategy
- Market expansion strategy
Increased penetration strategy. This is concerned with finding out why non users are not intended in the
product, and then enhancing the products value by adding new feature, benefits or services. The firm can
also stimulate additional primary demand through promotional efforts targeting non users. The firm can
also increase its distribution as some non users may not have access to the product.

Extended use strategy. This works best in situations of good penetration but low frequency of use. It
can be done by:
- Moving storage of the product closes to the point of end use, for example, by opening a hostel
near a university, or piling up store for sale near a construction site.
- Encouraging larger volume purchasers especially for non perishable, by offering quantity,
discounts or having large volume packages, of packing rice in 5kg instead of 1kg or sugar packed
in 2kg not one 1kg as Mumias has been doing.
- Reminder advertising to remind customers to use the product no frequently.
- Extending use among current customers by finding and promoting new functional uses for the
product.
Market expansion strategy – this can be done by exploring new opportunities either wthin the domestic
geographic markets or globally. One may do this by developing differentiated positions focused on
untapped or undeveloped segments by:

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 - Building unique distribution channels to more effectively reach potential customer in untapped
segments.
- Developing multiple line extensions or brand offerings with features targeted at the unique needs
of the target customers.
- Entering global markets where product category is in an earlier stage in its life cycle.

STRATEGIES DECLINING MARKETS

For a declining market, conventional wisdom dictates that firms should either divest declining products
quickly or harvest them to maximize short term profits. However, not all markets decline in the same
way, hence the appropriate strategy should be dictated by the relative attractiveness of the declining
product and the market and business competitive position within it. Three sets of factors help to dictate
the strategic attractiveness of declining product markets:
• Conditions of demand – decline in demand may be due to different factor such as technological
advances that result in substitute products, demographic shifts, changes in consumer needs, tastes
and lifestyles etc. reasons for decline need to be known before coming up with a appropriate
strategy.
• Exit barriers – when there are high exit barriers, weaker competitors will find it hard to exit,
thereby creating excess capacity as demand falls. Firms will therefore engage in aggressive
pricing or promotional efforts to try and maintain their volume and hold down unit costs.
• Intensity of future competitive rivalry - Even when there is a likelihood of continued demand in a
declining business, it may not be wise for the firm to pursue it in the face of future intense
competitive rivalry.

STRATEGIES USED
Divestment and Liquidation
This involves selling the business to recover some of the investments. It should be done quickly as
possible before buyers are certain about the future direction of the demand pattern in the industry.
However, a firm that divests early runs the risk that is forecast of the industry’s future may be wrong.
Further divestment may not be easy where exist barriers are high.
Competitors that refuse to divest and choose to remain in the declining market can adopt the following
strategies:

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 1. Harvesting strategy – this is also called milking, and aims at generating cash quickly by
maximizing cash flow over a relatively short term. It is done by avoiding additional investment
and reducing operating expenses, and perhaps raising prices.
This works best if the firm holds a relatively strong competitive position in the market at the start
of the decline, or when competition among the remaining competitors is not likely to be strong.
2. Maintenance strategy – Done in situations where future direction and attractiveness are hard to
predict. A business with a leading share will try to maintain that share, at least until the markets
future becomes more predictable. This often results in reduced margin and profits in the short term
as the firm usually must reduce prices or increase marketing expenditures to hold the share in the
face of declining industry volume.
3. Profitable survivor strategy – A business with a strong share position and as sustainable
competitive advantage may decide to make more investment to increased its share positions and
establish itself for the remainder of the markets decline. The firm might encourage smaller firms
to abandon the business by being visible and explicit about its commitment to become the leading
survivor. It should aggressively seek increased market share either by cutting prices or by
increasing advertising and promotion expenditures.
4. Niche Strategy – the firm identifies one or more of the segments that remain as stable pockets of
demand as other segments decline. The firm then focuses on this segment by developing a strong
competitive position in the segment.

DETERMINING THE COMPETITOR’S OBJECTIVES

Competitors often have multiple objectives such as profit maximization, market share growth, cash
flow, technological leadership, customer satisfaction, etc. It is important to know what weight is attached
to the various objectives as so as to know what objective is more important. This will enable the
company to know how the competitor is likely to react to different types of competition attack. For
example, a company that pursues low cash leadership will react more strongly to a company that has
significantly reduced its costs.

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 A competitor objectives are shaped by many things, including its size, history, current management,
financial situation, and place it occupies in the larger organization. If the competitor is not very strongly
tied to the parent company, it is easier to attack than if it is a very critical company to the parent company.

A company must also monitor its competitor’s expansion plan in order to develop strategies that
counter the expansion.

ASSESSING COMPETITOR’S STRENGTHS AND WEAKNESSES

Strengths and weaknesses relate to the internal environment of the firm. A company should gather
sufficient information on each competitor’s business, including data on sales, market share, profit margin,
return on investment, cash flow, new investment and capacity utilization. Most of this data is within the
company therefore difficult to get.
Knowing a competitor’s strengths and weaknesses helps the company to know the best strategy to
adopt in dealing with the competitor. Some companies have resorted to bench marking their most
successful competitors. This involves more closely monitoring the competitor’s market share
performance in relation the company’s market share.

ESTIMATING THE COMPETITOR’S REACTION PATTERNS

It is important to have some idea as to how the competitor is likely to react to other companies
strategies (such as price reductions or product introduction). Each company has its own philosophy of
doing business, corporate culture, beliefs and values that guide it. A deep understanding of a competitor’s
mind-set helps a company to anticipate how the company might react or act.
There are four main categories of competitors:

- The laid back competitor

This competitor does not react quickly or strongly to a rival’s move. This may happen if the
competitor thinks he has loyal customers, is milking the business, is slow in noticing the move or lacks
the funds to react. Rivals must try to assess the reasons for the competitor’s laid back behaviour.

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- The selective competitor
This reacts only to certain types of competitors and not to others. For example, the competitor
may respond to price cuts but not to promotional appeals. Knowing what a key competitor reacts to give
its rivals a cue as to the most feasible lines of attack.

- The tiger competitor

Such a competitor reacts quickly and strongly to any assault on its terrain. Such a competitor
carefully monitors its rivals and gathers information on the rival’s likely attacks and prepares to react
immediately on the assaults.

- The Stochastic competitor

This kind of competitor is rather unpredictable. The reaction depends on the situation and the
competitor may or may not react to assaults. The response may depend on availability of resources
and the prevailing circumstances.

DESIGNING THE COMPETITIVE INTELLIGENCE SYSTEM

A company needs to have a well elaborate and cost effective intelligence system that facilitates
quick response. Everyone in the company needs to be able to quickly detect any sensitive competitive
information and pass it on to the right authorities for relevant response.
Designing a good competitive intelligence system involves 4 main steps.

Setting up the system.

This involves identifying the main types of competitive information, identifying the main sources of
the information and assigning a person who will manage the system.
Collecting the data.
The data is collected on a continuo’s basis from the field (usually by the sales personnel), trade
associates and research firms, from competitor’s employees, from published data (government records)
and by observing the competitors behaviour. The company should as much as possible use legal and
ethical means by collecting data.

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 The company has to develop effective ways of acquiring needed information about competitors
without violating legal and ethical boundaries.

Evaluating and analyzing data;

The data should be cleared for validity and reliability, interpreted and organized. Various statistical
tools exist for data analysis . It may involve quantitative as well as qualitative techniques, descriptive and
interpreted statistics.

Disseminating information and responding

This involves sending key information to relevant decision makers including managers so as to know
how to respond.

Some companies have intelligence departments that specialize with market intelligence while others
( especially small ones) assign specific executives to watch specific competitors.
It is also important to know that the intelligence systems are expensive to maintain and companies
should try to match the cost such systems to their profit objectives.

SELECTING COMPETOTORS TO ATTACK AND AVOID

Having a good competitive intelligence system should enable a company to identify the competitors
that it can attach and ones that it should avoid. The company should carefully asses its own strengths
and weaknesses and weighs them against those of the competitors.
In doing this the company needs to carry out customer analysis to reveal its strength and weaknesses
relative to those of the competitors.
The aim is to determine the benefit that customers in a target market want and how they perceive the
relative value of competing suppliers offer. Once they have done that the company can focus its attack on
one of the following classes of competitors:

Strong verses weak competitors

Whereas a company would want to attack the weak competitors ( they need fewer resources to
attack). It is also important to try and attack the strong competitors in order to keep up with the
state of the art. Furthermore even the strong competitors have some weaknesses.

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Close verses distant competitors
It is important to carefully assess whether to attack competitors that are closest to you or the ones
that are far and different. Attacking ( and destroying) competitors that are very close ( or similar)
to you may open stronger external competitors that may be difficult to deal with. It may be
advisable to spare competitors that are closest to the company because they are easier to deal with.

‘Good’ versus ‘bad ‘ competitors

Every industry has Good’ and ‘bad ‘ competitors. It is therefore imperative that a company should
attack its bad competitors and support its good competitors.
Good competitors are those that play the industry’s rules, make realistic assumptions about the
industry, set reasonable prices in relation to costs and generally engage in ethnical practices.
They help in improving industry bargaining power, acquisition of new technology and increase
the total demand.
Bad competitors violate the rules they try t buy the share rather that earn it, take large risks and
invest in overcapacity.

BALANCING CUSTOMER AND COMPETITORS ORIENTATIONS

A company needs to create a balance between the attention it gives to its customers and that it gives to
competitors. A company can become so competitor centered that it looses its customers focus. Similarly a
company can become so customer centered that it looses competitor focus.
A competitor centered company is one whose work is basically dictated by competitor’s actions and
reactions. This helps the company to develop a fighter strategy. However this may make the company fail
to move towards its goals as it moves will depend on what its competitors do.
A customer centered company focuses more on customer developments in formulating its strategies.
Such a company is in a better position to identify mew opportunities and use a strategy course that makes
sense. Monitoring customer needs enables the company to decide which customer groups and emerging
needs are the most important to serve given its objectives and resources.

In practice today’s companies must carefully monitor both customers and competitors.

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 IDENTIFYING MARKET SEGMENTS AND SELECTING MARKET TARGETS

“Small opportunities are often the beginning of great enterprises”

MARKET SEGMENTATION
Segmentation involves subdividing the market into distinct subsets of customers who are relatively
homogeneous, so that specific marketing mix strategies can be developed to secure each segment. To be
useful to a marketer, a segment should be
• Sufficiently large (so that it can provide a sustainable market)
• Accessible (This ensures that the supplier can easily reach the customer) Accessibility is
viewed from the point of view of infrastructure (transport) as well as communication
(telephone, internet and so on)
• Have a potential for growth ( should have clear indicators for sustained growth)
• Measurable - Degree to which size and purchasing power of buyers can be measured.
• Action able- Degree to which effective programmes can be designed for attracting and
serving a market segment.

It can be done at different levels

- Segments
- Niches
- Local Areas
- Individuals
In order to be able to clearly understand these we first define mass marketing.

Mass Marketing: The seller engages in the mass production, mass distribution and mass promotion of
one product for all buyers. It tends to create the largest potential market, which may increase economies
of scale which can translate into either lower price of higher profits.

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Segment Marketing: A market segment consists of a large identifiable group within a market. A
company dealing with segment marketing recognizes that customers are different in terms of their wants,
buying attitudes, geographical locations and purchasing power.
However the company does not customize its offerings but tries to isolate some broad segments that
make up a market. Segmentation marketing is the midpoint between mass marketing and individual
marketing.
Consumers of a particular segment are assumed to be similar in their wants and needs although not
identical. Thus members of a particular segment may need specific attention.
Segment marketing enables a company to create more refined product service offerings and price
come up with appropriate price, distribution and promotion programs suitable for the target market.

Niche marketing: A niche is a more narrowly defined group than a market segment. Within a market
segment, there may be some members whose needs are not being met. These groups are identified and
specific program designed to serve them. Niche marketers presumably understand their niche so well
that their customers are willing to pay a price premium. A good niche is one whose members have a
distinct and complete set of needs which the firm tries to serve. The niche is not likely to attract other
competitors, and the niche has sufficient size, profit and growth potential.

Local marketing: There is a growing trend towards regional or local marketing, with marketing
programs being tailored towards the needs and wants of local customer groups.
There is emphasis on local customer groups, for example developing products for the coast province,
the rift valley province or the east African market. This enables the company to concentrate on the
localized market especially where resources do not allow it to go global. The main limitation to this
kind of approach is that it reduces economies of scale which lower the profit margins.

Individual marketing: This is essentially a one to one approach in which a company identifies one
customer and concentrates on that customer. This customized marketing in which a firm makes products
that are tailor made to suit certain customers only. For example a company that makes graduation gowns
for a university or police uniforms for the police force.

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Self marketing: this is a form of individual marketing in which the individual customer takes more
responsibility for determining which products and brands to buy.

MARKET SEGMENTATON PROCEDURE

There is no one common procedure for segmentation. However there is a three step approach that is
commonly used.

Step one : Survey Stage

This involves conducting exploratory surveys among consumers to gain a deeper understanding of the
consumer behaviour, attitudes, and motivations. Data is collected regarding product usage, brand
awareness, demographic geographic and psychological variables.

Step two : Analysis Stage

The researcher applies factor analysis to remove highly correlated variables, then cluster analysis to
create a specified number of maximum different segments.

Step three : Profiling Stage

Each cluster is profiled in terms of its distinguishing features such as attitudes behavior,
demographics, and psychographics and media patterns. Each segment is then given a name based on a
dominant distinguishing characteristic. Market segmentation must be done periodically because market
segments change with time. This is because the segment comprises of dynamic customers whose behavior
patterns keep changing.

BASIS FOR SEGMENTING MARKETS

Market segmentation may be based on two bases:
1. User – oriented : This includes such categories as location (geographic), demographic,
psychographic and behavioural.

2. Product usage : Under this system we have such categories amount of use, time of use, place
of use.
We will explain these categories below:

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 1. Geographic Segmentation : Market divided into different geographic units such as regions or
countries. For example selling fish in Nyanza province, as exporting tea to Pakistan.

2. Demographic Segmentation: Based on such variables as:

2.1 Age – some products like cigarettes are meant for mature people; which children may
like toys.
Life styles – some people prefer certain lifestyles for example, use of dark sun goggles.
Occupations A marketer may target people of certain professions. Such as teachers, managers, sailors,
drivers, photographers etc. These have different needs.
Religious – Christians, Muslims etc.
Sex – ladies or gentlemen.

1. Psychographics – Based on the social class, lifestyles or personality of the individuals.

2. Behaviour – buyers divided on the basis of their knowledge, attitude or response to a product.
3. Usage – Based on consumption patterns. We have large scale and small scale purchasers.
4. Loyalty Segmentation – on the basis of loyalty to certain products.
5. Occasion Segmentation – based on occasions such as success cards, x-mas cards and other
seasonal cards for a specific occasion.
6. Benefit Segmentation – Focuses on reason for seeking a product – Producers can design products
according to different benefits.

For industrial goods, the main criteria of segmentation include

1. Demographic
- Industry - what industry to serve: agricultural
- Company size – Small , medium, large
- Location – geographical location
2. Operating variables
- Technology – what customer technologies should we focus on
- User /non user status – heavy medium, light or nonusers.
- Customer capability- whether to serve the customers requiring many or fewer services.

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3. Purchasing approvals.
- Purchasing a function organization – whether to serve an organization whose functions are
highly centralized or one whose functions are decentralized.
- Nature of existing relationships, whether to serve companies with which we have strong
relationships or simply go after the most desirable companies.
- General purchase policies – should we serve companies that prefer leasing, service
contracts or sealed biddings.
4. Situational factors
- Urgency – so we serve companies that need urgent delivery
- Specific application – whether to focus on specific applications of products or all
applications.
- Size of order – should we focus on larger or smaller orders.
5. Personal characteristics.
- Buyer – seller similarity – should we serve companies whose people and values are similar to ours?
- Attitude towards risk – should we serve risk taking or risk avoiding customers?
- Loyalty – should we serve companies that show high loyalty to their suppliers?

Multi attribute segmentation (geo clustering).

Many markets do not just consider one attribute with a segment, but consider several variables in an
effort to identify smaller, better defined, targets groups. Geo clustering yields richer descriptions of
consumer than traditional demographics because it reflects the socio economic status and lifestyles of
consumers and their neighborhoods.

Targeting multiple segments

A situation is which a company starts by targeting one segment , then expanding into other segments.
This is a very good entry strategy for young and small companies. It enables the company to gradually
gain market share as it grows.
This is also useful when the company does not have sufficient resources to enter multiple segments.

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MARKET TARGETING

This involves evaluating and selecting one or more market segments to enter. This should
be based on their current use, their potential for future growth, competitor’s strength and so on. The
segment should be large enough to provide good market and should have good potential for growth. In
approaching the target segment, one can use several criteria, which include:
1. Current segment size. It is very important to consider the size of the market, because this has a
bearing on the customer base. The concern should not just be the number of customers in a
segment, but their sizes as well, the volume of purchases made by each customer and the
frequency of purchases.
2. Potential competition. This is important, because it will dictate the intensity of competition to be
experienced by the firm, either now or in the future.
3. Compatibility with company goals. The target segment should be compatible with the goals of the
firm. Market practices in the target segment should not be at variance with those of the firm,
otherwise there will be conflicts.
4. Undifferentiated marketing- The firm ignores segment differences and develops a single
marketing program common to all buyers within the market.

There are four main types of targeting, namely differentiated marketing, undifferentiated marketing,
concentrated marketing and niche marketing. In differentiated marketing, the firm offers a product to a
number of different segments whose needs, product usage or responses are significantly different. For
instance, some may be heavy consumers, while others are light consumers. Undifferentiated marketing
involves offering a product to a number of different segments whose needs, product usage or responses
are not significantly different On the other hand, concentrated marketing is a situation in which a firm
chooses to concentrate on one or a few markets due to limited resources. Finally, niche marketing is a
situation in which a firm segments the market into fines, more homogeneous clusters than that which is
normally approached traditionally. This enables an organization to provide products to buyers who are
seeking specially tailored products to suit their needs.

PRODUCT POSITIONING

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Positioning is process by which a company establishes an image for its, product in the minds of
consumers relative to the image of the competitors product offering. It is the distinct place that a product
occupies in the minds of the target customers with respect to competing products. It has to do with
building a positive image or perception about a company’s product and services. This should be based on
specific product attributes as distinct from those of competitors. Product positioning follows segmentation
and targeting and aims at creating a positive image about a product among the selected segment. It is
concerned with creating a marketing mix that is appropriate to each market segment.

Segmentation Targeting Positioning

Identify one or a
Subdivide market Come up with the most
few segments to
to homogeneous appropriate market mix that is
concentrate all
segments more appealing to consumers
on
(products’ unique features)
Fig.6.1: Process of product positioning

In positioning a product, one must identify, the key features in a product that make people buy that
product. It may be the taste, durability, quality, and so on. This is the feature that is emphasized in
marketing the product. Examples
- Kenya Airways on ‘the pride of Africa’.
- Safari boots as ‘the shoes that says you know Africa’.

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 PRODUCT DECISIONS

Understanding a Product
A product is anything that is potentially valued by a target market for the benefits or satisfactions it
provides and includes goods and services. Product decisions are based on the customer product
perceptions, which are at three levels.

Level 1: Benefits and satisfactions that a particular product provides; which depends on the
customer e.g. Fridge may be just for prestige, storage or for preservation.

Level 2: Based on the tangible attributes such as quality, style packaging, branding etc.
Level 3: Extended product which include promotion, company image, distribution and
codependence

These three levels create the customer’s overall perception of the product, and the
Management’s task is to blend the three levels in a systematic, synergetic manner in order to meet the
needs of the customer. We need to be able to differentiate between consumer goods and individual goods,
bought for consumption and for industrial use respectively; because they require different marketing
strategies. Consumer goods may be categorized into
• Convenience goods – bought frequently, require little service or selling, are expensive and may be
bought by habit e.g. cigarettes, soap, groceries (sugarcane, cassava etc),
• Shopping goods – considered with eh time and effort needed to carefully evaluate them and
compare with competing products of refrigerators furniture, watches etc.
• Specialty goods – consumers will make a special effort to buy, usually specific branded items e.g.
buying a specific text book.

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We must think about packaging and branding of products in order to be attractive to consumers.
Packaging plays both the role of protection as well as advertising of the product.

Product Mix: Entire collection of product lines and items offered by an organization. The depth of a
product mix refers to the variations within each product types, while width refers to the number of types
of products, often organized into product lines.
Product line: Group of product s that are in someway related e.g. by fulfilling the same
customer need, or by being marketed to the same target market through the same
distribution network.

Branding
A brand is a name, design or symbol that identifies the products of a seller. When firms
establish well known brands, companies are usually able to obtain acceptance, extensive
distribution and higher prices. The relevant terminologies used in branding include:
i) Brand name – word, letter (number) group of words or letter (numbers) that can be spoken e.g
Coca-Cola.
ii) Brand mark – Symbol, design or distinctive colouring or lettering e.g. Lion for Kenya
Commercial Bank; Eagle for Barclays Bank. It is easy to notice the distinct colours of
Safaricom ( green ) and Celtel (purple).
iii) Trade character – brand mark that is personified – using someone’s name. For example, a
company can use the name of a celebrity like a world record holder such as Drogba,
Kipchoge, Keino, Ronaldinho, Bekele, and so on.
iv) Trade mark – brand name, brand mark or trade character or combination of these, given legal
protection. E.g. Blue band®, Rexona®, MasterCard®

A brand name, brand mark, or trade character do not offer a company protection against competitors
unless registered as a trade mark. A major goal of companies is to develop brand loyalty which enables
them to maximize sales and maintain a strong brand image.

Branding is very important in marketing. Its benefits to the firm include

• Enhancing product identification

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 • Customers can be guaranteed of quality by reordering the same brand.
• Enabling the firm responsible for the brand to be known.
• Reducing price comparisons when customer’s perceive distinct brands.
• Increasing product prestige.
Branding Philosophy
In developing a brand strategy, firms need to spell out the branding philosophy, which outlines the use of
manufacturer, deals or generic brand well as the use of family or multiple branding.
i) Manufacturer (national) brands – contain the name of the manufacturer, and appeal to a wide
range of consumers who desire low risk of poor product performance, good quality, status and
convenience shopping. Nearly 70% of most product categories are national brands .e.g.
automobiles.
ii) Dealer (Private) brands – Contains name of the wholesaler or retailer. Dealer brands appeal to
price conscious consumers who compare prices and ingredients with manufacturer brands.
E.g. Shoes, tires, and most appliance items. In some cases, the brands are made to dealer
specifications.
iii) Generic brands – Emphasize the names of the products themselves and not manufacture or
dealer names. They started in the industry as low –cost alternatives to expensive manufacturer
brands. Today, they are found in many other products e.g. cigarettes, coffee, shoes, bear etc.
the major marketing goal of generic brands is to offer low-priced, low quality items to
consumers interested in price savings.
iv) Mixed brand strategy – sell a combination of manufacturer and dealer brands. Thereby
providing benefits for both manufacture and retail.

Family and Multiple Branding

Family (blanket) branding. One name is used for several products. Common for industrial products
e.g. industrial produce IBM, and Xerox. Most effective for specialized firms with specialized product
lines. One effective use of family branding is brand expression, a strategy by which an established brand
name is applied to new products.
Multiple (individual) branding. Separate brands are used for different items or product lines. Very
useful in product positioning. It attracts various market segments, increases sales and control; and allows
a manufacturer to secure greater shelf space in a retail store.

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Packaging

Packaging is the process of designing the container (s) for a product. A package is a product’s physical
container or label and may include cardboard box, glass, plastic can, paper bag etc. There are three levels
of physical packaging:
• Primary Package – materials that envelope a product and hold it. E.g. a Coca Cola can.
• Secondary Package – packaging that holds the primary package for transportation of a cardboard
box for holding medicine bottles.
• Tertiary packaging – Bulk packaging to hold secondary packages for example, several boxes
may be put in one big box for transportation.

Packaging Functions (strategy)

1. Aid new product strategy – some packaging is such an integral part of the product that
it becomes a major part of new product strategies.
2. Provide access to channels – packaging can open up new distribution channels e.g.
through venturing machines characteristics of packaging such as protection against
pilferage and ease of shelf stating determine the distribution channels to one.
3. Support pricing strategy – Premium quality and design packaging can contribute to
being able to ask premium price.
4. Serves as part of promotion – the size, shape, design and wording on a package can
convey a particular image on the product. Packages are often eye catching create
awareness and are informative.
5. Provide Protection and containment. The most basic function of packaging is
protection and to hold products in specified qualities for transportation.
6. Provide information to customers – packaging provides information to customers
regarding use, misuse, and guarantees.

New Product Development

It is very difficult to define a new product, but generally anew product may refer to:

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 • A product that is new only to the company, but not to the customer which could be supply a
product extension.
• A product that is new to the customer, but not to the Company, which is a modification.
• A product new both to the customer as well as to the company, which is an innovation.
Thus, what is considered new may simply be an extension, a modification or an innovation. Whatever the
case, we need to appreciate that new product development is a very expensive and time consuming
exercise but firms still find it useful to develop new products, mainly because of the following reasons:

• To utilize excess capacity

• To enhance a firms usage
• To ensure continued sales growth
• To replace “dying” products
• To diversity and spread out risks
• To exploit technology
• To meet new customer needs and life styles.

Many products that are developed often fail due to lack of differential advantage, poor planning, poor
timing, and excessive enthusiasm by the product sponsor. There are two types of product failure. The first
is absolute product failure, which results when a company is unable to regain its production and
marketing costs. It is a financial loss. The other type is relative product failure, which results when a
company makes profit on the product but the product does not reach profit objectives and/or production
of the product adversely affects the firm, for example, it leads to poor relations with the society as a result
of its harmful effects.

Steps in new Product Development

1. Idea generation. A continuous implementation search for new product opportunities. – ideas
come from many sources, both internally and externally. internal sources include R and D
department, scales and production personnel and managers at all levels. External sources
include government agencies, customers, trade associations, and research journal. Many new
ideas are reached to end up with one suitable idea, management should create a conducive

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 environment to encourage ideas generation. The only ideas rejected at this point are those that
are obviously not related to the business and those that are not feasible to develop.

2. Idea Screening. The ideas should be carefully screened and bad ones eliminated. This may
be done by committees compared of various managers and possibly consultants in product
design. Two types of errors can occur here; namely rejecting an otherwise good idea which
leads to a lost opportunity, or accepting an otherwise bad idea which leads to increasing costs.
The longer it takes to drop a bad idea, the more costly it is to the firm. It may be necessary to
use checklists to rate new ideas, and weights may be assigned to the various criteria to position
numerical ranking of the ideas.

3. Concept testing – This is meant to get consumer feedback about the firms ideas. It presents
the consumer with a proposed product and measures attitudes and intentions at the early stage
in development. This enables the firm to determine the initial attitudes prior to the expensive,
time consuming prototype development.

4. Business Analysis – This is a more detailed analysis of the product concepts in terms of costs,
demand, competition, required instrument profitability and growth potential. Business
analysis should include both short term as well as long term projections and potential. Demand
analysis includes estimating R & D, production and marketing costs, while profitability,
analysis brings together demand and cost factors. Environmental factors must also be
carefully considered.

5. Product development. At the stage, a product idea is converted into physical form, and
physical products are constructed albeit on a limited production basis. It then involves a
limited scale of product construction, packaging, branding and positioning, so that laboratory
tests and consumer reaction can be studied. The type of packaging materials, colour, and sizes
need to be determined, as well as branding decision (name of the product, trademark
protection etc).

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 6. Test marketing: This involves testing the product in a few selected areas in order to assess its
receptability among the target consumers. Sometimes free samples may be given to
consumers.
7. Commercialization. This is the last step and involves releasing the product into the market on
a full scale basis, and follows successful test marketing. Aggressive promotion is necessary for
successful commercialization. Good planning and timing are very important at this level
because if it is badly done, the product is bound to fail. The step corresponds with introduction
in the product life cycle.

The Concept of product life Cycle

Every product has a life cycle PLC) which goes through introduction, growth, maternity, saturation and
death (obsolescence). It is important to monitor the product and be able to replace products that have
reached their obsolescence. In an ideal situation, as one product reaches its peak, another should be
introduced so that by the time the first products contribution begins to decline, the new product is ready
to take over. Old equipment that have become less productive and uneconomical to maintain ought to
be replaced from time to time. Product life cycles are affected by the state of technology, and may be
long or short. It is therefore important to forecast technology as part of product planning. In fact for
industrial products that affect and are affected by technological change, and which take at least two and
up to five years or more to develop, technological forecasting is very important. The product lifecycle
is comprised of the following stages.
Sales

A B C D E
Time

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Fig: Product Life Cycle

Introduction (phase A)
This is the product launch. After several years of product development, the product development, the
product is finally released into the market. This period is characterized by heavy promotional activities
aims at convincing customers to buy the product. Profits are low and may be negative. There is limited
competitors as not many firms know about the product. Sales are low and market share of product is
small. It is a period of uncertainty and under the launch (or commercialization) is done well
many products fail at this stage.

Growth phase (Phase B)

This is a phase of intense market activity in which the market becomes very dynamic with purchases
and many new customers coming in. there is also increased competition and the firm needs to do
aggressive promotions to deal with the competitors. Market share is also increasing and profits are
increasing at an increasing rate.
Maturity (Phase C)
The market begins to stabilize and profits though growing, begin to grow at a decreasing rate. The
market share is also growing at a decreasing rate. The firm should try to maintain the market share by
making sure that customers do not switch to the competition.
Saturation Phase (Phase D)
This is the period during which the market share is the highest and the profit at their best. The market
is however not growing and the firm should try to maintain the market share. The firm should also try
to look for other opportunities before the product finally releases the final share.

Decline phase (Phase E)

The product finally release the declining phase during while sales begin to decline and market share
begins to shrink. At this point the firm should systematically reduce further expenses on the products
and milk it finally removing it from the market to generate whatever money that can be generated from
the product before.

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101
 PRODUCT DIFFUSION AND ADOPTION

Diffusion and Adoption process

Diffusion process is a communication process that takes place between people and thus takes place in the
social sphere. Adoption process is a decision making process that takes place within a individual and thus
belongs to the individual sphere it is the mental process though which an individual passes from first
learning of an innovation to final adoption.

1 2
A I E T A
Diffusion(in the social sphere) Adoption(In the mental Sphere)

Fig:. Diffusion and adoption of Innovation.

Diffusion
The diffusion process starts with the original two step flow theory in which a company uses mass media
to influence opinion leaders (Step 1) who in turn take the initiative in influencing their followers (Stage
2). However, we usually use the multi-step flow theory which involves use of several opinion leaders.
An opinion leader is one who responds faster and more positively to the production information. The time
that elapses from the first hearing about an innovation until its final adoption is called the adoption
period. Diffusion has the following elements:
• And innovation. An innovation is an idea that an individual perceives as new, provided the person
is hearing it of the first time.
• Its communication from one individual to another. Communication involves the transfer of
information, ideas, opinions or emotions by verbal or non-verbal means.

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 • In a social system. A group of people who interact on more or less frequently due to common
interest. This may be employees among themselves, employees with the employer, or employer
with the neighborhood. In marketing, it is the target market, i.e. the group of consumers the
company is trying to serve.
• Overtime. Diffusion takes place overtime, that is the time it takes to get word to every potential
buyer.
Personal influence is very important in the diffusion process, and this is why we have opinion leaders, to
whom people turn for guidance – we may also have trickle effect in which people of low class tend to
follow the buying behaviour of high status consumers. The rate of diffusion is affected by :
• The innovation’s relative advantage over competing products
• Its compatibility with the promoter’s life style.
• Its complexity in comprehension and use
• Its ability to be tried on a large scale
• Communicability and observability of its benefits.

Adoption of Innovation
While diffusion means spreading the word, adoption involves use of the new product. It involves the
decision making process by the consumer, regarding the innovation. It has five stages, namely;
Awareness, Interest, Evaluation, Trial, and Adoption.
Awareness is created when a prospect becomes aware of the existence of a product, either by talking to
friends, seeing an ad, or hearing about it through TV or radio adverts. One may also see the product on
display through shop windows, or at exhibitions. Thus awareness is created mainly through promotional
campaigns. Once a prospect is aware of the product, he may develop interest in knowing more about the
product. This is demonstrated when a prospect comes closer to the window to have a closer look at the
product, or picks it to study the label more closely, or walks into the exhibition stand to enquire more
about the product.

After getting the necessary information, the prospect carries out an evaluation on his ability to buy the
product. He considers the benefits that will accrue from using the product, the cost of the product, terms
of payment, and his ability to buy. This may take a bit of time as the prospect consults with his family and

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with peers as well as trying to make comparisons with other possible sources of the product. If satisfied
that benefits exceed the costs, the prospect may buy the product on a trial basis, without promising to
make a repeat purchase. One may order a few units of the product to see how the family will like it. If it is
an industrial product, the organization may order a few materials to see how they perform in terms of
reliability of service, durability, efficiency, and so on. The last stage, adoption, involves repeat purchase
in which the prospect now becomes a regular consumer or user of the product after being satisfied in the
trial stage.

Factors influencing Adoption (Predisposition Factors)

Adoption is affected by the following factors:
• Venturesome ness. This is an indication of the buyer’s willingness to accept one or more types of
perceived risks in the adoption of innovations.
• Social integration. Degree of involvement in community affairs.
• Cosmopolitan ness. This is the extent to which individuals information and values come from
outside their social systems.
• Social mobility. Social mobility indicates the peoples’ willingness to make significant changes
and commitments in the lives.
• Geographic mobility which indicates a willingness to move and relocate to a new place.
• Educational mobility , an indication of the interest for pursuit of advanced education.

Adopter categories
There are five adopter categories, namely innovators, early adopters, early majority, late majority, and the
laggards.

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 1 2 3 4 5

Figure : Adopter categories

Innovators
These are always the first in trying things that others have not. They tend to be young and usually quite
comfortable financially. They are likely to be highly educated, well traveled and speak several languages.
This makes them cosmopolites. They are mobile, open minded, and risk takers. Innovators are a very
suitable group when it comes to introducing a new product. They are more likely to buy the new product,
even if just for trial. Given their financial stability and few financial commitments (They are mainly the
unmarried or married with young families), they are willing to spend their money on something new.
These make up only about 2.5% of the target market

Early adopters
These are the true trendsetters, and comprise local leaders, deeply rooted in community development.
Early adopters interact readily with the community, and enjoy high prestige and respect from the
community. They create confidence among community members, and command sizeable incomes. They
constitute about 13.5% of the target market.

Early majority
These have above average incomes, and are deliberate people who try to keep up with the early adopters.
Though relatively older, they are influenced by early adopters. They are less flexible and more focused
than the innovators and early adopters. They constitute about 34% of the potential customers. These are
very crucial owing to the large number of customers in this group.

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Late majority. Late majority are people who are very sensitive to price changes, and would wait until
prices have come down to a level that they are comfortable with. They will buy those products that are
almost out of fashion, or those that are being cleared from the shelves. Like the early majority, they
constitute about 34% of the potential customers.

The laggards
Laggards are tradition bound persons oriented toward the past. They resist change and will therefore not
want to try new products. They are usually isolated and interact very little with other people. They are
usually older people with fixed retirement incomes, and are usually the first to discontinue an innovation
as they soon find that they either cannot afford it or do know how use it.

PRICING DECISIONS

Introduction
Pricing is a very important marketing mix variable, as it contributes directly to the profitability of the
firm. It is also used to enhance the image of equality product, as it is argued that price and quality of a
product are directly related.
Pricing is the process of setting objectives, determining the available flexibility, developing strategies;
setting prices, and engaging in implementation and control. Price decisions can enhance or impede the
marketing strategy or program, and so marketers should seek to develop an integrated, internally
consistent, and synergistic combination of marketing mix elements. Price is often used to enhance the
image of a product, to increase sales though discount pricing, or in combination with promotion, to build
future sales. Some of the pricing objectives include:
• To meet the price of competitors
• To follow the price of the market leader
• To maintain existing market share
• To promote new products
• To stabilize inventory prices
• To maximize profits.

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Whatever the objectives, they must be consistent with decisions about other marketing mix variables,
such as promotional decisions. In setting prices, one must take to account the production costs, since the
price must exceed average unit costs. Normally, costs set the lower limit of price, while demand and
competition typically set the upper limit.

Pricing Strategies
Pricing strategies are guidelines and policies used to effectively guide pricing decisions to match target
market conditions. The common ones are discrimination, psychological, penetration, skim the cream, and
discount pricing strategies.

Discrimination prices
This is a variable pricing policy which enables a firm to achieve higher profits because it allows sellers to
negotiate with potential buyers and set selling prices approximately equal to each buyer’s perception of
product values. The same product is sold at different prices to different customers, based on some
discriminative characteristic such as geographical, nationality, age, or season. Some of the practices thus
include:
• Charging different prices for the same product in different geographical locations. For
example the price of most agricultural products differ with the location. Everyday, newspapers
report this prices for different towns Nairobi, Mombasa, Nakuru, Eldoret and so on.

• Charging significantly different prices for services, for example first class, economy
class and so on in trains and air transport.

• Charging different prices at different times (off-peak, or rush hour). In the public
transport system, commuters find that prices are different depending on the time of the day, for
the same distance. They also adjust prices for such occasions as Christmas and Easter, when
they expect many people to travel up country. Similarly, many retailers adjust their prices
during special occasions such as Easter, Christmas holidays and so on.
• Changing different prices for different customers (nationally Vs foreign, children Vs.
adults). For example, Kenya wildlife Service charges different entry fees into Museums and
national parks, depending on the nationality of the visitor.

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Psychological Pricing
This is based on creating customer price perceptions so as to have special appeal in certain target markets.
Examples include
• Odd-even pricing. This is a very common form of pricing. Research evidence shows that odd
pricing (e.g. 99.9, 499, 899) is more appealing to customers than even pricing (e.g. 100, 500,
900). The odd price is perceived to imply that the product is cheaper than the even price, yet this
difference is not significant.
• Prestige pricing to benefit from snob appeal (if you ask the price, you can’t afford it!). Some
customers feel that bargaining is an indication of inability to buy at the higher price, and so some
shoppers deliberately avoid indicating the price on the product, so that such customers will come
and simply as for the product and pay whatever he is charged. A doctor will first operate on the
patient before telling him what to pay. A customer may go into a hotel and order food without
asking for the price!
• Large, bright price labels. Indicating the price on very large, bright labels can be more attractive to
customers that small, dull prices or no prices at all.
• Deliberately setting high prices to imply high quality. Some customers want to buy expensive
products, imagining that the high price implies higher quality. For example they will seek
accommodation in a hotel that charges slightly higher than one that is cheaper, believing that
services in the more expensive hotel are better.
• Putting an initial price, then canceling it and indicating a lower price next to the original price.
This is very useful for creating attention and interest among consumers.

Penetration Pricing
This is a pricing system commonly used for new prices and involves starting with low price, gradually
raising to the expected level. It enables a firm to acquire a large share of the potential market within a
short time, and tends to discourage early competitors. This is suitable for low quality, low priced products
targeting price sensitive, low income earners and may not appeal to customers who value quality.

Skim the Cream Pricing

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This skimming pricing strategy in for new products, and involves setting a high initial price to first
benefit from price inelastic customers, then successively lowering prices, often under increasingly
competitive conditions, to the levels that more price sensitive customers are wiling to pay. Skimming
allows the firm to recover their investments rapidly, though the high margins tend to attract competition.
Factors Affecting Pricing Decisions
Before a firm develops a pricing strategy, it should analyze the various factors affecting decisions. Many
pricing decisions depend heavily on elements external to the firm. Both pricing and distribution decision
are largely influenced by forces external to the firm, unlike product and promotion decisions which are
more directly controlled by the firm. The factors affecting pricing decisions include:

Consumers
Marketers should understand the relationships between price and consumer purchases and perceptions.
This may best be understood by studying the law of demand and price elasticity of demand. The law of
demand states that consumers generally buy more of a commodity at low price than at a high price, while
price elasticity of demand defines the sensitivity of buyer to price changes.

In terms of elasticity, we have elastic demand which shows that a small change in price results in a
big change in the quantity demanded as shown in figure b.

a. Inelastic demand curve b. Elastic demand curve

Fig : Price elasticity of demand

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Fig b shows that when price is increased from P0 to P1, there is a very big drop in the quality demand,
from Q0 to Q 1. Elastic demand is common for luxurious goods (such as beer, entertainment and so on.
On the other hand, inelastic occurs when price changes have little impact on quantity demand. This
shows that consumers will buy the product irrespective of the prices, as shown in fig a. It is common for
goods that are necessities, such as salt. The figure shows that even after price is increased by a very large
margin quality demanded changes very little. It is also necessarily to recognize that consumer are
different, and may not be equally price conscious. (Evans 1986) discusses for categories or segments of
consumers based on their shopping orientation:
o Economical shopper – Generally shops for values and is extremely sensitive to price and
quality.
o Personalizing shopper – Emphasis product image, personal service and treatment by firms, and
is less concerned with price.
o Ethical Shopper – Willing to sacrifice low prices and wide assortments in order to patronize a
small form.
o Apathetic Shopper – Very concerned with convincing whatever the price.

Government
The government plays a major role in pricing decisions, for example, through price fixing in which the
government places limitations on price fixing by manufactures, and wholesales, for example, by checking
that manufactures do not fix prices that cannot be justified. The government also coordinates discounts
and credit terms with consumers. It also arranges will competitors to issue new price lists at the same
time. Sometimes the government agrees with competitors to restrict production to maintain high prices.
Thus the government monitors both horizontal price fixing (agreements among manufactures, among
wholesalers and among retailers to fix price at some stage in the channel distribution) and vertical price
fixing (when manufactures or wholesalers are able to control the retail prices of their goods or services).
Other areas in which the government influences prices are:

i) Price discounts. The government discourages price discounts especially if the effect of
such discounts to injure competition

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 ii) Minimum prices. The government discourages fixing prices below the cost of the
product plus a certain percentage that covers overhead profits as some large firms may want to do
in order to drive smaller firms out of business. For instance under predatory pricing, large
companies cut prices below their cost in selective geographic areas in order to eliminate small,
local competitors. On the other hand, under loss leaders, items are priced below cost to attract
more customers into a store, in the hope that as the consumers by the loss leaders, they will also
buy the other less moving products

iii) Unit pricing: The government encourages unit pricing of products so that consumer
can compare price per quality for competing brands and for various sizes of the same brand.

Channel Members
Every channel member wants a significant role in setting prices in order to generate sales volume obtain
adequate profit margin, and meet specific goals. It is therefore important to carefully consider
the effect of channel members, as the price increases at various levels are ultimately passed on to
final consumers.

Competition
A market must consider competitors and how they set their prices for similar products. Price wars are
very common among competitors, in which, various firms continually try to undercut each others prices
to draw customers. These wars usually had to reduce profit margins or even losses, and may force some
companies out of business.

Cost
The costs of raw materials, labour, transport and so on must be factored in making price decisions. The
market needs to carefully consider both the fixed as well as the variable consists, and decide who should
bear the costs. For example, in times of increasing production costs, modifications could be done to use
cheaper packaging materials, use cheaper ways of transportation and so on. When cost declines occur,
firms can lower selling prices or raise profit margins.

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Further Reading:
Evans, J. (1986); Marketing. Macmillan Publishing Co. 3rd Ed.

DISTRIBUTION DECISIONS

Channels of Distribution

The marketing system is made up of many organizations and individuals linked together by organizations
and individuals linked together by hours of information, products, negotiations, risks, money and people.
They form a channel of distribution which consists producers of products to the people and organizations
that consume those products. Each organization in the channel plays a specific task to facilitate the
smooth flow of goods and series from producers to consumers. The firms that perform the various
channels of distribution functions necessary to link producers with and users are called market
intermediaries. A simplified marketing system would look as follows:

Manufacturers and
Processors

Agriculture Marketing facilitating

Raw materials Intermediaries
Wholesalers organizations

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Extractive materials financial
institutions

Supplies Retailers Insurers

Agents/brokers

End users
Industries
Institutions

Fig :. Simplified Marketing System

Market Intermediaries
Market intermediaries play a critical role of linking the and users of products to the producers. They may
be classified as follows:
Retailers
These are business that buy and resell merchants to end users. They usually buy from
wholesalers or agents, but may also buy directing form the manufacturers. They usually
take title of the goods. Like wholesalers, retailers play a very important role in linking
manufactures into the end users. Retailing involve all the activities involved in selling
goods or services directly to final consumers. Retailers are the final link between
manufacturers and consumers,. They usually buy from wholesalers and resell to
consumers, although there are a few cases where large retailers buy directly from
manufactures. The main factors of retailers are:
(i) Buying goods from manufacturers or wholesalers.
(ii) Selling goods to consumers
(iii) Storage of goods
(iv) Transportation of goods from wholesalers to the retail outlet.

Types of Retailers

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Retailers may be categorized as small scale or large scale retailers.
Small scale retailers are those into low turnover of sales, and many not have fixed premises from where to
operation. They include:

• Roadside sellers – they do not have fixed premises from where to operate, and usually display
their wares at strategic points such as bus stops, school gates and hospital gates.
• Itinerant traders: they carry their wares from door to door, often using hand carts, tricycles or
motorbikes.
• Hawkers – they move around with their wares, usually on foot, and do not have fixed premises.
• Mobile shops. These are closely related to the itinerant traders but their stocks are bigger and
move from town to town using trucks.
• Tied Shops – These sell goods from only one manufacturers, for example Bata shoes dealers or
Coca Cola kiosks.

On the other hand, large scale retailers have very large operations and usually operate from fixed
premises. They include:

• Department Stores – These area number of single shops under one roof and under the same
management, for example, the stores may have several units dealing with clothing, hardware, a
bar and so on.
• Supermarkets. These are self-service stores which usually stock a circle variety of goods. All the
goods are put on open display with fixed prices indicated. Consumers go in and select the goods
they wish to buy and pay for them at the cash counter as they walk out.
• Mail order shops. These are operated by manufactures, in which a list of their goods and prices is
sent to prospective customers, who place an order through the post. The goods are also sent
through the post. These type of retailers are not common in Kenya.
• Vending machines – Automatic vending machines can be used to sell a variety of goods with a
high convenience like sweets, cigarettes or newspapers. Example are jukeboxes and electronic
computer games. They offer a 24 hour service to consumers.

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 • Service Retailers: These are retailers that offer services rather than physical goods, to consumer.
They include doctors and lawyers.

Wholesalers
These businesses buy as reset merchandise to retailers or to institutional, industrial or commercial
enterprises. They normally take title of goods they sell. Wholesalers are perhaps the most widely used
intermediaries in any channel of distributions along with retailers. There functions include:
1. Purchase in bulks from producers, and hence help to source for finance for producers. Who are
relieved of typing up their finances into finished goods.
2. Assume all the risk – transporting and storing goods.
3. Provides storage and transportation services that could otherwise be provided by
manufacturers.
4. They sometimes offer credit facilities to retailers.
5. They offer advances services to retailers, for example, how to display, or promote products.
Types of Wholesalers
(i) Merchant Wholesalers – These take title of goods, and are involved in buying of goods
from manufacturers and selling them to retailers and internal users. The manufacturers have no
control of the goods once they have sold them to these type of wholesalers, who thereafter the
goods and take all the risks related to further distribution of the goods.
(ii) Agents and Brokers- Agents do not take title to the goods, but only negotiate and
arrange sales on behalf of other the sellers or the buyers. They are paid a commission for the survives.
Their main function is therefore to facilitate selling and buying. These negotiate purchases or sale for a
commission and do not therefore take title of the goods. Unlike agents who may handle the goods through
not owning them, brokers only bring buyers and sellers together to negotiation the sale, but do not handle
goods. They are paid by the party that hired them. Broken are commonly found in the insurance
industry, and in real estate (buying and selling of land and houses).

(ii) Manufacturers’ sales branches and offices some manufacturers establish their own
distribution offices with their own staff, who market products for the manufacturers. This type of
wholesalers ensures total control by the seller in the marketing of his product.
Role of market intermediaries

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Marketing intermediaries are very vital in a channel of distribution. Their main roles include:
Contact – market intermediaries establish contact between consumers and producers, such that a single
intermediary may sell goods from several producers and enable the consumer to get the goods from the
single intermediary, instead of going to all the producers separately. For example, a supermarket enables
consumers for access goods from many manufacturers under one roof.

Physical distribution – market intermediaries transport goods from the point of production to areas
closer to the consumers. For example cooking oil products by BIDCO at Thika or KAPA at Athi River is
transported to all parts of Kenya.

Storage – Intermediaries play an important role of storing goods produced, as they sell them in smaller
quantities. This ensures continuity of production as producers nearly not have enough space to store all
the goods produced, so most of it will be stored by intermediaries at various levels.

Breaking Bulk- In many cases, produces produce goods in bulk and package them in large quantities,
such as tones, in order to attain economies of scale. Intermediaries buy these goods and sell them in
smaller quantities to and users. For example, sugar is repackaged into 1Kg packages or even smaller
quantities, which cement bought buy distributors in terms of tones can be sold as single packets of 50Kgs
each to end users.

Research- Intermediaries gather and disseminate information between producers and consumers in order
to facilitate exchange. For example, they gather information actual consumer needy taste and
preferences.

Risks taking- Intermediaries assume risks is moving goods from producer to consumers. Since they
possess the goods, they relief the end users of the risks such as loss, deterioration and so on.

Logistical Support- Intermediaries provide logistical support, for example, facilitating payments
between commenced producers, and banking services.
Channel Structures

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Although the channel structures for both consumer and industrial goods are basically similar, we will
discuss them separately in order to point out the differences between the two. The channel structure of
consumer products is demonstrating below:

Producers

Agents/
B C brokers

A Wholesalers

Retailers

Consumers

Fig : The channel structure of consumer products

As shown in the diagram, producers can reach consumers through various channels, including directly
selling to the consumers (A) or going through market intermediaries (B, C, D).

Direct Channel (A). This is a direct channel in which a manufacturer decides to sell directly to the
consumers. It is the shortest channel and has no intermediaries. Manufacturer sells directly to the
consumers, either through door to door sales force mail order selling (using a catalogue or other printed
materials) or this manufacturer stores).

Mail order
Manufacturer
Door to door

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 Manufacturer owned stores

Fig: Direct channel

Mail Order – The most widely used, and has a big potential for expansion.
Door-to-door – Relatively expensive, requires high gross margins and results in higher prices to
consumer. One may choose to call people to together for demonstration, then sell.
Manufacturer owned Store – Manufacturer establishes world wide chain of company owned stores for
sale of its products.
Direct channels are mainly for perishable or very delicate produ7cts e.g. agricultural products.
Indirect Channel (B, C, D). These involve use of intermediaries such as retailers, wholesalers and
distribution agents/brokers. They are mainly for products that are not perishable or have long shelf lives.
They are also appropriate where the product need to be broken into smaller quantities before being sold to
the final consumers.

Industrial Products
Unlike consumer products, institutional products have shorter distribution channels, usually involving the
manufactures sales force, distribution agents and wholesalers. Distribution of industrial product, is very
important in ensuring that goods and services reach consumers in good time and good condition. An
industrial marketing channel is composed of many outlets through which goods flow to the market. These
outlets perform different but related functions, some of the outlets (e.g. manufacturers branch house and a
files) are part of the internal organization structure, which others are independently owned (e.g.
wholesalers, agents). Generally, a distribution channel for industrial goods is shorter than that of
consumer goods. This is because manufacturers of indirect goods, interact either directly with consumer,
or through distributors and agents. A typical diagram is as shown in figure below.

Industrial Manufacturer

Manufacturer’s
branch office Industrial
Distributor Manufacture’s
representative

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 Industrial Customer

Fig:. Distribution channel for industrial products

Channel A is direct which B, C, D are indirect. The indirect channels involve intermediaries.

Industrial Distributors
1. Industrial distributors generally buy and sell industrial goods, and therefore take little of the
goods, and assume some of the risks. They tend to be concentrated in those areas where there is heavy
concentration of manufacturing firms. They are typically small, often with only a handful of
employees. They usually harm show room displays when they display their products, and own large
warehouses for storage of the products. Some of the reasons why buyers may use distributors include:
• Economical delivery – distributors provide efficient and reliable delivery – lot sizes that are
convenient to the user. This reduces inventory carrying costs and reduces the likelihood of losses
due to obsolescence and price declines.
• They provide relevant information regarding quality and prices.
• They offer credit facilities to small buyers.
• They offer technical services to users, by virtue of their proximity.

2. Distribution agents. These do not own the goods, but only represent the sellers. Manufacturer’s
agents usually represent the seller written a limited area, while sales agents deal with buyers where
they care. They are paid a commission for what they do.
Advantages
- Lower marketing cost than distributors
- They help buyers to establish contacts with manufacturers.
- They tend to offer more competent and better quality of sales effort than distributor.
Disadvantages
- It is difficult for the manufacturer to have a full control over them because they are not on the
payroll of the manufacturers.

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 - They lack flexibility especially in bargaining for prize reduction, since the price is fixed by the
manufacturers.
- They have divided loyalty since they service several manufacturers.

3. Brokers .These are usually firms with detailed knowledge about markets and therefore help
manufacturers sell their goods very fast, for a commission. They are particularly useful in situations
where a manufacturer finds himself with an excess supply of a commodity on hand, more than he can
sell to his usual customers within an economical storage period. The broker will in this case come in
to persuade customers to buy the product.

4. Manufacturers branch houses/offices’ This are not as common in industrial goods as is the care
for consumer goods. However, some manufacturers for industrial goods still maintain branch houses
where goods are first stored before being sold to individual buyers. This enables the manufacturers to
ship/transport the goods in economically less quantities to the branch houses, from where they are
sold off to customers in smaller quantities.

8.7 Channel Logistics

The efficiency and effectiveness of a distribution channel depends on there being a well coordinated
physical movement of products, which includes such activities as production, scheduling, storage,
inventory control, materials handling, purchasing order processing, transportation and plant/warehouse
site selection. These will depend on the type of industrial product and the nature of the channel structure.
For instance, large equipment may pose transportation problem is, they exceed road/rail specifications.
The success in dealing with logistics problems requires a comprehensive plan and a system of executing
it.

The Logistical Plan

Companies need to have a well coordinated logistical plan that takes into amount the interdependence of
the different distribution functions and provides an opportunity for cost saving. The problem always
arises when managers in different departments have objectives that are at variance, for instance traffic
managers may prefer slow transportation means that carry large quantities, while sales men want faster

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transportation. Thus, without carefully appraising the implications of their decisions, they may seriously
weaken a company’s competitive position. Industrial marketers are thus becoming increasingly aware of
the savings to be realized from careful interaction of the various logistical elements of physical
distribution into a single system.
Industrial buyers are increasingly becoming aware of the need to minimize storage which is often
associated with heavy costs such as interest, spare chargers, insurance, and obsolescence. Inventories
should thus be kept as low as possible without causing production stoppage or interruptions in other
operations as a result of material shortages. Lead time, for example should be reduced as much as
possible. Advances in technology has greatly motivated industrial buyers to have an efficient logistical
support. Increased mechanization and automation have made manufacturers push the inventory burden to
suppliers, by making it possible to more materials directly from the supplies its production, without going
through a warehouse. Supplies of such raw materials need therefore to have an effective quantity control
system and also to be able to meet a precise and consistent delivery schedule in order to retain the buyers
patronage. Industrial sellers are equally motivated by cost factors to keep their inventory investment as
low as possible without risking their ability to meet all reasonable customer needs.

The logistic system has three broad categories:

• Stationary facilities
• Transportation network
• Location

1. Stationary facilities. Any geographical location in which there is storage or transfer of goods
from one mode which are located at some points between the company’s plant and its customers.
They are used as storage facilities and transshipment points at which there is bulk breaking,
accumulation of stocks for larger shipments, or transfer form one carrier to another. The terminal and
station facilities of transportation companies as serve as storage depots for manufacturers as well as
transit locations at which shipments can be combined or separated.

2. The transportation network. This includes all types of carriers – rail, water, highway, pipeline
and air. The mode of transport will vary according to circumstances and the nature of product. In
addition to the carriers themselves there are also agencies such as freight forwarders and freight pools.

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 Freight forwarders provides transportation services to the carriers of collecting less than carry load
(L.C.L) and shipping them in carry load (C L) to a distribution terminal and distributing them in LCL
lots by truck to their respective destinations. The advantages of using freight forwarders include;
- Speed – they usually move the C.L lot on the same day on regularly scheduled trains.
- Flexibility – the forwarders is able to use all forms of transport to attain the most economical
combination.
- Simplicity – the shipper deals with one shipping company.
- Safety – the forwarder ensures that goods are properly packed for safety.
Freight pools are associations or cooperatives of freight forwarders working together for increased saving.

3. Location. The locations of the sellers production and distribution facilities in relation to those of
customers is an important factor in his ability to deal with the limitations of time and space. The
location should take the account the availability of raw materials, labour, and location of the market.

System Operations
This is concerned with the how much, when and where of product movement, and has five functions
communication, scheduling, inventory control, materials handling and traffic.

i) Communication. This involves both external as well as internal communication. External

communication is communication with external agencies that comprise the distribution channel and
customers. It provides a feedback concerning sales, customer complaints and operating problems.
Internal communication is also very important, and may relate to product availability, order
processing and credit clearance.

ii) Scheduling. This involves proper synchronization of all the operations and coordination between
the marketing manager and production managers. Production in economic lot sizes should be
matched with customer demand to ensure that shortages do not occur. A balanced schedule that is
neither too flexible nor too inflexible should be in place to ensure there is a relatively continuous
level of output while utilizing various.
iii) Materials handling. Materials handling in the warehouses must be carefully planned and organized
so as not to mess up the other parts of the logistics system. This involves management of the

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 equipment, supporting components as well as the warehouse layout. Equipment includes towing
tractors, conveyors, drawers, forklifts etc. supporting components include storage racks and
containers. Warehouse layout is important to facilitate smooth flow of materials from receiving, to
storage and to shipping at minimum costs.

iv) Traffic management. This involves traffic planning and traffic analysis. Traffic planning involves
selection of carriers, documentation, payment of carrier charges and establishment of standards for
carrier performance. Main documents include bill of lading, freight bill and freight claim. Standards
of performance should include delivery time, billing, and condition of delivered goods. On the other
hand, traffic analysis involves analyses of the traffic system from time to time to ensure that there is
no deterioration of service delivery over time. This might include feasibility studies of owned
version hired transportation, as well as means for negotiating lower quoted rates.

Transportation alternatives to either speed or slow the transfer of products from one phase of the system
to another as needed to match marketing requirement with manufacturing capacity.

Inventory Control
This is very important in order to ensure the sufficient inventory is kept to match customer demand at the
most economic terms. It may be necessary to maintain some buffer stock to take care of unexpected high
demand. This buffer or safety stock will depend on the variability of sales, the cost of carrying inventory
and the seriousness of a stock out. These are quantitative models that can be used to determine the most
economic order quantity to maintain. The common is the basic economic order quantity (BEOQ) model,
given as

2 DS
EOQ =
C .1

Where D= Annual demand

S = Cost per order
C= Procurement cost per unit
i = Holding cost as a % of the value of the unit inventory per time
period.

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There are many costs associated with inventory holding and inventory ordering, such as insurance, rent,
obsolescence, pilferage, order processing, salaries etc.

In selecting an appropriate channel distribution, the following factors head to be considered:

1. Customer characteristics – One should consider the distribution of the customers, age, gender
home levels, literacy level and so on.
2. Product characteristics – There include their shelf life, perish ability, ease with which it can
break, e.g. bottles, glass, television,. Bed etc.
3. Company characteristics – it is important to consider company characteristics such as financial
base, resources such as availability of trucks to transport the goods and presence of
warehouses with the firm.
4. Environmental characteristics – These include government regulations and controls regarding
movement of goods.
5. Intermediaries – One needs to involve those intermediaries that will perform roles most
beneficial to the firm.
6. Competitors – it is important to be aware and be sensitive to competitors in the market and to
seek to industrial the channels they use. This would enable the firm to try and collaborate with
the competitor, or avoid him/her altogether.

Selection of Middlemen
In choosing a middlemen, the following needs to be considered.
 Number of years in business – it is adjustable to coincide the number of years a firm has been in
business, as their has a direct bearing on experience.
 Location: this is important as consumers need to have ease of access to the middlemen.
 Potential for growth: The middleman should demonstrate the ability to expand or grow.
 Other products handled by the middleman. It is important to consider the other products the
middleman handles as the products should not be very different from those for which you want the
middle man for example, chemicals should not be together with foodstuff.

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  Sales records – it is good to consider the volume of sales handled by the middleman, as this will
determine with whether the goods will sale fast or slowly.
 Financial Ability – The middleman should have financially stable to be able to buy the goods and
services without difficulty

Distribution deals with both logistical and facilitating functions that involve organizing and moving the
products from point of production to the final consumer. Decisions have to be made on the most
appropriate mode of moving the product to reach the end users at the right place and at the right price and
quality.

The distributions channels involve many market intermediaries who play different roles in insuring that
the process is a smooth and well coordinated. Factors to be considered in selecting the right channel
include customer characteristics, product characteristic company characteristics and the level of
competition in the channel chosen.

Further reading
Govindarajan M (2003); Industrial Marketing Management. Vikas Publishing House PVT Ltd, Mumbai.
McKinnon, A. C (1989); Physical Distribution Channels. Routledge, London

COMMUNICTAON AND COMMUNICATION MIX

THE COMMUNICATION PROCESS

Today there is a movement towards viewing communication as the management of the customer
buying process over time during all the buying stages ( preselling , selling, consuming and pre consuming
stages).
There should be the communication program for specific segments, where each segment has different
customers. It is also important for the marketer to know the most effective communication media that will

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reach the target consumer. The issue should not only be how the company can reach its customers, but
how the customers can reach the company.

The communication model

Sender Encoding Message media Decoding Receiver

Noise
Feedback Response

The sender and receiver are the major parties in communication. The sender must know what
audience he wants to reach and what response he wants. He must target the message through efficient
media that reach the target audience and develop feedback channels to monitor received responses to the
message.

Message and media represent the major communication tools.

Encoding, decoding, response and feedback are the major communication activities.
Noise represents random and competing messages that may interfere with the intended communication.

The target audience may not receive the intended message due to :
1. Selective attention. There are many messages that keep competing for the consumer’s attention,
ant it is up to the marketers to get his message and get attention.
2. Selective distortion – people may twist the message to hear what they want to hear. The marketer
should try to create simplicity, clarity, intent and repetition to get the main point across to the
audience.
3. Selective recall – people will retain long term memory and only a small fraction of the message
that reach them.

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 DEVELOPING EFFECTIVE COMMUNICATION
There are eight steps
1. Identifying the target audience
2. determine the communication objectives
3. Designing the message
4. Selecting the communication channels
5. Establishing the total promotion budget
6. Deciding on the promotion mix
7. Measuring the promotion’s results
8. Managing and coordinating the integrated marketing communication process.

1. Identifying the target audience

The marketing communicator must start with a clear target audience in mind. The audience could
be individuals, groups, particular publics or the general public.
The audience will critically influence the communicators decision on what to say, how to say it,
when to say it, when to say it, and to whom to say it to.
The target audience can be identified through image analysis, which involves assessing the
audience current image of the company, its products and its competitors. One may use the scale,
semantics differential, or familiarly scale to assess the extent of understanding of various indicators
relating to the company and its products.

2. Determine the communication objectives

The communicators need to decide on the desired audience response. The ultimate response
should be purchase, high satisfaction and a favorable word of mount. The marketer can be seeking a
cognitive, affective or behavioral response from the target audience that is to put something into the
consumers mind, change the consumer’s attitude or get the consumer to act.
There are various response models as shown below,

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 Stages AIDA Model Hierarchy of Innovation – Communicators
effects model Adoption model Model
Cognitive Attention Awareness Awareness Exposure
stage Knowledge Reception
Cognitive response
Attentive Interest Liking preference Interest Attitude
stage Desire Conviction Evaluation Intention

Behavior Action Purchase Trial Behavior

stage Adoption

All these models assume that the buyer passes through a cognitive, affective and behavior, stage in
that order. This is the learn – feel – do sequence which is appropriate when the audience has a high
involvement with a product category perceived to have high differentiation, such as purchasing a car.
But we also have the ‘ do – feel – learn’ sequence when the audience has high involvement but
perceives little or no differentiation with the product as in buying a pressure lamp.
Similarly, we and have ‘learn- do – feel’ sequence which is relevant when the audience has low
involvement and perceives little differentiation within the product category, as in purchasing salt. The
marketer needs to understand the appropriate sequence in order to plan an effective communication.

3. Design the message

Ideally, a well designed message should satisfy the content of the AIDA model ie – gain attention,
hold interest, arouse desire and elicit action. However, it is very difficult to get a single message that

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 holds the audience through all the stages, but AIDA framework suggests the desirable qualities of any
communicator.
The communicator should solve four problems
. What to say ( content)
. How to say it logically ( structure)
. How to say it symbolically ( format)
. Who should say it ( source)

i. Message content
In determining the best content management should search for an appeal, theme, idea or a unique
selling proposition.
One should create a strong reason as to why the audience should think about or investigate the
product. There are three types of appeals:
- Rational
- Emotional
- Moral

Rational appeals: appeals to the audience self – interest eg product quality, economy, or performance.
Industrial buyers are most responsive to rational appeals.
Emotional appeals: Attempt to stir up negative or positive emotions that will motivate purchase. Positive
emotional appeals include humor, love, pride, and joy.
Moral appeals: are directed to the audience’s sense of what is right and proper and are often used to
extort people to support social causes, such as better environment, equal rights for women, support for the
disadvantages and so on. Moral appeals are not commonly used in connections with everyday products.

Message structure
Structure is very important in determining the effectiveness of am message. For instance should the
audience be left to draw their own conclusions or should the presenter give a conclusion?
Should the message be one sided?
Research evidence indicates that the best ad should allow readers and viewers to form their own
conclusions ( Engel et al 1994)

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 . Drawing conclusions might cause negative reactions in the following situations:
- If the issue is simple or the audience is intelligent. The audience might be
annoyed at the attempt to explain the obvious.
- If the communicator is seen as untrustworthy, the audience might resent the
attempt to influence them.
Drawing too explicit a conclusion can also limit a product’s appeal or acceptance. One sided
messages work best with audiences that are initially predisposed to the communicator’s position, while
two sided arguments work best with audiences who are opposed. Two sided messages tend to be more
effective with better educated audiences.

The order in which arguments are presented is also important. For instance if the audience is initially
opposed to the communicator, he might start with the other side’s arguments and conclude with his or her
strongest argument.

Message format:
This involves deciding on the headline, copy, illustration and so on, for profit ad. If the message is to
be carried over the radio, the communicator has to correctly choose words, voice qualities ( speech
rate, rhythm pitch) and vocalization ( pauses, sighs, yawns)

Message source
The source of message is very important as it enhances its credibility. Messages delivered by
attractive or popular sources achieve higher attention and recall. That is why advertisers often use
celebrities as spokespeople for example Paul Tergat etc. celebrities are likely to be effective when they
personify a key product attribute.

4. Select the communication channels

The communicator must select efficient channels of communication to carry the message. A
combination various channels is often used to delivered the same message.
Communication channels are of two broad types: personal and non personal.

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 Personal channels: Involves two or more person’s communicating directly or indirectly with each
other, and derive their effectiveness by providing an opportunity for individualizing the presentation
and feedback. One may use advocate channels ( Company, sales people containing buyers) , expert
channels (independent experts making statements, to target buyers) or social channels (neighbors,
friends and family members taking to target buyers). The ‘word of mouth’ coming from upper and
social channels is very powerful in generating new business. Personal influence is particularly useful
with products that are expensive, risky or purchased infrequency.

Non – personal channels: carry messages without personal contact or interaction and include print
media, electronic media and display media ( billboards, signs art posters). It also includes the
atmospheres (the layout of the facility) such as very expensive furniture in a law firm) and events
( such as conference, grand opening and sport sponsorship to achieve specific communication effects
with a target audience).

5. Establish the total promotion budget

It is important for the company to carefully plan its promotion budget. Several approaches may be
used:
- Affordable methods – many companies set promotions to what the company can afford. This
approach completely ignores the role of promotions as an investment ant the immediate impact
of promotion on sales volume.
- Percentages of sales methods – Many companies set their promotion expenditure at a
specified percentage of sales ( current or anticipated). This ensures that the company spends
what it can afford, but it views sales as the determinant of promotional rather that as the result.
Further it leads to a budget set by the availability of funds rather that by market opportunities.
- Competitive parity method- Some companies peg their promotion budget on what is
incurred by competitors believing that such expenditures represent the collective wisdom of
the industry. This is unrealistic as companies face different challenges and opportunities as
such their promotion objectives and budgets should be different.
- Objectives and task method – This requires companies to first set specific objectives and
tasks that must be accomplished and the costs involved in performing these tasks. The sum of

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 these costs becomes the proposed promotion budget. However the problem lies with
determining how much weight promotion should receive in the total marketing.

6. Decide on the promotion mix

Management needs to decide on the distribution of the promotion budget over the promotional tools
( advertising, sales promotions, public relations and publicity, personal selling and direct marketing). The
company needs to access the effectiveness and requirements of each promotional tool and allocate funds
proportionally according to the relative importance of each tool.

7. Measuring the promotions results

This involves asking the target audience whether they recognize or recall the message, how may times
they saw it, they recall and their previous and current attitudes toward the product and company. The
company should also find out the audience response in terms of how many people bought the product,
liked it and talked to others about it.

8. Managing and coordinating the integrated marketing communication process.

In order to improve on communication, companies need to emphasis the idea of integrated market
communication, in which several tools can employed to enhance one another in the communication
process. An integrated approach improves the effectiveness of the communication process.

DEVELOPING AND MANAGING AN ADVERTISING PROGRAM

(Definition )
Developing and effective advertising program requires that managers first identify the largest
market then make the following 5 decisions ( the 5M’s)
1. Mission – Set the objectives
2. Money – Decide on the budget
3. Message – Choose the advertising message
4. Media – Decide on the media to use.

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 5. Measurable – Evaluate the effectiveness of the program.

1. Setting the advertising objectives:

There should be clear objectives for the advertising. Some of the objectives may be informative
( usually for the new products), persuasive ( to persuade customers to buy) or reminder ( to remind
customers that the product may be used in the near future).
The choice of the advertising should be based on a thorough analysis of the current market situation.

2. Deciding on the advertising budget

Specific budgets need to be prepared for each product. This requires management to consider
- Stage in the product life cycle – New products typically require a higher advert
expenditure that established brands.
- Market share and consumer base – High market share brands usually require less
allocation that for markets share brands.
- Competitors – Brands facing heavy competition require higher budget allocation that
brands facing less competition.
- Advertising frequency - The number of repetitions will affect the budget
- Sustainability of the product – Brands in a commodity class (eg cigarettes, beer and soft
drinks) require heavy advertising to establish a differential image.
- Types of media used – different media have different expenses.

3. Choosing the advertising message

The message should aim at communicating the major benefits that the brand offers. One must
decide on the styles of the message, the tone and words to be used and the format.

4. Deciding on the media.

In deciding the media to use one should decide on
- The desired reach, frequency and impact
- Choosing among major media types
- Select specific media vehicles
- Media timing

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 - Geographical media allocation

The desired reach, frequency and impact

Media selection involves finding the most cost effective media to deliver the desired number of
exposures to the target audience.
Reach ( R) is the number of different persons or households exposed to a particular message at least
once within a specific period of time .
Frequency (F) is the number if times an individual or household is exposed to a message within a
specified period.
Impact (I) is the qualitative value of an exposure through a given medium.

Choosing among major media types;

There are many types of media, such as newspapers, televisions, billboards, radio, direct mail and
magazines.
The choice of the right media should consider.
- The target audience media habits
- The product
- The message
- Cost of the various media

Selecting specific media vehicles

Within each type of media there are several vehicles with different costs and effectiveness for
example, advertising in the Daily Nation may be more expensive than advertising in the Standard, but the
Nation has a wider circulation.
Similarly, advertising in an FM station may not be as effective as using the KBC radio.

Deciding on media timing

The advertiser is faced with a macro as well as a micro scheduling problem. Macro scheduling
problems involves deciding on how to schedule the advertising in relation to seasonal and business cycle

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trends, while micro scheduling problem involves allocating advertising expenditure within a short period
to obtain maximum impact.

Deciding on geographical media allocation

The company has to decide how to allocate its advertising budget over space as well as over time. For
instance a company may decide whether to erect billboards all over the country or within selected cities.

Evaluating advertising effectiveness – it is important to evaluate the effectiveness of an advert at a

regional or rational level, within a specified period of time.

DESIGNING SALES PROMOTION AND PUBLIC RELATIONS PROGRAMS

SALES PROMOTION
Sales promotion is the functions of marketing which seeks to achieve given objectives by adding extrinsic
tangible value to a product or service. It is a function of marketing and a distinct from a marketing
communication. It involves communicating with an audience through various non-personal, non media
vehicles such as free samples, gifts, games, concerts, tradeshows, trading stamps, signs and displays,
sweepstakes are also part of sales promotion. In planning a sales promotion programme it is necessary to
work with one consultant rather than different consultants. This is enhanced when the programme is
worked out using a combination of skilled in- house executives and consultants. In engaging an agency,
the firm must give full brief regarding
i. Specific relevant information about your market
ii. Exactly what you are trying to achieve
iii. What marketing plan you have for your product
iv. The products promotion history
v. Information on competitors campaign (if any)
vi. When you want the campaign to go life
vii. What the budget is
viii. The criteria you will use when necessarily the efficiency of the product.
The major decision taken regarding sales promotion include

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• Establishing the sales promotion objectives: The objectives must be specific depending on the target
group
• Selecting the sales promotion methods: the methods used include offering free samples to
consumers reducing prices of certain product, demonstrations to encourage trial use and displays, usually
in the windows and on roads outside the shops
• Developing the sales promotion programme. It is important to clearly establish such items as
∼ size of the incentive – provide a realistic incentive that will not eat too much into the sales returns
∼ Conditions of participation- specify who should participate for example employees of the firm may
not participate because they will have an advantage over non employees
∼ Duration of the promotion – it should not be too long or too short. Slogans like ‘ buy now while
stock last are common
∼ Timing – decide when the promotion should be done. Improver timing can be very bad
∼ Total sales promotion budget – this is important as it determines what to include in the sales
promotion

Some examples of sales promotion

Games and competitions. Company arranges for games in which winners are rewarded, or they win
specific items, as is the case with beer promotion by Kenya breweries, win a house promotion by Celtel
and so on. Games lend themselves to seasonal promotions, for example they can be run to target Easter,
Ramadhan and so on. The actual prize may not be the product being promoted, as in the case of beer,
where prizes include cars. Companies also target international events like the world cup to promote their
products in which winners get prizes related to the world cup.
Free gifts. This is one of the oldest methods of sales promotion. The gift may be attached to the product,
as a pair of socks with a ruler tied onto them, or a loaf of bread with a blue band sachet, or they may be
given when one fuels at a petrol station. Sometimes the gifts may first be given out to passers by and not
buyers, for example, samples of a newly introduced tooth paste may be given out at a street to motorist. In
other cases young ladies or men are posted in supermarkets to give free samples to consumers, for
example to prepare a drink for tasting purposes. This would enable the consumer to decide whether to buy
or not. The free gifts is also away of showing faith in the product.
Rebate schemes. This involves refund of cash to consumer who have bought a certain product on
production of coupon (receipt) which specified that the item is on offer.

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Demonstration and free samples. These are also commonly done, and together with tasting, help to
popularize the product. The manufacturer has to satisfy the consumer by doing it himself ‘seeing is
believing’

PUBLICITY AND PUBLIC RELATIONS

Publicity is the non-personal stimulation of demand for a good or service by placing commercially
significant news about it in a published medium, or by making a presentation or television. But no paid

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for by an identified sponsor. Its benefits are that there are no costs for message time or space, and that it
reaches a mass audience, and within a short time new products or company policies are widely known.
Further, it enhances credibility about message because they are reported in independent media. Its
limitations are that the firm has little control over messages, their timings, their placement or coverage,
and that the firm may not be able to plan publicity in advance because new worthy happenings take place
quickly.
Public relations is not only concerned with marketing, but is actually inherent in marketing. It deals with
relations with the public. There is a public relations element in every aspect of marketing communication,
since both marketing and public relations deal with the public.
However, public relations goes beyond marketing in two aspects: First, in a commercial enterprise, public
relations deals with the communication aspects of the total organization, and interact with different
publics including opinion leaders. It should therefore be independent from marketing department.
Secondly, in some companies, the function of public relations has been subdivided into public relations
serving marketing, and public affairs serving the management.

The essence of public relations is mutual understanding. This is very important in communication and if
there is lack of understanding then public relations will have failed. Mutual understanding is important in
that marketers do not only seek to be understood, but to understand others. The strength of public
relations is its role in creating understanding
Public relations is very crucial in converting negative image to positive image as shown in figure 10.1
below
Negative Positive

Hostility Sympathy

Prejudice Acceptance

Apathy Interest
PR
Ignorance Knowledge

Fig 10.1:. The negative-to positive transfer process of public relation (source Jelkins, 1992)

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It would be unrealistic to expect 100% conversion to the positive states, but the four negative states are
the ones which the marketer can easily recognize as the barriers to the success of his marketing strategy.
You may have a good product, a good price, good packing, good distribution and good advertising, but
only up to this far, without a good public relations effort, the whole marketing strategy will fail. Public
relations can come in either by
• being made part of the marketing strategy at all levels, or
• involving public relations at key stages like in advertising
Hostility – if people hate the company, the product will not sell, however good it may be. A mortorist
may fuel only in certain petrol station and avoid others. Tourists may avoid certain tour firms while
holiday maker may avoid certain countries. Hostility may or may not be justified and while a negative
situation cannot just be wished away, can put the record straight, or present a good case when a different
situation is deserved.
Prejudice – this is more deeply rooted then hostility, and unlike hostility which may be temporary,
unjustified or sometimes as a result of misunderstanding, a prejudice usually springs from the
environment and upbringing and it is difficult to remove, although it is possible to win tolerance.
Prejudice may be derived from a company’s past performance, behaviour or reputation, and is therefore
very tricky to deal with. It cannot be removed merely by advertising, but requires a combination figure
their prejudice.
Apathy – a situation when one does not imagine that something can happen to him, e.g attitude towards
seat belt, life insurance, household security systems and so on. People think it will never happen to them,
or they are too busy thinking of other things
Ignorance – this is the biggest negative factor! The more are know, the less we know. Marketers often
assure that other people know everything and end up not telling them what they should... all because of
ignorance. The market needs to be educated before advertising can personate effectively, and Public
Relations is an educational operation. Public Relations can help to create demand not through
underhanded stimulation but by producing interest, knowledge and understanding.

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 SALES AND SALES MANAGEMENT

PERSONAL SELLING

This is an oral presentation in a conversation between one or more prospective buyers. It involves
communicating directly with an audience through paid personnel of the organization or its agents (sales
people). May include door to door selling where sales people move from door to door selling goods. It is
common when larger volume of customers require special attention and handling, and for customer made,
expensive and/or complex goods or services that require demonstration and follow-up calls. Also useful
for new products, and for organizational customers.
Effective personal selling depends on how well the sales force is managed. This management revolves
around the following areas.
∼ Establishing the sales force objectives- This involves clearly stating the sales objectives in precise,
measurable terms for instance, stating what is to be accomplished within a specific period.
∼ Recruitment and selection of the sales people – this involves getting sufficiently qualified people to
serve as sales persons
∼ Training the sales people. Once recruited, the sales people should be adequately trained to ensure
that they understand what is expected of them. Refresher courses are also necessary for the experienced

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staff to update their skills compensating the sales people. The organization must formulate and work out a
compensation scheme that attracts, motivates and retains most effective sales people. This involves not
only paying them adequately but also reimbursing their traveling expenses and providing certain fringe
benefits. Motivating the sales people- it is important to use both financial as well as non financial
incentives to motivate sales people.
The personal selling process
The personal selling process goes through several stages which include prospecting, determination of
customer needs, Selection of a sales approach, Communicating with the buyer and Evaluation.
Prospecting. This is a very important role for a salesperson. It involves identifying and qualifying
potential customers. Sales people should not just concentrate with the existing customers, but should also
try to identify people who could become databases, trade shows and from customs inquiries.
Determining customer needs. The sales person should learn as much as possible about the customer so
that he or she can identify the customer needs and be able to solve them. The sales person should
encourage tan way communication whenever a call comes in try to probe and find out as much as possible
about the seller.
Selecting a sales approach. The sales person needs to find on appropriate way to approach the prospect.
For most, there should be an attempt to influence the customer to switch to the company’s products, and
to change the customer belief about the company and its products.
Communicating with the buyer. Three approaches may be used. The first one is Canned approach, in
which the sales person follows a predefined script without regard to the customers’ response. This works
well when the sales person has very little time and has little knowledge about the customer needs. Useful
in door to door selling or telephone selling. The second approach is Formula selling, which provides
information to customers in a step by step manner to persuade the customer to buy. Work well when the
sales person has already identified the customer needs. The third approach is Problem solving, which
requires the sales person to spend time obtaining an in-depth understanding of the customer and
formulating a sales approach accordingly. This is very useful in consultative selling since products and
services are usually custom made to meet customer needs.
Evaluation. This is very important in order to know the effectiveness of the sales approach. It provides
information necessary for appropriate follow up after the sales call. If a sale has been made, follow up is
necessary to ensure that there is an excellent chance to repeat purchase.

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The personal selling process may also be explained by using the following steps
which focus on the goal of getting new customers and obtaining orders from them.

Prospecting and Pre-approach Approach Presentation and

qualifying demonstration

Handling Closing Follow

objectives up

1. Prospecting and qualifying

Prospecting involves identifying qualified potential customers. Approaching the right potential
customers is very crucial to selling process. Sales person must often approach many prospects to get
just a few sales. He may needto build referral sources or data bank of potential customers for future
use.
The sales people also need to know how to quantity leads that is how to identify the good ones and
screen out the poor ones. Those willing and are capable of buying.

2. Pre-approach
The sales person needs to learn as much as possible about the organization (what it needs, who is
involved in buying) and its buyers (their characteristic buying styles). One should call and talk to the
companies.

3. Approach
During the stage the sales person should know how to meet and greet the buyer did get the
relationship off a good start. This step involves the salesperson appearance, opening lines and the
following up remarks.

4. Presentation and demonstration

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The salesperson tells the product story to the buyer, showing how the product will make or save
money. The sales person describes the product features but concentrates on presenting customer
benefits. Using a needs satisfaction approach, the sales person starts with a search for the customers
needs by getting the customer to do most of the talking. This requires good listening and problem,
soling dulls. The qualities that purchasing agents dislike most include being pushy, late and
unprepared or disorganized. The qualities they value most include empathy, honesty, dependability,
and thoroughness. Sales presentation can be improved with demonstration aids such as booklets, flip
charts, slides, video tapes and product samples, Use AIDA approach.

5. Handling objections
The sales person seeks out, clarifies and overcomes customer objections to buying. He should use a
positive approach, seek out hidden objections, ask the buyer to clarify any objections, take objections
as opportunities to provide more information, and turn the objections into reasons for buying.

6. Closing
After handling the objections, the salesperson tries to close the sale. It involves obtaining agreement
to buy, and is the action step.
A trial (mock) close may be sued to gauge readiness to close. One could start by asking questions that
lead to commitment e.g. would you prefer blue or red shirt? Would you prefer to pay cash or by
cheque. As the prospect gets closer to a decision, the salesperson can often finalize the sale with
assumptive close. He assures the prospect is going to buy and beings asking questions that will settle
details of the purchase e.g. questions like. Would you want this delivered? This question indicates that
the process has progressed beyond the decision to buy

7. Servicing customers after the sale (post purchase follow up)

The purpose is to ensure customer satisfaction and respect purchase. An effective selling goals does
not end when the order is written up, and should be followed by a series of post purchase service to
build customer good will and lay the ground work for future business.
The salesperson should follow up to ensure that no problems occur in delivery, financing, installation,
routine maintenance and so forth. All these activities reduce the customers post purchase anxiety or

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 cognitive dissonance. (Dissonance leads buyer to seek a reassurance that a correct choice was made
and to avoid information that would suggest that some other alternative would have been better.

DESIGNING THE SALES FORCE

COMPENSATING SALES PERSONNEL
Compensation deals with determination and provision of monetary payment for staffs for the work they
do. The compensation plan should be done such a way that it fills into a company’s special needs and
problems, in the sense that the company should try to pay only that which it can afford to pay and sustain.
A good sales compensation plan serves three motivations roles.
1. Provides a living wage
2. Adjusts pay levels to performance thereby relating
3. Providing a meeting point between meeting a company’s goals and individual goals.

Requirements of good sales compensation plan

1. Provides a living wage, so that staffs have the money they need and can concentrate on work.
2. Should fit in with the other motivational factors without causing conflicts.
3. Should be commensurate with performance (should be equitable) and not penalize staff in fairly.
4. Should be easy to understand by the sales personnel they should be able to compute their salaries.
5. Should be able to adjust to changes in performance
6. Should be economical to administer
7. Should help in attaining the plain of the sales organization.

Developing a sales compensation plan

Developing a sale compensation plans requires the execution to go through a systematic plan of steps.
These include:
1. Define the sales job
Job description should be clearly done to explain the nature of the job. This should be updated to
match it with changing situations. The sales person’s goals, duties and activities should be clearly
spelt out.
2. Consider the company’s General compensation structure

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This requires evaluating the jobs to determine the relative value of individual job. There are for main
job evaluation methods
• Simple ranking: This is an inexpensive method used by small companies, and involves sorting out
job descriptions in the order of their worth.
• Classification or grading – uses a system of grades and grade descriptions, against which
individual jobs are compared. The descriptions are put under those grades or classes, cash grade
with its own worth.
• Point system – very common, involves establishing and defining the factors common in most jobs
that represent the chief elements of value found in all jobs. The way factors are assigned a
minimum and maximum number of points and then total scores obtained. Finally groups of points
are worked out to become the different compensation classes.
• Factor compensation method – resembles the point supply but more complex. It involves use of
factors as in point system, but these are subjected to a lot of cross-comparisons to minimize error
from faulty judgement.

3. Consider compensation patterns in industry one should consider the prevailing pamphlets in other
companies and in the community. The compensation plan should take into account the current rates
for sales positions in the community and industry.
4. Determine compensation level.
Management should come up with the actual amount to pay to each staff, according to their grades or
job group (class). This may involve some bargaining between the sales person and the executive, or
may be determined through judgment by the management. The company must carefully consider its
ability to sustain the payment for its staff.
5. Provide for various compensation elements.
The plan should accommodate the various elements such as the fixed element, variable element, the
fringe factor element and reimbursement of expenses or payment of expense allowance.
Fixed – Salary Fridge – Pensions, medical allowance
Variable – Bonus and Commission
6. Special company needs and problems
The sales compensation plan must consider the needs of the company. For example, it can be used to
stimulate more sales and effectiveness, for instance using variable commission rates on different

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 products highest rates being for neglected products. The plan should also control traveling expenses
and other allowances.
7. Consult the present sales force
Management should encourage the sales personnel articulate their likes and dislikes about the current
plan and to suggest changes to it. It should also compare the caliber of the sales personnel it has with
what it desires to have.
8. Reduce tentative plan to writing and pretest it
The tentative plan is finally put in writing and pretested. The amount of testing depends upon how
much the new plan differs from the one in use. Pretesting involves mathematically reworking the
previous year pay will with the new plan and seeing how the problem experienced the past have been
handled by the current plan. The proposed plan is applied in different territories long enough to detect
how it works under current conditions. These pilot tests are very important in detecting possible
sources of trouble and deficiencies.
9. Revise the plan
The plan is revised to eliminate trouble spots or deficiencies. If alternations are extensive, the revised
plan goes through further pretests to make sure it works.
10. Implement the plan and provide follow-up
In implementing the plan, sales personnel should explained and convinced that the new plan is
necessary and better than the previous one. They should be give a copy of the new plan, with
examples of the computations done. No effort is spared to make certain that everyone on the sales
force fully comprehends the compensation plan and its working. Provisions for follow up are made so
that periodic check ups are made and need for further adjustments detected.

Types of Compensation Plan

1. Straight salary plan
This involves a fixed payment on regular intervals (weekly or monthly). A very common plan in
many companies, although many companies are shifting from it.
Its strength to the management is that it provides financial control over sales personnel, as that
management can direct the sales personnel along the most productive lines – it is also beneficial to the
sales personnel because they are guaranteed of a fixed wage.
Its shortcomings are that,

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- Sales personnel may not work hard enough to improve on sales
- Productive sales personnel may be under compensated at the expensive of the unproductive joy
riders.
- It is difficult to maintain the morale of the staff.
- It is difficult to adjust to changing conditions

2. Straight Commission Plan

Involves paying commissions based on the volume of sales, such that each sales person is paid
according to his output. This is common in clothing, texture and show industries, and also in most
insurance and investment securities companies.
Advantages
- Very motivating to staff- provides maximum direct monetary incentive to staff.
- Staff are paid according to their productivity
- Provides flexibility for revising commission rates for different products.
Weaknesses
- Provides with financial control over sales people activities, especially when they pay their
expense.
- People may not bother about quality of services, so long as they deliver.
- Sales persons may use high pressure – tactics among customers, leading to loss of customer
goodwill.
- Costs of analyzing and monitoring sales person reports are higher than for straight salary method.
3. Combination salary and incentive plan
This combines the salary and commission plans, such that staff are paid a fixed salary for some
maximum level of performance than a commission for extra output above the maximum required
level of output.
Advantages
- Staff are assured of salary, but also have extra incentives
- Provides for fixed and variable elements, and is therefore flexible.
Disadvantages
- High clerical costs as compared to either a salary or a commission system in more records are
maintained and in greater detail

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 - May be too complicated for staff to understand.

BONUSES
A bonus is an amount paid for accomplishing a specific sales tasks, and is therefore different from a
commission which varies with sales volume. Bonuses are paid for reaching a sales quota performing
promotional activities, or carrying out other assigned duties. They are never used above, and always
appear with one of the three main sales compensation methods, sales people need to be fully explained
about the bonus to be paid, so that they understand it.

FRINGE BENEFITS
Bonuses are not motivating factors, and are given by companies to retain staff in the company, and to
provide them with a feeling of safety and security. However, some of them such as payment of child fees
contribute to fulfillment of higher order needs such as esteem needs.
Since they are given to all staff regardless of job performance, fringe benefits help to prevent job
dissatisfaction but do not add to job satisfaction.
Fringe benefits under different categories
Time: Holiday, vacation, sabbaticals, maternity leave, sick leave.
Retirement: pension plan, profit sharing, social security.
Insurance/Medical: Medical schemes, life insurance, accident insurance, travel insurance, medical
payments and reimbursement.

Job Analysis – a sampling and analyzing factual information on specific jobs. It provides data required
for preparing written job description, which is turn are used to derive job specifications. Sales job analysis
requires systematic collection and study of information on particular sales jobs. It involves determining
the jobs objectives, and what the person holding the job should do to reach the objectives.

Job specification – coming up with the qualifications that an individual needs to perform the job
satisfactorily. Academic and professional training, experience and any other specific skills and as
possession of a clean driving license

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Job description – describes the duties and responsibilities of a job, the reporting relationships and the job
objectives. A sales job description tells to whom the sales person reports, what has to be done, how it is
done, at why, and the standards against which performance is measured.
RECRUITMENT OF SALES PERSONNEL
This is one of the key responsibilities of a sales executive. It involves determining the right kind of sales
personnel and sourcing for them. Once the desired kind of personnel is determined, implementation
involves job analysis, job description and specification so that those doing the recruitment will have clear
guidelines as to who to look for.
Recruitment should be a continuous process in order to replace those who learn the job for various
reasons.
Selection involves getting the right personnel from among the applicants, received and is sometimes seen
as part of the recruitment process, since recruitment would be incomplete without selection.

Sources of sales force recruits

There are both internal and external sources.
Internal sources
These include
i) Company sales personnel who recommended people they know to the management for placement.
Sales people are a particularly useful source of recommendations when jobs must be filled in remote
territories in which only the sales people know the right people to do the work.
ii) Company executives – recommendations of the sales manager or other chief executives is a major
source. Provided the executives are not biased. They can recommend very competent people they may
have encountered in conferences, in other companies and so on.
iii) Internal transfers – these involve staff being deployed to the sales department from other departments,
these are people with a wide experience about the company and its products, although they may have
little selling experience.

External Sources
External sources include:
i) Direct unsolicited applicants – these are applications from people who first apply for positions
not declared vacant, and either drop or post the letter to the company. Management should not

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 ignore these applications, and should be processed along with other applications for possible
placements.
ii) Employment agencies – these are many agencies that keep a databank or prospective
employees (job seeker) and can provide very good CVs, provided they know what the
company requires. The agencies can also administer interviews along with the company to
select the best candidates.
iii) Recommendation by customers – customers may recommend suitable persons to the company.
iv) Sales person from competing firms – the company may recruit people from competing
companies, but these are expensive to get because of their demands, since they are unlikely to
accept less than what they already have.
v) Educational institutions – these include universities, polytechnics, and other training colleges,
and high schools. Person from these institutions are usually recruited as management trainees
that they just so through training before they are fully absorbed.

The recruitment effort involves identifying the number of positions that need to be filled, then coming up
with a suitable job description and specification. The position is then advertised either internally or
externally, requiring interested applicants to apply within a specified time period. The company must give
full details of application procedure, and what the applicants must provide.

SELECTING SALES PERSONNEL

The selection process involves scrutinizing the applicants against the requirements and coming up with
the best applicants to fill the positions. It refers from simple one step systems consisting of merely an
informal personnel interview, to complex multiple step systems involving series of interviews and
practical experiments.
The selection process starts with an initial short listing exercise in which those who do not meet the
minimum requirement are out rightly rejected, while short listed ones are subjected to interviews. The
interview process starts with preliminary interview which is short and trainees and the company and the
job. This is followed by non detailed interview involving knowledge of the job ability to perform. Some
companies provide detailed interview application forms which ask for specific details, making the
selection process much easier.

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THE INTERVIEW
The interview is the commonest method used for selection. This is usually, verbal and the applicant
should be interviewed by a board of interviewees seated together, so that bias is minimized. The interview
should be as interactive as possible and should allow the applicant to seek clarifications or information he
may not know about he company. The interviewees must remain focused on the job requirements and
avoid digressing too much with irrelevant issues.
Written tests may also be included as part of the interviewing process.
The interview should be carefully arranged so that the applicant does not lose interest in the job. He
should be made to feel that the company is the best to work for (but the panel must avoid creating wrong
impressions)
Placements
Once the interview is over and the right persons have been identified, they should be limited to take up
the job. This is the process of placement on what the new recruit finally signs an employment contract
with the company and takes up the job.
Orientation /induction
This involves helping the new recruit to settle down on the job. He should be shown around the company
and introduced to various officers with whom he will interact. He should be shown key facilities like
parking, toilets, conference rooms and so on. If possible, he should be given a manual guide with details
of company policies and practices.

TRAINING SALES PERSONNEL

The purpose of training sales personnel is to achieve improved performance. Training supplements
experience. There are many training programs, ranging from simple refresher courses to more
comprehensive programs. Building a sales training program requires five major decisions:
i) Defining the training aims (why)
ii) Identifying the content (what)
iii) Selecting training methods (how)
iv) The actual training execution (who, when, where)
v) Evaluating results
Abbreviated with acronym (A.C.M.E.E)
1. Defining Training Aims

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There must be clear aims for the training, which must be defined both in general and specific terms.
The specific aims are expressed in operational terms. The aims are themselves developed after
training needs have been identified. These training needs are identified after considering job
specifications and descriptions. The firms first identifies the initial training needs mainly for new
employees. It should also identify continuing training needs for experienced employees, to keep them
updated on latest technological changes.
2. Deciding Training Content
Training content is developed from specific aims developed by the management after analyzing
training needs. Relevant training content covering all areas of sales training programs must be
developed, although for continuing training, the content should be based on more specific aspects
areas generally covered included product data (uses, applications, method of production etc), sales
techniques (communication, dressing, intelligence etc) markets (buyer habits, location, who are the
customers) and company information (policies, procedures, culture, opportunities, promotion
procedures, disciplinary cases etc).
3. Training methods
There are many methods depending on the content, and management must select those training
methods that most effectively convey the desired content. These methods include.

- Lecture - Gaming
- Conference - On the job training
- Demonstration - Correspondence courses
- Role playing - Case discussions
i) Lecture Method
This involves to the trainees with little interaction for discussions. It is manly passive rather than
active, trainee participation. Its main weakness is emphasis on teaching rather than learning. But it
can be made more effective by using relevant examples, demonstrations and visual aids. It is
cheaper than most of the other methods and saves time. Use of multimedia technique such as
video screens, projectors, charts and graphs can enhance efficiency of the lecture method.
ii) Personal Conference
In the case, the trainer (usually the sales executive) and the trainee jointly analyze problems such
as handling unusual selling problems or effective use of time. It is an unstructured and informal

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 method which varies with the personalities of the trainer and the trainee and the topic of
discussions.
iii) Demonstration
This is very useful for conveying information on such issues as new products and selling
techniques. Demonstrating how a new product works in more effective than the lecture methods.
Demonstrations are generally used alongside the other methods to make those methods more
exciting and effective.
iv) Role playing
The trainer simulates a selling situation, then designates the trainees to play the sales person,
prospect and other characters. Each plays his/her assigned role, after which, they together with
other group member appraise each other’s effectiveness and suggest how the performance of each
might have been improved.
Role playing requires participants to become actively and emotionally identified with the
characters they represent, which is not easy. But role playing has many benefits. It provides a
realistic practice in applying what has been learnt in other training or by experience.
It is flexible and adapts to extreme diversity in role playing situations. Other benefits includes: -
• Trainees learn to accept criticism from others, and the group soon recognizes the need to
recognize suggestions of others.
• When a trainee is criticized by others, he learn not to repeat the mistake later
• In role playing sessions for mixed groups, junior staffs have a chance to learn from more
experienced staff.
• Role players gain acting experience which may help later in handling difficult selling
situations.
v) Case Discussion
This involves use of practical cases from other companies. The trainees are given practical case
that may have happened in other companies and asked to make decisions on the cases. Trainees
discussing a case should identify the issues, gather the relevant facts, divide specific alternatives
and choose the one most appropriate.
vi) Gaming
This is also called gaming and somehow resembles role playing. It uses highly structured
situations based on reality, in which players assume decision making roles through successive

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 rounds of play. A unique feature is that players receive information feed back. In one situation,
trainees play the roles of decisions makers in customer’s organizations and make decisions on
timing and size of order, and advertising efforts. Results of thee decisions are then evaluated and
feedback given for use in the next round of decisions.

Advantages
• Participants learn easily because they involve themselves in the play.
• Players develop skill in identifying key factor influencing decisions.
• Games made it possible to easily demonstrate uses and value of various analytical
techniques.

Limitations
• Requires some minimum time for playing to generate sufficient decision, hence may be
time consuming.
• Poorly designed games may make players learn the wrong thing.
vii) On the job training
This combines telling, showing, practicing and evaluating, the trainee learns under the supervisor
or a professional trainer on real work situations. Under the trainer’s supervision, the trainee makes
sales calls, each one followed by discussion and appraisal. Gradually, the trainee works more and
more on his or her own, but with continuing although less frequent coaching.
On the job training is an important part of most initial sales training programs. It is appropriate for
developing trainee’s skills in making sales presentations, answering objections, and choosing
sales.
Effectiveness of this method depends mainly on the coach’s qualifications and dedication. Many
experienced sales people otherwise qualified for coaching are unwilling to spend the necessary
time and effort on training, especially when they are paid commission on sales.
viii) Correspondence Courses
This is used in both initial and continuing sales training. It is used to acquaint new sales people
with industry fundamentals and basic sales techniques. It is also used to acquaint experienced
sales people with new product developments and applications. It is most appropriate as an

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 interim training method when trainees scattered geographically but are assembled periodically
for lecturers, seminars, role playing and other information.
Successful use of the correspondence method requires administrative skill. Its greatest problem
is how to motivate trainees to complete and submit assignments on time as many of the trainees
have many commitment related to their work, need self discipline to spare sometime for reading.

4. Executing the sales training program

The execution step requires several decisions as to
- who will do the training
- when the training will take place
- And where the training will take place
The trainers must be notified in good time and given a clear programs answering the three questions.
Adequate preparation of accommodation travel arrangements and stationery must also be arranged, in
addition to instructional materials, and assembling of training aids.
Effective program execution depends upon instructional skills as well as coordination of planning and
housekeeping details.
There are two philosophies of sales training:-
i) Conditioned response – seeks to train sales personnel to respond in standardized or programmed
ways e.g. by giving multiple choice questions.
ii) Insight – response philosophy seeks to develop trainee’s insight and analytical skills so that they
respond appropriately, and in their own individualized ways e.g. by giving easy type questions.

Organization for sales training

This involves answering the questions:
Who will be trained? – this involves identifies training needs of the staff and identifying those to be
trained at different levels. It should be done very objectively to minimize bias.
Who will do the training? Some companies have training managers who coordinate the training and
identify who is to do the training. Trainers may be solved internally from among the executives, or
from outside experts.
When will the training take place?

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 Training may be individual or group. It is cheaper to train a group than individual. Either way, proper
training is important, so that the staff to be train benefit at the right time. Regular scheduling training
programs is a disable, so that staff are kept updated on various selling techniques.
Where is the training to take place?
Choose of an appropriate training venue is necessary. Some companies opt to train staffs with their
own premises while other arrange workshops in hotels. In some cases centralized training is arranged
for all staff, while in other case, decentralized training is done in which each department arranges for
their own training.
Instructional materials and training aids
These include manuals to serve as study guides during training and as references later, printed
materials such as journals and business magazines and training aids such as flip charts, slides,
transparencies and projectors. All these must be assembled in good time.
5. Evaluating sales training program
Evaluation involves comparing the program’s aims with the actual results. For example, assessing
whether the training has resulted in increased sales, or the time a trained sales person takes to attain
the level of sales for an experienced sales person. Bid even before this is done, there should be a self
evaluation during the training in which the trainees fill a form to indicate their feeling, about the
training. The purpose is to obtain insight for improving the effectiveness of future programs. Trainers
may also rate each trainees performance in role-playing panels and other discussion. Although this is
subjective, it provides learning incentives. In other cases, trainees are asked to rate each trainer’s
performance, either in each session or in the total program. This may stimulate trainers to improve
their effectiveness.

MOTIVATING SALES PERSONNEL

Motivation is a goal oriented behaviour, and is the amount of effort the sales person desires to extend on
the activities associated with the sales job such as calling on the potential accounts or planning sales
presentations.
The sales executive’s ability to attain high sales depends on the composite performances of the individual
sales persons. Their behaviour, and inner drives towards improved performance is therefore very
important. Most sales personnel require motivation to reach and maintain satisfactory performance levels.
Some of the reasons why sales personnel require additional motivation include:

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i) The inherent nature of their job – a sales job involves many challenges, including interacting
with both pleasant as well as unpleasant people. It can be very frustrating and depressing,
especially when expected sales are not forthcoming.
ii) Sales person’s boundary position and role conflict – a sales person finds himself /herself in a
boundary position, serving people both within the company and in customer organizations. He
must try to satisfy the needs and expectations of both teams, which can raise conflicts.
iii) Tendency towards apathy – some sales people tend to relax once they are used to their
customer and take it. For granted that their customers will always buy their products. They
need to be motivation to create increased enthusiasm and avoid relaxing, as the customers they
assure they have can easily be won by competitors.
iv) Maintaining a feeling of group identity.
Many sales people are often alone in the field, and maintaining team spirit until the other
members is difficult. Motivation can encourage them to work towards attaining group
performance standards and to maintain team spirit with their colleagues.

Maslow’s Theory of Motivation

This is the commonest theory and was developed by Abraham Maslow, a psychologist. It is based on
needs satisfactions in which needs are arranged in a hierarchical order.

Self actualization
Esteem need
Love and belongingness
Safety needs
Physiological needs

As a need at a particular level is satisfied, it loses its potency as a motivator, but other unfulfilled
needs gain in potency.

Physiological
The most basic, include shelter, food, water, air, sex.

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 Safety needs
Job security, welfare at work, medical care, work environment such as ventilation, protective gear,
gloves and uniform.
Love and belongingness
- Feeling of being accepted by colleagues and by company
- Association with colleagues
- Acceptance, appreciation
Esteem needs
- Promotions, status
- Job enrichment
- Challenging job and assignment
- Meeting set sales targets
Self actualization
Person has reached the highest level of achievement.

Sales people can be motivated at the different levels either buy use of financial or non financial
incentives.
Financial incentives
- Usually cash payments in form of salary, wages, overtime pay, bonuses and allowances.
- Usually for satisfying lower level needs such as food and shelter
- Mainly for motivating subordinates
- Sales people with school going children, large families or heavy financial obligations can
effectively be motivated by use of financial incentives.

Non Financial Incentives

- Do not involve use of money, and are more effective for top management, those sales people
worse desire for work is first status. They include recognition promotion, spacious office,
company car, attractive job title, annual service wards etc.

Herzberg’s two factor theory

Fredrick Herzberg came up with two factor theory in which needs are categorized into two groups

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Motivator – job context factors which are higher level
Motivation – they relate to the environment of work and include achievement, recognition, advancement,
work itself and responsibility. They create strong motivation and satisfaction among staff.
Hygiene factor – they are job content factors and are called maintenance factor, since their presence
creates no satisfaction, but their absence causes dissatisfaction. They are called hygiene factor because
they support employees ‘mental’ health.

This theory has tow implications for sales management

1. Management must see that the job provides the conditions that prevent job dissatisfaction –
that is create an acceptable work environment, fair compensation, fair and reasonable supervision and
job security. To provide motivation for a fair day’s work.
2. Management must provide condition for achievement, recognition, responsibility and
advancement – to provide motivation beyond a fair day’s work.
Factor If present If absent
Hygiene factors No satisfaction Dissatisfaction
Motivating factors Satisfaction (motivation) No satisfaction (no motivation)

MANAGING THE SALES FORCE

Sales force management is the analysis, planning, implementation and control of sales force activities, it
includes – designing sales force strategy and structure, recruiting, selecting, training, compensating,
supervising and evaluating the firm’s sales people.

Designing Sales force strategy and structure

If a company sells only one product line to one industry with customers in many locations, it would use a
territorial sales force structure. However, if it sells many products to many types of customers, it might
need either a product sales force structure, a customer sales force structure, or a combination of both.

1. Territorial Sales force structure

Each salesperson is assigned to an exclusive geographic area and sells the company’s full line of
products or services to all customers in that territory.
Advantage

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 - Clearly defines the sales person’s job and since only one sales man is responsible for a
territory he gets all the credit or blame for territory sales.
- Increases the sales person’s desire to build local business relations that in turn improve
selling effectiveness.
- Travel expenses for sales persons is reduced
The structure may have several levels of reporting e.g. sales mechanizes reporting to sales
representative who report to retail supervisors. The supervisors report to directors of retail sales
operators, who report to regional sales managers.

2. Product sales force structure

The sales force sell along product line and so they specialize in selling only a portion of the
company’s product lines. The problem may arise when sales force people from the same company
end up in one customer perhaps with different products of that company. For example, sales people
selling different drugs from a company may end up in one hospital at the same time. This leads to
increased expenses, which must be compared with the benefits of better product knowledge and
attention to individual products.

3. Customer sales force structure

The sales force is organized along customer or industry liners. The sales force is organized to serve
different industries or customers. This helps a company to become more customer focused and build
close relationship with important customers.

4. Complex sales force structures

This involves combining several sales force structures, in situations where a company handles a
wide variety of products among many types of customers over a broad geographic area.

NB:
No single structure is best for all companies and situations, and each company should select a sales force
structure that best serves the needs of its customers and fits its overall marketing strategy.

Trends in personal selling

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Personal selling has been changing over the years, and some of the areas include
Information accessibility. There have been major developments in IT since the 1980’s leading to greater
accessibility of information by the sales people. The internet and mobile phones have made it very easy
for sales people to do business without having to travel long distances. They can also easily communicate
with the head office when they are in the field. People can today get a lot of information from the internet
at very reasonable costs
Telemarketing. This involves making sales by use of telephone, in order to avoid the cost of travel by the
sales people. In many companies orders are placed through the phone and sales are also concluded
through the phone.

CHARACTERISTICS OF SERVICES AND THEIR MARKETING IMPLICATIONS

Intangibility
Services are intangible and cannot be seen, touched, felt or smelt before they are bought. To reduce
uncertainty, the buyer will look for signs or evidence of the service quality by drawing inferences about
service quality from the place, people, symbols and the price they sell.

Inseparability
Services are usually produced and consumed simultaneously. Thus, the client is also present when
the service is produced.
Provider- client interaction is a special feature of services marketing.

Variability

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 Since services depend on who provides them, when and where they are provided, services are
highly variable. Firms therefore should try to have well trained service providers to maintain high quality
of their services and also to standardize their service provision processes.

Perishability
Services cannot be stored and if not utilized at the time they are available, they simply disappear.
For example if a manager fails to turn up for a conference presentation, he misses the proceedings.
Companies can prepare to take care of high demand periods by providing more personnel to provide
services during the peak hours.

MARKETING OF SEVICES
A service is any act or performance that one party offers to another that is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied to a physical product.

Companies often offer a combination of tangible and intangible products. Several categories can be
identified;
- Pure tangible goods – Often consist primarily of a tangible goods such as soaps, toothpaste
etc, without any accompanying services.
- Tangible goods with accompanying services. – This usually applies for industrial goods
whose supply is often accompanied by some services such as transportation, demonstrations,
training and servicing.
- Hybrid – The offer consists of equal parts of goods and services. For example people in a
restaurant get both foods as well as services.
- Major service with accompanying minor goods and services – The offer comprises major
service with minimum goods, for example s\air travel is essentially a service, but passengers may
get some drinks or meals while on board.
- Pure services – Offer consists primarily of a service for example baby sitting,
psychotherapy and massage

Marketing strategies for service firms

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The application of marketing strategies for service firms is increasingly becoming important, unlike in the
past when services firms did not think it was necessary to practice marketing. However its market is
difficult to apply the traditional 4 P’s marketing approaches for services. Booms and Bitner have
suggested three additional 3P’s, namely people, physical audience, and processes.
- People – since most services are provided by people, the selection, training and innovation
of employees can make a difference I customer satisfaction.
- Physical audience – Companies try to demonstrate evidence of quality through a physical
presentation, such as office layouts, dress, equipment and furniture. For example in a banking hall,
banks maintain very neat floors, play some soft music and so on.
- Processes – Companies choose difficult processes to deliver their services. This may involve
both external marketing ( how the company prepares, prices, promotes and distributes services to
customers) as well as internal marketing ( how the company trains and motivates its employees)

Service companies face three tasks, namely increasing their competitive differentiation, their
service quality and their productivity.

Managing differentiation
Service marketers often find it difficult to differentiate their services from those of competitors.
They often try to deal with price competitors by developing a differentiated offer, delivery and or image.

1. Offer - this can include innovation features to distinguish it from competitors. For example an airline
can include hotel accommodation for its clients at some points or banking having credit cards for
customers. ATM services are also additional offers by banks. The only problem with service offers is
that they are easy to copy.
2. Delivery – A service company can try to differentiate its delivery which is of higher quality than that
of competitors. For example a fast food dealer can deliver meals to offices. Similarly a mechanic can
provide his clients with a car to use during the time that the client’s car is at the garage.
3. Image – Image can also be differentiated, through symbols and branding. For example KCB uses the
lion as its symbol, which convey the impression of strength, Nakumatt supermarkets use the elephant
to imply large size, where customers can get everything under one roof.

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Managing service quality and productivity
Service firms try to provide service quality that can meet or exceed the target customer’s service
quality expectations.
The firms need to have clearly stated quality control indicators that can be used to guide service
quality.
Excellently managed service companies share the following common practices.
- Strategic concept – they have a clear sense of their target customers and the customer’s needs
they are trying to satisfy.
- History of top management commitment to quality – Management of such companied tend to
be very concerned about quality of services and closely monitor financial as well as service
performance.
- Services for monitoring service performance – Such companies audit service performance both
for themselves and those of their competitors on a regular basis. They use various criteria,
including ghost shopping to find out employees deliver good service.
- High standards – They set high service – quality standards. For example, Swiss air aims at
having 96% more of its passengers rate its services as good or superior.
- Systems for satisfying customers complaints – Company employees who receive complaints
must be trained and empowered to resolve customer problems speedily and satisfactorily. The
company should go beyond satisfying particular customers to discovering the root cause of
frequent problems.
- Satisfying both employees and customers – They aim at satisfying employees in order to cope
with the demands on their lives outside the office. They believe that employee relations will
reflect on customer relations.

MANAGING PRODUCT SUPPORT SERVICES

Just like for other products, service products need to provide buyers with product support services.
The company must define a customer needs carefully in designing both the product and the product
support system. They must take into account the worries that buyer have.
- The failure frequency of a product
- The dependability of the product

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 - The cost of maintenance and repair.

The importance of reliability, service dependability and maintenance vary among different
products and product users. Thus to provide the best support, a manufactures must identify the services
that customers value most and their relative importance. Manufacturers need to plan their product designs
and services and mix decisions in close coordination so that any product designed will reduce the amount
of subsequent servicing needed.
Companies must describe how they want to offer after – sales services ( eg maintenance and repair
as well as training) to customers. Some companies have customers service departments, while others
handle the problem as they come, passing them over to the relevant officers to deal with. There are still
other firms that train personnel of their clients to services the equipment, while some first insist on
providing the technical services instead of training other people.
Over time manufacturers switch more of the maintenance and repair services to authorized
distributors and dealers. These dealers and distributors are closer to the customers operate in more
locations and can offer quicker (sometimes better ) services.

INTERNATIONAL MARKETING
Meaning of International Business
International Business may be defined as any business activities that take place across national
boundaries. This includes international trade, foreign manufacturing and service business. It may also be
defined as … any business activity carried out across national borders by business firms in pursuit of their
stated aims and objectives. International marketing is defined as “performance of one or more of those
activities which direct the flow of goods or services across national boundaries”.
It may also be defined as the performance of those activities that direct the flow of goods from one
country to another country. It involves the marketing of goods and services outside an organization’s
home country. From the definitions given, it is clear that international business, international trade, and
international marketing are often used interchangeably and refer to the same business practices. To be
able to understand international marketing, we need to define the various terminologies which have
aspects of cross border trading. Examples of these terminologies are:-

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(a) Domestic marketing
This involves marketing within the home country. It may be done consciously as a strategic choice or
unconsciously in order to avoid the challenge of learning how to market outside the home country.

(b) Export marketing

This is the stage towards addressing market opportunities outside the home country. The marketer relies
upon the home country production to supply products for outside countries.

(c) International marketing

The international marketer goes beyond the export and becomes more involved in the marketing
environment in the countries in which the company is doing business. He is more likely to source for
products outside the home country in order to gain greater competitive advantage and also seeks to
establish direct representation to coordinate marketing effort, rather than rely on the intermediaries.

(d) Multinational marketing

This begins by focusing leverage on a company’s experience and productivity, and adapts a company’s
marketing to the unique needs and wants of customers in each country. It is complex form of
international marketing that involves an organization engaged in marketing operations in many foreign
countries.

(e) Global /Transnational marketing

This focuses upon leveraging a country assets, experience and products globally and upon adapting what
is truly unique and different in each country. It recognizes cultural universals and unique market
differences.

The arena in which international trade operates is different from the one involving local trade, because of
such factors as
- different political set ups
- differences in language

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 - trade restrictions such as tariffs, quotas and bans imposed by the foreign country some of the
reason that motivate a firm towards international trade include

Reasons Why Firms Go International

There are many reasons why firms go international. Some these include;
1. The need to export surplus stock – as a result of increased efficiency in productivity, firms are
able to produce excess goods, and therefore look for a market abroad for the excess stock. As a
rule, a country should satisfy its local demand before turning to international trade.
2. To earn foreign exchange. A country encourages firms to engage in international trade so that it
can earn foreign exchange Kenya for example exports tea and coffee foreign exchange. Tourism
is also very important foreign exchange earner in Kenya.
3. To get goods not produced locally. There are instances when a country may not be able to produce
certain commodities. For example, Kenya imports crude oil and heavy machinery from other
counties.
4. To get rid of goods not required locally. A country may also produce good not required locally,
mainly for export markets. Kenya for example produces cut flowers and Asian vegetables mainly
for export markets.
5. To get technology not available locally. Through international trade a country is able to acquire
technology that it does not have. Kenya has benefited heavily especially in the area of
telecommunications – acquisition of mobile phones towards the end of the last millennium.
6. To foster friendly relations with other countries. International trade enables countries to maintain
friendly relations with one another.

Sometimes countries engage in international trade for political reasons to minimize chances of
conflicts as countries engage in trade.

Economic reasons for international trade

There are two generally accepted principles to explain the main basis for international trade. These
are:-

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a. The Theory of absolute advantage
This states that each country would benefit from world trade if it specializes in the production of those
goods in which it has an absolute advantage. Kenya, for example is able to produce and export cash
crops such as tea, coffee and pyrethrum.

The theory of absolute advantage was developed by Adam Smith and holds that countries can produce
some goods more efficiently than others. It may arise due to differences in factors such as climate,
quality of land, natural resources, labour, capital, technology or entrepreneurship countries should
therefore specific in the production of therefore specialize in the production of those products in
which they are best at, and import the others. However, this principle is not widely used as it
encourages dependence of countries among others, and may be risky in times of war.

b. The theory of comparative advantage

This is based on the fact that whereas a country may be able to produce many different products, there
are some products in which it has a comparative advantage over other countries. It should therefore
produce these for export, while still not ignoring the others.

The theory of comparative advantage was developed by David Ricardo in the 19 th century and springs
from the theory of absolute advantage developed by Adam Smith.
It states that nations should produce there goods for which they have the greatest relatives advantage.
The figure below shows how this works.

Labour cost of production per unit

Wheat Clothing
Country A 100 50
Country B 200 200

From the figure, country A has an absolute advantage in the production of both clothing and wheat. It
would seem that trade for this country is unprofitable, as it can produce both products without trading
with B. However, the theory of comparative advantage holds that the two countries can still trade,
since the relative costs of production for the two countries differ. In country A, one unit of clothing
costs 50/100 units of wheat, so that one unit of clothing is exchanged for 0.5 unit of wheat [price of

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 clothing is half the price of wheat]. In country B, one unit of clothing is exchanged for one unit of
clothing.
Thus country A can export clothing to country B, since it has relative advantage for the commodity
while country B should export wheat to country A. In this case, country A could specialize with the
production of clothing, while country B could specialize with the production of wheat.

Forms of International Business

International business is carried out in different forms so as to accommodate the different types of
goods and services involved in a transaction and the different types of transactions that take place.
This may differ from country to country. The forms of international business are discussed below in
detail;

Counter-trade may be defined as “…all intentional trade in which goods are exchanged for goods…”
It comes in the following forms:
• Counter purchase – In this case, exporters agree to buy a certain amount of goods from a
country whenever the country buys from them.
• Offset – this is where the seller guarantees to use the goods from the buyer’s country of the
product he is selling.
• Buy back – exporters of capital goods (e.g. mining equipment) agree to be repaid in the output
produced by the machinery.
• Barter – a swap of one good for another.
• Switch trading – this is barter trade involving a chain of buyers. A certain company (Z) may
counter trade with another company. Z may not want the goods and thus sell the contract to
another company at a discount. This company may also not want and sell it to yet another
company for a profit.

Export Documentation
Before a company can export goods, legislation must be followed, documents signed and other
requirements fulfilled. They include:

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Bill of Lading: This is used when goods are shipped. It records the contract between the shipper and
exporter. It also enables the buyer to claim the goods. Information found on it include; Serial number,
name of the shipping company, name of the ship, Port of loading, and, Port of unloading. Other details are
;Final destination, description of the goods, number of separate cases, weights, dimensions and markings,
name and address of exporter and name and address of consignee or organization to be contacted when
the goods arrive.

Airway bill: Used for goods sent by air. The goods are consigned under it. It is also called an air
consignment note. It is merely a receipt that acts as evidence of a contract of carriage. It is used to
control the progress of the goods and identify them through their journey.

Road Waybill/Railway Consignment Note: This is the equivalent of the airway bill when goods re
transported by road or rail.

Commercial Invoice: This is an invoice prepared for dispatch to the buyer as a claim for payment.
Additional copies have to be produced for use by customs authorities at the exporting and importing ends.
The invoice contains such information as; Name and address of supplier, name and address of buyer, date
of invoice, the buyer’s reference, method of carriage, order number, name of ship or air freight details and
loading and dispatching ports. It also shows net and gross weights of packages, contents and value of each
package, total value of invoice, terms of sale, and remittance instructions.

Pacing List: This is the document that indicates the goods in each package, number and the marks. It
facilitates customs inspection.

Consular invoice: It is an invoice dictated by the government of the importing country. It is obtained in
the consulate of the country concerned. It enables duty to be assessed according to revenue laws of the
importing country.

Certificate of Origin
In this document, the exporter declares the origin of the goods. It is usually issued by the Chamber of
Commerce or certified by the consular authorities of the importing country.

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Certificate of Insurance: Insurance cover should be obtained by the exporter for all stages of the
transportation of the goods. It must not have the same date as the bill of lading or airway bill or other
documents and is sent to the buyer with the other shipping documents.

The letter of Credit: It consists of an undertaking by the bank, on behalf of its client, to a third party
stating that it will honour the requirements placed in the letter itself. This letter has value both to the
buyer and the seller.

Practices in International Trade

This section deals with the different practices that are carried out as apart of execution of transactions in
International Business. The more important types are outlined below:
a) Merchandise Imports and Exports: Exporting goods – this is where a local business or
government man sells products to a foreign country or government.
Importing goods – in this case, a local business buys goods from a foreign firm in another country.
b) Service Imports and Exports: Importing Services – this is a situation where services are bought
from companies in foreign countries e.g. when a passenger flies to France using KLM or British airways.
Exporting Services – when a country sells insurance, transportation, management consulting, etc, to
another country, this is an example of exporting services.
c) Licensing agreement: A foreign company may be licensed by a local firm to use its trademarks,
patents, manufacturing process or other knowledge. Royalty (a percentage of the sales) is paid to the
local firm (licensee). Example Colgate and Close – up are manufactured in Kenya under license.
d) Management Contracts: This is an arrangement under which a company provides managerial
know-how to another organization for a fee. These contracts last a definite period of time. Many US
airlines and hotels have made such contracts.
e) Franchising: This is a form of licensing that is quickly growing. A franchisee is a person
granted the right to do business sunder a certain trademark or trade name in a certain territory. Examples
in Kenya include, Wimpy, Nandos and so on. The Franchisee and his employees are usually given
management and technical training, and sometimes, financial assistance.

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f) Contract Manufacturing: In this case, a foreign company enters into contract with qualified
local manufacturers and produce goods according to its specifications. The foreign corporations or bonds
issued by public or private organizations in foreign countries.
h) Turnkey projects: This is when a firm starts business in foreign country from scratch in another
country. The foreign firm there runs it for a while, then when all is settled, local personnel is hired to
continue with the operations.

Ways of Entering International Trade

Different ways have been identified in which a business enterprise can penetrate a foreign market and
begin participating in international trade. The options that can be considered are:
1. Export from Home Base
If a company decides that exporting goods from the home country is how it will go international, the
following factors will be noted and will have to be taken into account.
• If the company is using bottles and cans as storage media the cost of transport will rise. It must be
noted that bottles and cans are bulky items to transport.
• If the good (e.g. drinks) is being exported to Europe, for example, it must meet the European
Union standards as concerns content, labeling and health and environmental issues. A good
example is that, recently, the European Union wanted to ban the exporting of flowers from Kenya
to Europe because the flowers were said to be below the set standards. This would have been a
big blow to the Kenyan economy.
• The exporting country may be required to re-label the product for example, if it is being exported
to a non-English speaking country.
• There are risks involved in receiving payment in foreign currency especially if there are
fluctuations in the exchange rate.
Therefore, this means that there must be a market for the goods and the market opportunities must
exceed the extra costs of doing business abroad.

2. Set up an Export Agency

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 This can be a good option assuming that a company has already acquired a significant market share in
the domestic market before doing business abroad. Agents are appointed, who have some knowledge
of the local market conditions and the language, legal requirements and the best way to market the
product.
Advantages of an export agent
• It is a cheap way of establishing a presence in a foreign market.
• It is faster than exporting goods from home base because the agent has the necessary
information on market conditions and legal requirements. It thus takes a shorter time for a
transaction to materialize.
• If a company later on decides to pull out of the market, the costs of withdrawal are less.
• The terms and conditions of the overseas agent can be drawn up in such a way extra sales will
be a benefit to the company.
Disadvantages of an Export Agent
The agent may have other clientele and thus give lower priority to your product.

3. License the Product

This is an option that may be useful when the products being sold are to be manufactured in the foreign
country where they are to be sold. This involves setting up a licensing agreement with another
manufacturer. The foreign company may be licensed by a local firm to use its trademarks, patents,
manufacturing process or other knowledge in the production of the good. The manufacturer would
produce the good under license.
Advantages of licensing option
• All the risks associated with setting up a manufacturing plant in a foreign country are avoided.
• All risks associated with the production process of the beverage, for example would be borne by
the licensee.
• The licensee pays a fee (royalty) for being allowed to manufacture the good under license.
• All commercial risks associated with selling the product overseas are borne by the licensee who’s
in the foreign market.
• Some agreements give the company that’s licensing its product a share in the profits. However in
this case, the risks are shared between the two companies.

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Disadvantages of Licensing Option
• There may be losses if the licensee company fails to deliver the same quality of goods as required.
• The formula of the product (f it is a soft drink) is supposed to be a secret. In this licensing option,
the formula has to be revealed to the licensee company. Once this has happened it becomes to
prevent other organizations from cloning the product. Its originality will be lost. The competitive
advantage of the company will also be lost. The only way to avoid this is to take the risk and open
up manufacturing plants in the foreign country. The coca cola company, for this reason, does not
allow anyone else to produce its product.

4. Set up a Joint Venture or Strategic Alliance

A joint venture is an activity of any type performed by at least two firms form different counties, in some
type of partnership agreement. It is a more equal relationship between companies than a licensing
agreement. In a joint venture, both parties put equal money in them and the rewards and risks are divided
between the two or more companies. The foreign company may have the majority shares or the local firm
may be the dominant partner. A strategic alliance may be formed with a supermarket that will
exclusively sell the products of the company.

Advantages of joint ventures and/or strategic alliance

• The two companies don’t have to set up another company. They only have to agree to cooperate
in areas of mutual benefit.
• A foreign company that enters into a partnership with the local company gets ‘political insurance’
cover.
• When a strategic alliance is formed, the partners are operating in different stages of the production
process. This means that the company controls production while the supermarket deals with the
distribution. As a result, there is no need to share information on how the product is made.
• There is an increase in the capital owned between the two companies.
• It is easier when in a joint venture to access the local market.
• There are lower taxes to be paid between two companies when they are in a joint venture.

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 • When a foreign firm gets into a partnership with a local firm, the foreign firm is advantaged as the
local firm has better knowledge about the market conditions.

Disadvantage of joint ventures and/or strategic alliance

• In a joint venture, there is a risk of sharing the information on how the product is made.
• Firms that enter into partnerships with the government or governmental organizations may risk
being nationalized (taken over by the government).
• There is a danger that the two companies entering into partnership may have totally different long
term plans or objectives.

5 Acquire or Merge with a Foreign Company

The need for control makes this option very attractive. This is a situation where two companies merge
and form a trade agreement to carry out trade together. There is mutual benefit for the two companies
involved.

Advantages of joint ventures and/or strategic alliance

• It is easier for the company to set up operations in the foreign country as the facilities are already
there. All that is needed are the necessary planning permissions.
Disadvantages of joint ventures and/or strategic alliance
• The companies may have different cultures and it may be difficult for them to work together
harmoniously.
• There may be a tendency to duplicate functions and for there to be hidden costs in integrating two
separate two systems.
• Foreign takeovers of national companies call the attention of the host counties who are anxious to
ensure national interests are taken care of.

6. Set up a Wholly-owned subsidiary

This is where the company sets up its own base in the foreign country.
Advantage of a wholly-owned subsidiary.

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 • The company retains complete control of all the aspects of the business.
• The company will increase competition in the foreign country’s market.
• The company will increase employment opportunities in the country concerned.
• The company will offer a greater choice to the consumers in the foreign country.

For these reasons, the company will be well welcomed by the host country and may even be granted a
generous financial package to set up business.

Barriers to International Trade

There are certain limitations which interfere with the extent to which a firm can perform its marketing
activities across national frontiers. These include;

1. Political and Currency Instability. Some countries especially the developing countries have very
turbulent political environment which make it hard for foreigners to invest in those countries.
Examples include the political instability in Somalia, Sierra Leone, Liberia, and Zaire. Invasion of
white farms by formers freedom fighters in Zimbabwe in there first half of 2000 is another
example. Currencies foremost third world countries are also rather unstable and weak compared to
the stronger currencies like the sterling pound, the US dollar, French Mark and so forth. Some of
the causes of instability among third world countries include high foreign debt that requires high
servicing costs, inflation and unemployment.
2. Government regulations on foreign firms. These may include government’s requirements that
foreign firms enter into joint ownership with a domestic partner, hiring national and limiting
profits that can be shared.

3. National Controls. These are meant to protect infant industries from unfair competition by
outsiders. The government may impose heavy tariff duty on all imported products, or license only
a few firms to import. However, with deregulation and liberalization the government role is set to
be reduced.

4. Wage Protection

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 Trade restrictions, (e.g. high tariffs), make a country’s products competitive. They thus sell their
products well and the wages of the workers are secure. However, this approach raises consumer
prices and decreases exports.

5. Cultural Barriers. Different countries have different cultural values, and these may inhibit
international trade. A firm must first understand the cultural values of the target consumers in the
foreign country. Language is very important, as the product must be marketed in a language that
the foreigners can understand. It is important for the firm to familiarize itself with the native
language of the foreign country, and also understand the customs of the people - how they live and
do things.

Government Policies and Restrictions of International Trade

International involves use of various government restrictions, such as tariffs, quotas, total bans and the
use of exchange control regulations, in order to limit the amount of goods and services that can be freely
exchanged between trading partners.

1. Tariffs
A tariff is a tax or duty that a government levies on a commodity or service when the commodity
/service is supplied across national boundaries. This is taxed in the form of customs duty at all
entry/exit points such as airports, railway terminals, road terminals and ports. Tariffs levied on goods
passing through the country are transits duties, while those for commodities leaving the country are
called export duties. Those for commodities entering the country are import duties.
Import duties may either be;
- Specific – levied according to quantity e.g. Shs 50 per Kg, and therefore remain constants for a
given consignment not varying with price. OR

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 - Ad Valorem – quoted as a fraction or percentage the value of the goods, and so varies with the
price of the consignment.
There are tariff schedules (list of the various charges) that guide the customs officers in calculating
the actual duty to be paid, and these take account of such trade agreements North Atlantic Trade
Organization (NATO), Preferential Trade Agreement (PTA) and so forth.

2. Physical Controls
A Quota is a specific amount of a commodity that can be imported or exported, and is usually fixed
by the government. For example, the world market restricts the amount of coffee that a country can
export, in order to regulate the world prices of coffee.
Embargoes – severe form of quota which prohibit the flow of goods. They are given for political
reasons, for example, by refusing to buy goods from an enemy country; or by refusing to trade with a
country that is perceived to be violating human rights.

3. Restrictions related to foreign exchange

Exchange control regulations are laws or rules that a country enforces in order to ration the limited
foreign exchange available. For example, a country companies. This helps to eliminate trade deficits,
for example by refusing to license more current imports than exports.

13.10. Effects of Trade Restrictions

Trade restrictions have both negative and positive effects in international trade.
The positive aspects include;
1. Protection of local (infant) industries. Sometimes it is possible for firms in developed countries to
produce products at lower production costs than those produced by local firms in developing countries.
Such firms, unless checked, will be able to bring their products into the developing countries and sell
them at lower prices than similar products produced locally. This will kill the local firms as their products
will not sell. The government therefore imposes heavy taxes on imported products in order to try and
bring the prices at par. Alternatively the government restricts the number of firs that are licensed to
important, as well as the total allowable import tonnage.

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2. Protection against dumping- unless checked, some firm will export cheap, poor quality products to
unsuspecting third world countries. Some of these firms may even export products that have been rejected
in their own countries. The government therefore has a duty to check against all these.
3. Price regulation. The restrictive measures assist in the regulation of prices for various commodities
that would otherwise have varied prices depending on where they are imported from.
4. Wage Protection. Trade restrictions, (e.g. high tariffs), make a country’s products competitive. They
thus sell their products well and the wages of the workers are secure. However, this approach raises
consumer prices and decreases exports.
5. Cheap labour Argument. Cheap foreign imports are said to be destroying domestic industries and
hence lowering living standards. Trade barriers are thus necessary to prevent low wage countries from
flowing the markets of developed countries. For example if it costs $16 an hour to employ a worker in
the United States and $1 an hour to employ a worker in China, free trade will threaten the prosperity of
rich nations like the United States.
6. Anti-Dumping argument. Trade restrictions are justified if goods are being dumped on domestic
markets by foreign imports. Selective intervention is recommended to protect industries where
“dumping’ is common.
7. Level playing field argument. This argument implies that if other countries have protectionist
measures then it is necessary to have the same for your own industries otherwise the competition will be
unfair.
8. Balance of Payments Argument. If a country is having a problem in its balance of payments such that
it cannot reconcile full employment with a balance of payments, it may be forced to apply protectionist
measures for its industries so that this balance may be restored.
9. Health and safety standards. National health and safety standards for products and services are
applied to both imports and locally made goods. The process of verifying the items may be used as a
barrier to entry. This ensures that only good quality goods enter or are produced in a country.

The Negative Aspects are:-

1. Consumption Loss. This is the loss of welfare imposed on consumers as a result of their inability to
purchase a good at its world price due to the imposition of a tariff. Tariffs, tariffs, as a result raise the
price of a product whether it is imported or produced locally.

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2. Production Loss. This is also the loss of welfare but this time sustained by society as a result of
increased domestic production o f goods at a higher cost relative to the world price due to the imposition
of tariffs.
3. Survival of inefficient firms. This implies that a tariff kept in force for a long time, may enable an
inefficient business firm that would have been out of business a long time ago will remain in business.
As a result, resources may be prevented from transferring to other industries in which the country has
developed a comparative advantage.
4. Domestic Monopoly. A tariff may also result in the creation of a domestic monopoly if foreign
competitors are locked out. The monopoly may exploit consumers and allow prices to rise unnecessarily.
5. Unproductive use of resources. When tariffs are enforced, resources need to be diverted to this new
task e.g. extra customs officials, and civil servants. Apart of the tariff revenues accruing to the
government will be spend on enforcement of the tariff. This unproductive use of resources and increases
the deadweight loss of the tariff.

Multinational Corporation
A multinational corporation may be defined as an organization that maintains multiple units operating in
multiple environments. It is a firm that owns, controls and manages assets in more than one country.
Multinational corporations (MNC’S) are also known as; Multinational Enterprises (MNE), Multinational
Firms (MNF) or Transnational Corporations (in UN terminology). Multinational corporations are usually
very large organizations. The largest MNC’S are usually Japanese, American or European. The ones
based in developing countries have however growth in number and size in the last decades. Examples of
MNC’s include:Toyota, Nestle foods, International Business Machines (IBM), Microsoft Corporation,
Bata Shoe Company and East African Industries (Unilever)
Multinational Companies have leverage over single national companies, through business practice and
experience in different environments. The following are types of leverage (or advantages) that have been
identified.
1 Programme Transfers. A Multinational corporation can make use of strategies, product,
advertising, sales management and promotions ideas that have been found to be effective and use them in
other markets.
2 System Transfers. These corporations adopt systems that are successful in other markets e.g.
budgeting, planning, new product introduction, among others.

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 3 People Transfers. Skilled personnel are sent to other countries to work, and as a result there is a
large management pool of international, rather than national dimensions.
4 Scale Economies manufacturing. The Multinational Corporation can combine components
manufactured in scale efficient plants in different countries into finished products other than having one
single plant.
5 Economies of centralization of functional activities. Activities are concentrated in one location
to reduce costs instead of dispersing functional staff. This develops greater competence.
6 Resource utilization. This deals with the ability of the Multinational Corporation to identify
sources of management, labour, money and materials that will enable it to compete in world markets.
The corporation has to scan the entire world.
7 Global Strategy. The multinational company looks for markets where it can apply its skills,
matches the market with resources and exploit the opportunities created.

Disadvantages of multinationals
1. They may be too powerful and suffer in a politically unstable world.
2. They may use their power too zealously to protect their interests. Example; it is alleged that the
International Telephone and Telegraph (ITT) company influenced American foreign policy to help
overthrow the existing Chilean government in the 1970’s as the government wanted to take over the
operations of ITT.
3. Multinational Corporations are accused of moving investments from their home country, where they are
needed most.
4. A multinational can find its operations in a country nationalized with no compensation. This is referred
to as expropriation. Example, in Cuba, Fidel Castro’s government nationalized American owned
companies when it came into power.
5. The value of a multinational company’s investments decline if the currency in the host country declines.

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 ORGANISING, IMPELMENTING & CONTROLLING MARKETING PROGRAMS.

Company organization
Companies often need to reorganize their businesses and marketing in response to changes in the
business environment. There should be proper organizations of all organizational activities to ensure
closer coordination and flow of information from top to bottom as well as bottom to top.
Large companies have had difficulties not being able to allow their managers enough freedom to
make decisions and to be entrepreneur, but this is changing.
Small companies tend to be more effective in starting new business than large companies because their
managers are more entrepreneurial.
There seems also to be concern over the number of hierarchical level that an organization ought to
have become too many layers show the process of decision making. Another view is the choice between
centralization and decentralization of decision making.
Networking has made it possible for managers to have more people under their direct supervision
because they can use computers , internet and e-mail to communicate and coordinate more people that it
was before. This has helped to reduce the number of hierarchical levels in the organization

Principles of organization
These principles are guidelines for planning and efficient organization structure, and include
1. Consideration of objectives- An organization structure should only be developed once
clear objectives have been formulated.
2. Division of work and specialization – all activities should be divided into various parts so
these individuals are confirmed to the performance of specialized job.

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 3. Definition of job – Every position in the organization should be clearly defined in relation
to other positions of the organization
4. Separation of line and staff functions – line functions are those that accomplish the main
objectives of the organization while the other functions are staff functions. They should be
separated.
5. chain of command – there must be clear lines of authority running from the top to the
bottom of the organization
6. unity of command – no one should report t more than one supervisor
7. parity of Authority and responsibility
8. span of supervision – There should be an appropriate number of staff under one manager.
9. communication – A good communication net work is essential to achieve the objectives of
the organization
10. flexibility – The organizational structure should be flexible so that it can easily be adapted
to the changes in the environment

SPAN OF MANAGEMENT
This is also called span of control and represents a numerical limit of subordinates to be supervised
and controlled by a manger. It refers to the number of subordinates an executive can supervise. It is
considered that a small span is better than a large one because it enables the executive to have an
intimate and direct contact with his subordinates.
The ideal ratio is considered to be 15 – 25 subordinates for first level supervisors and 5 -8
subordinates for executive spans.
The span of supervision has an impact on organizational structure. For instance, if the span is large,
fewer levels would be needed, and thus the structure would tend to be flat and wide. If the span is
small the structure would be narrow and deep, with many layers.

4 executives

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64W 64W 64W 64W

Span control = 64

Flat span

4 executives level i=4

16 executives level ii)=16

Levele iii= 64

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 Level iv) = 64
4 Tall span workers = 256
Span =4

Wide span – when the span is wide, fever executives would be needed to supervise the workers. This
would be less expensive as fever executives are involved, there will also be better communication
between workers and the management. However, quality of performance would determine because each
manager would supervise very many subordinated

Narrow span – This leads to a tall structure and an increase in the executive payroll as compared to flat
structure. Additional layers may inhibit communication from the CEO down to operate employees and
back up the line. There will also be a problem of coordination of the activities of different person in the
organization because of more levels of executives. However, the narrow span provides better contact
between subordinate and the supervisor, and facilitates high control and close supervision
Factors affecting span of supervision
Span control varies from individual to individual, from time to time and from place to place.
It is determined by
i. Ability of managers. – Span may be winder if manager possess a great degree of managerial skills
ii. Time available for supervision – Span should be narrow at the top because managers have less
time available for supervision
iii. Nature of work – Routine and repetitive work can be delegated easily hence we have a wide span.
complicated assignment require close supervision and hence have a narrow span
iv. Capacity of subordinates – if the subordinate are skilled efficient, a wider span is possible as they
need less supervision
v. Degree of decentralization – if there is less decentralization the span will be wider
vi. Effectiveness of communication – an effective system of communication in the organization
favours large number of levels ( narrow span) as communication from top to bottom and back is
easily
vii. Control mechanism – if there is a good control mechanism in the organization a narrow span is
possible.

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 Effective personal supervision factors a narrow span, while a reporting supervision favours a wide
span.

ORGANIZATIONAL CHART
An organizational chart is a diagrammatical form which shows important aspects of an organization
including the major functions and their respective relationships.
It is a graphical representation of position in an organization and the formal lines of communication
among them. It enables each executive and employee to understand his position in the organization and to
know to whom he is accountable. It
• Is a diagrammatical representation
• Shows principle lines of authority in the organization
• Shows the interplay of various functions and relationships.
• It indicates the channels of communication
An organizational chart is merely a diagrammatic representation of the formal relationship, and is
therefore different from an organizational structure.

Limitation of organization chart

i. Shows only the formal relationships and fails to show the informal relationship.
ii. Shows the lines of authority but is not able to answer the questions on how much authority can be
exercised
iii. It introduces rigidity in the relationship

Types of charts
i. Vertical chart - Presentation as a pyramid. Commonest form shows the executive at the top and
successive levels down the chart. This is the commonest form

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Series of command proceed from top to bottom vertically
ii. Horizontal chart
This is read from left to right and is not very common. The pyramid lies horizontally, ands lines of
communication flow horizontally from left to right

iii. Circular chart – Top position are locates in the centre of the concentric circle, while positions of
succession electrons extend in all directions outwards from the centre. Positions of equal status lie at
the same concentric circle

ORGANIZATIONAL MANUALS
This is an authoritative guide to the company’s organization, and consists of records of top management
decision, standard practices and procedures and the description of various jobs
Examples

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1. policy manuals – prepared to state the policies of the enterprise. It describes the overall limitations
within which activities are to take place, and is therefore a guide to actions
2. operations manual – prepared to inform employees of established methods, procedures and standards
of doing the various tasks.
3. rules and regulation manual – prepared to give specific information about the operating rules and
employment regulation

Advantages
1. contains written form of all important decision relating to interred organizations of the enterprise
2. contains rules and regulations to be adhered to
3. helps to avoid overlaps and conflicts of authority
4. helps new employees to get proper orientation

Limitation
1. cannot be done for small enterprise
2. may bring rigidity in the organization
3. may put on record those relationships that no one would like to see exposed

Marketing organization
Marketing has grown from a simple sales department into a corporate group of activities. The
complex nature of activities requires that there is proper coordination of all activities and to ensure that
marketing becomes part and parcel of the company’s overall organization structure.
A company can only become effective in marketing when all the companys employees being to
realize that their jobs are created by customer who chooses the company’s products. Unfortunately, in the
wake of company cost cutting, and downsizing marketing and sales departments have been among those
hardest hit, even though their mission is to grow revenue.
To remain effective and valued, members of the organization marketers and sales people must
become more creative in producing and delivering customer value and company profits.

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Ways of organizing the marketing department.
The marketing department may be organized by:
Functions
geographical area
products, or brands and / or other customer markets.

.1 Functional organizations
This is the commonest and involves marketing specialists reporting to a marketing vice president
who coordinates their activities. These specialists include new product managers, brand manager, sales
manager and so on.
Its main advantage is that its simplicity, but effectiveness decreases as the companys products and
markets expand. For instance the various managers begin to compete for budget allocations and stakes.
Further a product that is not favored by anyone can easily be neglected.

.2 Geographical organization
This is practiced by companies that operate in a natural market and involves organizing its sales
force along geographical likes or territories. This enables the firm to cater for the needs of the various
regions, because each region is different and unique.
Multinational companies also structure their sales and marketing efforts along geographical zones in order
to market non effectively across the globe.

.3 Product or brand management organization

This is appropriate when the company has many products that make it difficult for the functional
marketing organizations to handle. It does not replace the functional marketing organization, but acts as
an additional layer of management. The company is lead by a product management who service products
and brand managers.
The product manager’s role is to develop plans, implement them, monitor the results and take
corrective actions when necessary. The advantages of this organization are that:
- The product manager can concentrate on developing cost effective marketing mix of the product.

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 - The brand manager can react more quickly to problems in the market place that a committee of
functional specialists can.
- All brands are managed well since they have specialists closely monitoring them.

However this organization has several disadvantages :

- It creates some conflict and frustration because product managers are not given enough authority to
carry out their responsibilities effectively, which can be frustrating.
- Product managers become experts in their products, but rarely become experts in any of the
functions .
- Brand managers keep changing positions which makes it difficult to have a long term plan for the
brand.
- The fragmentation of markets means that it gets harder to develop a national strategy from the
headquarters. The brand managers deal more with response based trade groups that headquarters.

.4 Market management organization

This comprises of a market manager who supervises market managers. Market managers are staff
( not line) people with duties similar to those of product managers. They develop long range and annual
plans for their markets and must analyze where their market is going and what new products need to be
developed.

.5 Product management / market managed organizations

This combines product management and market management and works institutions when a
company produces many products flowing to different markets. Such organizations use both product and
market mangers, or a matrix organization for this case, product manager’s plan the sales and profits of
their products and ask market managers how much of their products they can sell to each market at a
proposed price.
A matrix organization is desirable in a multi product, multi market company. This systems tends
to be costly and often creates conflicts.

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There is always the problem of deciding hoe to organize the sale force and who should set the price for a
particular product/ market.

.6 Corporate / Divisional organizations

As multi product / multi market companies grow, they usually convert their larger products and or
market groups into separate divisions.
These divisions set their own departments and services. These may be at different levels.
- No corporate marketing – In this case, the divisions so not include the corporate level
managers and each division has its own marketing managers
- Moderate corporate marketing – these have a small corporate staff assisting with a few
functions such as assisting top management with overall opportunity evaluation, or promoting
the marketing concept to other departments of the company.
- Strong corporate marketing – the company has corporate marketing staff who in addition to
the activities above also provide various marketing services to the divisions. They may provide,
specialized advertising services ( eg institutional advertising, auditing of advertising
expenditures ) sales promotion or marketing research services.

MARKETING RELATIONS WITH OTHER DEPARTMENTS.

Ideally all functions of an organization should interact harmoniously to pursue the overall goal of
the organization. However, these are often rivalries and conflicts within the departments become their
goals may not agree. The principal goals of the marketing department is to satisfy the customer needs, but
there is the problem of how much interference the marketing manager can have in ensuring that other
departments work towards customer satisfaction. For example an airline the manager may not determine
the schedules, he cannot hire or train personnel, neither can he determine the fares. But he must work
through the departments to shape key determinants of customer satisfaction.

Examples are given below:

Department Department emphasis Marketing emphasis
R&D Basic research Applied research
Functional features Sales feature

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Engineering Long design lead time
Standard components
Purchasing Narrow product line
Price of material
Operations Staff convenience
Ordinary service
Finance Strict rationales for spending
Pricing to cover costs
Accounting Standard transactions
Credit No credit risk
Tough credit terms
Tough collection procedures
short design lead time
Customer components
broad product line
quality of material
Customer convenience
Extra Ordinary service
Intuitive rationales for spending
Pricing to further market development
Special terms and discounts
Some credit risk
Easy credit terms
Easy collection procedures

CONTROLLING MARKETING ACTIVITY

In order to effectively implement marketing plans, the marketing department has to continuously
monitor the marketing activities. The common types of control are:
- Annual plan control
- Profitability control
- Efficiency control
- Strategic control
Table 24 – 2 Kottler – pp 765

Annual plan control

This aims at ensuring that the company achieves the sale, profit and other goals established in its
annual plan.
The main concern is management by objectives and involves four steps:
- Goal setting ( what do we want to achieve?)
- Performance measurements ( what is happening? )
- Performance diagnosis ( why is it happening?)
- Corrective action ( what should we do about it ?)

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 The main approaches used include sales analysis, market share analysis, financial analysis and
expense – to – sales analysis.

Profitability control
Companies need to measure the profitability / of their various products, customer groups, territory
and segments. In order to measure profitability, the company must identify all the expenses and associate
them with various marketing expenses for the various channels. The company then determines the
resulting profit and / or loss and delivers the best corrective action. This may include increasing
promotional aid on the weaker channels, establishing a special charge for handling smaller orders, or just
leaving the situation as it is.

Efficiency control
The company needs to consider the efficiency of the marketing activities and find out it there are
more efficient ways to improve such functions as advertising, sales promotion and sales force. To
improve sales force efficiency, it is important to consider such activities:
- Average number of sales calls per sales person per day
- Average revenue per sales call
- Average cost per sales call
- Entertainment cost per sales call

Advertising efficiency is difficult to measure, but the company may monitor such issues as
advertising cost per thousand target buyers needed by media vehicle, consumer opinions on the ad’s
content and effectiveness, number of inquiries stimulated by the ad, and cost per inquiry.
Other areas that need to be assessed are sales- promotion efficiency and distribution efficiency.

Strategic control
Companies need to undertake a critical review of their overall marketing goals and effectiveness
from time to time. This is done by carrying out marketing effectiveness review and marketing audit.

Marketing effectiveness involves checking on the carious aspects and operations of the marketing
decision such as

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 - Integration and control of the major marketing functions
- Follow well the new product development process is organized
- Frequency of marketing research
- Knowledge of marketing about their customers

Marketing audit is a comprehensive, systematic, independent and periodic examination of the

company’s marketing environment, objectives, strategies and activities, with a view to determining
problem areas and opportunities and recommending a plan of action to improve the company’s marketing
performance.
It has four main characteristics:
- Comprehensive – It covers all major marketing activities of a business.

- Systematic – It involves an orderly examination of the organizations macro and micro marketing
environments, marketing objectives and strategies, marketing systems and specific marketing
activities.

- Independent – Although marketing audits can be done by the companys self audit office, the best
audits are done by outside consultants who have the necessary objectivity and broad experience
and knowledge about the industry. Self audits sometimes lack objectivity

- Periodic – Marketing audits should be done periodically, whether the company is in trouble or in
good times. It should not be done only when a company faces problems.

MARKETING IMPLEMENTATION
Marketing implementation is the process that turns marketing plans into action assignments and
ensures that such assignments are executed in a manner that accomplishes the plans stated objectives.
Whereas strategy addresses the what and why of marketing activities, implementation addresses the who,
where, when and how.
Effective implementation requires one to have the following skills:
- Skills in recognizing and diagnosing a problem

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 - Skills in assessing the company level where the problem lies.
- Skills in implementing plans
- Skills in evaluation implementation results.

REFERENCES
1. Bettman James R. (1994) An information Processing Theory of consumer Choice in Consumer
Behavior by Schiffman L. G. and Kanuk L.L. New Delhi Prentice Hall of India 1994
2. Engel, J. F., et al (1994); Consumer behaviour. Dryden, Fort Worth, TX 8th ed.
3. Kotler Philip (1968) “ Behavioral Models for Analysing Buyers “ Journal of Marketing Vol 29
Oct 1965 in perspectives in Marketing Theory by Jerome N and Montrose S. New York
Appletone Century Crofts 1968
4. Luthans Fred (1981) Organizational Behavioral New York . Mc Graw Hill International Book
Company
5. Sheth Jagdish N. (1994) “A theory of Family Buying Decisions” Models of Buyer Behavior,
Conceptual, Quantitative, and Empherical in Consumer Behaviour by Schiffman L. G and Kanuk,
Leslie
6. Sheth Jagdish N Bruce L Newman and Barbara L Gross (1994) “ why We Buy What We buy: a
theory of consumption values “ Journal of business research (1991) in consumer Behavior by
Schiffman and Kanuk New Delhi : Prentice Hall of India.
7. Kotler Philip (2000); Marketing Management: Analysis, Planning, Implementation and Control.
Englewood cliffs, N.J. Prentice Hall Inc.

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